Change of delivery terms in US contracts from DDP to DAP. What is worth knowing?

Many UK suppliers who previously supplied from the UK before leaving the EU have had to deal with new, unfamiliar terms of supply when trading with the EU as non-EU exporters.

Import VAT has become a new challenge as it is 'non-deductible' for a UK supplier making a DDP supply to the EU without adequate EU VAT fiscal arrangements to report and pay import VAT.

Delivering DDP goods to the US is also fraught with difficulties, particularly due to the volatile and unpredictable new import tariffs in the US.

As contract delivery dates have to be met and goods are ready to be exported, UK exporters who have committed to deliver on DDP terms are looking for ways to manage the variable costs of DDP - costs that are often unclear when the goods leave the UK.

Some UK suppliers have changed the Incoterms® notation from DDP to another in the export documentation, leaving the US customer to deal with the import. However, this is not a recommended practice unless the trade agreement has been amended accordingly at the same time.

If a US importer does not keep a close eye on how its agent manages imports, it may take some time before it notices an increase in costs. It's a bit like a British exporter blowing a fuse and quickly walking away.

Some UK exporters may prefer a more considered approach to changing the Incoterms® condition from DDP, as the change may significantly affect their US customers.

Changing the condition from DDP, where the onus is on the UK exporter to complete the paperwork and pay the import costs, to DAP (Delivered at Place) shifts this obligation to the US recipient.

 

Force Majeure

If the export contract contains a 'force majeure' clause, it will be crucial to check its definition in the terms of the contract.

Traditionally, these clauses have included acts of nature, adverse weather conditions (affecting delivery) and war.

Over time, these definitions have evolved and often now include other events, such as acts of terrorism, changes in government policy or government approaches to border control or exports.

Steps to consider:

• Checking contractual conditions.
• The terms and conditions of acceptance may allow for a change to the Incoterms® rule or refer to a superior contract containing a force majeure clause.
• If such a clause exists, you should look at its definition in the contract. Then assess whether force majeure can be invoked to renegotiate the terms of supply from DDP to DAP, which would be more favourable to the UK exporter.

Note: The Executive Orders (Executive Orders) published by the White House are largely based on provisions relating to US national security. This may strengthen the argument that the clause contingent on a change in US trade policy applies here.

 

Negotiating a new sales contract

When negotiating a sales contract involving supplies to the US, it is crucial to include trade control measures in the contract checklist. One of the most important factors is the origin of the goods.

US tariff measures are heavily dependent on country of origin, so accurate origin information is crucial for customs compliance and cost control. Import declarations require verified origin data and errors can lead to delays, penalties or unexpected customs costs.

To mitigate these risks, it is important to ensure that export documentation contains precise and verified origin information, especially for goods subject to the evolving US trade measures.

To sum up: Do not treat origin information as a secondary issue. Include this aspect in your contractual requirements from the outset to protect your supply chain and ensure smooth customs clearance. Contract terms should be consistent with any related procurement terms.

Do you have questions? Call your J.DAUMAN LOGISTICS LTD expert.