DAP vs DDP – WHAT’S THE DIFFERENCE?
One of the major difficulties faced by online sellers while moving cross-border shipments is related to duties and taxes at the destination. Whenever a shipment, either direct to customer or from business to business moves from one country to another, it has to pass through the customs at the destination country. The customs at destination marks the shipment for duties and taxes based on various factors like the import policy of a country, declared value of the shipment, country of origin and the harmonized commodity description (HS-Code). The Incoterms (International commerce terms), which are used for defining the liabilities of the buyer and seller during cross-border shipments offer various ways to tackle duties and taxes out of which the most relatable to the cross border ecommerce are DDP (Delivery duty paid) and DAP (Delivered at Place). Both DAP and DDP place equal liabilities on the seller until the goods reach customs at destination. Under DDP, the shipper is liable to pay the duties and taxes at destination and under DAP it is the liability of the consignee.
DDP’S IMPORTANCE TO CROSS BORDER ECOMMERCE
Within the cross border e-commerce industry regulatory requirements which includes duties and taxes is considered to be one of the top 4 factors behind shopping cart abandonment rate along with other factors like returns, higher shipping cost, longer transit time & language barrier. DDP offers a great solution as it ensures a smooth customer experience.
- Most of the online buyers are not very well versed with the import and the other duties and taxes related regulations if they are importing a product to their country. Under this situation the merchant can easily figure out the applicable duty percentage and incorporate the duty amount within the final cost to the buyer and offer them a door to door solution including a hassle free import clearance procedure.
- DDP helps in mitigating the risk of customs delays because of the communication gap between the seller and the buyer. Under DAP, whilst the seller will not be directly responsible for any delays related to import clearance at destination but from the business point of view the delays and the added time and money the buyer needs to commit to clear their purchased products will damage the relationship between the seller and the buyer, often leading to the buyer’s search for competitors that offer a more streamlined shopping experience. This is one of the most important points on why ecommerce sellers prefer to use DDP for cross border fulfillment.
WHEN TO USE DDP & DAP
There are a couple of factors that can help in identifying when to use DDP or DAP. According to us the evaluation should be done based on factors like:
Understanding of the buyer
This is probably one of the most important factors which decides when to use DAP or DDP and it also indicates why DDP is more beneficial than DAP in cross border ecommerce. DDP definitely leads to additional risk on the side of the seller as it adds an extra variable that affects the bottom line but at the same time if the buyer is not well versed with the import formalities which is true for almost all the online buyers and the seller uses DAP then the delays can lead to blame game and damage the relationship between the two parties. For online sellers this can lead to bad online reviews which can have catastrophic effects.
Weighing Up Your Shopping Cart Abandonment Rate
https://baymard.com/lists/cart-abandonment-rate
DUP is a key strategy for lowering international cart abandonment rates, and its core value is simple: being complete and transparent by displaying the total landed cost (the total cost of the purchased item, including associated taxes and duties) to the buyer.
With DDP, not only does this improve cart abandonment rate, DDP also reduces the time parcels will remain in customs, hence, reducing total shipping time. Lastly, the customer is not expected to pay any hidden fees, reducing the likelihood of an unhappy customer returning their parcel.
De-minimis value:
Some countries are more open to imports than others and hence they offer a strong de-minimis value. De-minimis value is the minimum value defined by a country to apply duties and taxes to import shipment. Any shipment with a declared value lesser than this de-minim value will not have any duties and taxes applicable to it. The United States of America is a typical example of how a strong de-minimis value (800 USD for the US) can help in supporting the growth of cross border ecommerce. If you are shipping to countries like US, Australia, Singapore which have a high de-minimis value then you should consider using the DAP, whereas if you are shipping to countries like Canada or to upcoming markets in Southeast Asia then you can use a DDP solution.
https://www.worldretailcongress.com/__media/Global_ecommerce_Market_Ranking_2019_001.pdf
Range of products:
Every product has a HS-Code associated with it. The HS-code is 6 digit code which helps in identifying the traded product, the first 2 digits of this code defines the HS-Chapter, the next 2 digits define the HS-Heading and the last 2 digits defines the HS-Subheading. If an ecommerce seller offers a range of products from a particular industry vertical then there are high chances that most of the products will have the same Chapter and the Heading aligned to them, in such a scenario it becomes easier to define the duties and taxes for the major markets across the globe. On the other hand if the products come from different industrial verticals then the duties and taxes calculation can be very tricky. To sum up, it’s easier to offer a DDP solution for ecommerce business with limited products.
Destination or Market covered:
The duties and taxes on a particular product or HS-Code varies from country to country. If a seller is selling to limited markets globally then it’s easier to use the DDP option. Calculating the duties and taxes for too many markets and then designing a DDP solution can include a lot of calculations.Floship is working on providing more visibility to the sellers by giving then the estimated duties and taxes for every order based on the origin-destination, declared value, and the product description including the HS-code. Our portal will source the data from various sources like trade organizations, government websites & couriers and based on the details an estimated duties and taxes will be available on the portal.
LET FLOSHIP OPTIMIZE YOUR DDP SHIPPING STRATEGY
We at Floship understand the importance of DDP shipping within the cross-borders ecommerce and hence we offer a range of DDP carriers not just under the express category but also under the economy shipping. We are working on improving the capabilities of our portal to provide an estimate for the duties and taxes at destination because of which our client will be able to get a thorough estimate that will help them in working out a defined international shipping policy. Speak to a consultant today!
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