Incoterms
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3 INCOTERMS
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3.1 Key Concepts Incoterms (a shortening of international commercial terms) are internationally recognised and accepted, standard-form contract terms that parties to international commercial contracts can incorporate by reference in their sales contracts. The International Chamber of Commerce (ICC), based in Paris, usually publishes a new set of ICC incoterms each decade. The most recently published are the 2010 ICC incoterms. The ICC incoterms set out the obligations of the seller and the buyer regarding issues including: The buyer’s obligation to pay for the goods The seller’s obligation to ensure the goods conform with the contract Possibly the obligation to obtain insurance regarding the carriage of goods The point in time when the risk of loss or damage to the goods passes from the seller to the buyer.
3.2 What is Covered in this Chapter This chapter deals with: The range of obligations regarding delivery of the goods under a sales contract that each of the incoterms seeks to address How these obligations are shared differently between seller and buyer for each of the 11 ICC incoterms When it is appropriate to use each incoterm.
3.3 Introduction In a contract for the sale of goods, perhaps the most significant obligation on the seller is to arrange the delivery of goods it sells. In return, the buyer has the obligation to pay the agreed price. International sales of goods pose special problems for the seller in fulfilling its delivery obligations. These include problems that might arise regarding the transportation of the goods; clearing goods through customs in both the exporting and importing countries; the associated costs; and the point at which the risk of loss or damage to the goods passes from seller to buyer,
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with consequent implications for insurance. A moment’s reflection reveals that these various subparts of the delivery obligations can be combined in numerous ways, thereby making the drafting of a delivery clause in an international contract of sale a rather complex task which, if not performed well, could lead to many misunderstandings and potential disputes. In order to introduce some standardisation into delivery obligations in international sales, the ICC devised what is known as the ‘incoterms’ in 1936. The word ‘incoterms’ is an abbreviation of ‘international commercial terms’, even though the the most recent set of incoterms makes it clear that they can be used for both international and domestic sale of goods transactions. The incoterms have been revised several times since 1936 to reflect changes in international trade practices. The revisions tend to occur every ten years or so. The most recent version is the ICC 2010 Incoterms, which came into effect on 1 January 2011, replacing the ICC 2000 Incoterms.1 The 2011 version has 11 sets of delivery obligations. Most international contracts for the sale of goods select one or other of these terms to define the parties’ obligations regarding delivery of the goods being sold. The parties to a contract may select a particular incoterm and incorporate it by reference into their contract. A commonly used incoterm for sending goods by sea is the FOB, or ‘free on board’ incoterm. Under this incoterm, the parties agree that the risk of loss or damage to the goods shifts from the seller to the buyer at the point in time when the goods pass over the rail of the ship carrying the goods at the port of embarkation. The parties might incorporate the term by reference in several ways. For example, a person proposing to buy goods might send a purchase order (an offer) to the proposed seller that includes the following: ‘Trade and Shipping Terms: FOB, Sydney Australia, Incoterms 2010’. If the offer is accepted without amendment, the standard set of ICC Incoterms 2010 will be included in the terms of the sales contract. The incorporation by reference of incoterms is a practice that is clearly sanctioned by the CISG in Article 9, which allows parties to bind themselves by reference to practices that are widely used in the international trading community for similar types of sales. The titles of the 11 incoterms are listed below. It can immediately be seen that they fall into four groups: E terms, F terms, C terms and D terms. The significance of this division will become apparent in the discussion that follows. The incoterms are expressed in three-letter coded form as follows:
EXW (Exworks) FCA (Free Carrier)
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FAS (Free Alongside Ship) FOB (Free on Board) CFR (Cost and Freight) CIF (Cost, Insurance and Freight) CPT (Carriage Paid To) CIP (Carriage and Insurance Paid To) DAP (Delivered at Place) DAT (Delivered at Terminal) DDP (Delivered Duty Paid).
The 2010 Incoterms introduce a number of amendments to the Incoterms 2000. The 2010 Incoterms:
Clarify who is responsible for payment of terminal handling costs. Previously, these costs were sometimes included in the carriage costs paid by the buyer, while the carrier or terminal operator also charged the buyer these same costs. The new rules aim to reduce the risk of double-charging the buyer. Allow for paper communication to be replaced with an ‘equivalent electronic record or procedure’ if the parties agree or where it is customary practice to do so. This will prevent parties from refusing electronic communications such as emails. Include provisions allocating responsibility between the buyer and seller for obtaining, or assisting to obtain, customs and other clearances. Provide for circumstances in which cargo is sold during transit. Previously, the incoterms tended to assume that the seller was in a position to ship the goods. This is often not the case if the goods are sold in transit. The 2010 Incoterms provide an option to enable the seller to procure goods that have been shipped as an alternative to the obligation to ship the goods. Formally recognise that the incoterms may be used for both domestic and international sale of goods.
Changes have been made to the insurance requirements under the CIF and CIP incoterms. The 2010 Incoterms retain the obligation that existed in the earlier versions for the seller to obtain only the minimum cover under the Institute Cargo C clauses or equivalent. Often, the buyer will want to include an express requirement in the sales contract for higher insurance coverage, such as the Institute Cargo A clauses.2 The amended CIF and CIP terms specifically require the parties to exchange information about insurance, so as to draw the parties’ specific attention to the issue of the intended level of coverage.
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See chapter 6 for a discussion about cargo insurance, including the Institute Cargo Clauses.
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3.4 The Range of Obligations Addressed by the Incoterms The 2010 Incoterms divide into two broad categories: those that provide terms for any mode of transportation – EXW, FCA, CPT, CIP, DAP, DAT, DDP; and those that provide terms for the transportation of goods on the sea and inland waterways – FAS, FOB, CFR, CIF. Each of the incoterms sets out a number of obligations applying to the seller and obligations applying to the buyer. As examples, the first obligation on the seller under the EXW incoterm is: A1 Provision of Goods in Conformity with the Contract The seller must provide the goods and the commercial invoice, or its equivalent electronic message, in conformity with the contract of sale and any other evidence of conformity which may be required by the contract.
The first obligation on the buyer is: B1 Payment of the Price The buyer must pay the price as provided in the contract of sale.
There is a total of nine obligations for the seller and nine for the buyer under the EXW incoterm. Each incoterm contains nine or ten obligations for the seller and nine or ten obligations for the buyer. The obligations are summarised in this chapter.
3.4.1 Conformity of the Goods with Contract and Payment of Price In each of the 11 incoterms, including the EXW incoterm quoted in [3.4], the first obligation on the seller is to provide the goods and the commercial invoice or its equivalent electronic message in conformity with the contract and any other evidence of conformity that may be required under the contract. In each case the buyer has an obligation to pay the price under the contract.
3.4.2 Licences, Authorities and Formalities This subpart of each incoterm is used to allocate the responsibility for obtaining the various government approvals between the parties. For most of the 11 incoterms, responsibility for fulfilling export formalities lies with the seller, but responsibility for obtaining import licences lies with the buyer.
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3.4.3 Contracts of Carriage and Insurance The obligation to arrange the contract of carriage and insurance differs markedly among the 11 incoterms. Generally speaking, this obligation falls on the buyer in the case of the E terms and the F terms in the list in [3.3], but on the seller in the case of the C and D terms. It needs to be noted that for the most part the obligation to arrange the contracts of carriage follows the obligation to pay for the carriage.
3.4.4 Delivery This obligation sets out in detail what the seller must do to discharge its obligations regarding delivery. In other words, it sets out where the goods have to be delivered to, whether this is to a carrier, alongside a ship, or even to the buyer’s premises. For the buyer, this obligation sets out what the buyer must do to fulfil its obligations regarding accepting delivery of the goods.
3.4.5 Transfer of Risks This subpart of each incoterm defines the point at which the risk of loss or damage to the goods passes from the seller to the buyer. For the most part the transfer of risk occurs at the point of delivery. As such, it has important implications for insurance and the legal remedies available under the contract of sale and its governing law. The point at which transfer of risk in the goods occurs is not necessarily the same point at which transfer of ownership occurs. While the incoterms deal with transfer of risk, they do not deal with transfer of ownership. The CISG is also silent on this matter. Thus, the parties need to consider whether a clause setting out the point at which ownership is transferred needs to be included in the contract. This might be advisable in order to give the seller the right to resell the goods should any default occur on the part of the buyer through, for example, failing to accept delivery.
3.4.6 Division of Costs This subpart of each incoterm is closely related to the obligation to arrange the contract of carriage and insurance. The costs of carriage tend to fall on the seller in the C and D terms but on the buyer for the E and F terms. The cost of insurance is more variable.
3.4.7 Notice This subpart provides that the seller has to give notice to the buyer when its delivery obligations have been or will be completed so that the buyer can arrange to accept
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delivery. Likewise, if it is the buyer’s obligation to arrange transportation, then the buyer must notify the seller of the arrangements that have been made. The buyer will normally only be responsible for arranging transport under the E and F terms.
3.4.8 Proof of Delivery The seller has the obligation to provide proof of delivery to the buyer. This will often be necessary to enable the buyer to collect the goods. It also constitutes the evidence that the seller has fulfilled its obligation to deliver the goods. Usually the proof that delivery has occurred will be the formal transport document issued by the carrier. This subpart of each incoterm specifically allows for documentary proof of delivery in electronic form if that has been agreed between the parties.
3.4.9 Checking Packaging and Inspection This subpart divides responsibilities between the seller and the buyer in relation to packaging the goods and inspecting the goods. Thus, the seller has the obligation to adequately pack the goods as well as pay for any checking of the goods that needs to be completed by the carrier. The buyer is responsible for inspecting the goods. This division of responsibilities is uniform across the entire 11 incoterms.
3.4.10 Other Obligations Where an incoterm sets out additional obligations it makes it incumbent on the seller to assist the buyer in obtaining all documents that can only be issued in the country of export but that are nonetheless necessary to ensure that the goods can leave the country of export or enter the buyer’s country. This subpart refers only to those extra documents that the buyer needs. The seller still has to provide the basic documents to prove delivery as noted above. However, if extra documents are required to enable the goods to meet import requirements in the buyer’s country, then the buyer has to pay any costs associated with these documents. An example here might be a certificate of origin that is required by importing authorities in the buyer’s country but can only be issued in the seller’s country.
3.5 The Incoterms 2010 As noted above, the incoterms can be divided into four groups. The E terms are those most favourable to the seller because the buyer is responsible for collecting
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the goods from the seller’s premises and all transportation and other arrangements thereafter. At the other end are the D terms, which are the most favourable to the buyer. Under the D terms the seller will be responsible for getting the goods onto the wharf in the buyer’s country and, depending on the D term that is used, may even be responsible for import clearance, customs duties and delivery to the buyer’s premises. The F and C terms are ‘middle-ground’ terms. The F terms are slightly more favourable to the seller because once the goods are handed over to the carrier the buyer bears all costs from then on. The C terms are more favourable to the buyer because the seller has to pay the main transport costs. What follows is a discussion of each of the 11 incoterms and some pointers about when each might be appropriate when exporting goods from Australia.
3.5.1 ‘E’ Terms Incoterms 2010 contain only one E term: Exworks. If the parties have agreed that this term will apply to their delivery obligations, then the seller simply has to place the goods at the disposal of the buyer at the named place of delivery. Thereafter, the buyer bears all risks and costs. If using this incoterm, the parties should specify the place where the buyer is to collect the goods. The incoterm also provides that the seller has to give the buyer sufficient notice as to when and where the goods will be available for collection. The notice provision is therefore particularly important because once the notified date arrives the goods will be deemed to be at the disposal of the buyer and the buyer will therefore bear the risk of loss or damage to the goods from that day forward. If using this incoterm, it is also useful to specify whether the seller has to assist the buyer with loading of the goods and, if so, to specify that this be done as agent for the buyer, so as not to affect the provisions in the incoterm regarding the transfer of risk. This incoterm is most likely to be used where there is a seller’s market for the goods or when the goods have been tailor-made for the buyer. It is understandable that in ordinary international sales of goods from Australia, buyers would be reluctant to agree to this incoterm given the high costs of transportation that apply because of Australia’s geographic distance from most major overseas markets and the possible variations that might occur in those costs between the date of contract and the date when the goods are actually ready to be collected by the buyer. In addition, while the seller is obliged to assist the buyer to obtain customs clearance for the export of the goods, the buyer takes a significant risk that clearances might not be issued in time for the transport arrangements that have been made. As chapter 7 shows, there are serious logistical difficulties for an overseas buyer attempting to apply for customs clearance. For that reason the buyer relies heavily on the seller’s obligations to render assistance in this regard. If the goods being sold are
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restricted goods under the Export Control Act 1982 (Cth), it seems even more unlikely that a buyer would be prepared to rely on the seller obtaining the necessary permits. Again, chapter 7 shows that it would be almost impossible for a buyer to obtain those permits itself. Thus, the Exworks incoterm is unlikely to be used in ordinary sales of goods unless the buyer has agents or a presence in the exporter’s country to attend to these logistical and procedural matters.
3.5.2 ‘F’ Terms Incoterms 2010 have three F terms. Of these, only one is appropriate for multimodal or air transportation: FCA. The reason is that the other two F incoterms (FAS and FOB) specify the point of delivery as either alongside the ship (FAS) or on board the ship (FOB). Thus, if the goods are delivered to a carrier at some point inland from the port, the FCA incoterm should be used. Since most international sales of goods from Australia (other than commodities) are now transported using containers that are delivered to a container depot and from there to a ship, or are delivered to an air carrier’s depot, the following discussion places emphasis on the FCA incoterm. The incoterm FCA (Free Carrier) places the onus on the buyer to nominate a carrier to whom the seller must deliver the goods and a place at which the delivery should occur. ‘Carrier’ is defined widely enough to include freight forwarders who enter into contracts of carriage but actually subcontract the various parts of the carriage to other transport operators. Carrier could also mean an airline or a multimodal transport operator. The details of each of these types of carriers are discussed in chapter 5. The incoterm places responsibility on the seller to arrange for customs clearance of the goods and any export licence that may be required. If using this incoterm it is important for the buyer to give precise instructions to the seller about the time, place and name of the carrier, because this has implications for the division of risk and costs. If the named place is the seller’s premises, then delivery will be complete when the goods are loaded onto the carrier’s vehicle, with the seller bearing all risks and costs up to that point. If, however, the buyer requires the seller to deliver the goods to a depot operated by the carrier, delivery will only be complete once the goods arrive at the carrier’s depot. Thus, the seller will be responsible for loading the goods at its premises, arranging for transport to the depot and covering any insurance for the journey. If the buyer fails to nominate a place for delivery to the carrier, the seller has the right to select a place it considers convenient. Although the buyer bears responsibility for arranging and paying for the transport costs after delivery to the carrier, it is often more practical for the seller to negotiate with the carrier. The incoterm provides that the buyer can make such a request of the seller, but if it does so the seller may arrange the contract of carriage at the buyer’s risk and expense. It is therefore implied that the seller would do so as agent of the buyer.
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Under the incoterm FOB (Free on Board), it is the responsibility of the seller to arrange for the goods to be loaded on board the ship and bear all costs and risks of doing so. The buyer bears the responsibility for arranging the contract of carriage and insurance and notifying the seller of the time and place for delivery. The seller bears the costs of arranging for customs clearances and any export permits. Now that most goods are transported in containers and using multimodal transport operators, it is arguable that this incoterm may only be appropriate in cases in which commodities are being transported in bulk carriers or where the buyer has chartered a vessel to transport the goods. The risk is said to pass when the goods cross the ship’s rail. However, what is meant by ‘ship’s rail’ will depend on the practices that occur at the port of loading. Thus, in the case of loading of minerals onto a bulk carrier by means of a conveyor belt, the goods might not have technically passed the ship’s rail until the point at which they exit the conveyor to pour into the hold of the ship. The buyer will also bear responsibility for the costs of any delay (such as storage charges) that occurs because the ship nominated by the buyer has failed to arrive on time or because the buyer has failed to give the seller adequate notice to enable the seller to effect delivery at the time stipulated. This is particularly important in the case of charter operations. The term FAS (Free Alongside Ship) stipulates that the division of risk and cost occurs when the goods are placed alongside the ship at the named port of shipment at or within the time specified. As is the case with FOB, the buyer arranges the contract of carriage and insurance and is responsible for any costs arising due to delay or failure to notify in time. As is also the case with FOB, the seller agrees to arrange clearance for export.
3.5.3 ‘C’ Terms Incoterms 2010 contain four C terms: CPT (Carriage Paid To the named port of destination); CIP (Carriage and Insurance Paid To the named port of destination); CFR (Cost and Freight Paid To the named port of destination); and CIF (Cost, Insurance and Freight paid to the named port of destination). The feature that distinguishes the C terms from the F terms is that under the C terms the seller agrees to pay for transportation and, depending on the C term chosen, the cost of insurance. Australia’s distance from most major export markets means the decision to use C terms rather than F terms has significant cost implications for the exporter unless the cost of freight and insurance can be built into the price of the goods. If these costs can be built into the price, use of the C terms might even be advantageous for an exporter because they may be able to obtain discounts in freight rates if they regularly use a particular shipping line to a particular destination. At the same time, willingness to use the C terms offers the buyer the convenience of not having to arrange or pay for freight and/or insurance.
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The terms CPT and CIP are perhaps the most useful because they envisage the use of multimodal or air transportation. The older terms of CFR and CIF only apply to sea transportation and, like their corresponding F terms (FOB and FAS), are more appropriately used for bulk shipments or charter operations. The terms CPT and CIP are identical except for the obligation to arrange and pay for insurance. Thus, they are dealt with together in the following discussion. Likewise, the terms CFR and CIF are identical except for the insurance obligation, and they are also discussed together. Under the CPT and CIP terms the seller is obligated to arrange the carriage of the goods, deliver the goods to the carrier and pay all freight and other costs incurred in the actual carriage of the goods to the point nominated. The seller is also responsible for the costs of delivery to the carrier, including loading costs, any costs for checking the goods by the carrier, packaging and customs formalities in the country of export. The buyer is responsible for import clearances and costs. If using this term, it is important for the buyer and seller to agree on the point to which carriage should be paid, particularly if the goods have to pass through a transit point. It is also advisable for the parties to agree whether the seller is to be responsible for unloading costs, because the wording of this incoterm appears to leave it open to the buyer and seller to agree on unloading costs. While the seller has to pay the costs of carriage, the risk in the goods passes when the goods have been delivered to the carrier. In this sense the passing of risk occurs at the same point as in the FCA term. The seller is required to give sufficient notice to the buyer that the goods have been delivered to enable the buyer to receive delivery. As noted, the difference between the CPT and CIP terms is that under the latter the seller is responsible for arranging and paying for insurance as well as the contract of carriage. The insurance arrangements must be such as to allow the buyer to claim directly from the insurer if loss or damage to the goods occurs. However, the insurance need only be on the minimum terms as set out in the Institute Cargo Clauses, unless the buyer specifically requests, and agrees to pay for, additional coverage for events such as war, strikes, riots and other civil disturbances. Further discussion of the Institute Cargo Clauses can be found in chapter 6. The insurance cover must be for 110 per cent of the value of the goods and must cover the goods until they are taken over by the buyer at the named point of destination. As in the case of CPT, it is as important for the buyer and seller to agree on responsibility for unloading expenses as agreeing on the delivery point. The remaining two C terms (CFR and CIF) can only be used for transportation by sea and, as indicated above, are more appropriate for bulk carriage and charter operations. The costs that the seller must bear and the obligations regarding notice are the same as those in the other two C terms. However, in CFR and CIF transactions the obligation of the seller is to deliver the goods on board the ship, and the point of transfer of risk with CFR and CIF occurs when the goods cross the ship’s rail.
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The comments made in [3.5.2] in the discussion of the F terms concerning the difficulties with this point of risk transfer are equally applicable here and will not be repeated. The main difference between CFR and CIF is in the seller’s obligations regarding insurance, and here again the seller’s obligations under CIF are similar to those canvassed in relation to CIP. It is important to stipulate a named port of destination when using these two terms. It is also necessary to agree on the issue of unloading costs and, for charter operations, to ensure that the obligations for paying these align with the charter contract.
3.5.4 ‘D’ Terms All the D terms differ slightly from each other on the point at which delivery must be made to the buyer, and so each is discussed in turn. A common feature is the obligation of the seller to bear all risks of loss or damage to the goods up to the point at which delivery has occurred in accordance with the D term that is chosen. The seller should carefully consider its insurance costs and options if a D incoterm is chosen. Perhaps the most substantial amendment to the 2000 Incoterms brought by the 2010 Incoterms is the abolition of a number of D incoterms, namely the DAF (delivered at frontier), DES (delivered ex ship), DEQ (delivered ex quay) and DDU (delivered duty unpaid) incoterms. These have been replaced by the DAT (delivered at terminal) and DAP (delivered at place) incoterms. The DAT term aims to be suitable for transportation by container. It is also useful if there is more than one mode of transport, which is often the case in practice. The seller is responsible for arranging the carriage and delivery of the goods, and for the unloading of them from the arriving conveyance at the named place of arrival. The risk of loss or damage to the goods transfers from the seller to the buyer when the goods have been unloaded. A ‘terminal’ can be a quay, container yard, warehouse transport hub or some other place. The DAP term can also be used for any mode of transport, and where there is multimodal transport. The seller is responsible for arranging carriage and for delivering the goods to the point where they will be ready for unloading by or on behalf of the buyer from the arriving conveyance at the named place. DAP differs from DAT in that under the latter incoterm the seller is responsible for unloading. Risk transfers from the seller to the buyer when the goods are available for unloading. In effect, unloading is at the buyer’s risk. The buyer is responsible for import clearance and any applicable local taxes or import duties. The term DDP (Delivered Duty Paid) extends the delivery obligations of the seller a little further than DAP and is the most onerous of all delivery terms for the seller. It requires the seller not only to deliver the goods (unloaded) to the place named by
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the buyer but also to arrange for any import licences and customs clearance procedures. The buyer is obliged to assist with this. Where either DDP or DAP is used, the seller has to give the buyer notice to allow it to take such measures as are necessary to take delivery of the goods.
3.6 Application of the Incoterms in Practice Taylor observed that in practice the parties to international sale of goods transactions often enter into contracts of sale that have been ‘scantily drafted, are missing necessary terms, or contain inappropriate terms’.3 Worse still, from a legal point of view, the contracts are often not signed or executed by all the relevant parties. To complicate matters further, the contract terms do not appear in a single ‘contract’ document, and are often evidenced by any number of documents including commercial invoices, transport documents and emails. The reason for this legal sloppiness is generally because the parties are task-oriented rather than evidence-oriented. Taylor provided the example of the facts in IBBCO Trading Pty Ltd v HIH Casualty & General Insurance Ltd to illustrate the task-oriented approach parties usually adopt in practice.4 Bergin J described the usual way the parties transacted matters in that case: IBBCO carries on the business of exporting beef, seafood and dairy products to its customers worldwide . . . the usual course of dealings between IBBCO and [its customers] . . . was the [customer] usually placed its orders . . . by telephone . . . At the time [the customer] placed an order, a price was agreed upon as well as the terms and conditions of sale. [The customer] advised IBBCO of the port of destination as well as the approximate date it required the goods to be shipped . . . IBBCO would send a confirmation of sale. [The customer] was not expected to reply. After IBBCO received the original bill of lading it raised a commercial invoice and issued a bill of exchange addressed to [the customer] in respect of the consignment.5
Sellers therefore adopt time-honoured practices that are designed to fulfil their customers’ requirements with the minimum amount of delay and ‘red tape’, which is
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M. Taylor, ‘Cargo Interests in Australia: Standing on the Edge – Imbalances That Permeate International Sale Contracts, Carriage Contracts and Recovery Rights’ (2008) 22 Australian and New Zealand Marine Law Journal 56 at 56. Ibid, p. 57. [2001] NSWSC 490 (unreported), 2, cited by Taylor, op. cit., at 57.
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understandable. However, poor documentation can lead to misunderstandings and disputes between the parties. Parties also tend to adopt practices that they are reluctant to change, despite changing circumstances. As a result, contracts of sale often include inappropriate incoterms, which at least in the case of cargo owners, leads them to assuming unnecessary risks regarding any loss or damage to the cargo.6 For instance, parties often adopt the FOB incoterm in circumstances in which it is not appropriate, particularly if the goods are transported by containers. According to the International Chamber of Commerce: Regrettably, merchants continue to use FOB when it is totally out of place thereby causing the seller to insure risks subsequent to the handing over of the goods to the carrier named by the buyer. FOB is only appropriate to use where the goods are intended to be delivered ‘across the ship’s rail’, or in any event, to the ship and not where the goods are handed over to the carrier for subsequent entry into the ship, for example stowed in containers or loaded on lorries or wagons in so-called roll on roll off traffic.7
Often, in these circumstances, the more appropriate incoterm is FCA, which would lead to the parties agreeing to the buyer assuming the risk from the time the seller delivers the goods to the carrier.
FURTHER READING ................................................................................................................ Schmitthoff, C., Murray, C., Holloway, D. and Timson-Hunt, D. (2012) Schmitthoff’s Law and Practice of International Trade, 12th edn. London: Sweet & Maxwell, chapter 2. Taylor, M. (2008) ‘Cargo Interests in Australia: Standing on the Edge – Imbalances That Permeate International Sale Contracts, Carriage Contracts and Recovery Rights’, 22 Australian and New Zealand Marine Law Journal, 56.
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Taylor, op. cit., at 57. International Chamber of Commerce, Incoterms 2000, Paris, 1999, p. 24.
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3.1 Key Concepts Incoterms (a shortening of international commercial terms) are internationally recognised and accepted, standard-form contract terms that parties to international commercial contracts can incorporate by reference in their sales contracts. The International Chamber of Commerce (ICC), based in Paris, usually publishes a new set of ICC incoterms each decade. The most recently published are the 2010 ICC incoterms. The ICC incoterms set out the obligations of the seller and the buyer regarding issues including: The buyer’s obligation to pay for the goods The seller’s obligation to ensure the goods conform with the contract Possibly the obligation to obtain insurance regarding the carriage of goods The point in time when the risk of loss or damage to the goods passes from the seller to the buyer.
3.2 What is Covered in this Chapter This chapter deals with: The range of obligations regarding delivery of the goods under a sales contract that each of the incoterms seeks to address How these obligations are shared differently between seller and buyer for each of the 11 ICC incoterms When it is appropriate to use each incoterm.
3.3 Introduction In a contract for the sale of goods, perhaps the most significant obligation on the seller is to arrange the delivery of goods it sells. In return, the buyer has the obligation to pay the agreed price. International sales of goods pose special problems for the seller in fulfilling its delivery obligations. These include problems that might arise regarding the transportation of the goods; clearing goods through customs in both the exporting and importing countries; the associated costs; and the point at which the risk of loss or damage to the goods passes from seller to buyer,
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with consequent implications for insurance. A moment’s reflection reveals that these various subparts of the delivery obligations can be combined in numerous ways, thereby making the drafting of a delivery clause in an international contract of sale a rather complex task which, if not performed well, could lead to many misunderstandings and potential disputes. In order to introduce some standardisation into delivery obligations in international sales, the ICC devised what is known as the ‘incoterms’ in 1936. The word ‘incoterms’ is an abbreviation of ‘international commercial terms’, even though the the most recent set of incoterms makes it clear that they can be used for both international and domestic sale of goods transactions. The incoterms have been revised several times since 1936 to reflect changes in international trade practices. The revisions tend to occur every ten years or so. The most recent version is the ICC 2010 Incoterms, which came into effect on 1 January 2011, replacing the ICC 2000 Incoterms.1 The 2011 version has 11 sets of delivery obligations. Most international contracts for the sale of goods select one or other of these terms to define the parties’ obligations regarding delivery of the goods being sold. The parties to a contract may select a particular incoterm and incorporate it by reference into their contract. A commonly used incoterm for sending goods by sea is the FOB, or ‘free on board’ incoterm. Under this incoterm, the parties agree that the risk of loss or damage to the goods shifts from the seller to the buyer at the point in time when the goods pass over the rail of the ship carrying the goods at the port of embarkation. The parties might incorporate the term by reference in several ways. For example, a person proposing to buy goods might send a purchase order (an offer) to the proposed seller that includes the following: ‘Trade and Shipping Terms: FOB, Sydney Australia, Incoterms 2010’. If the offer is accepted without amendment, the standard set of ICC Incoterms 2010 will be included in the terms of the sales contract. The incorporation by reference of incoterms is a practice that is clearly sanctioned by the CISG in Article 9, which allows parties to bind themselves by reference to practices that are widely used in the international trading community for similar types of sales. The titles of the 11 incoterms are listed below. It can immediately be seen that they fall into four groups: E terms, F terms, C terms and D terms. The significance of this division will become apparent in the discussion that follows. The incoterms are expressed in three-letter coded form as follows:
EXW (Exworks) FCA (Free Carrier)
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FAS (Free Alongside Ship) FOB (Free on Board) CFR (Cost and Freight) CIF (Cost, Insurance and Freight) CPT (Carriage Paid To) CIP (Carriage and Insurance Paid To) DAP (Delivered at Place) DAT (Delivered at Terminal) DDP (Delivered Duty Paid).
The 2010 Incoterms introduce a number of amendments to the Incoterms 2000. The 2010 Incoterms:
Clarify who is responsible for payment of terminal handling costs. Previously, these costs were sometimes included in the carriage costs paid by the buyer, while the carrier or terminal operator also charged the buyer these same costs. The new rules aim to reduce the risk of double-charging the buyer. Allow for paper communication to be replaced with an ‘equivalent electronic record or procedure’ if the parties agree or where it is customary practice to do so. This will prevent parties from refusing electronic communications such as emails. Include provisions allocating responsibility between the buyer and seller for obtaining, or assisting to obtain, customs and other clearances. Provide for circumstances in which cargo is sold during transit. Previously, the incoterms tended to assume that the seller was in a position to ship the goods. This is often not the case if the goods are sold in transit. The 2010 Incoterms provide an option to enable the seller to procure goods that have been shipped as an alternative to the obligation to ship the goods. Formally recognise that the incoterms may be used for both domestic and international sale of goods.
Changes have been made to the insurance requirements under the CIF and CIP incoterms. The 2010 Incoterms retain the obligation that existed in the earlier versions for the seller to obtain only the minimum cover under the Institute Cargo C clauses or equivalent. Often, the buyer will want to include an express requirement in the sales contract for higher insurance coverage, such as the Institute Cargo A clauses.2 The amended CIF and CIP terms specifically require the parties to exchange information about insurance, so as to draw the parties’ specific attention to the issue of the intended level of coverage.
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See chapter 6 for a discussion about cargo insurance, including the Institute Cargo Clauses.
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3.4 The Range of Obligations Addressed by the Incoterms The 2010 Incoterms divide into two broad categories: those that provide terms for any mode of transportation – EXW, FCA, CPT, CIP, DAP, DAT, DDP; and those that provide terms for the transportation of goods on the sea and inland waterways – FAS, FOB, CFR, CIF. Each of the incoterms sets out a number of obligations applying to the seller and obligations applying to the buyer. As examples, the first obligation on the seller under the EXW incoterm is: A1 Provision of Goods in Conformity with the Contract The seller must provide the goods and the commercial invoice, or its equivalent electronic message, in conformity with the contract of sale and any other evidence of conformity which may be required by the contract.
The first obligation on the buyer is: B1 Payment of the Price The buyer must pay the price as provided in the contract of sale.
There is a total of nine obligations for the seller and nine for the buyer under the EXW incoterm. Each incoterm contains nine or ten obligations for the seller and nine or ten obligations for the buyer. The obligations are summarised in this chapter.
3.4.1 Conformity of the Goods with Contract and Payment of Price In each of the 11 incoterms, including the EXW incoterm quoted in [3.4], the first obligation on the seller is to provide the goods and the commercial invoice or its equivalent electronic message in conformity with the contract and any other evidence of conformity that may be required under the contract. In each case the buyer has an obligation to pay the price under the contract.
3.4.2 Licences, Authorities and Formalities This subpart of each incoterm is used to allocate the responsibility for obtaining the various government approvals between the parties. For most of the 11 incoterms, responsibility for fulfilling export formalities lies with the seller, but responsibility for obtaining import licences lies with the buyer.
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3.4.3 Contracts of Carriage and Insurance The obligation to arrange the contract of carriage and insurance differs markedly among the 11 incoterms. Generally speaking, this obligation falls on the buyer in the case of the E terms and the F terms in the list in [3.3], but on the seller in the case of the C and D terms. It needs to be noted that for the most part the obligation to arrange the contracts of carriage follows the obligation to pay for the carriage.
3.4.4 Delivery This obligation sets out in detail what the seller must do to discharge its obligations regarding delivery. In other words, it sets out where the goods have to be delivered to, whether this is to a carrier, alongside a ship, or even to the buyer’s premises. For the buyer, this obligation sets out what the buyer must do to fulfil its obligations regarding accepting delivery of the goods.
3.4.5 Transfer of Risks This subpart of each incoterm defines the point at which the risk of loss or damage to the goods passes from the seller to the buyer. For the most part the transfer of risk occurs at the point of delivery. As such, it has important implications for insurance and the legal remedies available under the contract of sale and its governing law. The point at which transfer of risk in the goods occurs is not necessarily the same point at which transfer of ownership occurs. While the incoterms deal with transfer of risk, they do not deal with transfer of ownership. The CISG is also silent on this matter. Thus, the parties need to consider whether a clause setting out the point at which ownership is transferred needs to be included in the contract. This might be advisable in order to give the seller the right to resell the goods should any default occur on the part of the buyer through, for example, failing to accept delivery.
3.4.6 Division of Costs This subpart of each incoterm is closely related to the obligation to arrange the contract of carriage and insurance. The costs of carriage tend to fall on the seller in the C and D terms but on the buyer for the E and F terms. The cost of insurance is more variable.
3.4.7 Notice This subpart provides that the seller has to give notice to the buyer when its delivery obligations have been or will be completed so that the buyer can arrange to accept
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delivery. Likewise, if it is the buyer’s obligation to arrange transportation, then the buyer must notify the seller of the arrangements that have been made. The buyer will normally only be responsible for arranging transport under the E and F terms.
3.4.8 Proof of Delivery The seller has the obligation to provide proof of delivery to the buyer. This will often be necessary to enable the buyer to collect the goods. It also constitutes the evidence that the seller has fulfilled its obligation to deliver the goods. Usually the proof that delivery has occurred will be the formal transport document issued by the carrier. This subpart of each incoterm specifically allows for documentary proof of delivery in electronic form if that has been agreed between the parties.
3.4.9 Checking Packaging and Inspection This subpart divides responsibilities between the seller and the buyer in relation to packaging the goods and inspecting the goods. Thus, the seller has the obligation to adequately pack the goods as well as pay for any checking of the goods that needs to be completed by the carrier. The buyer is responsible for inspecting the goods. This division of responsibilities is uniform across the entire 11 incoterms.
3.4.10 Other Obligations Where an incoterm sets out additional obligations it makes it incumbent on the seller to assist the buyer in obtaining all documents that can only be issued in the country of export but that are nonetheless necessary to ensure that the goods can leave the country of export or enter the buyer’s country. This subpart refers only to those extra documents that the buyer needs. The seller still has to provide the basic documents to prove delivery as noted above. However, if extra documents are required to enable the goods to meet import requirements in the buyer’s country, then the buyer has to pay any costs associated with these documents. An example here might be a certificate of origin that is required by importing authorities in the buyer’s country but can only be issued in the seller’s country.
3.5 The Incoterms 2010 As noted above, the incoterms can be divided into four groups. The E terms are those most favourable to the seller because the buyer is responsible for collecting
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the goods from the seller’s premises and all transportation and other arrangements thereafter. At the other end are the D terms, which are the most favourable to the buyer. Under the D terms the seller will be responsible for getting the goods onto the wharf in the buyer’s country and, depending on the D term that is used, may even be responsible for import clearance, customs duties and delivery to the buyer’s premises. The F and C terms are ‘middle-ground’ terms. The F terms are slightly more favourable to the seller because once the goods are handed over to the carrier the buyer bears all costs from then on. The C terms are more favourable to the buyer because the seller has to pay the main transport costs. What follows is a discussion of each of the 11 incoterms and some pointers about when each might be appropriate when exporting goods from Australia.
3.5.1 ‘E’ Terms Incoterms 2010 contain only one E term: Exworks. If the parties have agreed that this term will apply to their delivery obligations, then the seller simply has to place the goods at the disposal of the buyer at the named place of delivery. Thereafter, the buyer bears all risks and costs. If using this incoterm, the parties should specify the place where the buyer is to collect the goods. The incoterm also provides that the seller has to give the buyer sufficient notice as to when and where the goods will be available for collection. The notice provision is therefore particularly important because once the notified date arrives the goods will be deemed to be at the disposal of the buyer and the buyer will therefore bear the risk of loss or damage to the goods from that day forward. If using this incoterm, it is also useful to specify whether the seller has to assist the buyer with loading of the goods and, if so, to specify that this be done as agent for the buyer, so as not to affect the provisions in the incoterm regarding the transfer of risk. This incoterm is most likely to be used where there is a seller’s market for the goods or when the goods have been tailor-made for the buyer. It is understandable that in ordinary international sales of goods from Australia, buyers would be reluctant to agree to this incoterm given the high costs of transportation that apply because of Australia’s geographic distance from most major overseas markets and the possible variations that might occur in those costs between the date of contract and the date when the goods are actually ready to be collected by the buyer. In addition, while the seller is obliged to assist the buyer to obtain customs clearance for the export of the goods, the buyer takes a significant risk that clearances might not be issued in time for the transport arrangements that have been made. As chapter 7 shows, there are serious logistical difficulties for an overseas buyer attempting to apply for customs clearance. For that reason the buyer relies heavily on the seller’s obligations to render assistance in this regard. If the goods being sold are
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restricted goods under the Export Control Act 1982 (Cth), it seems even more unlikely that a buyer would be prepared to rely on the seller obtaining the necessary permits. Again, chapter 7 shows that it would be almost impossible for a buyer to obtain those permits itself. Thus, the Exworks incoterm is unlikely to be used in ordinary sales of goods unless the buyer has agents or a presence in the exporter’s country to attend to these logistical and procedural matters.
3.5.2 ‘F’ Terms Incoterms 2010 have three F terms. Of these, only one is appropriate for multimodal or air transportation: FCA. The reason is that the other two F incoterms (FAS and FOB) specify the point of delivery as either alongside the ship (FAS) or on board the ship (FOB). Thus, if the goods are delivered to a carrier at some point inland from the port, the FCA incoterm should be used. Since most international sales of goods from Australia (other than commodities) are now transported using containers that are delivered to a container depot and from there to a ship, or are delivered to an air carrier’s depot, the following discussion places emphasis on the FCA incoterm. The incoterm FCA (Free Carrier) places the onus on the buyer to nominate a carrier to whom the seller must deliver the goods and a place at which the delivery should occur. ‘Carrier’ is defined widely enough to include freight forwarders who enter into contracts of carriage but actually subcontract the various parts of the carriage to other transport operators. Carrier could also mean an airline or a multimodal transport operator. The details of each of these types of carriers are discussed in chapter 5. The incoterm places responsibility on the seller to arrange for customs clearance of the goods and any export licence that may be required. If using this incoterm it is important for the buyer to give precise instructions to the seller about the time, place and name of the carrier, because this has implications for the division of risk and costs. If the named place is the seller’s premises, then delivery will be complete when the goods are loaded onto the carrier’s vehicle, with the seller bearing all risks and costs up to that point. If, however, the buyer requires the seller to deliver the goods to a depot operated by the carrier, delivery will only be complete once the goods arrive at the carrier’s depot. Thus, the seller will be responsible for loading the goods at its premises, arranging for transport to the depot and covering any insurance for the journey. If the buyer fails to nominate a place for delivery to the carrier, the seller has the right to select a place it considers convenient. Although the buyer bears responsibility for arranging and paying for the transport costs after delivery to the carrier, it is often more practical for the seller to negotiate with the carrier. The incoterm provides that the buyer can make such a request of the seller, but if it does so the seller may arrange the contract of carriage at the buyer’s risk and expense. It is therefore implied that the seller would do so as agent of the buyer.
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Under the incoterm FOB (Free on Board), it is the responsibility of the seller to arrange for the goods to be loaded on board the ship and bear all costs and risks of doing so. The buyer bears the responsibility for arranging the contract of carriage and insurance and notifying the seller of the time and place for delivery. The seller bears the costs of arranging for customs clearances and any export permits. Now that most goods are transported in containers and using multimodal transport operators, it is arguable that this incoterm may only be appropriate in cases in which commodities are being transported in bulk carriers or where the buyer has chartered a vessel to transport the goods. The risk is said to pass when the goods cross the ship’s rail. However, what is meant by ‘ship’s rail’ will depend on the practices that occur at the port of loading. Thus, in the case of loading of minerals onto a bulk carrier by means of a conveyor belt, the goods might not have technically passed the ship’s rail until the point at which they exit the conveyor to pour into the hold of the ship. The buyer will also bear responsibility for the costs of any delay (such as storage charges) that occurs because the ship nominated by the buyer has failed to arrive on time or because the buyer has failed to give the seller adequate notice to enable the seller to effect delivery at the time stipulated. This is particularly important in the case of charter operations. The term FAS (Free Alongside Ship) stipulates that the division of risk and cost occurs when the goods are placed alongside the ship at the named port of shipment at or within the time specified. As is the case with FOB, the buyer arranges the contract of carriage and insurance and is responsible for any costs arising due to delay or failure to notify in time. As is also the case with FOB, the seller agrees to arrange clearance for export.
3.5.3 ‘C’ Terms Incoterms 2010 contain four C terms: CPT (Carriage Paid To the named port of destination); CIP (Carriage and Insurance Paid To the named port of destination); CFR (Cost and Freight Paid To the named port of destination); and CIF (Cost, Insurance and Freight paid to the named port of destination). The feature that distinguishes the C terms from the F terms is that under the C terms the seller agrees to pay for transportation and, depending on the C term chosen, the cost of insurance. Australia’s distance from most major export markets means the decision to use C terms rather than F terms has significant cost implications for the exporter unless the cost of freight and insurance can be built into the price of the goods. If these costs can be built into the price, use of the C terms might even be advantageous for an exporter because they may be able to obtain discounts in freight rates if they regularly use a particular shipping line to a particular destination. At the same time, willingness to use the C terms offers the buyer the convenience of not having to arrange or pay for freight and/or insurance.
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The terms CPT and CIP are perhaps the most useful because they envisage the use of multimodal or air transportation. The older terms of CFR and CIF only apply to sea transportation and, like their corresponding F terms (FOB and FAS), are more appropriately used for bulk shipments or charter operations. The terms CPT and CIP are identical except for the obligation to arrange and pay for insurance. Thus, they are dealt with together in the following discussion. Likewise, the terms CFR and CIF are identical except for the insurance obligation, and they are also discussed together. Under the CPT and CIP terms the seller is obligated to arrange the carriage of the goods, deliver the goods to the carrier and pay all freight and other costs incurred in the actual carriage of the goods to the point nominated. The seller is also responsible for the costs of delivery to the carrier, including loading costs, any costs for checking the goods by the carrier, packaging and customs formalities in the country of export. The buyer is responsible for import clearances and costs. If using this term, it is important for the buyer and seller to agree on the point to which carriage should be paid, particularly if the goods have to pass through a transit point. It is also advisable for the parties to agree whether the seller is to be responsible for unloading costs, because the wording of this incoterm appears to leave it open to the buyer and seller to agree on unloading costs. While the seller has to pay the costs of carriage, the risk in the goods passes when the goods have been delivered to the carrier. In this sense the passing of risk occurs at the same point as in the FCA term. The seller is required to give sufficient notice to the buyer that the goods have been delivered to enable the buyer to receive delivery. As noted, the difference between the CPT and CIP terms is that under the latter the seller is responsible for arranging and paying for insurance as well as the contract of carriage. The insurance arrangements must be such as to allow the buyer to claim directly from the insurer if loss or damage to the goods occurs. However, the insurance need only be on the minimum terms as set out in the Institute Cargo Clauses, unless the buyer specifically requests, and agrees to pay for, additional coverage for events such as war, strikes, riots and other civil disturbances. Further discussion of the Institute Cargo Clauses can be found in chapter 6. The insurance cover must be for 110 per cent of the value of the goods and must cover the goods until they are taken over by the buyer at the named point of destination. As in the case of CPT, it is as important for the buyer and seller to agree on responsibility for unloading expenses as agreeing on the delivery point. The remaining two C terms (CFR and CIF) can only be used for transportation by sea and, as indicated above, are more appropriate for bulk carriage and charter operations. The costs that the seller must bear and the obligations regarding notice are the same as those in the other two C terms. However, in CFR and CIF transactions the obligation of the seller is to deliver the goods on board the ship, and the point of transfer of risk with CFR and CIF occurs when the goods cross the ship’s rail.
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The comments made in [3.5.2] in the discussion of the F terms concerning the difficulties with this point of risk transfer are equally applicable here and will not be repeated. The main difference between CFR and CIF is in the seller’s obligations regarding insurance, and here again the seller’s obligations under CIF are similar to those canvassed in relation to CIP. It is important to stipulate a named port of destination when using these two terms. It is also necessary to agree on the issue of unloading costs and, for charter operations, to ensure that the obligations for paying these align with the charter contract.
3.5.4 ‘D’ Terms All the D terms differ slightly from each other on the point at which delivery must be made to the buyer, and so each is discussed in turn. A common feature is the obligation of the seller to bear all risks of loss or damage to the goods up to the point at which delivery has occurred in accordance with the D term that is chosen. The seller should carefully consider its insurance costs and options if a D incoterm is chosen. Perhaps the most substantial amendment to the 2000 Incoterms brought by the 2010 Incoterms is the abolition of a number of D incoterms, namely the DAF (delivered at frontier), DES (delivered ex ship), DEQ (delivered ex quay) and DDU (delivered duty unpaid) incoterms. These have been replaced by the DAT (delivered at terminal) and DAP (delivered at place) incoterms. The DAT term aims to be suitable for transportation by container. It is also useful if there is more than one mode of transport, which is often the case in practice. The seller is responsible for arranging the carriage and delivery of the goods, and for the unloading of them from the arriving conveyance at the named place of arrival. The risk of loss or damage to the goods transfers from the seller to the buyer when the goods have been unloaded. A ‘terminal’ can be a quay, container yard, warehouse transport hub or some other place. The DAP term can also be used for any mode of transport, and where there is multimodal transport. The seller is responsible for arranging carriage and for delivering the goods to the point where they will be ready for unloading by or on behalf of the buyer from the arriving conveyance at the named place. DAP differs from DAT in that under the latter incoterm the seller is responsible for unloading. Risk transfers from the seller to the buyer when the goods are available for unloading. In effect, unloading is at the buyer’s risk. The buyer is responsible for import clearance and any applicable local taxes or import duties. The term DDP (Delivered Duty Paid) extends the delivery obligations of the seller a little further than DAP and is the most onerous of all delivery terms for the seller. It requires the seller not only to deliver the goods (unloaded) to the place named by
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the buyer but also to arrange for any import licences and customs clearance procedures. The buyer is obliged to assist with this. Where either DDP or DAP is used, the seller has to give the buyer notice to allow it to take such measures as are necessary to take delivery of the goods.
3.6 Application of the Incoterms in Practice Taylor observed that in practice the parties to international sale of goods transactions often enter into contracts of sale that have been ‘scantily drafted, are missing necessary terms, or contain inappropriate terms’.3 Worse still, from a legal point of view, the contracts are often not signed or executed by all the relevant parties. To complicate matters further, the contract terms do not appear in a single ‘contract’ document, and are often evidenced by any number of documents including commercial invoices, transport documents and emails. The reason for this legal sloppiness is generally because the parties are task-oriented rather than evidence-oriented. Taylor provided the example of the facts in IBBCO Trading Pty Ltd v HIH Casualty & General Insurance Ltd to illustrate the task-oriented approach parties usually adopt in practice.4 Bergin J described the usual way the parties transacted matters in that case: IBBCO carries on the business of exporting beef, seafood and dairy products to its customers worldwide . . . the usual course of dealings between IBBCO and [its customers] . . . was the [customer] usually placed its orders . . . by telephone . . . At the time [the customer] placed an order, a price was agreed upon as well as the terms and conditions of sale. [The customer] advised IBBCO of the port of destination as well as the approximate date it required the goods to be shipped . . . IBBCO would send a confirmation of sale. [The customer] was not expected to reply. After IBBCO received the original bill of lading it raised a commercial invoice and issued a bill of exchange addressed to [the customer] in respect of the consignment.5
Sellers therefore adopt time-honoured practices that are designed to fulfil their customers’ requirements with the minimum amount of delay and ‘red tape’, which is
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3
4 5
M. Taylor, ‘Cargo Interests in Australia: Standing on the Edge – Imbalances That Permeate International Sale Contracts, Carriage Contracts and Recovery Rights’ (2008) 22 Australian and New Zealand Marine Law Journal 56 at 56. Ibid, p. 57. [2001] NSWSC 490 (unreported), 2, cited by Taylor, op. cit., at 57.
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Chapter 3: Incoterms
77
understandable. However, poor documentation can lead to misunderstandings and disputes between the parties. Parties also tend to adopt practices that they are reluctant to change, despite changing circumstances. As a result, contracts of sale often include inappropriate incoterms, which at least in the case of cargo owners, leads them to assuming unnecessary risks regarding any loss or damage to the cargo.6 For instance, parties often adopt the FOB incoterm in circumstances in which it is not appropriate, particularly if the goods are transported by containers. According to the International Chamber of Commerce: Regrettably, merchants continue to use FOB when it is totally out of place thereby causing the seller to insure risks subsequent to the handing over of the goods to the carrier named by the buyer. FOB is only appropriate to use where the goods are intended to be delivered ‘across the ship’s rail’, or in any event, to the ship and not where the goods are handed over to the carrier for subsequent entry into the ship, for example stowed in containers or loaded on lorries or wagons in so-called roll on roll off traffic.7
Often, in these circumstances, the more appropriate incoterm is FCA, which would lead to the parties agreeing to the buyer assuming the risk from the time the seller delivers the goods to the carrier.
FURTHER READING ................................................................................................................ Schmitthoff, C., Murray, C., Holloway, D. and Timson-Hunt, D. (2012) Schmitthoff’s Law and Practice of International Trade, 12th edn. London: Sweet & Maxwell, chapter 2. Taylor, M. (2008) ‘Cargo Interests in Australia: Standing on the Edge – Imbalances That Permeate International Sale Contracts, Carriage Contracts and Recovery Rights’, 22 Australian and New Zealand Marine Law Journal, 56.
...........................................................................
6 7
Taylor, op. cit., at 57. International Chamber of Commerce, Incoterms 2000, Paris, 1999, p. 24.
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