Created by the International Chamber of Commerce, Incoterms are a series of three-letter designations that define responsibilities between buyers and sellers around the sale of goods, specifically related to transportation costs and liability. If you’re looking for more information on Incoterms, check out our other articles on this topic:
The Complete Guide to All 11 of the 2010 Incoterms Rules
Incoterms 2020 Rules: Everything You Need to Know
Protect Your Bottom Line by Understanding These 5 Common Incoterms
If you’re new to buying or selling goods, it might feel like your contract is written in another language. That the three-letter Incoterm® in your agreement is a great example. However, once you get to know your Incoterms, you’ll find them incredibly handy for quickly negotiating who pays for what when it comes to transporting goods from seller to buyer.
If you’re considering a contract using the DAP Incoterm, we’ll walk you through all the implications.
What Does DAP Mean?
DAP stands for Delivered at Place. Like CPT, it applies to all forms of transportation. And, like CPT, it also means that the seller is responsible for all the costs associated with delivering an item to a destination or a named place. (Pretty easy to remember and understand, right?)
However, there’s one major difference between DAP and CPT: where the risk for the shipment transfers from seller to buyer. We’ll explain more below.
Finally, there are a few costs that the buyer is responsible for, including import duties or customs fees, as well as expenses related to unloading the shipment.
What Is the Seller Responsible for Under the DAP Incoterm?
Under the DAP Incoterm, the seller agrees to pay all the transportation costs associated with moving goods to the destination agreed to in the contract. For example, the seller shoulders the costs around packing and loading the goods for shipment and contracting with a carrier (or multiple carriers!) to move everything to the place named in the contract.
A Little Trivia: DAP was first introduced in the 2010 Incoterms rules. Before 2010, this arrangement was known as DDU (Delivered Duty Unpaid). In fact, you may still hear DDU thrown around by buyers or sellers who have been around the logistics world for a while.
So what’s the difference between DAP and CPT? In truth, these two Incoterms are very similar. However, the big difference lies in the location where risk shifts from the seller to the buyer. Under the CPT Incoterm, as soon as the first carrier picks up the shipment, the risk shifts to the buyer. Under the DAP Incoterm, risk doesn’t shift to the buyer until the shipment arrives at the named place.
Why is this important? If something happens to the shipment while it’s in transit, under the CPT Incoterm, the seller isn’t responsible. However, under the DAP Incoterm, if damage occurs in transit, the seller is required to make things right with the buyer.
Understanding where that risk shifts may change a buyer or a seller’s decision around insurance coverage. In a CPT scenario, the buyer may want to purchase coverage to protect them against loss or damage in transit. In a DAP scenario, the seller may elect for insurance to protect against losses up until the cargo arrives at the named place.
What Is the Buyer Responsible for Under the DAP Incoterm?
The seller handles the large majority of transportation costs under the DAP Incoterm. However, the buyer is still responsible for:
- Any import costs, including customs fees, import duties, and taxes.
- Any associated unloading costs.
Like CPT, DAP is often used by buyers who are purchasing goods in an foreign country. After all, negotiating logistics in an unfamiliar area can mean significant stress and hassle. (Although a freight forwarder could help with that!) Under the DAP Incoterm, the seller handles all of these logistics, simplifying things for the buyer.
Incoterms Insights: DAP
Make sure you understand the risk transfer—and its implications. If you’re the seller in this scenario, you may want to consider insuring the shipment in case it gets damaged by one of the carriers in transit.
If you’re the buyer, choose your designated place carefully. Make sure the destination you choose is specific and clear to reduce the chance of incorrect deliveries.
If you’re considering a contract with the DAP Incoterm, talk to one of our experts. We can answer any questions you might have around using this Incoterm within your agreements.
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