Incoterms_® and Commercial Contracts

Preliminary remark: The graphic presentation of the FAS rule illustrates that the seller is to place the goods alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. That named port of shipment may or may not be situated in the seller’s country.

When the goods are in containers, it is typical for the seller to hand the goods over to the ocean carrier at a port terminal awaiting arrival of the vessel and not alongside the ship for immediate loading. In such situations, the FAS rule would be inappropriate, and the FCA rule should be used.

‘Free Alongside Ship’ thus typically caters for goods that don’t ‘fit into a container’ such as breakbulk goods requiring special (‘heavy lift’) equipment to be unloaded from the means of transportation (train, special road transport, barge) arriving in the port, and to be loaded on the vessel. In such situations, it may be practical to have the goods directly unloaded from the arriving vehicle on to the vessel by the vessel (if geared) or a stevedoring company nominated by the shipping line.

Although ‘Free Alongside Ship’ may for certain types of trade be an appropriate delivery condition, it is rarely used.

How are goods handed over to the carrier?

‘Free Alongside Ship’ means that the seller has to deliver the goods at the named port of shipment by placing them, in the manner customary at that port, alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the loading point, if any, indicated by the buyer (or by procuring the goods so delivered).

Exactly how this delivery is executed is to be interpreted in accordance with the customs of the named port of departure, if any. In absence of such port customs, delivery is completed when the goods are placed alongside the vessel, nominated by the buyer, ready for loading. If the ship is not there, delivery cannot be performed. It can take place only when the ship is berthed, moored and cleared by the relevant authorities ready to load.¹ This rule should be interpreted so that it only applies when the buyer has facilitated the placing of the goods alongside the vessel by providing proper notices. Whether or not delivery requires the goods to be unloaded from the arriving means of transportation (if any), will depend on the nature of the goods, the arriving means of transportation, the infrastructure available, etc.

If the parties have agreed that delivery should take place within a time period, the buyer has the option to choose the date of delivery within that period. The FAS buyer and the carrier should agree on the date and on the point of taking over the goods (the ‘loading point’) in the port of shipment. The buyer must notify the seller the name of the vessel, selected time within the period agreed for delivery when the vessel will take the goods, quay of taking delivery (loading point) within sufficient time as to enable the seller to deliver the goods along­side the arrived ship. Failing receipt of precise notice on the loading point and the selected delivery time (‘preadvice’), the seller may use its discretion to select a point in the named port of shipment that best suits its purpose, and the delivery time within the agreed period.

Where the buyer has indicated the loading point but later wants to change these instructions, the seller is not obliged to cover the expenses of transferring the goods to a new loading point, provided the seller has acted in line with the buyer’s first instructions and the buyer’s new notice has arrived too late for seller to comply without extra cost.²

For the purposes of the contract of sale, the carrier nominated by the buyer must take delivery of the goods on behalf of the buyer. When applicable, this may include unloading or taking over the arriving means of transportation (container).

The seller must, at the buyer’s risk and expense, give the buyer sufficient notice either that the goods have been delivered in accordance with A4 or that the vessel has failed to take the goods within the time agreed.

If the buyer fails to notify the name of the vessel and the loading point, or if the vessel nominated by the buyer fails to arrive on time, or fails to take the goods, or closes for cargo earlier than the time notified, the buyer must reimburse the additional costs incurred by the seller. The buyer also bears all risks of loss of or damage to the goods from the agreed date or the expiry date of the agreed period for delivery, provided that the goods have been clearly identified as the contract goods.

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

In order to synchronize arrival of the goods and the vessel in the port, it may be practical for the FAS seller to nominate a vessel on behalf of the buyer. In this situation, when carriage has been contracted on terms that do not include loading (such as hook/hook or Free In terms), handing over the goods to the carrier may also require the seller strapping the goods to the hook or loading the goods on the vessel at the buyer’s risk and expense.

When and how are goods made available to the consignee?

The Incoterms® rules do not deal with the receipt of the goods by the buyer from a carrier that it nominated.

In the special case where the FAS seller arranges carriage on behalf of the buyer, the buyer must receive the goods from the carrier at the place of destination of the contract of carriage made on usual terms by the seller at the buyer’s risk and expense.

Who shall pay the price for transport?

The carrier acts on the basis of a contract of carriage entered into with the FAS buyer. Therefore, it is for the buyer (usually also the consignee) to pay the price for transport from the named port of shipment.

Note: in order to deliver the goods to the carrier contracted by the buyer, the seller may have to contract another carrier to transport the goods to the named port of shipment (‘pre-carriage’). The costs and risks thereof up to arrival alongside the ship are for the seller.

In the special case where the FAS seller arranges carriage on behalf of the buyer, the seller may try to instruct the carrier to collect the price for transport from the buyer. If the carrier does not consent, and the seller ends up paying the price for transport to the carrier, the seller may claim reimbursement from the buyer.

The buyer has to pay all costs from the moment of delivery (price for transport + additional costs).

As delivery is executed alongside the ship prior to loading the vessel, the buyer is advised to instruct its carrier to organize loading the ship in the port of departure at its risk and expense and contract for a carriage including the cost of loading (Liner In).

Additional costs caused by the seller delivering the goods at a point other than the one named by the FAS buyer and/or another moment or within another period as agreed, have to be paid (or reimbursed) by the FAS seller.

In the special case where the FAS seller has arranged carriage on behalf of the buyer, the carrier may turn to the seller should the buyer/consignee refuse to pay supplementary transport costs. The FAS seller who gives instructions to transport goods is bound by the transport agreement in spite of the fact that seller sold using the Incoterms® rule FAS. The seller may claim reimbursement from the buyer.

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

The buyer has to pay all costs from the moment of delivery alongside the ship in accordance with A4 (price for transport + additional costs).

In the special case where the FAS seller arranges carriage on behalf of the buyer, the seller may try to instruct the carrier to collect the price for transport and any adjustments thereof from the buyer. If the carrier does not consent, the seller may claim reimbursement of any payment made from the buyer.

When is the price for transport payable?

The contract of carriage between the FAS buyer and the carrier will normally specify when the freight is payable. The buyer and the carrier may agree that freight is payable upon departure, usually indicated by the words such as ‘freight prepaid’ or ‘freight in advance’, or upon arrival – ‘freight collect’ or ‘freight payable at destination’. This will typically be agreed on booking, be included in the transport contract, and subsequently be restated in the transport document. It should be noted that the transport contract often contains further provisions with respect to the payment of freight.

In the special case where the FAS seller arranges carriage on behalf of the buyer, the seller may try to instruct the carrier to collect the price for transport and any adjustments thereof from the buyer. If the carrier does not consent, the seller may have to pay for carriage at departure and claim reimbursement from the buyer.

How are the goods to be packaged?

Unless agreed otherwise, the goods must be packaged in a manner ‘appropriate for their transport’. ‘Appropriate for their transport’ is not equal to ‘reasonable’ or ‘usual’ but refers to a fitness for the purpose of transportation. This comprises qualities such as ‘apt’, ‘becoming’, ‘befitting’, ‘belonging’, ‘right,’ ‘suitable’, and to this purpose verifiable by the carrier.

As the FAS Incoterms® rule refers to marine transportation, the seller will need to choose a packaging ‘appropriate’ for transportation by sea.

Note that, when correctly used, the marine Incoterms® rules are often used for ‘the type of goods sold unpackaged’. The indication on the transport document ‘unpacked’ does therefore not automatically mean that the goods have not been ‘appropriately’ packed for their transport. It may be ‘usual for the particular trade to transport the type of goods sold unpackaged’ (some agricultural goods, mineral products, breakbulk, …).

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 FAS seller to carry out all customs formalities necessary for the export of the goods from the named port of delivery/departure at its own risk and expense. This includes any export license or other official authorization that may be required. Customs formalities after departure from the named port of delivery (transit, import) are to be carried out by the buyer at its own risk and expense.

The named place of delivery (alongside the ship on the quay, possibly still on a truck, on a barge,…) may in an FAS sale still be situated within the country of export. The goods may, from an administrative point of view, be delivered to the buyer prior to materially passing the customs border. At that moment, all the information regarding the export of the goods the seller may need for, e.g., taxation or reporting purposes, may not yet be available and all the customs formalities may not yet have been completed.

The buyer must provide the FAS seller, at the seller’s request, risk and expense, assistance in obtaining any additional information required to carry out the export formalities³ and/or in completing the export procedure⁴ and may have to instruct its carrier accordingly.

To avoid inconsistency, the instructions to the carrier, customs broker or freight forwarder should be in line with the assignment of obligations of the seller and the buyer regarding customs clearance under the FAS Incoterms® rule.

Who is responsible for stowage and cargo securing?

The obligation of the FAS seller to hand over the goods to the carrier, nominated by the buyer, is executed upon arrival alongside the ship in the port of departure, not loaded. The buyer should therefore, when contracting for carriage, instruct the carrier to include stowage, cargo securing and any other aspect of loading the goods on the ship (transshipment from the arriving vehicle onto the ship, dunnaging, trimming, …) in the transport contract.

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

In FAS sales the seller must provide the buyer, at the seller’s expense, with the usual proof that the goods have been placed alongside the ship nominated by the buyer at the loading point, if any, indicated by the buyer at the named port of shipment (or by procuring the goods so delivered).

This may be an issue when goods are to be delivered ‘alongside’ the ship, possibly not yet unloaded from the arriving barge, truck or train. The seller is advised to instruct the FAS buyer⁵ to stipulate, when contracting for carriage, the party that must provide an acknowledgment of receipt to the seller. This may however be complicated as the goods are delivered prior to loading the ship nominated by the buyer and are often not yet unloaded from the arriving means of transportation of the seller. This difficulty may explain the limited use of the FAS Incoterms® rule in transactions between unrelated parties and in operations financed by letters of credit.

Most international conventions for transport by sea and inland waterways require the carrier to deliver a specific transport document in respect of cargo received for carriage. This transport document serves as proof that goods have been taken into the custody of the carrier and as the place to note any reservations about the goods. In other situations, the transport document might be used in a way that only the holder of the transport document is entitled to claim the goods (such as with a negotiable Bill of Lading).

As the FAS seller is not a party to the contract of carriage and does not load the ship, the carrier is, in principle, under no obligation to deliver a transport document to the FAS seller. Practice may vary in this respect. Nevertheless, the seller has an obligation to assist the buyer in obtaining a transport document if the buyer so requests.

If the buyer asks the carrier to arrange for customs documents (invoices, packing lists, certificates of origin,…) the carrier is not obliged to do so. Whenever the carrier accepts this request, particular attention should be paid to these documents which are very much formalized, in particular to the mode of transport, the goods, the applicable law and regulations and the status of the transport buyer and the carrier.

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