What role do Incoterms play regarding ownership of cargo? I have a client who believes that the Incoterms do not address title to cargo. He ships auto parts from Europe to the U.S., sold FOB Bremen, but on commercial invoices uses the term 'TTOP' - Title Transfer at Plant. He claims that this way nobody has the cargo on their books for the time cargo is on the water, thereby saving on inventory taxes. Kevin Williams
AccentureAnswer: Your client is correct regarding the relationship of title and Incoterms. The passage of title is not controlled by the Incoterm used. As stated in the introduction to Incoterms 2000, published by the International Chamber of Commerce, '... they deal with the obligations to clear the goods for export and import, the packing of the goods, the buyer's obligation to take delivery as well as the obligation to provide proof that the respective obligations have been duly fulfilled. Although Incoterms are extremely important for the implementation of the contract of sale, a great number of problems which may occur in such a contract are not dealt with at all, like transfer of ownership and other property rights...'
We do not address any tax implications, but wonder why the shipper believes that it does not own the cargo while it is on the water. The FOB term indicates that when the goods are past the ship's rail, the risk of loss transfers to the buyer, but not the title to the goods. The inquirer notes that the parties have agreed that title transfers at the plant. While it is not clear if this is the plant where it is produced or where it is to be delivered, we assume title passes at the point of delivery, otherwise the question would be moot. If title passes at the point of U.S. delivery, and the ship goes down, the buyer will not, absent insurance or some contractual term, be able to recover from the seller for the merchandise, because the shipper has complied with the Incoterm and the buyer was required to accept the goods. However, the buyer never took title to the merchandise, because they never reached its plant.
If the letter of credit was negotiable upon receipt of a clean on-board bill of lading, the seller will also be able to receive payment upon presentation of the bill of lading and other required documentation.
The inquirer may also be interested to know that the Securities and Exchange Commission has taken an interest in Incoterms and their application to recognizing revenue in SAB No. 101, issued by the SEC staff on December 3, 1999. 64 FR 68936 December 9, 1999. Although the implementation of this Accounting Bulletin has been delayed twice, most recently on June 26, 2000, in SAB 101B, wherein the following was stated: 'This staff accounting bulletin delays the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999,' it should now be in effect.
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Leonard Rosenberg has been practicing customs law for over 20 years. He was formerly a senior attorney with the U.S. Customs Service and is now a director of Sandler, Travis & Rosenberg, P.A., a national law firm concentrating its practice in customs, international trade and transportation law, inbound and outbound immigration and intellectual property rights. He can be contacted at firstname.lastname@example.org.
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