The Incoterms rules – control of the goods

In any cross-border transaction, the parties will want clarity on these questions.

Ownership or title.
The Incoterms rules are intentionally silent about this – they were designed to be independent of any legal system, and concepts of title vary between different jurisdictions. Therefore the issue of ownership needs to be dealt with in the commercial agreement

Control of goods in transit is usually maintained via the bill of lading in its various forms. The rules governing this are set out in the Carriage of Goods by Sea Act and similar legislation.

In brief, if the bill of lading is signed to order and blank endorsed, the carrier can only surrender the goods to the holder of the bill of lading. The holder of the B/L therefore has “constructive control” of the goods.

(The bill of lading is often characterised as a document of title, though strictly speaking this inaccurate.)

There is a well-known problem with bill of lading usage where the buyer arranges transport, e.g. where the Incoterms rule FCA is used. The carrier is under no obligation to provide the bill of lading to the seller, and may fail to do so even when instructed.

The Incoterms 2020 revision attempted to remedy this defect via article B6: “If the parties have so agreed, the buyer must instruct the carrier to issue to the seller … a transport document stating that the goods have been loaded”. However critically, the rules do not set out any remedy for the seller if the document is not provided.

Finally, the buyer wants confidence that the goods, having been handed over by the seller, are actually on their way.

This is where things can become murky!

With the “water” Incoterms rules FOB, CIF etc, the transport document will typically show that the goods have been loaded on board the departing vessel.

However with the “Any mode of transport” rules FCA, CIP etc, the point of taking in charge by the carrier can be anywhere – at a freight forwarder, a consolidation hub and so on. So there may be all sorts of opportunities for delay during the consignment’s journey.

This may be one reason for the continued popularity of CFR and CIF for container movements, even though the Incoterms rules are clear that this is inappropriate

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