Paying Demurrage in an Ex-Works Sale

Q: Last December, my company handled the forwarding of 55 FEUs from the U.S. West Coast to Australia. The product was a single commodity manufactured in California and shipped on an “ex works” basis to destination.

The buyer/consignee in Australia, through a local agent, arranged for the containers to be picked up and brought to its contract warehouse for de-vanning. The containers were not returned to the carrier in a timely manner, and the steamship line is seeking to collect these detention/per diem charges from my company.

My question is, because these moves were “ex works” shipper premises in California, does my company have an exposure to overseas detention charges?

It doesn’t seem fair that after paying all of the freight charges and the terminal-handling charges and fulfilling all of our obligations that the carrier comes after us for charges incurred after discharge in Australia.

A: A quick translation for readers inexperienced in international container movements: an FEU is a 40-foot equivalent unit, or, in more mundane terms, a 40-foot marine container. A TEU, for comparison, is a 20-foot equivalent unit, or a 20-foot container -- a “pup” in the trucking industry. Container ship capacities are often measured in the numbers of TEUs the ships can accommodate. They can, of course, carry half that number in FEUs.

With linguistic matters out of the way, I’ll get to your question about those detention charges -- which isn’t as straightforward as you make it out to be.

You say the goods were sold “ex works,” but that doesn’t jibe with what else you’ve told me. “Ex works” is an Incoterm -- Incoterms being the lingua franca of international trade -- that roughly equates to f.o.b. origin in the Uniform Commercial Code lexicon, meaning title passes to buyer at origin and buyer bears all further responsibilities.

Indeed, “ex works” goes a step further than the f.o.b. origin. In an “ex works” sale, the seller’s (shipper’s) responsibility ends the moment the goods are staged on its premises for pickup. The buyer owns them from that moment forward, and has responsibility for arranging for the pickup and all further shipment.

Yet you tell me you’ve not only paid “all the freight charges” -- including, presumably, the inland charges in Australia -- but also “all the terminal-handling charges.” In an “ex works” sale, at least some of these charges would have accrued long after you’d have left behind any interest in the shipment or ken of it.

That means you didn’t sell under normal “ex works” terms.

Now, just as f.o.b. origin may be modified under the Uniform Commercial Code to place responsibility on the seller for freight costs – “f.o.b. origin, freight prepaid,” for example -- so may “ex works” under Incoterms. This is what I assume was done in this case.

That is, although title transferred to the buyer on a normal “ex works” basis -- as of when the goods were staged for loading -- you agreed also to at least pay for, and probably also arrange, the onward movement to the buyer’s designated receiving point (its “contract warehouse”). That’s perhaps a little off the beaten path, but there’s nothing wrong with it.

What I can’t know, though, is how far your undertaking to pay those transportation costs extended. What did you agree to pay, and to whom? And, more important, did the agreement make any specific provision for destination detention charges? I’ll bet it didn’t.

In the ordinary course of events in transportation, destination detention charges accrue “against the shipment.” That means, pretty much, that such charges will be billed to the contracting party who’s responsible for all other freight charges related to the shipment.

As you describe the case, that party appears to be you, which means the carrier is correct in billing you.

I don’t know a lot about Australian law, but under U.S. law, you’d have a right to recover those charges from your buyer/consignee (and/or its warehouse amanuensis). That may well be true in Australia, too.

But you’ll have to assert that right legally -- in court, if necessary. Meanwhile, again lacking knowledge of the particulars of your freight payment agreement with your buyer, I think you may well owe the carrier.

Keep this scenario in mind as you make arrangements for selling abroad. You might care to clarify your responsibility for such charges in making exceptions to the norm of an “ex works” sale.

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455, phone 843-559-1277, e-mail BarrettTrn@aol.com. Contact him to order the 536-page compiled edition of past Q&A columns, published in 2001, at $80 plus shipping.
 

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