Question

I would like to double check which Incoterms® rules are more accurate in the following scenario.

  • Goods are manufactured by a UK company and are of UK origin.
  • Goods are shipped to a French distribution centre.
  • From France, they are shipped to the UK company’s customers located in European countries (eg Germany, Austria, Switzerland, Czech Republic, the Netherlands, Belgium and Spain).

As the UK is a part of the EU, I believe currently there are not really any import clearance procedures and no customs duties to be paid. If this is the case there isn’t really either a “Delivered Duty Paid” (DDP) or “Delivered Duty Unpaid” (DDU) situation? I believe shipping to Switzerland is a bit different. Could you please advise which of two DDP or DDU Incoterms® will be more accurate for all of the above-listed countries?

Answer

Incoterms® rules do two main things, make the buyer or seller responsible for the transport and related costs and obligations, and determine a legal delivery point where the buyer becomes responsible for the loss/damage of the goods. You appear to be confusing the role of Incoterms® rules by linking them to the Customs Union agreement which means goods can freely move around the EU Member States if they are “in free circulation”. There are two ways goods can be said to be in free circulation.

  • They are wholly produced in the EU.
  • They were imported from outside the EU, but all relevant customs duties have been paid.

It was because of this type of confusion with terms such as “duty unpaid” that the International Chamber of Commerce (ICC) removed DDU from the current set of Incoterms® rules and replace it with Delivered at Place (DAP), thereby hoping this would be easier to understand that Incoterms® rules are not related to whether goods are in free circulation or not. So, the questions you have to address are:

  • Do you want to pay the freight from your French distribution centre to your customer’s country, to their premises, or do you want your customer to arrange and pay the freight direct with the transport company?
  • Where do you, as the supplier, want to transfer the risk of loss or damage to the buyer?

By using a term starting with “D” you are accepting the maximum risk and saying that you will pay freight to a named place in your customer’s country, which could be to their premises. As long as the goods are in free circulation and moving within the EU, DDP is not really relevant as there aren’t any customs duties within the internal Customs Union of the EU — so look at using DAP named place if you are happy to accept the obligations of costs and risk.

There is a difference with Switzerland, as you rightly point out. Switzerland is not a member of the EU and customs duties and taxes along with a declaration at export from the UK/EU and into Switzerland has to be taken into consideration. Unless you are established in Switzerland and can take on the role of importer then I suggest you avoid DDP terms and again look at DAP named place.

Source – Croners Wolters Kluwer Business

It’s imperative that all employees within an internationally trading company have a clear understanding of using and applying the Incoterms® 2010 rules to suit their business needs. Update your knowledge of Incoterms at our next Training seminar taking place on the 25th October 2017.

Bookings can be made by contacting Stephanie Warrington on 01254 356473 or [email protected]