Meet our writer. Written by our resident freight forwarding and shipping expert. Bob Ronai→
For Free Alongside Ship (FAS), delivery is when the goods are placed alongside a vessel which must logically be present at that point. This can be on the quay beside the vessel, or on a barge beside the vessel.
For Free on Board (FOB), Cost and Freight (CFR) and Cost Insurance and Freight (CIF) it is when the goods are placed on board the vessel. Note the old and long-standing concept of “across the ship’s rail” no longer applies. So what does “on board” mean? The answer necessarily is “it depends on the goods.” Bulk goods could be poured into the holds, for goods lowered by tackle it would typically be when removed from the tackle and in a stable position.
Ideally, the sales contract will be clear on the specifics for the particular goods. Extras such as lashing, dunnage etc should also be specified and would most usually be for whoever contracted for carriage.
Note that in some commodities, such as grains and lentils, most transactions for both bulk and containers use GAFTA contracts which specifically exclude CISG and Incoterms rules.
Reader’s comment:
With FOB, CFR and CIF, where exactly does the risk shift from seller to buyer? It is indeed clear, as you mention, with bulk goods poured into the hold of a ship or with containers.
But when the goods have to be lashed or secured? In case of FOB, I agree that the risks are usually for the buyer, since the buyer arranged shipment. But what with CFR or CIF? The rules themselves remain silent about this problem that arose with Incoterms 2010 (when the “ship’s rail” principle was abandoned).
Logically I would say that the risks passes from seller to buyer when the position of the goods on board is final (lashed, secured, dunned, …). Although I agree that this should be stipulated in the contract. But that is not always the case…
Bob’s response:
if goods have to be lashed and secured then in CFR and CIF the cost of doing this is of course for the seller. If the parties want that point to be the delivery and risk transfer point then they need to make that clear in their contract. The previous Incoterms rules deliberately removed the ship’s rail concept as it was unreasonable, unrealistic and unworkable.
Now the two parties decide for themselves, and if they fail to do so, if they fail to be sufficiently aware of their own trade logistics and mechanisms, then some might argue that they deserve all they get at the hands of the lawyers in court.
Reader’s comment:
What happens if contracts still use cif for containerised goods. What is considered onboard? Thanks.
Bob’s response:
If they specifically refer to Incoterms 2010/2020 then there is a bit of a circular argument. They have used a rule that the Explanatory Notes for that rule advise it is not appropriate. If they don’t mention the publication then it’s anybody’s guess what the seller and buyer agreed on.
Generally though, what is “on board” in a container shipment is when the container is loaded on board and placed into its position and the twistlocks applied. Despite carriers not issuing their B/Ls until after the vessel departs, nevertheless the container can be traced as to its on board date and time via that line’s online tracking.
Reader’s comment:
Thanks so still loaded on board rather than to terminal or ICD?
Bob’s response:
Yes, “on board” means “on board the vessel” not delivered into a land-side terminal. You won’t get an “on board” B/L for a container sitting in the CY but you can get a “received for shipment” B/L without an “on board” notation.
Reader’s comment:
How does the law treat carrier liability if received for shipment vs onboard? The CY is a servant or agent for the carrier therefore is carrier liable for losses sustained between received and onboard B/L notation being issued?
Bob’s response:
I am not a lawyer (obviously from other comments I have made) so not qualified to say what the law does or does not do. However, you will find that carriers limit their liability per package. The Incoterms 2020 rules (and previous versions) make it clear that risk transfers from the seller to the buyer at the delivery point.
Now, if the seller and buyer had agreed that the delivery point for that container was when it was loaded on board, and because something occurred causing a loss before that point as you describe, meaning in fact it could not be loaded on board, thus could not be delivered, then, in that case, the seller still has the risk.
If the transaction is delivered at the origin CY then the seller would have delivered, the risk would have transferred to the buyer.
Want to find out more about Incoterms® Rules 2020?
We have summarised the 11 Incoterms which have recently been revised by the ICC Incoterms Drafting Committee for 2020.
View our Incoterms® Rules 2020 hub here with free guides, podcasts, videos and content!
