Incoterms_® and Commercial Contracts

Preliminary remark: ‘Delivered at Place’ means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. This place of destination may be the buyer’s address but it may also be another place of destination, even a place outside the buyer’s country. The arriving ‘vehicle’ under DAP may well be a ship and the named place of destination may well be a port. Consequently, DAP can safely be used in cases where the Incoterms® 2000 rule DES once was.

How are goods handed over to the carrier?

‘Delivered at Place’ means that the seller must contract for carriage (or use its own means of transportation),¹ and that it must deliver the goods by placing them at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. How and at what point the goods are handed over to the carrier departing for that place of destination 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 place.

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?

The seller must deliver the goods by placing them at the disposal of the buyer on the arriving means of transport ready for unloading at the agreed point, if any, at the named place of destination on the agreed date or within the agreed period.

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

At that point of destination, the contract of carriage does not have to provide for unloading from the means of transport (vessel, vehicle, etc.). When the contract refers to containerized goods being delivered at a named port, this may lead to impractical results. If it is the intention to deliver the goods at the container terminal of the named port, parties are advised to use the DAT Incoterms® rule. DAT obliges the seller to have the goods unloaded from the vessel and deliver them so that the goods/container are placed at the disposal of the buyer at the terminal.

DAP may also provide for delivery inland, in which case the contract of carriage does not have to include any discharging at destination. However, if the contract of carriage includes unloading at destination; the seller is not entitled to recover the unloading costs incurred under its contract of carriage from the buyer unless otherwise agreed between the parties.

The Incoterms® rules do not stipulate exactly how the goods should be delivered beyond the distinction between ‘discharged’/‘not discharged’. In practical terms, where the goods are delivered while still on the arriving means of transport, they must be presented ready for immediate discharging. The buyer (or whomever the buyer has appointed to carry out the task) must thus be able to commence discharging without delay and without having to take additional action in order to enable the discharge (such as opening hatches or doors, moving other containers stacked above, etc.). The buyer must therefore have received notice that the unloading may commence and the relevant document enabling it to claim delivery.

Upon receipt of the goods from the carrier at destination, 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 the transport document for receipt of the goods.² This 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

Transport law provides for very short notice periods for claims against the carrier for damages. With the DAP-seller assuming the risk, the buyer should have an incentive to verify the goods as soon as possible and notify the carrier for the benefit of the seller in case of transport damages. The DAP seller is well advised to oblige the buyer to give notice to the carrier within the applicable time limits, and to do this in conjunction with the notice to the seller under the contract of sale. Due to the short notice periods, the place of delivery should not be too far away from the place where the goods are unpacked in order to allow for a swift verification of the goods.

If the buyer (consignee) refuses to take the goods from the carrier, it would be in breach of Articles B4 and B8 of the DAP 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 DAP seller. Therefore, it is for the seller (usually also the consignor or shipper) to pay the price for transport to the named place of destination.

Together with the claim against the DAP 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 (DAP buyer).

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

Upon agreeing on a price of transportation, the DAP seller and the carrier are well advised to stipulate clearly which transport and destination costs (unloading, container deposit charge, container cleaning charges,…) 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 not be included in that (pre)agreed price of transport.

The main rule under DAP is that the seller has to pay in addition to costs resulting from the contract of carriage, all costs up to the moment when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named destination place. Additional costs of carriage (storage, handling, detention, …) charged by the carrier to the DAP buyer upon arrival under its right of lien and retention; have to be reimbursed by the seller.

However, additional costs (storage, handling, detention,…) incurred by the seller because the buyer fails to carry out import formalities, or notify the point at the place 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 to collect these additional costs directly from the buyer (applying its right of lien or retention).

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

Upon agreeing on a price of transportation, the DAP 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 DAP seller.

When is the price for transport payable?

The DAP 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 DAP 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 unloading or 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

How are the goods to be packaged?

‘Delivered at Place’ means that the seller must contract for carriage (or use its own means of transportation) and that it must deliver the goods by placing them at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. How the goods are packed for transportation when handing over the goods at departure to the carrier departing for that destination place 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 DAP seller to carry out all customs formalities necessary for the export of the goods from the ‘ship from place’ and transit to the named place of destination at its own risk and expense (including any export and transit license or other official authorization that may be required).

Import formalities in the country of destination 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.

If the named place in a DAP sale is 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.

When a DAP seller organizes the logistics chain up to an inland named point of destination, the most logical solution would be for that seller not only to instruct carriage, but all the other aspects of logistics (insurance, customs clearance, warehousing, …) up to the moment that the goods are handed over to the buyer (or its agent) at the named place of destination. As the freight forwarder, working under instruction of the seller, is indeed the ‘architect of logistics’ it may be best placed to not only manage transportation of the goods but also all the accessory activities such as warehousing, customs clearance, insurance, … up to the point where its mandate ends. Although customs clearance upon import is to be carried out by the DAP buyer, it may be practical to ask the seller’s freight forwarder to organize all the customs formalities (customs clearance, loading of the goods) prior to arrival at the named inland place of destination in the name of the buyer. This would keep all logistics in one hand and avoid the risk of delays and errors. However, buyers should note that when import formalities are fulfilled in their name by a customs agent, nominated and instructed by the seller, they may assume a mandatory liability under customs law that cannot be avoided in the contract. Such mandatory law may override any aspect of the sale contract, including the chosen Incoterms® rule.

It is the buyer who is responsible for the customs clearance. Practically, under DAP parties often organize customs clearance as follows: the seller asks the customs agent working for the forwarding company to fill in the customs forms in the name of the buyer and will pay the customs agent (customs clearance charges) but the customs agent will charge the buyer with the taxes upon import paid in its name.

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 DAP Incoterms® rule .

Who is responsible for stowage and cargo securing?

‘Delivered at Place’ 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 place of destination and that it assumes all the costs and risks up to that moment. When applicable and not performed by the carrier, the DAP seller will therefore have to stow the goods upon departure.

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

‘Delivered at Place’ 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 place of destination and that it provide the buyer, at the seller’s expense, with a document enabling the buyer to take delivery of the goods. The DAP buyer must accept this delivery document.

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