What is DAP in the Incoterms? Differences from the other terms (DPU and DDP) and explanation of cautions

The Delivered At Place (DAP) rule in the Incoterms rules is widely used as the terms and conditions in international trade. As global transactions have become increasingly complex in recent years, the importance of DAP terms has also been increasing. 

In response to that situation, this article provides a detailed explanation of the basic concepts of DAP, its differences from other terms (DPU and DDP), and the cautions for its use. Please be sure to read through to the end if you would like to gain a better understanding of DAP. "

DAP in the Incoterms 

In the field of international trade, it is extremely important to clarify between the seller and buyer "who has responsibility and how far that responsibility extends" in order to prevent problems and to manage the logistics efficiently. 

The Incoterms (International Commercial Terms) are rules for international trade terms that were established by the International Chamber of Commerce (ICC) for this purpose. They are widely used in transactions worldwide. Among these, ""Delivered At Place (DAP)"" is a term that is being increasingly used in operations in recent years. 

This section begins with the definition of DAP and its characteristics, and explains the background to its introduction.

Definition of DAP (Delivered At Place) 

DAP (Delivered At Place) is an Incoterms condition under which the seller promises to carry the cargo to the destination location specified by the buyer and to hand over the cargo at that location. 

The seller bears all the transportation costs and risks to the location specified. The risk then passes to the buyer when the shipment arrives at the destination location. In other words, it is a mechanism in which the seller is obligated to deliver the cargo safely to the location specified by the buyer, and when the cargo reaches that location, the cargo management authority and risk are then transferred to the buyer. 

In this case, the seller bears the responsibility for the export customs clearance procedures and the various expenses related to the exporting, but the buyer bears the responsibility for the import customs clearance, customs duties, and costs for unloading at the destination. In the unloading, as the handing over of the cargo occurs ""on the means of transportation that has arrived,"" the actual unloading work and the risks at that time are in principle the responsibility of the buyer. 

DAP is flexible in terms of the destination and allows any location specified by the buyer, such as a port, airport, distribution center, or the buyer's factory. This makes it possible to optimize the entire supply chain, and also to make detailed logistics arrangements that are tailored to the needs of the buyer. "

DAP was newly introduced as a term in the 2010 revision of the Incoterms 

DAP was newly introduced as a term in the 2010 revision of the Incoterms. Prior to this, there were several terms that were similar, including DAF (Delivered At Frontier), DES (Delivered Ex Ship), and DDU (Delivered Duty Unpaid). 

However, it was complicated to distinguish between these in practical use and this was hindering international standardization and the clarification of transactions. Therefore, in the 2010 revision, a new DAP term was established and the previous terms were consolidated and reorganized. 

In addition, in the Incoterms 2020 rules, a new term of "DPU (Delivered at Place Unloaded)" was established, in which the seller has responsibility up to the unloading work. This new term made the difference from DAP clearer. It is now possible for the parties in a contract to choose more appropriate terms according to their own actual operations and their tolerance for risk. 

Differences between DAP and the other terms (DPU and DDP) 

This section compares the characteristics of DAP and other terms (DPU and DDP) from the perspective of their practical operation, and clarifies the differences in the scope of responsibility and the cost burden. 

DPU 

DPU (Delivered at Place Unloaded) is a new term established in the Incoterms 2020. The biggest difference to DAP is that the responsibility of the seller extends to the unloading of the cargo at the specified destination. In specific terms, the risk is transferred to the buyer when the cargo has been unloaded from the means of transportation and placed on the ground at the destination location. 

This term is an expansion of the previous DAT (Delivered at Terminal) term, and now allows for flexible location specification, not just the terminal. The obligations of the seller end once the unloading is completed at the location specified by the buyer, which may be any location such as within factory premises or at a construction site. 

One point of caution for the practical use of this term is that it is necessary to clearly specify in the contract who will bear the responsibility for any additional costs that may be incurred in connection with the unloading (such as crane usage fees, or fees for arranging special loading and unloading equipment). If the seller arranges unloading without permission, there is a risk that it may not be possible to claim the expenses afterwards, so it is essential to reach an agreement in advance. 

DDP

DDP (Delivered Duty Paid) is the only term under which the seller is responsible for the import customs clearance procedures and duty payment. The risk passes to the buyer when the cargo has arrived at the specified destination location and the import customs clearance has been completed. This is the most burdensome term for the seller in the Incoterms. It assumes that the exporter is familiar with the taxation system and regulations of the importing country. 

The main advantage of choosing DDP is that the buyer is completely freed from customs clearance work. However, it is essential to get an estimate of the duties in advance as the costs for the seller can increase sharply when exporting to countries with high tariff rates. In addition, there are practical hurdles for the exporter. For example, if the exporter is not incorporated in the importing country, then it will be necessary to arrange an agent for the customs clearance. 

Practical flow of DAP

The practical flow when using the DAP term is as follows. 

1. The seller and buyer conclude a purchase agreement that includes DAP
2.  The seller packs the cargo and prepares the export documents 
3. The seller completes the export customs clearance procedures 
4. The seller transports the cargo to the specified destination location under its responsibility 
5. The seller notifies the buyer that the cargo has arrived 
6. The buyer performs the import customs clearance procedures 
7. The buyer receives the cargo and the transaction is complete 

In this flow, special attention should be paid to the clarification of the terms at the time of the contract conclusion in step 1. With DAP, the specification of the destination is very important. Providing as much detail as possible can help to prevent problems and the details written should include the address, the name of the facility, and in some cases, even the particular section of the warehouse. 

Advantages of using DAP

There are benefits for both the seller and the buyer when DAP terms are adopted. Here let’s look at specific advantages from the perspective of the practical operations. 

The buyer can concentrate on just the import customs clearance 

The greatest advantage of DAP is that the buyer can concentrate on just the import customs clearance. The seller manages all the transportation to the specified destination location, so the buyer can focus resources on specialized tasks such as customs duty calculations and compliance with local regulations. 

The buyer is also able to streamline its core business operations because it is freed from time-consuming tasks such as preparing the documents required for import customs clearance and researching local taxation systems. For example, the buyer can focus efforts on procedures specific to the importing country, such as technical standards conformity certification and safety standards verification, so it can expect to reduce errors and improve processing speed. 

A seller that is familiar with transportation can optimize the logistics 

When DAP is used by a seller that has expertise in international transportation, it can design the transportation routes and select the carriers to optimize the balance between cost and delivery time. 

The fact that the seller will respond appropriately to unexpected changes such as rising fuel costs or changes in the shipping route will probably lead to peace of mind for the buyer. The buyer can receive an optimized logistics service while avoiding the effort required to arrange the transportation.

The division of responsibilities is clear, reducing the risk of disputes 

With DAP, the timing of the risk transfer is clearly defined as "upon arrival at the specified destination location," so the scope of liability for accidents during transportation and cargo damage after arrival are legally clear. The strict setting of the limits of liability based on the contract eliminates the possibility of trouble caused by factors such as storage fees incurred due to import customs clearance delays and accident risks at the time of unloading. 

The obligations of the seller are completed when the cargo arrives at the destination location, so the buyer is able to concentrate on the risk management thereafter. This has the effect of preventing unexpected costs and legal disputes. 

Disadvantages of using DAP

While the adoption of DAP terms brings clear benefits, it also carries risks for both the seller and the buyer. Let’s also look at the disadvantages of using DAP. 

The burden and risk for the seller are high 

Under DAP terms, the seller manages all aspects of the transportation to the specified destination location, so the seller assumes all the unpredictable risks, including the risks of fuel price fluctuations, route changes, and delays due to bad weather. For example, the seller will have to deal with any supply chain disruptions that occur during the marine transportation, and with any sudden traffic restrictions in the importing country, so these risks can put pressure on the profitability for the seller. 

There are also often cases where meeting the requirements of the buyer leads to inflated costs when selecting the means of transportation and arranging carriers. In the case of cargo that needs to be switched to air transportation, or cargo that requires special temperature control, it is difficult to estimate the additional costs that will be incurred, so there is a risk that the profit margin may be reduced. 

There is a risk of ambiguity in the scope of responsibility for the unloading at the destination 

One issue with DAP is that the interpretation of the point where responsibility is transferred during the unloading operations can easily become ambiguous. 

Even if the contract defines the point as "upon arrival at the specified destination location," there may be differences in interpretation at the actual site. For example, this may be interpreted in different ways such as ""upon the arrival of the truck,"" ""upon passage through the container gate," or "upon arrival at the designated spot in the warehouse."" In particular, there is an increased risk that the responsibility for arranging the unloading work will become unclear in cases when handling heavy items or hazardous items, or when special equipment or qualifications are required for the unloading. 

To mitigate such risks, it is important to include detailed descriptions in the contract regarding the "specific procedures for unloading operations," the "types of equipment to be used," and even the "qualification requirements for workers," and to build consensus between the seller, buyer, and carrier. 

Cautions when using a DAP contract 

To ensure the smooth operation of DAP terms, it is essential to take specific measures to minimize risk at the time of the contract agreement. This section explains the cautions when agreeing a DAP contract. 

Accurately state the specified destination location in the contract so that both parties have the same understanding 

The most important thing for DAP contracts is to strictly define the specified destination location. For example, instead of simply stating "Port of Tokyo," be sure to specify the specific point within the facility, such as "Tokyo Port Pier No. **, Berth 3, West Side Gate.

If the identification of the destination location is ambiguous, there may be problems such as a refusal to accept the cargo upon arrival, or the burden of storage charges. For example, the risk transfer might be at the time of passage through the container yard gate, or at the time of arrival at a specified spot in the warehouse, and the timing of the risk transfer could differ by several days depending on which is used. It is necessary for a contract to define a specific action as the trigger, such as "when the back door of the truck is opened" or "when the crane starts unloading the cargo.

Reach clear agreement in advance regarding the unloading costs and arrangements 

Under the principles of DAP, the unloading is the responsibility of the buyer. However, it is important to clarify the cost burden when special cargo handling equipment is required. 

For items where there is a risk of additional costs being incurred, such as crane usage fees for heavy items, or to arrange specialized workers for hazardous materials, the items should all be listed separately in an attachment to the contract. There should also be a clear statement of the scope of responsibility in cases where the seller will perform the unloading on behalf of the buyer. It is recommended that the contract includes the response for each risk scenario that is assumed, such as "The seller shall bear the responsibility for any cargo damage caused by the negligence of the seller's cargo handling personnel," or "If a cargo-handling company specified by the buyer is used, the buyer shall bear responsibility for the inspections.

Take thorough measures for the risk of import customs clearance delays 

Under a DAP contract, the buyer is responsible for the import customs clearance procedures and customs duties payment in the destination country. Therefore, if the buyer is unfamiliar with customs clearance, or has insufficiently prepared the necessary documents, there is a risk that customs clearance will be delayed and lead to cargo hold-ups and additional costs. 

To prevent this, it is important that the documents necessary and the flow of the procedures are carefully checked between the seller and buyer in advance, and that the schedule management is performed thoroughly. In addition, it is possible to prevent problems before they occur by selecting a reliable customs broker and by preparing measures that take into account matters such as the regulations, holidays, and strikes specific to the importing country. 

Summary 

DAP is one of the most important trade terms in the Incoterms. Using it appropriately can reduce the uncertainty in international transactions and ensure smooth trade. 

However, in order to be able to use DAP and other Incoterms appropriately, it is essential to have accurate knowledge of trade terms and conditions and a logistics partner that has a global network. 

Goto Kaisoten has extensive past results in this area, so please contact us if you have any concerns about international logistics or trade terms and conditions. 

• Support for international transportation under the various Incoterms, including DAP
•  A comprehensive logistics company with over 140 years of history 
• A global network that utilizes around 70 bases in Japan and overseas 
• A one-stop service for everything from marine, air, rail, and truck transportation to packing, storage, and customs clearance 
• Superior customs clearance results and reliability as an AEO-accredited customs broker 

Our logistics professionals will provide comprehensive support for international intermodal transportation, the handling of special cargo, and the complicated import and export procedures. Please consult us about your requirements. 

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