Incoterms_® and Commercial Contracts

Preliminary remark: ‘Delivered Duty Paid’ represents the maximum obligation for the seller. It means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. This place of destination will usually be the buyer’s address but it may also be another place of destination. It is difficult to imagine a delivery ‘cleared for import’ in an international port or airport of destination, not unloaded from the arriving vessel or airplane.

How are goods handed over to the carrier?

‘Delivered Duty Paid’ means that the seller must contract for carriage (or use its own means of transportation),¹ and that it must deliver the goods by placing them at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. How and at what point the goods are handed over to the carrier departing for that place of destination is of minor importance for the relationship between seller and buyer.

The seller can thus arrange for the goods to be picked up at any convenient place and in the manner that best suits its purpose as the buyer has no risk or cost until delivery of the goods at the named destination place.

Unless the manner in which the goods were delivered to the carrier precludes this, when taking the goods from the seller, the carrier will verify whether the apparent condition of the goods and/or their packaging allows for a safe journey. The carrier may also verify the apparent nature, quantity, dimensions and weight of the goods.

When and how are goods made available to the consignee?

The seller must deliver the goods by placing them at the disposal of the buyer on the arriving means of transport ready for unloading at the agreed point, if any, at the named place of destination on the agreed date or within the agreed period.

Whenever the buyer is entitled to determine the time within an agreed period and/or the point of taking delivery at the named place (or port) of destination, it must give the seller sufficient notice thereof. The seller is advised to enter into a contract of carriage that matches this choice precisely. If a specific point at the named place of destination is not agreed or is not determined by practice, the seller may select the point of delivery at the agreed place of destination that best suits its purpose.

At that point of destination, the contract of carriage does not have to provide for unloading from the means of transport. However, if the contract of carriage includes unloading at destination; the seller is not entitled to recover the unloading costs incurred under its contract of carriage from the buyer unless otherwise agreed between the parties.

The Incoterms® rules do not stipulate exactly how the goods should be delivered beyond the distinction between ‘discharged’/‘not discharged’. In practical terms, where the goods are delivered while still on the arriving means of transport, they must be presented ready for immediate discharging. The buyer (or whomever the buyer has appointed to carry out the task) must be able to commence discharging without delay and without having to take other action in order to enable the discharge (such as opening hatches or doors, moving other containers stacked above the contract one etc.). The buyer must therefore have received notice that the unloading may commence. The buyer must also have received the relevant document (such as a delivery order) to enable it to claim delivery.

Upon receipt of the goods from the carrier at destination, the buyer (consignee) will verify the nature, quantity and weight of the goods as well as their condition and packaging and make any appropriate reservations when signing the transport document for receipt of the goods.² This verification does not equal a full conformity assessment. In case of redirection or redispatch, such assessment may be deferred until after the goods have arrived at the final destination.³

Transport law provides for very short notice periods for claims against the carrier for damages. With the DDP-seller assuming the risk, the buyer should have an incentive to verify the goods as soon as possible and notify the carrier for the benefit of the seller in case of transport damages. The DDP seller is well advised to oblige the buyer to give notice to the carrier within the applicable time limits, and to do this in conjunction with the notice to the seller under the contract of sale. Due to the short notice periods, the place of delivery should not be too far away from the place where the goods are unpacked in order to allow for a swift verification of the goods.

If the buyer (consignee) refuses to take the goods from the carrier, it would be in breach of Articles B4 and B8 of the DDP Incoterms® 2010 rule and the carrier should contact the seller (shipper) for further instructions. Such refusal may result in consequences such as the risk and costs passing to the buyer under the contract of sale and:

1. the carrier claiming for the charges of holding the goods and for the compensation of the damages caused by the delay;
2. a reduction of the carrier’s responsibility of the care of the goods;
3. a change or even preclusion of the carrier’s obligation of performance;
4. the conferral of remedies for the carrier such as deposing of goods and other remedies.

Who shall pay the price for transport?

The carrier acts on the basis of a contract of carriage entered into with the DDP seller. Therefore, it is for the seller (usually also the consignor or shipper) to pay the price for transport to the named place of destination.

Together with the claim against the DDP seller being the contractual shipper, the carrier may, subject to its precise legal quality and the law applicable to the contract of carriage, have a lien and right of retention for the price of transport and additional charges due against the consignee (DDP buyer).

What additional costs can be added to the price for transport?

Upon agreeing on a price of transportation, the DDP seller and the carrier are well advised to stipulate clearly which transport and destination costs (unloading, container deposit charge, container cleaning charges,…) are included in that transport price and which are not.

Costs that are caused by circumstances beyond the reasonable control of the carrier and contractual penalties (e.g. demurrage, detention, waiting hours,…) will not be included in that (pre)agreed price of transport.

The main rule under DDP is that the seller has to pay in addition to costs resulting from the contract of carriage, all costs up to the moment when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named destination place. Additional costs of carriage (storage, handling, detention, …) charged by the carrier to the DDP buyer upon arrival under its right of lien or retention; have to be reimbursed by the seller.

Is there a variable part to the price of transport (i.e. ‘adjustment factors’)?

Upon agreeing on a price of transportation, the DDP seller and the carrier are well advised to stipulate whether any price adjustment is permitted.

The contract of carriage may sometimes provide for a retroactive adjustment to the ordinary freight payable. These adjustments come in many different forms, such as the Bunker Adjustment Factor (BAF),⁴ the Currency Adjustment Factor (CAF),⁵ as well as other charges such as International Ship and Port Security (ISPS),⁶ war/pirate-risk, congestion etc. Such adjustments will not be included in the price originally agreed for the transportation but will typically be calculated at the time the goods are handed to the carrier. All such transport price adjustments are to be paid by the DDP seller.

When is the price for transport payable?

The DDP seller and the carrier must agree on the payment of freight in a manner so that the buyer can immediately receive the goods on arrival without having to pay any costs that were included in the contract of carriage. If the transportation document records the payment of freight it should be marked accordingly.

Regardless of what the transport contract provides with respect to the timing of the payment of freight, the DDP seller always has an obligation to the buyer to pay the transport price (and any of the adjustments added at the time the goods are handed to the carrier, as discussed in question 5).

If the price for the transportation agreed between the seller and the carrier includes unloading or further handling after unloading, those costs must also be paid by the seller. The contract of carriage may provide for these or other additional costs to become payable upon or after arrival of the goods as agreed with the carrier.

How are the goods to be packaged?

‘Delivered Duty Paid’ means that the seller must contract for carriage (or use its own means of transportation) and that it must deliver the goods by placing them at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. How the goods are packed for transportation when handing over the goods at departure to the carrier departing for that destination place is of minor importance for the relationship between seller and buyer.

Is the seller or the buyer responsible for customs clearance?

When selling goods leaving for a destination outside of the customs territory, it is up to the DDP seller to carry out all customs formalities necessary not only for the export of the goods from the ‘ship from place’ and the transit to the named place of destination, but also for the import in the country of destination at its own risk and expense. This includes any export and transit licenses and import license or other official authorization that may be required. The buyer need only provide assistance to the seller in obtaining any documents and information, including security-related information, needed for the import of the goods.

These customs formalities refer to all the requirements to be met in order to comply with any applicable customs regulations and may include documentary, security, information or physical inspection obligations.⁷ As an ‘importer of record’ the DDP seller may thus also be liable for import VAT,⁸ excise duties, product liability, consumer safety,…

To avoid inconsistency, the seller should agree on terms and conditions in the contract of carriage with the carrier in line with the assignment of obligations of the seller and the buyer regarding customs clearance under the DDP Incoterms® rule. However, in most countries, only companies and persons that are registered within the territory are allowed to have customs formalities accomplished and import VAT paid in their name. Upon entry in the customs territory, the seller’s carrier (which may be a freight forwarder) will therefore often, while acting under the instructions and at the expense of the DDP seller, be tempted to fulfill the import formalities using the name (and registrations) of the DDP buyer, mentioning the buyer as the importer on the import clearance form. Buyers should note that when import formalities are fulfilled in their name by a customs agent, nominated and instructed by the seller,⁹ they may assume a mandatory liability under customs law that cannot be avoided in the contract. Such mandatory law may override any aspect of the sale contract, including the chosen Incoterms® rule.

As the named place in a DDP sale is usually situated within the country of import, it may be advisable to instruct the carrier to split up the price of transportation into ‘inland’ and ‘international’ transport costs for customs valuation purposes.

Who is responsible for stowage and cargo securing?

‘Delivered Duty Paid’ means that the seller must contract for carriage (or use its own means of transportation), that it must deliver the goods to the buyer at the named place of destination and that it assumes all the costs and risks up to that moment. When applicable and not performed by the carrier, the DDP seller will therefore have to stow and secure the goods upon departure.

What sort of transport document should be issued by the carrier?

‘Delivered Duty Paid’ means that the seller must contract for carriage (or use its own means of transportation), that it must deliver the goods to the buyer at the named place of destination and that it provide the buyer, at the seller’s expense, with a document enabling the buyer to take delivery of the goods. The DDP buyer must accept this delivery document.

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