Your questions answered

Client Question:

We sold DAP to our Buyer’s address, but on delivery they were closed. A futile trip and storage were incurred; who bears this cost?

Answer:

When selling DAP, it is always advisable for the Seller to sell to a place or point that they can get to without the Buyer. In this example had the Seller sold to a named airport rather than the Buyer’s door then although storage might still have accrued, resolving a dispute as to which party must bear this cost would have been easier.

With most commercial disputes there is normally more than one possible resolution, and commercial ‘considerations’ often trump contractual rights and obligations. Accordingly, although I’ve given two possible outcomes to the question the ultimate answer might well involve a third option.

In the Real World: “The Devil is in the Detail”.

In a DAP transaction, the Buyer must arrange import customs clearing, and in this example of a delivery to the Buyer’s door the Seller’s carrier would not be able to get to the ‘named place’ without this clearance.

Accordingly, the Buyer’s Clearing Agent would need to communicate with the Seller’s carrier, to confirm clearance, after which the carrier would draw the cargo from the airport.

The Buyer’s local operation is best understood by the Clearing Agent, which is why that Agent is normally appointed to arrange the final leg of the international journey – in this example, from the import airport to the Buyer’s door.

As the final delivery in this question was executed by the carrier and not the Agent, the service-providers should have coordinated the specifics of delivery unless, that is, the carrier had already been directed by the Seller.

It is also reasonable to expect that in the conversation between the carrier and the Agent the Buyer’s inability to accept cargo after-hours or on certain dates etc., would come to light. No professional carrier would presume a consignee’s after-hours acceptance of cargo. The consignee/importer must agree to (or request) an after-hours delivery.

But then there is the devilish detail that, perhaps, the Buyer closes earlier than industry in general; the Buyer’s concept of what constitutes ‘after hours’ arising due to their abnormally early closing. Perhaps too, the carrier and the Agent are coincidentally the same company; whatever the detail, a lack of coordination would be inexcusable in that case.

But however it comes about, in the absence of instruction a carrier should not simply arrive at a delivery address ‘hoping’ that someone will receive the cargo – that is, not unless the clearing agent or Seller had informed them that they may.

A mercantile postmortem would need to consider the lines of communication, the records of who said what to whom, and so forth, to determine the practical reasons why the incident arose.

The outcome of this deliberation though depends on what constitutes ‘reasonable’ behaviour, and how the service-provider’s ‘duty to care’ is to be interpreted. It can be a subjective exercise and, as mentioned, often it resolves due to commercial considerations rather than from the force of absolute truths.

In the Incoterms World: how should we interpret the Rule?

As a general proposition the DAP Seller would be liable for any storage arising in transit prior to the named delivery point or place, but not if it came about because of an error or omission by the Buyer.

The key Articles of the Rule are as follows –

B10 Notices
The Buyer must, whenever it is agreed that the Buyer is entitled to determine the time within an agreed period … give the Seller sufficient notice.

If the Buyer confirmed delivery for a specific time within a period the Seller must achieve this. Failing this, the Seller may do as the Seller deems ‘reasonable’.

B2 Taking delivery
The Buyer must take delivery of the goods when they have been delivered under A2.

If the Buyer waives the opportunity that they have under B10 to specify when delivery is to happen then they ‘must’ accept delivery when the Seller deems delivery is appropriate.

As for the Seller’s obligations –

A10 Notices

The Seller must give the Buyer any notice required to enable the Buyer to receive the goods.

This is perhaps not a clear-cut statement. The word ‘any’ allows for the possibility that ‘no’ notice may be a valid option. If a notice period was agreed in the contract terms then there would be a measure to establish if the Seller met this obligation. But if the contract was silent, we are back to the Seller doing as the Seller deems fit.

With regard to the futile trip and storage –

B9 Allocation of costs
The Buyer must pay:
e) any additional costs incurred by the Seller if the Buyer fails to … give notice in accordance with B10…

If we consider the challenge just on the basis of the Incoterms text, under B10 the Buyer had the opportunity to specify to the Seller when delivery should take place, and to agree on a notice period. If they did not direct the Seller, then the Seller may do as they think right, and the Buyer in the question would be liable for the futile trip(s) and the storage.

In the operation of the supply chain, the “importer” would be faced with the storage charges if the Clearing Agent disbursed them, whereas the “shipper” will be faced with them if the carrier disbursed them. The “shipper” will also be billed the futile trip(s) if the Clearing Agent declines to accept the charge from the carrier.

These various costs will ultimately end up on the desks of the Seller and/or the Buyer. Exactly which party must take which cost, if determined by the Incoterms Rule, will be decided privately between the Seller and Buyer.

This is important to note, for in their parallel roles as the shipper and the consignee/importer they cannot fall back on Incoterms to avoid settling these costs with the service provider who incurred them/disbursed them on their behalf.

The shipper pays the futile trip, but whether the Seller can recover this from the Buyer does not concern the carrier.

However, the matter will in all probability resolve through a commercial gesture, of one sort or another. Whether it will be the carrier absorbing charges incurred by a key account; the Seller eating costs to smooth a new relationship, or a Buyer taking a knock from a sense of responsibility…well, you’d need to ask the devil.

Source: Freight Training