In international delivery, there is the concept of "Incoterms 2010", it largely predetermines the rights of participants in the international delivery of goods, therefore, in this article we will tell you what delivery on the DAP terms is.
DAP (Delivered at Place) – in accordance with the Incoterms 2020 (International commerce terms) rules, DAP terms are one of the types of standard contracts for the international supply of goods and refers to the delivery of goods to the destination specified in the contract.
Incoterms rules apply when the seller or buyer is located in another country and foreign goods are supplied.
What does the DAP Incoterms rules application mean?
Incoterms mean that not only the terms specified in the contract will apply to the supply agreement, but also the standard terms specified in Incoterms rules for the corresponding type of agreement.
This means that in order to determine the rights and obligations under such an agreement, one should study both the terms of the supply agreement and the DAP Incoterms rules.
This scheme forms the characteristic features of an Incoterms rules supply agreement:
– DAP Incoterms rules do not replace the main contract. In order for this scheme to work, the essential terms of the supply agreement must be agreed in the agreement itself, then the supply agreement is considered concluded, and at the same time the Incoterms rules begin to operate.
– The rights and obligations of the parties to the supply agreement are determined according to the DAP Incoterms rules, but only in certain areas. So, the DAP Incoterms rules will determine the fulfillment of customs formalities when goods cross the foreign state border, cargo insurance, provisions on the direct transportation of goods.
– Liability and consequences of supply agreement violation are not governed by the DAP Incoterms. This is due to the fact that each country has its own civil law, and in the event of a dispute based on such an agreement, the applicable law will be the one of the country where the supply agreement violation has arisen. The Incoterms rules are not intended to combine all international legislation on the supply of goods, it only defines the rules that are uniform for all, used for overcoming transport and customs barriers by cargo.
– The DAP Incoterms rules do not define who owns the delivered goods. Such an erroneous opinion may arise when reading the Incoterms rules, which determine the unloading of goods at the destination, and you may decide that the risk of loss passes to the new owner at the time of unloading of the goods, but this is not the case. In reality, there are no international rules governing the ownership of the goods supplied. This issue will be resolved in accordance with the domestic legislation of the country.
Recommendations when concluding a supply agreement on the DAP Incoterms rules:
– Clarify in the contract who the owner of the cargo is and at what moment the so-called risk of loss passes to the buyer. In a broad sense, it is clear that the owner of the cargo is the Buyer, but questions arise when you come closer. For example, when does the Buyer become the owner of the cargo - when it is shipped or when it is received? What is considered “receipt” - shipment at the customs station, port or warehouse of the Buyer? Who bears the risk of damage to goods before they are received by the Buyer?
– Do not forget about expenses for cargo delivery and customs clearance. This is one of the most frequent matters of dispute under the supply contract.
– Prescribe in the supply agreement who undertakes to pay for the transportation costs. According to the DAP terms, it is clear that the Supplier is obliged to bring the goods to the Buyer's warehouse, it would seem that everything is clear regarding the transportation of the goods – these duties are performed by the Supplier. However, disputes arise when paying costs that are not directly related to the carriage of goods, but, for example, crossing the border by rail.
In our practice, we had a dispute when the Supplier was a Russian company, and the Buyer was a Chinese one. The dispute arose over the cost of transferring coal to other wagons at the border crossing. The fact is that this is a mandatory procedure that takes place at the Russian-Chinese border, since the railway gauge of Russian transporter wagons differs from Chinese ones. This forced to pay additionally for coal transshipment, which amounted to 30,000 rubles for each wagon. The supply agreement did not indicate anything about these costs, therefore the Supplier, having paid these costs, issued an invoice to the Buyer for the coal transshipment costs to other wagons.
There is a similar example in an Incoterms FOB (Free on Board) supply agreement.
When transporting bulk cargo (crushed stone, grain, coal) by sea, at the end of filling the hold, a cone is formed, which, according to the sea rules for the carriage of cargo, must be leveled. This procedure is called “stowage”, and it is not always carried out by the port or the ship's crew free of charge. At the same time, the captain cannot set off on a voyage without stowing the cargo on the ship, so the ship's crew performs it, and then it sends an invoice to the Supplier to pay for these services. Disputes often arise between the Buyer and the Supplier about who should pay for these services, if these conditions are not agreed in the contract.
– Specify in the DAP delivery agreement the terms of liability for delayed delivery or delayed payment for the goods. The fact is that the civil code of the Russian Federation and many other countries does not provide for forfeit or penalties for late delivery of many goods. In this regard, a situation may arise when the contract terms are violated, and no type of liability can be applied, because it is not provided for by the contract. In order to avoid this, it is highly advisable to indicate such details.
Thus, the DAP Incoterms delivery agreement protects the participants to the international delivery of goods at key points in the transportation of goods, but does not regulate in detail all the circumstances of the delivery of goods, as well as liability for violation, therefore, the development of such an agreement and protection in case of violation requires significant work.
Our lawyers are experienced in working with DAP delivery contracts, as well as in international disputes, so you can rely on our qualified opinion:
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