In international trade, deciding how buyers and sellers share costs, risks, and responsibilities is essential. The International Commercial Terms, or Incoterms, are a set of rules that guide these decisions in logistics and transportation. One of the newer terms, Delivered at Place (DAP), is especially relevant to transportation, cost sharing, risk transfer, and recent changes in supply chains, including digital transformation and traceability. This article explains what DAP means, why it is becoming more important, and what logistics and trade professionals should keep in mind.
Definition of DAP
DAP, or Delivered at Place, is a trade term created by the International Chamber of Commerce (ICC). It means the seller delivers goods to a specific location, and the buyer picks them up there and takes on the risk. Here are its main features:
- Cost: the seller bears the cost and risk of transportation to the destination (the buyer’s designated domestic or international location), the buyer bears the cost of import customs clearance.
- Transfer of risk: when the goods are delivered to the buyer (goods to the destination) risk transfer
- Customs clearance: Export customs clearance is typically the seller’s responsibility, while import customs clearance is usually the buyer’s responsibility.
- Insurance: Whether the insurance is taken out and who pays for it will depend on the contract.
In summary, the seller pays for transportation to the agreed location, while the buyer handles import customs clearance and duties.
Significance of DAP
With DAP, buyers can enjoy the following advantages: they can handle the customs clearance of their overseas shipments in their home country, while the seller is responsible for the freight and transportation arrangements. On the other hand, since the seller is responsible for the entire transportation of the goods to the destination, transportation must be carefully arranged and costed. Especially in international multimodal transportation (e.g., ocean freight and trucking), it is crucial to clarify the extent of risk and cost that the seller will bear; otherwise, problems can easily arise later.
Importance of DAP
Ensuring Supply Chain Flexibility
In this era of globalization, cross-border. DAP has the advantage that the seller arranges the transportation routes and carriers all at once, and the buyer simply receives the goods at the final destination. This balanced approach that allows the buyer to control local import clearance while leaving most of the transportation tasks to the seller is gaining attention.
Reducing lead times and controlling costs
Since the seller is responsible for transportation, it is easy to centralize the transportation and logistics process, and through digital transformation, real-time tracking and optimal routing can be achieved. For example, in some cases, delivery times can be shortened by managing inventory and transportation plans in the cloud, as well as improving traceability. At the same time, buyers only need to focus on costs after import clearance, making it easy to manage internal costs.
Avoiding trade friction risks and tariff issues
International trade terms standardize the rules of international trade. In recent years, the trade friction between China and the United States, as well as the continued activity of regional economic partnerships, has increased the risk of tariff fluctuations and the need to adjust transportation routes. The advantages of choosing DAP are that it clarifies the scope of responsibility between buyers and sellers, making it easier to adjust cost burdens in the event of friction.
DAP Fit with the Digital Transformation of the Supply Chain
If a company digitizes its entire supply chain, it can centrally manage transportation information, inventory, and shipping schedules, enabling real-time tracking. With DAP, the seller will be responsible for international transportation and costs, while the buyer can view progress in the cloud, making it easier to act quickly if any issues arise.
DAP Business Processes
- Contract and Pricing: The seller and buyer agree on the terms of the DAP and estimate the cost by incorporating freight and insurance into the product price (insurance is not mandatory but is typically purchased by the seller).
- Export Customs Clearance: The seller declares the goods for export to his country’s customs and obtains approval.
- International Transportation: The seller arranges for shipping companies or airlines to transport the goods from the port or airport to the destination country.
- Arrival at destination: the buyer clears the import and pays customs duties and taxes
- Delivery to final destination: The seller is responsible for delivering the goods to a designated location (e.g., warehouse, factory, etc.).
- Delivery and transfer of risk: the risk and part of the burden of expense pass when the goods are delivered to the buyer at the destination.
DAP Advantages and Disadvantages
Advantages
- Buyers only need to consider the cost of import clearance and can leave the overseas transportation to the seller.
- Since the seller is responsible for all transportation arrangements, it is easy to control delivery time and quality.
- Leverages digital transformation to ensure traceability and make real-time information sharing easier
Disadvantages
- Since the seller bears the transportation costs and risks, there is a risk of a profit squeeze if the contract terms are not well-formulated.
- Since the buyer is responsible for import customs clearance, delays may occur if documentation is incomplete or if the buyer is unfamiliar with the complex regulations in each country.
Supply Chain Transformation with DAP
In Incoterms, DAP (Delivered at Place of Destination) is a condition that requires a high degree of control and responsibility on the part of the exporter, as the seller is responsible for transporting the goods to the destination. On the other hand, the buyer, who is primarily responsible for import customs clearance and duty payment, can leave most of the transportation process to the seller, which has the advantage of simplifying the process.
- Risk transfer time: on arrival at the destination
- Seller’s advantage: ability to manage the entire transportation process and leverage international transportation expertise
- Buyer’s benefit: the buyer only needs to focus on customs clearance in their home country and does not need to arrange transportation.
- Focus: Need to agree on detailed contractual matters such as insurance coverage, customs regulations in the importing country, and whether the FTA/EPA applies.
From a digital transformation perspective, lead times can be shortened and costs reduced by digitizing documents, establishing traceability, and collaborating online with multiple carriers. Sharing data throughout the supply chain will enable continuous monitoring from transportation to delivery and a quick response to any delays or issues that may occur.
