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Delivered Duty Paid (DDP) Risks When Shipping from China
Chapter 1: DDP Shipping Overview
Have you heard about door-to-door delivery from China? This topic we will discuss is beneficial, especially for the upcoming holiday season when most would like to buy from China and get the product directly delivered without worrying about clearing customs.
We will explain the fundamentals of DDP. If you’re thinking of using the DDP method to ship out your goods, you will know what to expect. Shipping involves risk, and it’s a good thing there are options now like DDP. But, note that it is not perfect and has drawbacks. Do the pros outweigh the cons?
What is the DDP Shipping Method?
DDP, or Delivered Duty Paid, is a shipping method used by sellers to ship out the goods to their customers where they shoulder all the cost of shipping, including taxes, clearances, and duties from customs. Thus, they will get the products straight to your doors or agreed destination without doing anything on your end.
Our previous article discussed the Customs duties when shipping from China. Ideally, when a seller uses DDP shipping from China, the total price is shown to the client already includes the price of the goods, import or export fees, taxes, tariffs and duties to Customs, and shipping fees to inland delivery.
Who Uses DDP?
Sellers from marketplaces like Alibaba, eBay, Taobao, Made-in-China, 1688, Pinduoduo, Global Sources, and other B2B platforms use DDP delivery. In addition, most sellers who cater to small business owners in B2B E-commerce and B2C customers where direct consumers buy from these sellers use this shipping method.
You can use DDP shipping terms when transporting goods internationally by air or sea. Before completing the transaction, the buyer and seller must agree on all payment information and indicate the destination’s name. Once the products arrive at the destination, the buyer now takes charge of the risks.
What is the DDP Shipping Cost from China?
The DDP shipping cost varies from one seller to another. In DDP, the seller gives a fixed price already where the DDP shipping terms are included. However, there is a DDP shipping calculator if you want to know and make an estimate of the DDP delivery cost for the goods you’re importing.
Another thing, the cost depends on the agreement or terms in your Delivery Duty Paid Incoterms. To give you an illustration, we used a DDP online calculator to get an estimated cost for DDP shipping from China to USA:
Why is DDP Shipping So Important?
DDP shipping is important because using it correctly can guarantee peace of mind to buyers. At the same time, build a good relationship with the seller if DDP was made right and successful. It will encourage both parties to continue and grow business when it becomes favorable for both.
International businesses can benefit more from DDP because they do not worry about all their goods’ possible issues during shipment. The seller becomes responsible for getting the goods delivered based on their DDP shipping terms.
Chapter 2: What are the Risks of DDP Shipping?
Although the DDP or delivery duty paid incoterms is appropriate in many situations, it has several drawbacks when used in international trade. In this chapter, we will enumerate the risks associated with this method of shipping.
Risk #1: Incorrect Declared Value
One of the bad practices of some Chinese sellers is faking the declared value of the goods to do away with the taxes. The tax exemption for import charges is anything lower than $800 under certain conditions. But, to lessen the burden on them, they declare the goods undervalued.
If customs find the declared value inappropriate, the seller will incur more charges and taxes till the product gets cleared. Unfortunately, there are instances when bad sellers do not clear your goods from customs and let them be destroyed or smuggled.
On the other hand, when the shipment gets cleared and arrives successfully at its destination, you won’t receive the document showing the correct taxes paid for your shipment. This becomes a problem when you document it into your books for accounting purposes.
Risk #2: Wrong HTS Code
An HTS Code known as H.S. Coding or Harmonized Commodity Description and Coding System is used by U.S. Customs to classify products using codes to determine the import duties and taxes. Some sellers will use the wrong H.S. code to lower the taxes and duties they have to pay.
Be mindful of dealing with sellers because some offers might be too good to be true. There are many cases where buyers got in trouble when they used Alibaba DDP shipping. Avoid these scams. If you want to use DDP correctly, better hire a licensed DDP agent to ensure the safe shipping of your goods.
For accounting purposes, the buyer needs the correct documentation and proof. If you have a wrong code stated in your Commercial Invoice, you cannot use this for your business tax declaration. If you want to know the correct HTS Code for your product, you may use this HS CODE tool.
Risk #3: Seller is responsible for all the risks
Here, the seller is solely responsible for all the expenses and other associated costs transporting the products to the intended destination. So it also goes for clearing the goods for both export and import, paying all export and import charges, and completing all customs formalities.
It’s a high-risk situation because they waive the buyer’s liabilities and undertake all costs. Whatever takes place in the shipping process, the seller accepts the responsibility. When the items are delivered to a designated location and cleared for import, the seller has fulfilled his obligation.
Risk #4: Hidden/additional charges
DDP shipping meaning Delivery Duty Paid shipping, is a method where the seller will cover the cost of VAT (Value Added Tax). VAT can be up to 20% of the item’s price plus duties. If there are VAT refunds, the buyer will receive them, but the seller must bear the cost.
Sellers usually increase the air or sea freight price that will pay for these taxes and customs duties. If the buyer agrees to this, the seller shall shoulder other hidden charges within the shipping process.
Risk #5: Buyers cannot control the shipment of goods.
When you choose DDP shipping from China, the DDP shipping tracking is uncontrollable on the buyer’s part. It means you can only ask your seller about the shipment’s status because they’re the ones with complete control of the shipment’s whereabouts.
The seller is in full control of what’s going on during customs inspections and shipping delays. The buyer has no direct access to track the order other than through the seller and no way to intervene if your package is delayed.
However, a DDP agent can give transparent updates if you hire their service for DDP delivery. This way, they will inform you about the process taking place. Should there be a delay on the estimated time of arrival, you can set your expectations.
Same as the DDP courier service, tracking your package is easy and convenient because they will give you a DDP courier tracking number.
Chapter 3: When Should You Use DDP?
When the seller shows confidence in shipping their products to your country, DDP is a good choice. If it has a track record of successfully delivering to other customers under DDP Incoterms, you can use it in the following situations:
For small shipment
If your package is not very expensive and within allowable quantity or volume and has tax exemption for customs duties, you can trust your seller and try DDP. However, if you are purchasing from Alibaba, ensure that the company you’re dealing with is trustworthy and highly-ranked.
For high-value items
When you order high-value items and don’t want to clear this in customs, you can go for DDP. Your shipment will be delivered door-to-door. The seller will be liable for all shipping charges and damages, and you’ll wait for it at the named destination.
Also, the seller knows that the cost of shipping via partner couriers can be expensive, and more delays will cost them more. Thus, they will only partner with reliable freight forwarders with predictable routines or timelines.
FBA Shipping to Amazon Warehouse
Amazon sellers or other online entrepreneurs utilize DDP delivery services. When they order from their suppliers, they request them to ship to their warehouses. The seller can arrange a combined service via air or sea freight services + UPS delivery to the Amazon warehouse of their choice.
Chapter 4: Why Should You Use DDP?
If you still have second thoughts on using DDP, we have listed 4 top reasons you should try it. When you want to get out of responsibility for shipping your goods, this is a great solution. A DDP importer of record is a company that offers SAFE delivery duty paid shipping services.
1. Ensure safe, hassle-free delivery across destination
When you are shipping goods from China, choosing a DDU shipping or delivered duty unpaid (DDU) is the buyer’s responsibility. If you are not familiar with how shipping works in China, it will result in frustrations and nightmares!
DDP saves you time while ensuring the safe delivery of your package within a stated time. China customs may be a hard subject for first-time shippers and if you want to know which route or freight service is ideal for your goods, the seller will encourage you to take DDP.
When done in good faith, DDP import is the best solution for eCommerce sellers, companies, and consumers.
2. To protect the buyer
DDP shipping from China makes buying and shipping easy and convenient for sellers. It assists purchasers in avoiding being duped. Because the seller bears the entire risk and expense of sending their package, it is in their best interest to ensure customers receive what they paid for using practical options.
DDP Delivered Duty Paid is applicable for buyers who wish to buy a small number of goods without going through the obstacles of the Customs clearing process. Moreover, it helps the buyers test and sees if shipping from China works to start a small business.
3. Sellers can encourage buyers to close the sale
Since the seller will take care of all the international fees and taxes, buyers will not hesitate to purchase. However, if a buyer must pay customs fees, they may not push through with the sale due to some factors such as high taxes and shipping fees.
DDP shipping from China provides a smooth purchasing experience because the customer does not have to worry about paying foreign fees and all the complexities that come with it.
4. For safe delivery via air or ocean freight
DDP delivery services by air or sea are costly. Therefore, the seller will be diligent in ensuring the shipment is sailing because they spend a substantial amount to pay for the service.
In the same way, if you choose a DDP logistics provider, you will not hire other agencies anymore to handle various aspects of your shipment’s import or export process. This is so efficient, especially on your bulk cargo.
Chapter 5: Who is Responsible in the Delivery Process During DDP?
DDP shipping meaning, the seller, DDP logistics provider, or DDP courier service will be responsible for the overall process in the delivery process of your goods. Let’s see the shipping timeline below:
Stage 1: Seller uses a carrier or courier service to ship the product
As soon as the seller and buyer agree to DDP shipping, the seller will book or contact a partner courier to ship the package. Courier services give incentives and bulk discounts to those who frequently use their service.
The seller is liable for the goods of the buyer. This process starts with loading and delivering the goods to the port and undergoing export customs. The shipment will then be loaded to the port or airport of export.
Stage 2: Seller is responsible while shipment is in transit
This is the actual transit of goods from the origin to the destination. Shipments can air or sea freight. With a reliable delivery partner, the seller takes on less risk and can be assured that the shipment will be delivered.
The seller is still responsible for checking while the shipment is on air or sailing through waters. They check and make sure the products are transported to the destination. If they get lost or damaged, the seller will shoulder the cost.
Stage 3: Seller pays VAT upon arrival at the destination
Once the shipment landed the destination, the seller will pay the corresponding taxes and duties to the import’s customs clearance. If the shipment is put on hold due to incomplete documentation or incurred charges during the clearance process, the seller is liable for it.
We will discuss the charges included in DDP in Chapter 7.
Stage 4: Buyer will now be responsible for the product once shipped
The seller and buyer agree at a destination point. When the shipment arrives and is cleared from customs, the seller will send proof of delivery to the buyer. At this point, the liability is now under the buyer’s care.
Chapter 6: How do the DDP Shipping Terms Work?
The Seller should be a registered Importer of Record.
Freight forwarders are not permitted to complete customs clearance in the United States. As a result, the seller must be registered as an importer to complete the import clearance process.
In a DDP delivery, the seller is the Importer of Record. A US Customs Broker, a Freight Forwarder, or a Surety business must secure a foreign entity customs bond (either single entry or annual/continuous) for the foreign shipper.
It applies to all shipments that use DDP shipping from China to any destination in the U.S., such as the buyer’s warehouse, Amazon fulfillment center, or a company address.
The Seller should know the US Customs procedure to get a clearance.
Since the seller takes full responsibility for getting the buyer’s shipment delivered, the supplier or seller should be well-versed n the customs procedure. To summarize, here are the steps the seller needs to accomplish before getting a clearance:
1. The seller will arrange with the CBP port of entry.
2. The seller will process the declaration of entry of goods.
3. The next step is to file the release of cargo.
4. Then, the seller files the entry summary form.
5. The seller will pay the import duty from China to the U.S.
6. The seller will verify that entry documentation is complete.
7. The U.S. customs will process the clearance within 24 hours to days, or weeks, depending on the status of all the submitted documents.
8. Once the shipment acquires clearance, the goods will be released, and the seller will notify the buyer.
Buyers should have a clearance agent if they agree to shoulder the fees.
The seller/supplier is not required to complete import clearance under DDP. Instead, the buyer and seller may agree that the buyer will handle this part.
If the buyer proposes to clear the products, the seller should insist on using their own Customs Broker. Otherwise, they will lose control of the shipment’s location. They may be held liable for unnecessarily high fees and taxes, such as demurrage and storage fees.
However, high fees can be avoided if written in the sales contract that the buyer will not be liable for any additional charges incurred due to the Customs Broker’s mistakes. The same goes for any costs incurred after the carrier has released the goods for a short period.
The buyer in DDP Delivered Duty Paid agreement is not involved nor liable during the shipment process. Instead, it is the seller’s liability. The buyer is only engaged in the receiving of goods.
However, the buyers must understand that it incurs a fee when the goods are unloaded from the destination. Therefore, the unloading procedure is a part of receiving the goods.
Thus, unloading fees are shouldered by the buyer. Most of the time, this scenario applies, especially when shipping to Amazon FBA fulfillment centers.
For DDP Incoterm, the buyer only covers the landed costs. Landed cost includes the total cost of the product plus the shipment fees and taxes from the origin place to the destination.
In summary, they are the cost of the goods + the cost of shipping + insurance + customs duties + other fees. This is the basis of the seller’s sales quote.
Chapter 7: What Kind of Charge Fees Were Included with DDP?
Ideally, the buyer pays for the overall price of goods, including the shipment fees and taxes. For you to better get an idea of the taxes, duties, and other fees covered by the DDP shipping terms or DDP delivery meaning all duties are pre-paid, we will explain each one below:
1. Shipping fees
The DDP shipping cost or fee depends on the shipping service that your seller will use for transporting your goods. It can be through courier companies like DHL, UPS, or FedEx, or via sea or air freight. The shipping fees will depend on the package’s size, dimension, and volume.
Also, one factor to consider in the shipping fee is the lead time for delivery. The shorter the delivery time of the shipment, the higher the shipping fee.
The seller will pay the shipping charges to get the goods delivered to the destination, whether you get the DDP or DDU shipping.
To know more about the Shipping cost and for an in-depth explanation for each shipping service, you can read here.
2. Import and export custom duty
The seller pays for all import and export fees based on the HTS Code they will declare on your product and its stated value. If your product falls on a specific code that requires a 25% additional tariff, they will also pay it.
For all other taxes, here’s the percentage of what the seller pays:
A. Federal Excise Tax – includes ad valorem and particular excise taxes on alcohol, cigarettes, and gasoline items.
B. Harbor Maintenance Fee (HMF)- is determined based on the shipment’s declared. The HMF is 0.125 percent of the cargo’s value, with no minimum or maximum amount.
C. Merchandising Processing Fee (MPF) – it is calculated at 0.3464 percent of the stated value on the commercial invoice, with a minimum of $27.23 and a maximum of $528.33 per entry.
Delivery Duty Paid Incoterms services from a DDP agent can provide a breakdown of these expenses. It is what you have to bear in mind when you need proof for your company’s accounting requirements.
However, when you buy direct from the seller and arrange a DDP method with them, one disadvantage is that they do not rightfully declare the correct value or use a wrong code to lessen the fees. The quoted price they give you is based on the calculated cost of the good plus all other fees.
3. Damage fees
During the transport process, the seller is responsible for paying any expense if the product is physically damaged or broken.
Physical damage occurs when cargo is damaged as a result of falling, rolling, breaking, or being knocked during transport, among other things. The most common source of physical damage is improper stockpiling inside the container, which causes damage.
As the seller, you will be responsible for any product damage and may even be required to reship the items to their original location.
4. Shipping insurance
The seller’s responsibility is to pay for the freight insurance during DDP delivery to lower the risk. In case the product gets damaged and needs re-shipment, the shipping insurance can cover the cost of the cargo’s damage fees.
If the shipment got lost, stolen, or damaged during transport, the shipping insurance would cover the cost. The seller may or may not get insurance depending on the price of goods and the risk involved when shipping. It is not the buyer’s liability.
As previously mentioned, the VAT is shouldered by the seller. Usually, the VAT ranges from15-20% of the goods’ value plus all duties. The mark-up price of the goods can cover VAT. Or there will be an arrangement between the seller and buyer in some cases.
The seller will pay for the VAT on the transport of goods, and the buyer can get refunds from excess VAT. In DDP shipping terms, the seller should settle this in customs for the goods to clear.
6. Demurrage fee
The seller is responsible for all customs clearing expenses under DDP. It includes any storage or demurrage fees incurred due to delays caused by customs, delivery drivers, other government agencies and air or sea carriers.
For example, if the goods were stored in the warehouse due to customs clearance delay, customs will charge the seller $60 a day for the first five days. After that, it can be charged as high as $120 per day.
Chapter 8: Tips on DDP Service in China
Tip#1: Choose a reliable option
When hiring a DDP service, it is vital that you check what a company offers and how expert they are in the field. Here’s a checklist:
- Choose a courier partner that has been delivering goods to your destination country for a long time.
- Inquire if they are knowledgeable of the product you are importing to the U.S.
- Check if they have customer reviews about service experiences with them.
- Review their offers and see if they apply to your requirement
Tip#2: Learn the basic procedures
Research and read about shipping procedures so you would know the pros and cons of each shipping method. Getting an idea of timelines and procedures will help you gauge and set expectations when receiving your goods at the destination.
- At the same time, your DDP service provider should cover the following liabilities for you as a buyer:
- Creating sales contracts and other related documents
- Complying with all import and export rules and regulations
- Clearing the goods on your behalf and paying all import and export fees and duties
- All extra charges declared by customs
- The supplier is liable in the event of damage or loss while in transit.
- Inland delivery and delivery confirmation
Tip#3: Be mindful of the payment methods
Before securing your payment, check if the payment method can be verified with their company details. For example, check the details when paying using wire transfers. If you will pay via PayPal, create an invoice, and secure proof of the transaction if you need to dispute.
Tip#4: Ask for a price and set agreement
When they give a quoted price, let the company enumerate the inclusions of your payment to avoid being charged with other fees. Know that you do a DDP delivery because the seller will bear all costs throughout the process.
Tip#5: Hire a DDP agent
When you hire a DDP agent, they will be in charge of your shipment and handle all of the cargo’s responsibilities until it arrives at its final destination. Therefore, you must only engage with a dependable DDP agent who has the expertise and competence to handle all aspects of the freight procedure.
If you hire the best DDP agent like JustChinaIt, rest assured there will be no complications along the way. Furthermore, you can also benefit from the advantages of the service, as explained in the next chapter.
Chapter 9: Advantages of Hiring DDP Agent
The DDP agent is indispensable when it comes to the DDP subject matter. They know all the intricate details of the process and routine so that you can benefit from the following:
Reliable and hassle-free service
This is essentially what the DDP service provides: a hassle-free transportation solution in which the company in charge handles the end-to-end process.
This includes picking up the shipment, performing quality control, handling all documentation, paying all applicable taxes and transport costs, and delivering it on time and safely to its destination.
Get the best option and competitive rates.
When looking for a DDP agent to hire, you will get advice on which better option to take with different rates. Then, you can choose what fits your budget.
You will get all the necessary updates and answers to your queries when you hire a DDP agent. All lines of communication provided are open if you need help and need an understanding of the shipment process. It is their primary concern to provide support to your delivery needs.
Best service experience
The purpose of duty paid shipping is to eliminate the complex works of shipping goods. When you hire a DDP agent, they will ensure to give you satisfaction and get your goods on time without delays and having to go through clearing it from customs.
Several payment methods are available.
Payment is now made more convenient to buyers through a DDP agent because they have several modes available for them. For example, you can use payment, T/T or wire transfer, Western Union, MoneyGram, and credit card through their website portals.
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