Imagine this: you place a $40,000 order with an overseas supplier in March. By the time the goods ship in September, the tariff rate on that product has doubled — and somebody owes Customs thousands of dollars more than either of you budgeted. Who? The answer was decided months ago, in three letters buried in your purchase contract: EXW, DAP, or DDP. If you do not know which one your order uses, you may be one rate change away from a surprise bill.
These three-letter codes are Incoterms, the standard trade terms published by the International Chamber of Commerce (ICC). The current version, Incoterms 2020, defines 11 rules that split up transport costs, risk, and — critically — customs duties between buyer and seller. Here is what every small business that imports needs to know about who pays the tariff.
The One Rule That Matters Most: Only DDP Makes the Seller Pay the Duty
Of all 11 Incoterms rules, exactly one puts import duties and taxes on the seller: DDP (Delivered Duty Paid). Under every other rule, the buyer — you, the importer — bears the import burden, including any new or increased tariff that takes effect while your goods are in transit. The ICC said so explicitly in its 2025 guidance on managing tariff risk: DDP is unique, and for all other terms the buyer absorbs changes in tariff schedules.
That single fact reframes every import negotiation. If your contract says DDP, tariff volatility is your supplier's problem. If it says anything else, it is yours.
The Three Terms Small Businesses Actually Meet
You do not need to memorize all 11 rules. Nearly every small-business import uses one of three, and they form a spectrum from maximum buyer responsibility to maximum seller responsibility.
EXW (Ex Works): You Handle Everything
Under EXW, the seller's job ends at their own factory door. They make the goods available — typically at their warehouse — and from that moment every cost and risk is yours: loading, freight, export clearance, import clearance, duties, and insurance.
EXW gives you maximum control over logistics, which is why experienced importers with their own freight forwarders sometimes prefer it. But it is the worst term for tariff exposure: you are the importer of record, you classify the goods, and every dollar of duty comes out of your pocket. The ICC notes that EXW is most practical for domestic trade; using it across a border can create customs and tax complications for both sides. If you buy EXW, you should already have a customs broker lined up before the goods leave the supplier's premises.
DAP (Delivered at Place): Seller Ships, You Clear Customs
Under DAP, the seller arranges and pays for transport all the way to the agreed destination — often your warehouse — but you handle import clearance and pay the duties and taxes. Risk transfers when the goods arrive, ready for unloading.
DAP is the middle ground that is quietly becoming the default for international small-business trade. The seller manages the freight they know best, while the buyer — who is registered with their own country's customs authority — handles the import formalities they are legally best positioned to handle. Just remember: the freight is "free" to you, but the tariff bill is not.
DDP (Delivered Duty Paid): The All-Inclusive Price
Under DDP, the seller handles everything: export clearance, freight, import clearance, duties, and taxes, delivering goods to your door with all charges paid. It is the maximum-obligation term for the seller and the simplest experience for the buyer — one price, no customs paperwork, no surprise duty bill.
That simplicity is exactly why DDP deserves a closer look before you celebrate it.
Why DDP Got Dangerous — For Sellers First
When tariff rates were stable, DDP was a comfortable seller promise: quote one landed price, absorb the predictable duty, and pocket the margin. In a volatile tariff environment, that promise can turn into a loss on every shipment. A supplier that quoted DDP prices assuming a 10% duty and now faces 25% must either eat the difference or try to renegotiate mid-contract.
That is why many suppliers are quietly shifting their standard terms from DDP to DAP — a move the ICC's tariff-risk guidance explicitly endorses as a way for sellers to avoid duty exposure. If your longtime supplier's new quote suddenly reads "DAP" where it used to say "DDP," that is not a clerical change: it is a transfer of tariff risk from them to you. Price the difference before you sign. A DAP quote that looks 15% cheaper than last year's DDP price may be no bargain at all once you add the duty bill you now owe.
Why DDP Can Still Bite You as the Buyer
DDP sounds like the buyer's dream — the supplier pays the duty, so what could go wrong? More than you might think.
You lose control of the customs entry without losing all of the exposure. Under DDP, the seller (or their agent) acts as the importer of record, classifies the goods, and declares the value. If they misclassify the product or understate its value to pay less duty, U.S. Customs and Border Protection assigns accountability to the importer of record — but enforcement scrutiny does not always stop there. Trade compliance attorneys warn of a "DDP trap": buyers who enjoyed suspiciously low all-in prices can find themselves answering questions about entries they never saw, with negligence penalties running to twice the lost revenue (or 20% of the goods' value) and gross negligence penalties up to four times the loss. "Trust but verify" is the rule: ask your DDP supplier for the entry documents and confirm the classification of your own products independently.
You cannot claim trade remedies you do not know about. Duty drawback refunds, preferential tariff programs, and free-trade-agreement claims generally require the importer of record's participation. As a DDP buyer, that is not you — so money that could have come back stays on the table.
Delivery can stall at the border with no lever in your hands. If your foreign seller struggles with import formalities in your country — and in some countries foreign entities face real legal barriers to acting as importer — your goods sit while someone three time zones away sorts out paperwork you could have cleared in a day through your own broker.
None of this means you should refuse DDP. It means you should treat a DDP price as a bundle worth unwrapping: ask what duty rate the supplier assumed, who their customs broker is, and whether you will receive copies of the entry filings.
The Bookkeeping Angle: Duties Are Part of Your Inventory, Not an Expense
Here is the accounting point most small importers miss: import duties are not a period expense you deduct when paid. Under U.S. GAAP (ASC 330), inventory cost includes all expenditures incurred to bring goods to their existing condition and location — which means duties, freight, and insurance are capitalized into inventory as part of landed cost, then flow into cost of goods sold only when the goods sell.
A practical example: you buy goods for $100, pay $10 in freight and $11 in duty. Your inventory cost is $121 per unit, not $100. Sell it for $200 and your gross profit is $79 — but only if your books captured the full landed cost. Importers who book the supplier invoice to inventory and dump the broker's duty invoice into "miscellaneous expense" understate inventory, overstate early-period expenses, and cannot see true product margins.
This matters even more under DDP: when duty is buried inside one all-in supplier price, you still need the breakdown. Without it, you cannot verify the duty actually paid, cannot benchmark freight costs, and cannot model what happens to your margin if the next order switches to DAP. Ask for the split on every DDP invoice, and post duties to an inventory clearing account — not to expense — so each shipment's landed cost is traceable.
A Practical Playbook for Your Next Import Contract
1. Name the rule, the version, and the place — in writing. "DDP" alone is not enough. Write "DDP 123 Warehouse Lane, Austin TX, Incoterms 2020" so there is no dispute about where delivery happens or which rulebook applies. Older contracts sometimes cite retired terms like DDU (replaced by DAP in 2010); update them.
2. Add a tariff-change clause. In volatile times, a fixed DDP price is a gamble for both sides. A simple clause — "if the applicable duty rate changes by more than 3 percentage points between order and entry, the price adjusts by the duty difference" — keeps the deal fair and prevents mid-shipment renegotiation fights.
3. Match the term to your capabilities. New to importing with no customs broker? DDP from a reputable supplier is the safer start — but verify their entries. Have a broker and want control over classification and trade-program claims? DAP or even EXW can save money and keep you in charge.
4. Vet the broker, not just the supplier. Under DAP and EXW, your customs broker is the person standing between you and a misclassification penalty. Under DDP, find out who the seller's broker is — their competence is your risk.
5. Keep every entry document for at least five years. CBP's recordkeeping requirement falls on the importer of record, but a prudent buyer keeps copies of everything regardless of the term. If questions arise years later, "the supplier handled it" is not a filing system.
Common Mistakes to Avoid
- Assuming the freight forwarder pays the duty. Forwarders move goods; somebody still owes Customs. Confirm in writing which party that is.
- Signing DDP with a seller who cannot clear your country's imports. A foreign supplier with no presence, broker, or importer registration in your country may promise DDP and fail at the border. Ask how they clear before you rely on it.
- Using EXW internationally to "keep it simple." EXW pushes export clearance onto a buyer who may have no legal standing to perform it in the seller's country. FCA usually does the same job with fewer traps.
- Forgetting the named place. "DAP USA" is an argument waiting to happen. Name the exact address.
- Treating a DAP quote and a DDP quote as comparable. They differ by the entire duty bill. Normalize to landed cost before comparing suppliers.
Keep Your Landed Costs Organized From Day One
Every import decision — EXW, DAP, or DDP — eventually becomes a bookkeeping entry, and the importers who thrive are the ones who can see their true landed cost per shipment instead of discovering it at tax time. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data — no black boxes, no vendor lock-in. Get started for free and see why developers and finance professionals are switching to plain-text accounting.
