Building on our discussion of Incoterms® 2020 in our previous article, this installment delves into the last four Incoterms used for any mode of transportation: CIP, DAP, DPU, and DDP. These terms, pivotal for stakeholders in international trade, dictate the allocation of costs, risks, and responsibilities between buyers and sellers. Grasping these terms enhances negotiation capabilities and contract precision, essential for optimizing cost-effectiveness and risk management in global transactions.

CIP (Carriage and Insurance Paid To):

What is CIP?

Carriage and Insurance Paid To, or CIP, extends the seller’s responsibilities beyond what CPT covers. Under CIP, the seller is obligated not only to arrange and pay for the transportation of goods to a named place but also to procure transportation insurance against the buyer’s risk of loss or damage to the goods during transit. The goods are delivered, and risk transfers from seller to buyer, once the goods are handed over to the carrier, not at the final destination. However, the seller must secure insurance on the goods through their journey to the named destination.

Common Mistakes:

1. Insurance Changes: Under Incoterms® 2010, Sellers previously only needed to procure insurance limited coverage under Institute Cargo Clauses (C). However, under Incoterms® 2020, Sellers must now procure cargo insurance that complies with Institute Cargo Clauses (A).
2. Importation Country Insurance: Some destination countries require insurance to be purchased locally. This may cause issues as CIP requires a seller to insure goods from delivery until their point of final destination.

DAP (Delivered at Place):

What is DAP?

Delivered at Place (DAP) requires the seller to deliver the goods, ready for unloading, at a named destination. The seller bears all risks and costs associated with bringing the goods to the specified location but not the costs and risks of unloading itself. However, contrary to CIP, the seller is not obligated to contract for coverage insurance. This term offers flexibility in terms of the delivery location, which could range from the buyer’s premises to a transport hub in the destination country.

Common Mistakes:

1. Unloading Responsibilities: A frequent oversight in DAP agreements is the assumption that the seller is responsible for unloading the goods. It is the buyer’s obligation to unload, and failing to account for this can lead to disputes and unexpected costs.
2. Customs and Duties Misconception: Buyers may mistakenly believe that the seller covers import customs clearance and associated taxes and duties under DAP, which is not the case. These responsibilities fall to the buyer, potentially leading to unexpected expenses and delays.

DPU (Delivered at Place Unloaded):

What is DPU?

Delivered at Place Unloaded, previously known as DAT (Delivered at Terminal), also places the maximum obligation on the seller, including the risks and costs associated with transporting to the goods to buyer’s destination. Seller must complete export formalities, arrange/contract carriage, and bear the risk until delivery is made. However, DPU goes one step beyond DAP by requiring the seller to unload the goods at the named destination. DPU is best when the seller has direct access to the delivery location or can manage unloading efficiently.

Common Mistakes:

1. Underestimating Local Logistics: Sellers might underestimate the complexity or cost of unloading goods at the named destination, especially in international contexts with unfamiliar regulations or infrastructure, leading to logistical challenges or increased costs.
2. Location Specificity: The named place of delivery must be precisely defined to avoid confusion and ensure the seller can fulfill the obligation to unload. Ambiguities can lead to disputes regarding the fulfillment of delivery obligations.

DDP (Delivered Duty Paid):

What is DDP?

Delivered Duty Paid, better known as DDP, places the highest responsibility on sellers. Under DDP, the seller delivers the goods ready for unloading at the named destination, covering all costs and risks, including transport, insurance, and any import duties or taxes. This term significantly reduces the buyer’s responsibility, making it an attractive option for buyers looking to minimize their involvement in the shipping and customs processes.

Common Mistakes:

1. Overlooking Local Regulations and Costs: Sellers who agree to DDP might not fully account for the complexity and costs associated with customs clearance and taxes in the buyer’s country. This may lead to unexpected expenses or compliance issues not wanted later on.
2. Assuming Responsibility for Unloading: While DDP covers almost all aspects of delivery, it does not inherently include the unloading of goods. Buyers are still responsible for unloading at the destination, and this detail must be explicitly agreed upon if the seller is to undertake unloading.

Conclusion:

Understanding these Incoterms, CIP, DAP, DPU, and DDP, is indispensable for parties involved in international trade, providing a framework to negotiate terms that align with their strategic interests and risk management policies. As we continue to navigate the complexities of global commerce, familiarity with these Incoterms can foster more secure and efficient transactions. In our next installment, we will discuss FAS and FOB, terms applicable to sea and inland waterway transport.

As always, consulting with a specialist in international trade law is advisable to ensure contracts are tailored to your specific needs and comply with applicable laws and regulations. Please contact Marcus Hoekstra or your Miller Johnson attorney if you have any questions about this blog post.