Reducing Risk in Loading

Q: I just read your article regarding Incoterms in a bill of lading in which you say Incoterms relate to the transfer of title. I thought Incoterms provided the responsibilities of the seller and buyer but didn’t relate to title transfer. Title transfer would be referenced in the contract terms of sale. Can you provide clarity as to whether Incoterms regulate transfer of title?

 

Q: I just read some of your commentary regarding the proper use of Incoterms, and feel the 2010 Incoterms revisions were a step in the right direction. But as a result, they also require more thought than what was needed in days gone by.

My example of a little known caveat in the “ex works” term is in the EXW Guidance Note Segment (a) on page 15, which states:

“The seller has no obligation to the buyer to load the goods, even though in practice the seller may be in a better position to do so. But if the seller does load the goods, it does so at the buyer’s risk.”

This seems to be a little-known caveat that’s been long in existence, but generally overlooked until a claim situation arises, maybe because it’s stated in small letters on page 15. However, it’s probably overlooked because everyone’s anxious to get to page 16, which has the easy-to-read bold headlines.

Or so I think!

 

A: Both correspondents make valid points.

To my first correspondent, strictly speaking, Incoterms do merely designate the responsibilities of the parties, not the transfer of title. In fact, I was going on my recollection of the uses of old-fashioned Uniform Commercial Code terminology, which I was taught in my youth defined the point at which title transfers from seller to buyer.

Actually, however, this is a distinction without a difference. Both the U.C.C. and Incoterms designations do the same thing, leaving actual transfer of the title up to the contract of sale. At the time the seller completes his or her obligations, however, there is nothing further needed to complete the transaction. Therefore, at that juncture, title passes from seller to buyer inasmuch as there is nothing further to be done before the transaction may be consummated. Accordingly, at that point title in fact does pass from seller to buyer.

My second correspondent also alertly noted a provision of the “ex works” definition that may in fact, as he says, be frequently overlooked, concerning the situation when the seller in fact takes responsibility for loading the goods aboard carrier equipment. But this is implicit in the fact that “ex works” terms expressly place that responsibility on the buyer.

The reality of the world of commerce is that, while one may delegate the performance of a particular task to another party, one may not thereby delegate responsibility for the performance of that task. Thus, the provision of the definition of “ex works” quoted by that correspondent leaving risk of the loading process with the buyer is simply a natural result of the fact that “ex works” terms place responsibility for loading on the buyer.

To be sure, if the seller chooses to accept the task of loading, it’s not entirely free from liability if that function is performed in a negligent fashion. In such a case, however, it would lie with the buyer to prove negligence on the part of the seller, given that it wasn’t the seller’s responsibility to do this, which in the circumstances wouldn’t be easy.

There’s a much simpler way for the buyer to protect itself in these circumstances. An alternative to “ex works” is to make your purchase under “free carrier” terms (FCA), meaning the seller’s obligation continues to the point that goods are loaded aboard carrier equipment. This places responsibility for loading on the party actually doing that —  the seller — and solves the problem of one party doing a job at the risk of the other.

The “free carrier” alternative also includes the option of a particular place at which loading is to be accomplished if not at the seller’s facility, thus allowing for multiple variants on this theme. Again, as I mentioned earlier, title won’t ordinarily pass from seller to buyer until the seller has fully discharged its responsibilities.

You can see how this term, in addition to being more flexible, is superior from the buyer’s standpoint to an “ex works” purchase with the seller actually performing the loading.

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 most recent 351-page compiled edition of past Q&A columns, published in 2010.

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