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Client Question:

The buyer’s vessel is delayed and our cargo has incurred storage in the port. As a FOB seller, can we avoid these charges?

Answer:

All other conditions having been met, in either a CPT or a CIP contract, delivery takes place when the seller hands over the goods to the ‘first’ carrier.

The ‘main’ carrier in these Rules is the party offering the contract of carriage, from handover through to the named place; the ‘first’ carrier could be this party, or it could be another party that the main carrier appoints to collect or receive from the seller on their behalf.

Importantly, the carrier cannot be the seller. For example, in a D-prefixed sale the seller may act as the carrier for part or all of the entire transit to the named place.

This is not the case in a C-prefixed contract where the carrier must be a third-party to the seller, and as noted, the carrier must be offering the transport contract for the main carriage.

To give an example: if freight forwarder “X” appointed road haulier “A” to collect from the seller on their behalf, then road haulier “A” becomes the first carrier, provided that the freight forwarder’s mandate is to arrange this collection and thereafter the main carriage.

Compare this to the seller electing to deliver to freight forwarder “X” using the services of road haulier “A”, who are contracted directly to the seller. In this model freight forwarder “X” is the first carrier, not the road haulier. Again, this is provided that the freight forwarder will thereafter arrange the main carriage for the seller.

This clarified, we can then consider what delivery and “handing over” to the first carrier involves.

Throughout, bear in mind that risk and cost are separate issue and may be disengaged, the one from the other, and that in all C-prefixed terms this separation is an automatic condition.

This is an important point. Once risk and cost disengage then where costs end (the named place) is not where delivery takes place.

In a CPT or CIP contract, the seller’s price will always include the cost of loading the first carrier’s collecting vehicle. But this is not necessarily where delivery takes place unless the seller elected to also load the collecting vehicle.

If they did elect to load, then the seller takes the risk of that action, and in that example delivery would in fact take place on loading.

But even then, note that ‘loading’ the vehicle does not mean ‘securing’ the goods on the vehicle. This might be the carrier’s function and therefore the buyer’s risk, not the seller’s.

As the expression “handing (the goods) over to the carrier” is broad, and undefined in the Rules, it becomes whatever the seller deems appropriate, or is customary, unless the contract of sale evidences the merchants’ agreement on a specific understanding.

Thus, if the seller merely made the contract goods available to the first carrier for the first carrier to load the collecting vehicle, then although the seller’s costs would still include loading, the risk of loading would be the buyer’s.

As an example, the supply may involve a large piece of delicate or abnormal cargo that the seller appoints the first carrier to load, having made the goods available in their warehouse.

In this model delivery would take place, and risks would pass, prior to physical loading. Should the first carrier damage the goods at any point after they were made available to them, then this would be the buyer’s risk. Delivery took place the moment the goods were made available to the first carrier, however that word might be defined.

In a CIP contract, the seller must procure Cargo Clauses ‘A’ for the buyer. This type of cover attaches “…from the time the subject-matter insured is first moved in the warehouse or at the place of storage (at the place named in the contract of insurance) for the purpose of the immediate loading into or onto the carrying vehicle or other conveyance for the commencement of transit…”.

This generally aligns with the CIP Rule in that the seller must procure insurance cover that attaches from the moment the contract of carriage commences – that is to say, from the moment the first carrier assumes control.

Thus, if the seller does not ‘move the goods in the warehouse’ themselves but directs the carrier to do this, the buyer is covered.

And clearly then, if the seller loads the collecting vehicle, then the A-clauses will cover the buyer for loss or damage during the ‘securing’ the cargo on the collecting vehicle if this function is undertaken by the first carrier.

So, although in these models the CIP buyer may be on risk before or after physical loading of the collecting vehicle, they should be covered by the insurance contract.

However, the seller could ‘hand over’ to the first carrier by passing controlling documents to the first or the main carrier. Risks would pass to the buyer from that moment, and thus handing over to the first carrier need not involve any form of movement.

This would be an insurance issue in any example where the seller made the goods available to the first carrier from a third-party warehouse simply by passing title documents to the carrier, and the goods thereafter stood for a period prior to physical movement.

In a strict reading of CIP this transfer of documentation would be ‘delivery’, and also the point where the contract of carriage commences. However, no movement is involved in this transfer of authority and any standing period thereafter, pending the first carrier’s collection of the goods, would be technically (if not actually) uninsured.

It is a very narrow gap, I know, but then then so is the one that all my stuff falls through, ending up down the back of the couch.

Accordingly, CIP sellers need to be sure they understand at what point delivery takes place and at what point insurance attaches if they are to be certain that these are aligned.

The CPT buyer wanting to arrange cover in similar conditions would first need to find out where and by what action the seller intends to ‘hand the goods over’ to the first carrier.

Thereafter the buyer may need to address the model with their underwriters if the seller or first carrier are not immediately undertaking the loading and securing of the cargo at the seller’s premises.

Under either term, delivery is not merely when the first carrier’s wheels start moving; in the right circumstance it may happen earlier than this, potentially without any physical action.

The probability of this exposure arises in CPT and CIP models where the first carrier collects from the seller, but is unlikely occur if the seller physically delivers to the first carrier.

In that variation, delivery takes place on the seller’s delivering vehicle on arrival at the first carrier, with the goods not yet offloaded, but available to the carrier to do so.

“Most people don’t know that they don’t know.”

Source: Freight Training