Unpacking DAP: insurance gaps and risk transfer explained

Unpacking DAP: Insurance gaps and risk transfer explained

Delivered at Place (DAP) is a widely used Incoterm® in international trade. It offers a flexible allocation of costs and responsibilities, appealing to importers who wish to simplify the logistics burden by placing responsibility for transport with the seller. 

However, DAP is frequently misunderstood, particularly in relation to the allocation of risk of loss or damage to goods. These misunderstandings often give rise to critical gaps in insurance coverage, especially relating to import duties and unloading operations at destination.

It’s therefore vital to fully understand the nuances of DAP under the Incoterms® 2020 framework with a specific focus on the timing of risk transfer, the potential for uninsured loss, and best practice recommendations for mitigating exposures through effective insurance arrangements.

Where the journey ends: understanding delivery points in DAP

Under DAP (Delivered at Place) Incoterms® 2020, the place of delivery is the named place of destination, which must be clearly specified in the contract of sale to avoid ambiguity. Delivery is considered to occur when the goods are placed at the disposal of the buyer on the arriving means of transport, ready for unloading at the named place of destination. The seller bears all costs and risks associated with bringing the goods to a named destination, excluding the unloading of the goods.

Whilst the place of delivery typically depends on the nature of the goods, the transportation mode, and the agreement between the seller and buyer - the place of delivery typically tends to be the buyer’s warehouse, or another specified place or address provided by the buyer. 

Passing the helm – risk transfer under DAP

Under DAP (Delivered at Place), the seller bears all costs and risks associated with bringing the goods to a named destination, excluding the unloading of the goods. Whereas the buyer assumes responsibility from the point the goods are made available for unloading at the agreed place of destination.

As per the Incoterms® 2020 rules published by the International Chamber of Commerce (ICC), the precise moment of risk transfer is:

“…when the goods are placed at the disposal of the buyer on the arriving means of transport, ready for unloading at the named place of destination.”

This definition is deceptively simple and creates two important areas of risk that are often overlooked by importers:

1. The risk associated with import duties paid prior to delivery, and
2. The risk of loss or damage during unloading operations, which falls on the buyer.

Taxed without delivery: the import duty dilemma in transit loss

In many jurisdictions, import duties become payable once goods arrive and are customs cleared, which can often occur prior to delivery or unloading at the final destination.

Where goods are lost or damaged after import duties have been paid, but before they have been unloaded at the destination, the buyer stands to lose the amount of duty paid, which may or may not be refundable.

Key considerations:

• In some countries, duty refunds are available for goods proven to be damaged or destroyed prior to delivery.
• In other jurisdictions, or where procedural requirements are not met (e.g. failure to submit claims within prescribed time limits), duties may not be recoverable, even if the goods are never delivered.

Insurance Implications:

Importers should make sure their cargo insurance policy includes a “duty only” provision, which covers the value of duties separately from the insured value of the goods. 
Failure to do so can result in considerable non-indemnifiable loss.

The final haul: navigating buyer risk in unloading operations

Another commonly misunderstood aspect of DAP relates to the responsibility for unloading at the destination. Under DAP, the seller is not responsible for unloading the goods, and the risk remains with the buyer once the goods are available for unloading, regardless of whether unloading has actually commenced.

This has practical consequences. If goods are damaged during unloading (e.g. during forklift operations, mishandling, or accidental dropping), the buyer bears the risk.

A common mistake - many importers fail to declare DAP shipments to their transit insurer, erroneously believing that risk remains with the exporter until the goods are safely unloaded.

Smooth sailing with DAP: strategic tips for importers

To address these gaps and mitigate risk exposure, importers operating under DAP should:

1. Consider amending the Incoterm® to Delivered at Place Unloaded (DPU) whereby the seller bears the risks of loss/damage associated with bringing the goods to the named place of destination and unloading them thereat.
2. Review risk transfer timing under DAP in collaboration with legal and insurance advisors.
3. Educate internal stakeholders, including procurement and logistics teams, to prevent wrongful assumptions about the extent of seller obligations under DAP.
4. Explicitly declare DAP shipments to their cargo insurers to avoid unintended coverage gaps.
5. Arrange “duty only” cover in cargo insurance policies.

Conclusion

DAP Incoterms® 2020 provides clarity in international sales contracts, but the responsibility for understanding and applying those terms rests squarely with the parties involved. For importers, failing to recognise that risk of loss/damage transfers prior to unloading, and that import duties may be unrecoverable after loss, can result in uninsured losses.

Importers must take proactive steps to structure their insurance programmes to match their contractual obligations and actual exposure under DAP.