Logistics Consultancy

Case Study: DDP term in Vietnam and the potential risk

After more than twenty years in the logistics business, I have witnessed several cases that each one is totally different to the others. One of the case is the exporter sell on DDP term to a Vietnam customer without careful consultation and the freight forwarder has under estimated the situation. As a result, the loss arise from middle of no where. Some lesson can be learn from the following story.

It all began smoothly enough when a chemical producer wanted to sell their product to a buyer in Vietnam. The buyer is newly established and their staffs are not familiar with customs clearance. They would look for DDP term that possibly more convenient. This is an urgent case so the P.O is quickly signed and cargo is packed and ready to move by airfreight.

Booking is shortly fixed and after few days cargo is ready at Hanoi airport. Things were moving smoothly, what could possibly go wrong? Forwarder agent sent arrival notice & requested the document from consignee for clearance purpose.

Chemical is commodity that required import permit and pre-declaration in Vietnam. Customs office would request the permit from M.O.I.T (Ministry of Industry and Trade) before clearance. The process takes at least one week upon submission of application form and a copy of invoice. The shipment then was kept at the airport with very high storage charge since it’s dangerous cargo.

Thing is getting worse when it came out that importer has not registered e-customs account. E-customs is the informal name of VNACCS (Vietnam Automated Cargo And Port Consolidated System). It took 3 days more for registration and after 2 weeks, cargo was finally released.

Usually, the buyer would accept responsibility for their error. However, in this case, the buyer claim that under DDP term he has no responsibility to pay for the storage charge. It's the responsibility of the forwarder and the seller to be all aware of the import compliance and regulation for a smooth handling. He will only receive commodity delivered to his warehouse without paying any charge.

There is no happy ending for this story. Storage charge is up to USD 2,800 for 2-week time and in case the seller wants to ship the cargo back , the cost would be double due to time consuming paperwork.

This shipment cost seller close to $3,000 in additional charges – charges that no one could have anticipated. As a result, profit margin disappeared.

Fortunately, this situation doesn’t happen to everyone, but this experience for the seller was a nightmare.

However, following are steps that any party involving in exporting to Vietnam, can take reference for the possible occurrence of such bad luck

How can you avoid this? 

1/ Carefully check with a professional forwarding agent at destination about import compliance. Only send the shipment upon green light

2/ Be sure to give correct and adequate information about the commodity to customs broker (name of commodity, H.S code, M.S.D.S, catalog, volume and quantity …)

3/ Send all draft document to customs broker for checking before final issuance

4/ Make sure the consistence and accurate descriptions among all shipping documents

5/ Prepare and get a formal agreement with your buyer that states they are responsible for any additional charges that could be incurred if they are a result of their errors