Incoterms_® and Commercial Contracts

Preliminary remark: The graphic representation of the DAT rule illustrates that seller is to place the goods at the disposal of the buyer, unloaded from the arriving means of transport, at a named terminal at the named port or place of destination. The ‘terminal’ may be any place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. A terminal cannot be simply an open field as there must be some organization of the space for receiving goods.¹

How are goods handed over to the carrier?

‘Delivered at Terminal’ means that the seller must contract for carriage (or use its own means of transportation)² and that it must deliver the goods to the buyer at the named terminal of destination. How and at what point the goods are handed over to the carrier departing for that terminal is of minor importance for the relationship between seller and buyer.

The seller can thus arrange for the goods to be picked up at any convenient place and in the manner that best suits its purpose, as the buyer has no risk or cost until delivery of the goods at the named destination terminal.

Unless the manner in which the goods were delivered to the carrier precludes this, when taking the goods from the seller the carrier will verify whether their apparent condition and/or their packaging allows for a safe journey. The carrier may also verify the apparent nature, quantity, dimensions and weight of the goods.

When and how are goods made available to the consignee?

DAT in Article A4 requires that the goods be delivered unloaded from the arriving means of transport and subsequently placed at the disposal of the buyer ‘at the named terminal’. Therefore, the contract of carriage has to include unloading at the named terminal.

Whether the goods must be brought inside the terminal will depend on the particular physical circumstances of the terminal and on the customs of the trade. Perhaps most importantly, it will depend upon where exactly the buyer can take delivery of the goods against the delivery document provided by the seller, as required under Article A3. When a sale is concluded on a DAT basis, the parties are therefore well advised to specify as clearly as possible the terminal and, if possible, a specific point within the terminal at the agreed place of destination.

Whenever the buyer is entitled to determine the time within an agreed period and/or the point of taking delivery at the named terminal, it must give the seller sufficient notice thereof. The seller is advised to enter into a contract of carriage that matches this choice precisely. If a specific terminal is not agreed or is not determined by practice, the seller may select the terminal at the agreed port or place of destination that best suits its purpose.

In practice, the DAT Incoterms® rule specifically caters for the following situations:

1. air carriage since the air terminal is the first place where the buyer can claim delivery, and this necessarily happens after unloading from the aircraft.
2. the seller has several customers in a geographic area, ships the goods on FCL terms to a terminal close to that market, splits up the shipment at that terminal, and invites its customers to collect the goods at the terminal;
3. the seller has not been paid, and ships the goods to a terminal in the country of the buyer with the instruction to release the goods to the buyer only as agreed;
4. it may also be practicable to agree that the goods be delivered uncleared for import to a terminal close to the buyer in the country of import.

In the second and third situations, it may generally be expected that the terminal where the goods will be placed at the disposal of the buyer will be nominated by the seller organizing transportation. This allows the seller to retrieve the goods or find another destination should the buyer refuse to pay and/or collect the goods. Moreover, as any applicable import formalities will have to be carried out by the buyer after delivery at the terminal, the terminal may well be a (bonded) warehouse of the seller’s carrier at the agreed port or place of destination. It will therefore be common for the seller to inform its buyer the point in the terminal, and how to collect the goods after their arrival there in accordance with the contract concluded with its carrier or freight forwarder.

Depending on the mode of transportation, the terminal facilities, the nature of the goods, the infrastructure available, the customs of the port etc., collection at the terminal may require the buyer to load the goods (whether still containerized or not) on its collecting vehicle. The DAT Incoterms® rule allocates to the seller only such costs and risks of delivery to the buyer at the terminal that are part of the contract of carriage and thus included in the price of transport. The buyer must pay all other collection costs. The risk of loading the goods at the terminal is for the buyer, as it comes ‘after they are placed at the buyer’s disposal.’

Upon collection of the goods at the terminal, the buyer (consignee) will verify the nature, quantity and weight of the goods as well as their condition and packaging, and make any appropriate reservations when signing for receipt of the goods. Such verification does not equal a full conformity assessment. In case of redirection or redispatch, such assessment may be deferred until after the goods have arrived at the final destination.³

If the buyer (consignee) refuses to take the goods from the carrier, it would be in breach of Articles B4 and B8 of the DAT Incoterms® 2010 rule and the carrier should contact the seller (shipper) for further instructions. Such refusal may result in consequences such as the risk and costs passing to the buyer under the contract of sale and:

1. the carrier claiming for the charges of maintaining the goods and for the compensation of the damages caused by the delay;
2. a reduction of the carrier’s responsibility of the care of the goods;
3. a change or even preclusion of the carrier’s obligation of performance;
4. the conferral of remedies for the carrier such as deposing of goods and other remedies.

Who shall pay the price for transport?

The carrier acts on the basis of a contract of carriage entered into with the DAT seller. Therefore, it is for the seller (usually also the consignor or shipper) to pay the price for transport to the named terminal of destination up to the moment the goods are placed at the disposal of the buyer.

Together with the claim against the DAT seller being the contractual shipper, the carrier may, subject to its precise legal quality and the law applicable to the contract of carriage, have a lien and right of retention for the price of transport and additional charges due against the consignee (DAT buyer).

What additional costs can be added to the price for transport?

Upon agreeing on a price of transportation, the DAT seller and the carrier are well advised to stipulate clearly which transport and destination terminal costs (storage, THC, quay duties, cartage, container deposit charge, …) are included in that transport price and which are not.

Costs that are caused by circumstances beyond the reasonable control of the carrier and contractual penalties (e.g. demurrage, detention, waiting hours,…) will for obvious reasons not be included in that (pre)agreed price of transport.

The main rule under DAT is that the seller has to pay in addition to costs resulting from the contract of carriage, all costs up to the moment the goods are placed at the disposal of the buyer at the named terminal.

Additional costs (storage, handling, detention,…) incurred by the seller because the buyer fails to carry out import formalities, or notify the terminal where the goods are to be delivered in accordance with Article B7; have to be reimbursed by the buyer. For practical purposes, the seller may be advised to seek assistance from its carrier/terminal to collect these additional costs directly from the buyer (applying its right of lien and retention).

Is there a variable part to the price of transport (i.e. ‘adjustment factors’)?

Upon agreeing on a price of transportation, the DAT seller and the carrier are well advised to stipulate whether any price adjustment is permitted.

The contract of carriage may sometimes provide for a retroactive adjustment to the ordinary freight payable. These adjustments come in many different forms, such as the Bunker Adjustment Factor (BAF),⁴ the Currency Adjustment Factor (CAF),⁵ as well as other charges such as International Ship and Port Security (ISPS),⁶ war/pirate-risk, congestion etc. Such adjustments will not be included in the price originally agreed for the transportation but will typically be calculated at the time the goods are handed to the carrier. All such transport price adjustments are to be paid by the DAT seller.

When is the price for transport payable?

The DAT seller and the carrier must agree on the payment of freight in a manner so that the buyer can immediately receive the goods on arrival without having to pay any costs that were included in the contract of carriage. If the transportation document records the payment of freight it should be marked accordingly.

Regardless of what the transport contract provides with respect to the timing of the payment of freight, the DAT seller always has an obligation to the buyer to pay the transport price (and any of the adjustments added at the time the goods are handed to the carrier, as discussed in question 5).

If the price for the transportation agreed between the seller and the carrier includes further handling after unloading, those costs must also be paid by the seller. The contract of carriage may provide for these or other additional costs to become payable upon or after arrival of the goods as agreed with the carrier. However, note that the seller is always obliged to arrange for payment of the transport in a way that does not obstruct the buyer’s ability to take delivery of the goods at the destination terminal.

How are the goods to be packaged?

‘Delivered at Terminal’ means that the seller must contract for carriage (or use its own means of transportation)⁷ and that it must deliver the goods to the buyer at the named terminal of destination. How the goods are packed for transportation when handing over the goods at departure to the carrier departing for that terminal is of minor importance for the relationship between seller and buyer.

Is the seller or the buyer responsible for customs clearance?

When selling goods leaving for a destination outside of the customs territory, it is up to the DAT seller to carry out all customs formalities necessary for the export of the goods and transit to the named terminal at its own risk and expense (including any export and transit license or other official authorization that may be required).

Import formalities upon collection at the named terminal are to be executed by the buyer at its risk and expense. As the buyer is responsible for import customs clearance, it may need at the least a copy of the transport document to present to its import authorities.

The parties must provide each other assistance in obtaining any documents and information, including security-related information, needed for the export, transport and import of the goods.

As the named terminal in a DAT sale will usually be situated within the country of import, it may be advisable to instruct the carrier to split up the price of transportation into ‘inland’ and ‘international’ transport costs for customs valuation purposes.

To avoid inconsistency, the seller should agree on terms and conditions in the contract of carriage with the carrier in line with the assignment of obligations of the seller and the buyer regarding customs clearance under the DAT Incoterms® rule .

Who is responsible for stowage and cargo securing?

‘Delivered at Terminal’ means that the seller must contract for carriage (or use its own means of transportation), that it must deliver the goods to the buyer at the named terminal of destination and that it assumes all the costs and risks up to that moment. When applicable and not performed by the carrier, the DAT seller will therefore have to stow the goods upon departure.

What sort of transport document should be issued by the carrier?

‘Delivered at Terminal’ means that the seller must contract for carriage (or use its own means of transportation) and that it must deliver the goods to the buyer at the named terminal of destination. The transport document is therefore mainly a concern between the seller and the carrier.

The document must however make it clear that the carrier is obliged to deliver the goods to the buyer or whomever the buyer nominates to receive the goods on its behalf.

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