D-terms in Incoterms 2000

There are five D-terms in Incoterms 2000. These are DAF (Delivered at Frontier), DES (Delivered Ex-Ship) DEQ (Delivered Ex-Quay), DDU (Delivered Duty Unpaid) and DDP (Delivered Duty Paid). These terms differ fundamentally from the other eight Incoterms (EXW, FCA, FAS, FOB, CFR, CTP, CIF and CIP) because they are terms used with delivery contracts. With all the other terms, the risk to and the responsibility of the seller finishes in the country of export. However, with the D-terms the seller’s obligation only finishes when the goods are delivered to a particular location outside the country of export.

Delays and non-shipments can occur for many reasons. The worst case scenarios could result in the goods being lost due to the carrying vessel (either by sea, air, truck or train) being damaged, destroyed or stolen during transit. Bad weather conditions, war, terrorism, piracy, strikes, difficult transit routes, changes in customs procedures, the wrong import documents and human error can all contribute to a shipment being seriously delayed.

This carries a cost to the buyer, because they will have worked their profit margins around obtaining the goods during a particular time period, and if the goods are delayed, there will be consequential costs and loss of profit margins. With shipment contracts, these risks are held by the buyer. However, with delivery contracts, these risks, unless agreed otherwise in the original contract, can be held by the shipper and the buyer might be able to call for breach of contract, claim free of charge replacements or have the right to apply penalty clauses. Therefore, if someone sells on D-terms, it is quite important that either the contract agreed between the parties specifically shares or limits the risks and responsibilities, or the seller ensures that the insurance that covers the contract is flexible enough to cover possible financial risks. Alternatively, they could insist on using EXW, F-terms or C-terms instead.

However, sometimes commercial constraints demand that delivery contracts are required. Particular care needs to be taken with DDP, where the price includes arranging customs clearance and payment of the duty (and any other import taxes liable) for the goods. For example, someone shipping to the UK would have to pay Duty (if liable) plus Value Added Tax (VAT) at the present rate. Companies that are registered in the UK for VAT can claim back the VAT, but companies who are not registered will find that this is an additional charge on their profit margins.

With contracts that have long lead times it has to be remembered that duty rates can change, so the cost of the duty can change between the time the contract is accepted and the time the contract is delivered. Clearance of goods into some countries can also be complicated if the rules of the importing country specify that the importer has to be registered in the country of import. This could carry implications for additional taxation, therefore it would be prudent to always check the rules and regulations in the country of import first before offering a delivery contract. Alternatively, sellers could nominate a broker or agent whose responsibilities include clearing goods through customs.

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 other useful articles on exporting on the Point to Point Export Services website at www.point-point.com

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