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What is Incoterm® 2020 DAP?
The Incoterm 2020 DAP (Delivery at Place), requires that the cargo be delivered by the seller at a place designated by the buyer. Normally this delivery is made at the buyer’s premises. The buyer is responsible for unloading the means of transport.
In addition, the seller must carry out the export procedures, while the buyer must complete the import procedures.
The seller is obliged to contract transportation. However, the seller is not obliged to the buyer to insure the risk.
This Incoterm works well for the transport of goods by land. There may be problems when there is a change in the mode of transport during the transfer. For example, if the shipment is made by air and requires import clearance procedures in the country of destination.
Once the shipment is authorized, the seller’s carrier must receive the necessary documents to move the merchandise from the airport to its final destination. The same is true when it comes to containerized shipments across the ocean. In addition, the seller must also take charge of organizing ground transportation (if required), for which a truck is usually chosen.
In the event that the merchandise is damaged or lost at any stage before reaching its final destination, the seller will not be able to deliver. As a result, the seller could breach the contract, and face an additional problem with the buyer, who by that time will have already paid import duties, as well as VAT / GST.
On the other hand, if the buyer cannot clear the merchandise quickly through Customs, he/she runs the risk of the cargo being under the protection of Customs authorities. If this happens, the seller would also be violating the contract in case the seller cannot deliver the contract.
Obligations of the seller and the buyer in the use of the Incoterm 2020 DAP
DAP A1 / B1: GENERAL OBLIGATIONS
A1 (General obligations) – Seller must provide the goods and their commercial invoice as required by the sales contract. He/she must also provide any other evidence of conformity, such as a certificate of health or origin. Any document can be presented on paper, or in an electronic format, in accordance with the provisions of the contract.
B1 (General obligations). The buyer must pay the price of the merchandise as established in the sales contract.
To avoid confusion, all related details such as method of payment and FX rate should be clearly reflected in the contract.
DAP A2 / B2: DELIVERY
A2 (delivery) – Seller assumes almost all responsibility for making the merchandise available to the buyer at the agreed destination, except import clearance.
However, the DPU Incoterm establishes that it is the seller who must be in charge of unloading the merchandise.
Delivery location needs to be defined. The buyer could designate the delivery location site as a new factory under construction for his client. It could also be the container terminal in the destination country or elsewhere. If it is special cargo, the seller may be required to provide the appropriate equipment for unloading.
If the destination is a terminal, then it is usual for the carrier hired by the seller to be in charge of unloading the merchandise.
Delivery must be made on the agreed date or within the agreed period of time.
B2 (delivery). It is the buyer’s duty to receive the merchandise, only when it has been delivered under the terms defined in A2.
DAP A3 / B3: Risk Transfer
A3 (Transfer of risk) – Seller assumes the risk of loss or damage to the merchandise, until it has been delivered.
B3 (Transfer of risk) – Buyer takes on all the risks of loss or damage to the shipment, once delivery has been made.
However, if the seller ships the merchandise to the buyer and the authorities of the importing country hold it indefinitely, because the buyer did not obtain the necessary import permit, then the buyer bears the risks.
DAP A4 / B4: TRANSPORTATION
A4 (Transportation) – It is the seller’s responsibility to organize or contract the transportation of the merchandise to the designated destination. And if there is an agreed point within that destination, then to that point. The cost of such transport is borne by the seller.
In addition, and because the seller has to organize the transport, the buyer must notify him/her if there is a specific point in the place of delivery, to which the merchandise must be transported.
If not, the seller is free to choose the delivery point that best suits him/her, which is usually a cargo terminal, as it is cheaper.
For DAP and DPU, if delivery to the destination must occur after the buyer completes the necessary import formalities, the cost of storage due to delays in formalities falls to the buyer. This is as long as the seller has provided the buyer with documents on time.
B4 (Transport) – Buyer: In this case, the buyer is not obliged with the seller to enter into a transport contract.
DAP A5 / B5: INSURANCE
A5 (Insurance) – Although the seller assumes the risks of loss or damage to the merchandise up to the point of delivery, the seller is not obligated to the buyer to insure the cargo.
B5 (insurance) – Since the seller assumes the risks of loss or damage to the merchandise up to the point of delivery, the buyer has no obligation to the seller to insure the merchandise.
DAP A6 / B6: DELIVERY / TRANSPORT / DOCUMENT
A6 (Delivery / Transport Document) – Assuming the costs, the seller must provide the buyer with any documents that the buyer needs to take over the goods.
In the case of Incoterm 2020 DAP, where the buyer must dispatch the merchandise, a copy of the seller’s transport document to verify the export and the date of shipment is an appropriate document to proof shipment has been executed from origin.
B6 (Delivery / Transport Document) – Buyer: For his/her part, the buyer must accept the document provided, as they are not actually involved in the transport process.
DAP A7 / B7: Export / Import clearance
A7 (Export / Import Clearance) – Seller assumes the risks and expenses and has to carry out all the export clearance procedures of the exporting country.
These include licenses or permits, as well as export security clearance, pre-shipment inspection; and any other authorization or approval that is required.
The seller is not obliged to organize any import clearance. However, if requested by the buyer, assuming the risks and expenses, the seller must help to obtain any documentation required by the import authorities, as well as any other official authorization or approval.
B7 (Export / Import Clearance) – Buyer must assist the seller at the seller’s request, risk and cost, to obtain any documentation and information required for export formalities required by the country of export. This also includes the formalities required by any country of transit.
the buyer must carry out and pay all the formalities required by the importing country. This is, from licenses and permits necessary for importation, to import clearance documents and security authorizations.
DAP A8 / B8: Checking / Packing / Marking
A8 (Checking / Packing / Marking) – The seller is the one who bears the costs of any verification operation necessary to deliver the merchandise. This includes from verifying the quality, to measuring, weighing, counting and / or packing the merchandise.
In addition, the costs for the packaging of the merchandise are borne by the seller. This is unless it is a type of merchandise that does not require packaging.
In addition, the seller must consider the transport of the merchandise and its correct packaging, unless it has been agreed that the merchandise must be packaged or marked in a specific way.
B8 (Checking / Packing / Marking) -The buyer is not obligated to the seller in regards to packing and marking. However, the buyer may want to provide the seller with special requirement such as labels, logos or the like.
DAP A9 / B9: COST ALLOCATION
A9 (Cost allocation) – Until the merchandise is delivered under the terms described in A2, the seller assumes all costs.
Transportation costs resulting from the contract of carriage, including the costs of loading the goods, as well as any warranty related to transportation, must be paid by the seller.
In addition, the seller also bears the cost of providing the buyer with proof that the merchandise has been delivered. Even if unloading at the agreed destination is included in the transport contract, the seller must still bear the costs.
The seller also pays export costs, duties, and taxes, where applicable, and related to export clearance and any transit clearance.
If the seller asks the buyer to provide information or documents to process the export or take out insurance, then the seller must pay the buyer for all these costs.
B9 (Allocation of costs) – The buyer is obliged to pay the seller all costs related to the goods from the moment of delivery.
Furthermore, if the buyer has requested the seller to assist in obtaining the necessary information or documents for import formalities, then the buyer must reimburse all such costs to the seller.
Where applicable, the buyer will pay duties, taxes and other costs related to import clearance. The buyer also bears the costs of unloading unless paid by the seller under the contract of carriage.
Furthermore, and provided that the seller has informed that the merchandise has been clearly identified as such under the contract, the buyer pays the additional costs incurred if the buyer does not notify the seller in time for place of delivery.
DAP A10 / B10: Notices
A10 (Notices) – The seller must notify the buyer of any notice that he requires to receive the merchandise.
B10 (Notices) – If agreed in the contract, the buyer must notify the seller well in advance of the time and point within the destination where delivery will be made.
The contract usually establishes the time in advance that must be given, which may vary depending on the mode of transport.
Incoterm 2020 DAP (Delivery at place): Quick Summary
The Incoterm 2020 DAP of the Incoterms® 2020 does not specify whether the place of delivery must be the buyer’s premises, although that is common use. The delivery of the merchandise must be made by the seller. They place the merchandise at the buyer’s disposal, on the arrival means of transport, ready for unloading at the agreed point.
The following advantages and disadvantages must be considered:
- Incoterm 2020 DAP is suitable both for internal trade and for transactions. However, it can be somewhat impractical for ocean trade.
- In maritime transport, the buyer must import and dispatch the merchandise, which is why it will generally be kept in a warehouse or Customs terminal until these procedures have been completed.
- Until the moment when the merchandise passes to Customs control in the importing country, the risks are assumed by the seller, but while they are under customs control, the risks are assumed by the buyer.
- If the buyer has a problem, with an improperly issued import permit that delays clearance, the buyer’s actions prevent the seller from making the delivery.
- In addition to when the goods are kept waiting for import clearance, the seller assumes the risks of order and damage to the goods.
- The seller is not obliged to the buyer to provide insurance, while the buyer has no insurable risk on the merchandise until delivery to the designated place.
- The most prudent thing for the seller is to insure the merchandise, although he/she may choose to self-insure, which means taking the risk himself/herself.
- In the 2020 DAP Incoterm, the seller is also responsible for any procedure that may occur in any country of transit.
- However, the seller is not obliged to give the buyer any transport document.
- However, when shipping is containerized by sea, import authorities may require a transport document.
- This document must show the date of export to calculate the value of the duty in your local currency.
- The disadvantage for the seller is that the merchandise may face problems during any import clearance.
- Furthermore, if the goods are lost in transit, the seller, assuming that he/she cannot replace the goods before the contracted delivery date, would violate his/her contract.
- Similarly, if the goods are damaged in transit, the seller would also breach the contract if he/she cannot repair that damage.
- Another disadvantage is that Incoterm 2020 DAP transactions are largely incompatible with payment using the typical letter of credit.
- There is also nothing to guarantee the seller’s position that the buyer will not seize the goods until the issuing bank has accepted the draw under the LC.
- After all, the seller’s transport remains awaiting unloading at the buyer’s designated place of delivery.
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