Candid Conversation on DDP Shipping
So many of you asked or have the question: If my supplier is offering discounted shipping including duties should I choose it?
How is it possible for them to have shipping including the duties for so cheap?
The answer is I don’t know, and I frankly don’t want to.
But lets talk about it.
What is DDP?
DDP means delivery and duties paid. It means that the goods are delivered at your door with zero additional fees on you. The supplier covers everything, including shipping, duties, and final delivery.
So how they can offer this for significantly cheaper than what you would pay with the cheapest carrier and the duties? They most likely reduce the value of the goods (rightfully or not) and they may even change the classifications to have a cheaper duty rate.
They are not allowed to do this, to be clear, this is fraud. They are defrauding the US government and for a US citizens to defraud the government is a federal crime and can result in excessive penalties and often jail time. However since they are based in China,they can get away with fraud and not suffer the consequences of that of the US businesses.
Does It Matter?
Well, the definition of DDP means that you are buying it delivered at your door, which means you have no say or responsibility of how it gets to your door. It’s not even yours before it reaches your door. It’s like buying something off the shelf in Walmart. Do you have to ensure that Walmart properly classified this product when they imported it? No, why? Because you are just buying it and it was not yours prior to purchasing.
When it comes to customs, they are using their own importer of record name (either foreign entity or local entities that they can get for a dime in a dozen).
Now the difference here is if you know that your vendor is committing fraud you might be considered aiding and embedding but that’s only if you knew. What if you are led to believe that they are willing to lose money on your shipment in order to save your business with them? For all you know this might be the case.
If you discuss the codes and value submitted then you might be considered part of the crime, but if you are just arranging the incoterm to be DDP and let them figure out on their own how to handle it then you are not part of the crime.
However, be wary of them using your company or individual name when importing because even if you can claim that you did not know they are defrauding the government, it is done under your name and you are by law the responsible party to ensure the goods are in compliance. So the only way you are really not on the hook is if they don’t use your name and your company name on any of the shipping documents and you are just getting the goods delivered to your door.
Can I Trust It?
Well, according to the IMO, the DDP term means that the seller is responsible to deliver the shipment at your door, and if they fail then you either don’t pay or they have to replace the entire shipment to you. Even if the shipment gets damaged in transit according to IMO they are the ones taking the loss and will have to replace you with a substitute shipment.
However the world we live in is not always fair and your supplier might not be willing to adhere to IMO regulations. Especially that most suppliers will ask for prepayment before booking the shipment or at least delivering the shipment, how safe are you that after you paying them will they substitute your shipment if something goes wrong and the shipment is being confiscated by US customs? Well it boils down to trust I guess. And that’s a decision you have to make.
Another factor is the reliability of their shipping methods.Obviously carriers and forwarders who are willing to undertake shady business aren’t always as ethical with their other business practices (I do not by any means want to bash any freight forwarding just because they are my competition, I actively collaborate with some freight forwarders have many good things to say about many others but unethical ones are a different story) which means that their shipments have a bigger likelihood of being delayed, abandoned, mishandled, and whatnot. But back to my point earlier, since its under DDP your supplier officially is obligated to substitute your shipment if anything goes wrong whether its their fault or the carriers fault or customs fault, even a natural disaster would have them obligated to replace your shipment. But how much do you trust them?
How Long Can This Continue?
Part of the reason why the Chinese can easier exploit customs formalities is because they often exploit Section 321 which allows duty and tariff free treatment for low value goods under $800. This law is currently being worked on to be repealed at least for goods made in China, Canada and Mexico. Customs is building out their IT in order to be able to handle the volume these will require once Section 321 is eliminated.
There is not a definitive deadline for this but it will be soon, I would say 60-max 90 days.
So to summarize:
If you trust your supplier, why not get some shipments imported for a great discount?
Should you do all of your shipment with DDP? Well that depends on how reliant you are on your shipments to arrive on time. If you have time maybe do it; if you don’t have time then the questions is what’s going to be worse for you? Having it arrive on time at a higher cost considering you will have to pay the appropriate duties or later at a lesser cost? And then you can split, ship some at a discount and some at the real cost just so that you keep your supply chain intact.
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