DAP (Delivered At Place) Incoterms® Rule
Sometimes our clients purchase goods with the DAP (Delivered At Place, replaced the former Duty Unpaid rule) Incoterm® where the shipper pays for the cost of delivery, and the shipper arranges for the steamship line to deliver the goods right to the consignee’s door. This sounds mighty convenient, but we don’t recommend it. From the following example I think you will see why.
Recently a client imported a full, refrigerated container of frozen food products from Europe. The security inspectors with Customs in Norfolk decided to schedule this container for a VACIS exam (a non-intrusive exam by gamma rays). In addition, an agricultural inspector with Customs in Norfolk decided to schedule a "tailgate" exam on this shipment. In other words, he wanted to open the doors and look inside.
Avoid Demurrage Charges
Steamship lines allow a limited number of days free time before they begin assessing demurrage (storage) charges. Typically, scheduled exam processes are slow. Knowing this and realizing that the last free day fell on Friday, we pressed the terminal to conduct the exams quickly. They were completed around 3 P.M. EST on Friday.
You’ll never guess the steamship line’s response when I told them the container was now ready for delivery! Their answer: “Sorry, we cannot dispatch a truck this late in the day. The container can’t be delivered until Monday. And oh, by the way, demurrage charges of $750 are due as of Monday!”
The steamship line had no incentive to expedite the container for Friday delivery. In fact, they had a $750 incentive NOT to have it delivered on Friday. If the buyer had used a more appropriate Incoterm® other than DAP, we would have been authorized to arrange the delivery. We would have phoned our trucker on Thursday to make sure he was able and prepared to deliver the container on Friday, even late in the day on Friday. If our regular trucker had been too busy, we would have called another company. Under the circumstances we had no leverage with the steamship line. They quite happily said, “No dice,” and collected the demurrage charges.
DAP Gives the Importer No Control
If the buyer had chosen to use any Incoterm® other than DAP (or the other D Term, DDP) we would have been authorized to arrange delivery. This goes back to the age old saying: The more control you exercise over your supply chain, the better off you are. When you lose control it can, and often does, cost you money.
Contributed by Patrick Gallagher
Gallagher Transport Int'l, Inc.
© 2008 Patrick Gallagher
Used by permission from "More Bankers' Insights on International Trade: 101 Practical Lessions."