Is there a connection between Incoterms and the shipping line..??

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Is there a connection between Incoterms® and the shipping line..??

Are Shipping Lines concerned with Incoterms®..??

Do Incoterms® really affect the shipping line..??

These are few of the questions raised on this blog wherein readers (mostly forwarders and importers / exporters) have complained that their booking was on FCA, FOB, CIF etc and that the Carrier refuses to show details relating to commercial and sales information of the cargo on the bill of lading..

So I thought to clarify the connection between the shipping line and Incoterms®..


 

ICC (International Chamber of Commerce), defines Incoterms® as below :

The Incoterms® rules are an internationally recognized standard and are used worldwide in international and domestic contracts for the sale of goods. First published in 1936, Incoterms® rules provide internationally accepted definitions and rules of interpretation for most common commercial terms.

The rules have been developed and maintained by experts and practitioners brought together by ICC and have become the standard in international business rules setting. They help traders avoid costly misunderstandings by clarifying the tasks, costs and risks involved in the delivery of goods from sellers to buyers. Incoterms® rules are recognized by UNCITRAL as the global standard for the interpretation of the most common terms in foreign trade.

As you can see from the explanation above, Incoterms® are primarily an integral part of the sales contract for use between the seller and buyer..

So technically and legally there is no connection between Incoterms and the shipping line as these terms do not form part of any contract between a customer and shipping line..

This is because there is a difference between a sales contract and contract of carriage..

There are cases where clients ask the shipping line to quote (for example) “FOB Durban to CFR Shanghai”.. In such cases, the shipping line just needs to make sure that they understand and follow the requirements of the customer..

In this case,  the shipping line’s quote will only include the sea freight from Durban to Shanghai as the other costs are not for account of this particular client..

However, the shipping line needs to get clarity from the client as to who will be paying the local charges (Terminal Handling Charge, Agency charges etc) at both ends as it is not covered in the quote, but is something that the shipping line will incur and will need to recover from someone..

Carriers normally will not show the Incoterms on their bill of lading either in the ports fields or in the body of the bill of lading as it is considered as commercial information not under the control of the carrier..

Therefore, the carrier doesn’t want to undertake the liabilities and risks that comes with the commercial and Incoterms information when it is not a part of their contract..

But ironically, the shipping lines use the terms CIF business or FOB business to classify cargo that is commercially controlled by the shippers at a port (CIF) and cargo that is commercially controlled by the consignees at the same port (FOB)..

Here commercially controlled refers to whoever agrees on the freight rate negotiations/payments with the shipping lines..

Have you come across any instances where the shipping line has been involved with Incoterms..??

*** End of Article ***

13 thoughts on “Is there a connection between Incoterms and the shipping line..??”

  1. It is true that delivery terms are not directly indicated in BL.It is indicated as phrases like freight collected (FOB) or prepaid(CFR).so,there is connection and implications

    Reply
    • It is possible for a shipment to be freight prepaid and delivery terms to be FOB as well. Take for example a scenario where origin agent pays for ocean freight. Freight collected and Freight prepaid cannot be used interchangeably with CFR and FOB because CFR and FOB are contractual terms between the buyer and seller which assign risks, costs and responsibility. Freight collect and freight prepaid are terms of payment between the buyer/seller and/or their agent depending on which incoterm was used.

  2. It is true that incoterms ( delivery terms) are not found in any BL directly.
    In the BL the phrase freight is collected imply, FOB shipment and collected at destination point.
    Similarly, prepaid represent CFR shipment.So, delivery terms have relation where freight is to be collected.

    Reply
  3. I sale 1 x 20 ‘from the shipper place to be delivered under hook Port Dakar – Senegal – My customer was the consignee in Africa sales in EXWORKS

    I initiated the operation after being paid freight, and the shipper was paid for his goods as well. Everyone was paid, and the consignee did not recover his container. What blocked it was customs fees that the consignee could not pay for lack of money.

    The shipowner sent a copy letter by e-mail of a letter at the attention of the shipper to warn him of the daily parking charges and as a merchant of the bill of lading he invited him to resell the goods or return them.

    The problem is that because everyone was paid, I sent the original 3 BLs to the consignee my customer by registered letter with acknowledgment of receipt, and signaled the sending of the recommended by mail the same as his shipment.

    Given that we are not in possession of the BL we can not help the shipowner. On the shipowner’s letter it is stipulated that the shipper is in solidarity and may be subrogated to pay the costs incurred.

    What are the risks involved…..

    Reply
  4. Most lines use terms like CY – CY rather than proper incoterms. My employer cites CIF for such moves, meaning that THC and such are included in the cost of freight. The lines that I currently use do not use this term.

    Reply
  5. Incoterms are related to contract of sales, not contract of transport. This isn’t meaning that contract of transport isn’t impacted by Incoterms, just that contract of transport is a specific arrangement between seller and buyer, along the contract of sales.
    One good example: Our company is running a solid LCL NVOCC dept. We are receiving import cargo from all over the world. It happens often, not every week but a couple of times monthly, that from specific origins, for a CIF basis shipment, supplier refused to pay for origin local charges and sometimes even for freight, so HBL is on collect basis with amounts to collect. This can be puzzling considering CIF incoterm definition, but it happens.

    Reply
    • What we know about CIF is that it does not include local handling charges and custom clearance at destination port.

  6. Great article Hariesh. Forwarders and SL use incoterms all the time, especially when quoting clients and in their own contracts with the customers. This a dangerous practice which adds to the customers confusion in the already treacherous world of incoterms which very few people (including seasoned professionals in international logistics) seem to be familiar with.

    Reply
  7. It is a fact that Shipping Lines indicate CIF and FOB terms in their Bills of Lading because of it is mandatory for their POL and POD agents to know whether the freight charges are “Prepaid” or “Collect”.

    Reply

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