Incoterms 2010 – DAP- Delivered at Place

The International Chamber of Commerce (ICC) has put a lot of effort into marketing their Incoterms and they have been subsequently very successful in promoting these terms into international trade contractual agreements and general shipping terminology.  However, there are a number of misconceptions about Incoterms which, regardless of the efforts of the ICC, seem to abound.  The first is that Incoterms determines ownership of the goods.  They don’t.  The second is that Incoterms determines who takes out goods in transit insurance. Again, they don’t, with the exception of the CIP and CIF Incoterms, and even those don’t determine the extensiveness of the insurance, merely that insurance(?) needs to be paid for by the seller.

One of the things that Incoterms is supposed to represent, however, is that the Incoterm should, as far as possible, match what actually happens on the ground.  And this is something which sometimes fails to happen.  There are a number of reasons for this.  Not really understanding incoterms is a major factor, but there are circumstances when organisations decide that they will only use 2 or 3 incoterms for all of their shipments and there could be circumstances when these “allowed” terms don’t match what they are actually trying to do.

This can cause a lot of problems, since using the wrong Incoterm could actually invalidate the Goods in Transit insurance policy or lead shipping company’s to charging the wrong party. I have come across circumstances when both of these actions have happened and it was costly for the relevant party to sort out, both financially and from a time viewpoint.

Understanding DAP
DAP (Delivered at Place) is one of the incoterms which for particular types of shipments, e.g. courier, postal or truck shipments, should always be used, and yet often is not.  This is because both courier shipments and truck shipments tend to be door-to-door transactions and so, if the seller is paying the freight, they are paying it for delivery to the buyer’s door, not to a port or a terminal.  Yet how many organisations actually use DAP with their courier shipments?  A lot still use CPT or even CFR.  Some (sigh) use C+F.

DAP should be used when the seller delivers the goods to a place determined by the buyer (and written into the sales contract).  The buyer is responsible for the customs clearance of the goods in the country of import and the payment of any taxes or duties and also for unloading the goods from the method of transport used.  All other costs of getting the goods to that agreed place is down to the seller.  There is one grey area.  If the buyer delays in the import procedure and storage/demurrage is charged by the shipping company, who pays for these charges?  Under the ICC rules (under B5) it states that the buyer bears all risk of loss of or damage to the goods from the time they have been delivered.  But usually the delivery point is the door of the buyer’s warehouse so anything before this point is for the account of the seller.  Or is it?  The seller could argue that the buyer delayed in the import procedure and so the charges should be for their account.

The problem for the seller is that because DAP is a “delivery” term, they are responsible for delivering the goods and, in theory, if there are any consequential losses to the buyer for any delay in this delivery, then the costs are for the seller’s account.  There are a number of reasons why the buyer may not clear the goods within the time scales required to avoid paying any demurrage or storage.  (Please note that these time scales vary according to different countries, different ports and even different shipping companies, so always check first).  The first is that the buyer has not yet received the relevant original documents required to enable them to import the goods into the country.  The second is that the seller has not provided all of the buyer’s contact details or have provided incorrect contact details to the shipping company.  The third is that the buyer is unable to pay for the clearance and/or duties.  There are other factors, but these do seem to be the major ones.

It is the responsibility of both the buyer and seller, at the time that the contract is being formalised, to consider points like this and to make arrangements to counter the potential problem e.g. sending some documents by courier to the buyer before the shipment commences or double checking all contact information to ensure it is correct.  Then, it is good practice to write into the contract who is responsible for the demurrage and/or storage charges (if such apply) and under which circumstances.  It is also good practice to pass this information to the shipping company as well so they know who to charge.

It could be, on occasion, that the shipping company is responsible for the delay in delivery. In which case the shipper should be aware that very few, if any, shipping organisations will take responsibility for any consequential losses due to mistakes made by them.  Therefore, again there needs to be agreement between the seller and buyer (and written into the sales contract) who will pay for these losses under this circumstance.

Its because of this grey area that some shippers still prefer to use the CPT (Carriage Paid To) Incoterm because, according to the ICC, the CPT term means that the seller delivers the goods to the carrier and the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination.  Technically this can be up to the doorway of the buyer’s warehouse.  With this Incoterm the seller’s risk passes to the buyer once the goods have been delivered to the carrier and from this point on the buyer is responsible for all risks, including the risk (and costs) of demurrage and storage if the goods are not cleared through import customs in the time scales allowed.

 

Maria Narancic from Point to Point Export Services is an independent international trade adviser who assists organisations world wide with their international trade projects, documentation, Documentary Credits and import/export training.  She is based in the United Kingdom.  If you require any further assistance with the matters mentioned above, please do contact us by e-mail on info@point-point.com or check out some of our other International Trade articles on the Point to Point Export Services website at www.point-point.com

 

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