This is the last article in a four-part series on Incoterms 2020, the universal trade terms used in global sales contracts to prevent misunderstandings between buyers and sellers. Today, we take a closer look at four delivery-focused terms.

When selling your products internationally, you’ll likely encounter many different languages and business cultures. That’s where Incoterms can help. When used correctly in your export contracts, you and your buyer can avoid the risk of misunderstandings and potential logistics disputes. 

“In order to be successful in this changing trade landscape with tight margins and increasing costs of tariffs and other administrative charges, businesses must pay attention to the nuances within the Incoterms and not simply quote an export price, or accept a price from an international supplier with an Incoterm they aren’t comfortable with (i.e. They can’t cost effectively meet the obligations under the Incoterm),” says Lora Rigutto Vigliatore, an international trade coach with the Forum for International Trade Training (FITT).

“Ultimately, using the wrong Incoterm when exporting—one which isn’t cost-effective for your organization—can result in delivery costs to the target market exceeding your profit margin, making such transactions unsustainable,” she says. 

In today’s article, I’ll talk about the three rules that make up Group D term, which I purposely left to the end of this series because it’s the most commonly misused shipping term. 

Group D Incoterms apply to any mode of transport. For each rule, the seller is responsible for all costs and risks of loss or damage to the goods until they’ve been delivered to the buyer. The main differences between the rules in this group relate to the payment of import duties and unloading costs.

The three rules that make up Group D are:

1. Delivered at place (DAP)

2. Delivered at place unloaded (DPU)

3. Delivered duty paid (DDP)

As the exporter, your responsibilities under DAP include:

• paying the cost of carriage of the goods to the destination;
• delivering the goods to the buyer at the named destination ready for unloading on the date agreed to with the buyer;
• clearing the goods for export;
• paying any duties, taxes and other costs related to export; and
• helping the buyer obtain any documents or information needed for import clearance.

The DPU rule is identical to DAP with one exception: Under DAP, the seller delivers the goods ready for unloading, whereas under DPU, the seller has the additional responsibility of unloading the goods and delivering them to the buyer at the agreed destination on the agreed date. DPU is the only rule of the 11 Incoterms in which the goods are unloaded by the seller at their destination.

Like DAP, DDP requires the exporter to deliver the goods ready for unloading to the agreed destination on the agreed date.

The key difference with DDP is that you also have to clear the goods not just for export, but for import, as well. This means paying all duties for both export and import, as well as the export licence, security clearances and pre-shipment inspection.

“The 11 Incoterms (three-letter abbreviations) are understood globally, which simplifies the need to translate all obligations within a contract for the sale of goods, including customs clearance. There is only one Incoterm, DDP, where the seller is required to clear the goods through customs—and pay any duties owed,” says Rigutto Vigliatore.

“Under the 10 other Incoterms, there’s no obligation for customs clearance on the part of the seller. This is often misunderstood. For example, if the buyer fails to organize import clearance, the goods will be held up at a port or inland terminal in the destination country,” she says.

If you’re an international e-commerce exporter, you can use DDP pricing to ensure B2C (business-to-customer) transactions are cleared by customs prior to arriving to the consignee of your products. The prices listed on your website should include all duties and taxes based on the import country.

Greg Henderson, an Incoterms trainer with the International Chamber of Commerce (ICC), which drafted Incoterms 2020 in September 2019, admits more work needs to be done to educate businesses about the importance of using Incoterms effectively.

“Incoterms were created and are maintained by the ICC, which doesn’t have a very high profile within the business community in North America. Governments accept and recognize the terms, but don’t necessarily promote or educate on their use, similar to global programs instituted by the United Nations, or the World Trade Organization. And the U.S doesn’t recognize or mandate Incoterms, which also affects awareness,” he explains.

“Without a national focus or ability to learn about Incoterms, there’s a subsequent lack of awareness.”

Rigutto Vigliatore advises businesses to provide employees with Incoterms 2020 training to “ensure Incoterms are applied strategically and cost effectively for both inbound and outbound logistics.

“FITT is the leading provider of international trade training and the certification of international trade professionals. FITT also provides in-depth Incoterms training. Whether new to Incoterms, or seeking an updated refresher, professionals can learn to select the right terms, reduce risk and cost, and enhance their organization’s international contract negotiation capabilities,” she says.

For more information about all 11 Incoterms, see the official Incoterms 2020 rules and remember that when drafting and negotiating a contract, you should always review each rule in detail.

This four-part series was developed by Emiliano Introcaso, export advisor and senior product operations manager for Knowledge Business at Export Development Canada and a registered trainer with the International Chamber of Commerce (ICC) on Incoterms 2020 in Canada. He’s also a Certified International Trade Professional (CITP) awarded from the Forum for International Trade Training (FITT).

 If you have any further questions, visit our Export Help Hub for more resources or reach out to your relationship manager.