DDP vs DAP and other Incoterms on lab orders: who pays duties, taxes and brokerage

What an Incoterm decides on a lab order, and what it does not

The ICC describes the Incoterms rules as a set of eleven three-letter trade terms reflecting business-to-business practice in contracts for the sale of goods, with a clear allocation of cost, risk and obligations. [1] The US International Trade Administration says each rule clarifies the tasks, costs and risks borne by buyer and seller, and that the ICC recommends using Incoterms 2020 from 1 January 2020. [3] The ITA adds that each rule says who handles export and import licences and customs formalities and who pays for them, who contracts for carriage and insurance, and when risk of loss passes from seller to buyer. [3]

Just as important is what they leave out. The ITA lists when title passes, the method and timing of payment, the price, and liability for non-conforming goods or late delivery as matters Incoterms do not address, and says contracts should state which version of the rules applies. [3] A web shop's checkout rarely names an Incoterm at all, which is why the same parcel can produce a duty bill one month and none the next.

The rules a small-parcel buyer actually meets

Incoterms 2020 has seven rules for any mode of transport (EXW, FCA, CPT, CIP, DAP, DPU and DDP) and four for sea and inland waterway transport (FAS, FOB, CFR and CIF). [2] Parcels of peptides and reagents travel by air courier or post, so only the first seven are relevant; a quote using FOB or CIF for an air parcel is a sign the seller is using the terms loosely.

In practice most small lab orders end up as one of two arrangements, whatever the paperwork says: the seller ships and you deal with customs (in effect DAP), or the seller ships with duties prepaid (in effect DDP). The other terms appear mainly on larger or freight orders, but they are worth recognising on a quote.

Glossary table: who pays, who clears, where risk passes

The summary below follows the rule descriptions and cost-allocation table in Wikipedia's Incoterms article, which summarises the ICC rules; the ICC publication is the authoritative text. [4] Risk is about who bears loss or damage in transit, which matters when a parcel arrives warm or broken.

Surprise duty bills and customs holds

The classic surprise is a DAP shipment the buyer thought was all-inclusive: the parcel arrives, the carrier asks for duty and an entry charge before delivery, and nobody budgeted for it. Under DAP, import clearance including duties and taxes is the buyer's job. [4] Since the US ended de minimis, that applies to low-value parcels too, so treat any quote without a stated term as DAP until told otherwise.

DDP is not a guarantee of a smooth delivery either. The seller takes on import obligations that can include authorisations and registrations, and a seller unfamiliar with local customs procedures may face delays or extra costs. [4] For US postal shipments, CBP's new postal informal entry may be filed only by the owner or purchaser of the goods or a licensed broker they designate [5], and CBP says shipments lacking the required data or bond are not released until the requirements are met. [6] Ask a DDP seller who will be the filer and how a customs hold will be handled.

For a customs hold, the party responsible for import clearance under the agreed term is the one who must answer CBP or other agencies; make sure the purchase order says who that is, and that the supplier will provide documents quickly if asked.

Wording the purchase order

The ITA advises stating the version of Incoterms being used. [3] Add the named place precisely, because the rule only works with a place attached: DAP to a city leaves the last mile ambiguous, while DAP to a department receiving dock at a street address does not. A usable line reads: Delivery terms DAP, RECEIVING DOCK STREET ADDRESS CITY STATE ZIP, Incoterms 2020.

Then add what Incoterms do not cover: payment terms, the currency, who bears the risk of non-conforming goods, and the documents to be supplied with the shipment (commercial invoice with HTSUS code and country of origin, certificate of analysis for the lot, SDS). [3]

Questions to ask before accepting a quote

Get these answered in writing; they cost a few minutes and prevent most delivery disputes.

• Which Incoterms 2020 rule applies, and to what named place? [3]
• If DDP, who will file the US entry and who pays broker or carrier charges? [5]
• If DAP, which carrier will deliver and how will it collect duty and fees?
• Is transit insurance included (CIP) or not (CPT)? [4]
• Will the invoice show HTSUS code, country of origin and goods value separately from shipping?
• Who handles a customs hold, and how fast can documents be supplied?