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Here we will not concern ourselves with LCs which require the transport document to be consigned to order or to order of a bank. In these, we will equate “notify party” with “consignee”.

When the destination place is a terminal and the buyer is to collect the goods, then they will require a transport document showing them as the consignee/notify party.

But when the destination place is beyond the terminal and the seller’s carrier needs to take hold of the goods at that terminal then in some circumstances, for example, a container bill of lading or multimodal transport document, an air waybill and a railway consignment note will be issued by that carrier for transport only to the terminal.

The seller’s forwarder or agent will then need to take hold of the goods from that terminal and may well need to present a transport document showing the seller as the consignee/notify party entitled to receive the goods there. The forwarder will then transport the goods to the buyer’s premises, possibly issuing the seller a house B/L or AWB to cover the door-to-door shipment or a separate transport document. Whatever it is, the buyer doesn’t care.

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With the seller not only contracting for carriage to the buyer’s country but also contracting for delivery to occur there – the difference between the C rules and the D rules – the seller not only bears the transit risk but potentially puts itself in jeopardy of breaching the sales contract.

For example, the truck is on the way to the buyer’s premises (direct from the seller or from a destination terminal) when it has an accident resulting in damage to the goods.

Or the goods are delayed in transit due to bad weather necessitating the vessel to divert from its schedule. Or the container is washed overboard.

The seller is unable to deliver the contracted goods in good order and condition, by the agreed date or within the agreed period, so may well be in breach of the sales contract. That contract might contain liquidated damages provisions that the seller’s eyes glazed over when reading it.

To make life more difficult, the seller might then need to arrange a claim in the destination country against its own insurance. Or wait while a general average claim gets underway.

Be careful, be very careful, selling under the D rules.

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In the D rules delivery does not occur until a named destination place. How it gets there, what origin port or place it left and when it left are all irrelevant. This puts the D rules completely at odds with the typical LC that requires a port of shipment, port of destination and a latest shipment date.

Even the mode of transport is entirely the seller’s choice, so long as the goods are placed at the disposal of the buyer either not unloaded (DAP and DDP) or unloaded (DPU) at the named destination. Only after delivery is a seller typically entitled to payment for the goods.

Can an LC be structured to work with the D rules? Yes, but only with great difficulty for the banks as it will be outside their comfort zone and may have an impact on their anti-money laundering and anti-terrorism funding precautions.

In essence the D rules only work comfortably with pre-shipment payment or open account payment.

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The usual answer is because delivery occurs, and risk transfers, when the goods leave the seller’s direct control, such as when the goods are loaded into the container at the seller’s premises or at the CFS or CY, long before the goods go on board. This would be the case with Free Carrier (FCA), Carriage Paid To (CPT) and Carriage Insurance Paid To (CIP).

But what about in the D rules? Here the goods in containers leave the seller’s direct control, head off overseas entirely outside of the seller’s direct control yet delivery occurs, and risk transfers, later on in the destination country.

Given that these days carriers will not allow visibly damaged or leaking containers to be loaded on board, I contend that the on board action should be accepted as being the delivery and risk transfer point if the seller and buyer agree. Ah yes say some, but what if the goods outturn from the container at the other end damaged? My answer, that is the same as delivery/risk transfer in DAP CY where the buyer takes delivery of the container for trucking and unloading later at their premises.

Where did the damage occur? We can assume then it occurred after loading on board. If it is water damage due to a leak in the container, was it freshwater or saltwater? Were the goods adequately packed? What percentage of container shipments arrive damaged? Should we write rules to take into account the small minority or the great majority?

The majority of container shipments are FOB, CFR or CIF. Why don’t the rules reflect common usage?

When does the typical seller think they have exported? When they or the forwarder have completed export formalities with customs or when the container is put on the ship? Surely the answer is the latter, when it is on the ship at the port of loading, having passed that perception of the export border, of physically leaving the country.

When does the typical buyer think the seller has exported? Exactly the same answer. The buyer certainly does not want to have to deal with anything in the exporting country before the container has crossed the perceived export border.

This whole concept for containers is ignored in the current and previous versions of the Incoterms rules.

The Incoterms rules are unknown to the majority of sellers, buyers and forwarders because the ICC not only has ignored their needs, but because the book is over-priced and under promoted.

Right now the ICC is busy telling other organisations and governments how to behave and perform, instead of focussing on the relevance, or lack thereof, of its own key publication which should be helping the world of trade if only it would reflect the traders’ real every-day procedures.

Reader’s comment:

“Why don’t the rules reflect common usage?” Well, why don’t they?

Bob’s response:

Because the majority of the Drafting Group, being European lawyers, didn’t understand what the majority of traders actually do when shipping containers from or to outside of Europe, or just anywhere else, despite my attempts to inform them.

They took the high-handed attitude that the majority of traders have to follow the lawyer-written rules. Realities of trade did not come into it. Realities, that if you write rules that don’t work then they will be ignored, also didn’t come into it.

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Well no, we don’t. Traditionally each rule has repeated all ten of the obligations for each of the seller and buyer. Most of them are identical or near-identical across each rule, and for some, the variations hang off the delivery obligation. So why not have them stated just once, and simply highlight the delivery obligation as the major differentiating point?

And why eleven rules? Interestingly FCA is the only rule which has two delivery options, so why can’t this format be the case with FAS and FOB which could be just the one rule, not loaded and loaded? The same concept could be applied to all mode/s C rules of CPT and CIP, just one rule not insured or insured and similarly one for the maritime C rules CFR and CIF.

Then with the D rules DAP, DPU and DDP making them just the one with an option for unloading the goods (seller or buyer) and an option for carrying out import formalities (again seller or buyer). Then take the delivery explanation from a vague statement to more explicit explanations useful to those intimately involved every day – the sellers, buyers, transporters, bankers? Don’t worry about the lawyers, they very rarely are involved.

We can but live in hope!

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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.

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.

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.

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.

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.

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A missing rule?

We have Delivered At Place (DAP) (not unloaded) and Delivered at Place Unloaded (DPU) with in both cases the buyer import clearing. Then we have a step beyond DAP with Delivered Duty Paid (DDP), with identical delivery but the seller is responsible for import clearance and VAT/GST.

DDP is often claimed to be the ultimate responsibility for the seller and the exact opposite of ExWorks (EXW). Logically that simply is not so. The ultimate rule would be for the seller, after import clearing themselves, unloading the goods, however impractical or difficult that might be in some circumstances.

Why is this not a rule? Simply because when I suggested if we extend Delivered at Terminal (DAT) to the new DPU then we should have that final rule, the lawyers, being the majority in the Drafting Group, did not want to turn their minds to it. I was told we didn’t have time, maybe in 2030.

You see, it was made clear to me at the outset in the Drafting Group discussions that the 2020 rules were to be reactive not proactive. In other words, largely just more of the same that has proven to be impractical, unworkable and largely ignored by the trading world.

What will the future bring? Hopefully a new set of rules much sooner than 2030, drafted by practitioners not lawyers.

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Delivery is identical to that in the Delivery at Place (DAP) Incoterms® 2020 Rules.

The danger of Delivery Duty Paid (DDP) is in the requirement that the SELLER must import clear.

Most, but not all, countries only allow local entities to import. That means in those countries the seller would need to be a legal entity in that country and registered for VAT/GST.

As you can imagine, if the seller takes on all the importing responsibilities, they will build the costs plus a hefty margin into their selling price.

Sometimes for DDP the import customs broker takes the easy way out and declares the buyer as the importer, without knowledge of, or approval from, that buyer.

In countries that do allow overseas entities to be the importer, be very, very careful. Local legislation may well allow Customs to claim any shortage of duty/taxes from a local entity such as the DDP buyer, customs broker, forwarder or banker.

For many reasons, DDP is best avoided.

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Delivery of the goods is “not unloaded” by the seller at the destination place, in this case the port of discharge. That means that the buyer needs to be able to unload the vessel at its own risk and cost.

If the buyer has a delay in completing customs clearance or takes longer than agreed to unload the vessel, ideally there will be clauses in the sales contract dealing with the additional vessel and port costs.

If the vessel has its own cranes to unload the vessel, and unloading is included in the charter party contract at the seller’s expense, the transaction would be Delivered at Place Unloaded (DPU) not Delivery at Place (DAP).

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Delivery of the goods is “unloaded” by the seller at the destination place.

It would be unusual but possible that delivery by road would be to a terminal for the buyer to then collect. Instead it is usually to the buyer’s premises. Import clearance, if any, occurs at the border usually while the goods remain on the truck.

The seller contracts for carriage on the truck all the way to the buyer’s premises where the seller is to unload the truck. But how does that work? The packages would need to be small enough for the driver to remove from his truck by hand, or he would need his own crane or forklift to remove the goods, maybe on pallets, and put them on the buyer’s receiving dock.

There might well be site induction, site security, insurance, identification of workers, operation of unapproved equipment, workplace health and safety and other problems.

What if the buyer has a delay in import clearance so the truck must park up at the border and wait, or the buyer takes longer than the trucker’s free time for unloading? Ideally these possibilities should already be dealt with in the sales contract.

So be careful, Delivered at Place Unloaded (DPU) to the buyer’s premises can have problems.

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