DAP Import and Port Dues – who pays?
(exports are addressed in closing) Port Dues, in the context of the question, is the fee raised by the port authority on cargo transiting the port area. Previously, this was referred to as wharfage, and you might encounter either phase (or others) elsewhere in the world.
Sometimes (as in South Africa) Port Dues are a flat fee per container. In other instances (as was the case previously with wharfage), the fee might be based on the value, volume or weight of the goods.
Determining the answer to the question requires only to consider the cost implications of DAP, and therefore the risk implications of DAP can be discounted.
Throughout this answer it is assumed that the seller and buyer are using Incoterms 2020, have a written agreement to enforce this choice and have written the term correctly – referencing the rules (which condition I have excluded in my reply, for brevity).
One way to interpret or understand DAP from a cost point of view is to summarize that the seller is responsible for all costs, both those arising from physical activity and administrative activity, until the moment of the cargo’s first arrival in the country where the destination place is located.
Thereafter, the seller is accountable for all costs related to the physical movement of the goods from the place of first arrival to the place of final destination expressed in the commercial term (should these be different places), whereas the buyer will take the costs of any administrative action in the destination country (such as import clearance and the payment of duties and taxes as applicable).
Given that Port Dues are incurred as a consequence of a physical event in the destination country, it is crucial to then determine if these costs are incurred before or after the goods get to the Named Place incorporated in the commercial term, and in this, the answer can be found only if the commercial term is written correctly.
In some cases, the point of first arrival might also be the ultimate destination place (from the seller’s perspective), however, often the ‘Named Place’ is a point inland, beyond the moment of first arrival in the destination country.
Consider the place name “Durban” for example, in a seafreight model. Durban is the name of a seaport, and also the name of a city. If the Incoterms rule was written “DAP Durban” this would be open to interpretation and provide fertile ground for dispute – do the seller’s costs end in the seaport of Durban or somewhere in the city of Durban?
Further, even if we said the intention of the parties was to reference the seaport of Durban, there is the further complication of whether this is ship’s side (i.e., with the cargo still on the arrived vessel), or landside (i.e., on the port, discharged from the vessel).
Broadly, the physical chain of a seafreight import comprises –
- International Carriage (the freight), which ends on vessel arrival,
- THC (Terminal Handling Charge) which is levied to discharge the container onto the port or harbour,
- Port Dues, which as stated are incurred transiting the port area,
- Railage / Cartage (as applicable), which covers the onwards movement to a final destination.
By segmenting the supply chain into these four components, the Named Place in the term will guide on which party bears which physical cost.
Accordingly, if the term is written “DAP Durban seaport, ship’s side”, the seller would pay only the first component of these four, that is the freight, therefore the buyer would pay the THC and the Port Dues, plus the on-carriage.
However, had the term been written “DAP Durban seaport, discharged”, the seller would pay the first and second components, that is the freight and the THC, but the buyer would pay the Port Dues and the on-carriage.
Again, if it was written “DAP 23, XYZ Street, Durban” (an inland location, beyond the port area) the seller would pay the freight and the THC, and the Port Dues as well as the local cartage to the Named Place.
It all comes down to how the Incoterms rule is expressed or written. If we can identify a physical place, all physical costs prior to that point will be for the account of the DAP seller.
But be careful; a phrase like “discharged” is not defined in Incoterms. In the example of “DAP Durban seaport, discharged”, the intention is to express that the seller has the risk and cost for the container to be discharged from the vessel – yet it is equally possible that another party might read “discharged” to refer to the unpacking of the container too. Words are important, and the sales contract would need to be far more specific than I need be in this broad response to the question.
The most important point, however, is to bear in mind that a commercial term endeavours to privately regulate certain aspects of the contract between the seller and buyer. It has no bearing on the Forwarder or the Clearing Agent, parties who often incur the Port Dues (and other related charges) on behalf of their principal.
A Forwarder may work for the shipper (export) or the consignee (import), whereas a Clearing Agent may work for the export or importer. These names are important – the service-provider never works for the seller or buyer, and so the terms of the private contract agreed between the seller and buyer have no bearing on the service-provider’s contract with their client (who in the example might be the consignee or the importer).
For example, if a Clearing Agent disburses the Port Dues, then the importer (the party who has signed the clearing instruction) is obligated to reimburse the Clearing Agent. If the importer, in their unconnected and coincidental role as the buyer feels that the DAP seller should bear this cost, then that is a private argument / negotiation that they need to have, as the buyer, and directly with the seller in the context of the whole terms of their private sales agreement.
A commercial term has no bearing on any other contract bar the sales contract in which it is incorporated – in simple terms, the importer can’t quote the buyer’s Incoterm, and understanding of DAP (in this example), to somehow ‘deflect’ the Clearing Agent’s invoice.
In summary, look to the detail of the ‘Named Place’ and determine if the cost arises before or after that point, and whether it is a physical or administrative cost. If it is a physical cost before the Named Place, it falls to the seller – if after, it falls to the buyer.
A small note for exports regarding who pays the Port Dues under various export terms. Note that as FAS is by definition within the port, alongside a docked vessel, and FOB is by definition on board the vessel, there would be no need to specify “ship’s side loaded” or “landside pre-loading” (etc.) when writing out or expressing the term.
In seafreight, an FCA export requires a Named Place, being a point prior to the seaport restricted area, whereas an FAS contract requires the naming of a seaport, as does an FOB contract term – with these latter two perhaps also naming a specific vessel or wharf area within the seaport.
In the FCA sale, the seller pays for the physical pre-carriage to handover, the buyer pays all costs thereafter, in our example, Port Dues, THC and ‘freight’.
In the FAS sale, the seller pays the pre-carriage costs and the Port Dues, the buyer pays the balance of THC and freight.
In the FOB sale, the seller pays the pre-carriage, the Port Dues and the THC; the buyer settles the ‘freight’.
Again, this does not mean to say that shippers or exporters may not first incur these costs. The question is whether, having incurred them, they have recourse to the buyer though the terms of a private sales agreement.
Source: Freight Training