International Business Law - Chapter 11

Transportation
Trade Terms
Sales contracts involving
transportation customarily contain
abbreviated terms describing the
time and place where the buyer is to
take delivery.
May also define a variety of other
matters, including the time and place of
payment, the price, the time when the
risk of loss shifts from the seller to the
buyer, and the costs of freight and
insurance
Trade Terms (contd)

The same trade abbreviations are widely used
in domestic and international transactions
NOTE: They can have different meanings,
depending on the governing law!
US: Uniform Commercial Code

UK: Case law
Nearly all jurisdictions allow parties to define
the terms themselves or to incorporate
definitions from other jurisdictions or specific
private sets (Incoterms)
Trade Terms (contd)

Free Terms
Means the seller has the obligation to deliver
the goods to a named place for transfer to a
carrier
FOB Free on Board

FOB (port of shipment) contract requires a
seller to deliver goods on board a vessel that
is to be designated by the buyer in a manner
customary at the particular port.
Seller responsible to get the goods on board a
particular ship
Trade Terms (contd)

FOB Free on Board (contd)
on board traditionally is across the rail
Seller may still be responsible for goods
If not clearly designated/ appropriated to the
contract
If remain unidentified to the buyers contract
(loose grain)
Trade Terms (contd)

FAS Free Alongside Ship
Requires seller to deliver goods to a
named port alongside a vessel to be
designated by the buyer and in a
manner customary to the particular
port.
Alongside traditionally meant goods must be
with reach of a ships lifting tackle
Trade Terms (contd)

CIF Cost, Insurance, and Freight
Requires the seller to arrange for the
carriage of goods by sea to a port of
destination and to turn over to the buyer
the documents necessary to obtain the
goods from the carrier or to assert a
claim against an insurer if the goods are
lost or damaged.
Invoice, bill of lading, insurance policy
Trade Terms (contd)

CFR Cost and Freight
Same as CIF, but buyer provides
insurance
CIF required insurance has minimum
coverage
FPA free from particular average conditions
Trade Terms (contd)

DES Delivered Ex Ship
Requires seller to deliver goods to a
buyer at an agreed upon port of arrival
Seller not required to get insurance for the
benefit of the buyer
Seller not required to deliver documents
In practice, sufficient documents would be
provided to allow buyer to ship on, or take
possession of goods
Trade Terms (contd)

FCA Free Carrier
Applies to all form of transport
Requires the seller to deliver goods to a
particular carrier at a named terminal,
depot, airport, or other place where the
carrier operates
Risk of loss pass at that time
EXW Ex Works
Seller delivers goods at his own place of
business
Transportation
Sellers place of business

Picked up by inland carrier, transported to port
Warehouse/port depository for customs inspection
Loaded or consolidated on ship
Stevedore / ships crew loads cargo
Crew stows the goods, mark the goods with leading marks,
issue bill of lading to shipper
Shipped to port of Country B
Directed to pier or mooring
Unloaded and moved to custom house by crew or stevedores
After customs inspection and clearance import taxes, duties
Released for entry to Country B
Inland carrier receives goods, transports to Buyer
Inland Carriage
Various conventions cover inland carriage
Generally, if inland carriage involves multiple carriers, each carrier is
treated as party to the transport contract, and each is responsible for
the entire transaction.
Suits can be brought against first, last or whichever carrier in possession at
time of loss
Carriers are liable for loss, damage or delay (subject to limits on

liability, by convention or by contract)
Could be liable for any resulting injury
Examples: Carrier liable unless it can show the loss, damage or delay
was caused by:
Consignor or consignee
An inherent defect in the goods
Through uncontrollable circumstances, unable to prevent
Consignee must notify carrier for loss or damages (ex. 7 days) and for
loss from delay (ex. 21 days)
Carriage of Goods by Sea

Common Carriage
A ship that carries goods for all persons who choose
to employ it so long as there is room
Conference line
Independent line
Tramp vessel
Bill of lading issued by ocean carrier to shipper

Receipt for goods shipped
Evidence of contract of carriage and
Document of title of goods
Posses, use and dispose of the goods

(contd)
Bill of lading (contd)
Receipt for goods shipped
Carrier responsible to check for outward
compliance
Labels comply and packages are not damaged
If all appears ok, carrier sign and give to shipper

Clean Bill of Lading (on board bills of lading)
Evidence of condition of goods upon shipping
If discrepancy, must be noted at that time

Claused Bill of Lading
Later notations will be disregarded
i.e. carriers responsibility

(contd)
Contract of Carriage
Between shipper and carrier
Other evidence can be introduced
Document of Title
Straight bill of lading
Issued to named consignee (shipper/freight forwarder)
Rights of consignor (Seller) to consignee
Cannot transfer or sell title
Order bill of lading

Possession of bill proof of rights, title and delivery of goods
Must receive in good faith through due negotiation
Enables person named on bill to transfer the goods while ship is in
transit

(contd)
Carriers Duties
Exercise due diligence:
Making the ship seaworthy
Properly manning, equipping and supplying
the ship
Making all parts of the ship in which the
goods are carried fit and safe
Properly and carefully loading, handling,
stowing, carrying, keeping, caring for, and
discharging the goods carried

(contd)
Carriers Immunities
Immune from claims from events/things
beyond their control such as pilots, force
majeure type events (war, weather, riots)
Defects of the goods,
Improper packaging
Any other cause arising that is not the fault
of the carrier
However, still responsible if failed in its
duty

(contd)
Liability Limits
Limited by customary freight units
Per package or unit
Per kilo of gross weight
Parties may agree to higher amount
Time Limitations
Within one year after the goods were or
should have been delivered

(contd)
Third-party rights (Himalaya Clause)
Reminder: privity of contract
Third parties who help in transport have
no contractual right to the carriage of
goods contract thus no right to
limitation of liability
Officers, crew, agents, brokers, stevedores
Himalaya Clause in bill of lading names

them in contract giving them rights
Not universally accepted: US: yes, UK: no
Charterparties
A contract to hire an entire ship for a particular voyage or for a
particular period of time
Voyage charterparty: contract to hire an entire ship for a
particular voyage
Dead freight charge on charterer for when ship has less than a full load
Lay days number of days that the charterer can keep the ship idle
while loading goods
Demurrage - charge made by ship owner for days exceeding the
number of lay days
Time charterparty
As chartered by time (monthly), lay days and demurrage do not apply
Charterer promises to only carry legal trade and cargo and go to safe
ports
Shipowner cannot interfere with use of ship, may cancel contract if a
payment is not received
Maritime Liens
Lien a charge or claim against property that exists
to satisfy some debt or obligation
Maritime Lien: a charge or claim against a vessel or its
cargo
Common law: lien is against the ship (separate legal entity) in its
own right, regardless of owner
Civil law: lien is a property right, will bear against the owner of the
vessel
Lien is attached to the property does not need to be possessed
(res)
May be secret
Vessel may be seized/arrested proceedings and then sale
General ranking of claims: 1) judicial costs ++, 2) crew wages, 3)
salvage and general average (jetsom) 4) Tort claims, 5) repairs,
supplies and necessaries, 6) mortgages
Maritime Insurance
Single sale insurance, special sale
Covers single transaction
Open cargo insurance policy

Open ended covering all transport
Usually offered by freight forwarders,
large shippers
Maritime Insurance (contd)

Perils commonly covered
Loss or damage from the sea
Fire
Jettison
Piracy
Barratry (fraudulent, criminal, wrongful conduct)
Explosion
Fumigation damage
Damage from loading, discharge or
transshipment
Maritime Insurance (contd)

Average Clauses
FPA free from particular average
Fire, stranding, sinking, collision
WA with average
Usually more than FPA
Usually has franchise clause allowing claims only if loss exceeds
the franchise amount
General Average
In order to avoid some threat to the whole venture, some expense,
loss or damage, deliberately inflicted
Expense shared as a whole in relation to each ones proportion
value of cargo
Person claiming GA must show
Loss benefitted everyone
Claimant not responsible for causing damage
Carriage of Goods by Air

Uses an air waybill
Regulated by 1929 Warsaw convention and
4 amendments
Main benefit/purpose is to limit liability and
ease claims made by shipper
Shipper makes a claim, carrier has burden of
proof to show that it was not negligent or
that the shipper is partially negligent
Also applies to carriage of passengers if in

airticket

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Transportation

Trade Terms (contd)

US: Uniform Commercial Code

Trade Terms (contd)

FOB Free on Board

Trade Terms (contd)

Trade Terms (contd)

Trade Terms (contd)

Trade Terms (contd)

Trade Terms (contd)

Trade Terms (contd)

Sellers place of business

Carriers are liable for loss, damage or delay (subject to limits on

Carriage of Goods by Sea

Bill of lading issued by ocean carrier to shipper

Carriage of Goods by Sea

If all appears ok, carrier sign and give to shipper

If discrepancy, must be noted at that time

Carriage of Goods by Sea

Order bill of lading

Carriage of Goods by Sea

Carriage of Goods by Sea

Carriage of Goods by Sea

Carriage of Goods by Sea

Himalaya Clause in bill of lading names

Open cargo insurance policy

Maritime Insurance (contd)

Maritime Insurance (contd)

Carriage of Goods by Air

Also applies to carriage of passengers if in

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