Transport and Terms of Delivery in International Trade
Transport is an essential part of the transaction in international trade, and well-arranged logistics services may increase business. Nevertheless, arranging transportation requires thorough knowledge of this business segment. Protection against transportation risks should become a part of the enterprise risk management.
Legislation applicable to transportation is mostly mandatory. Transport agreements may, however, include items which the parties are free to agree upon, such as collection, freight forwarding and warehousing services offered by logistics providers.
A typical characteristic of the transportation legislation is the strict liability of the freight carrier. In case of damages, the carrier must demonstrate, that the it is not liable for the damages. When dealing with damages, it is of particular importance to process the notices of defects and comply with limitations of claims. However, carriers may limit their liability in certain situations. Also, the amount of damages in different methods of transport is limited to a specified amount of SDRs or Special Drawing Rights. SDR is a special currency based on a basket of major currencies as defined by the International Monetary Fund.
It is advisable to use cargo insurances. Insurance coverage may offer protection also in heavy and complicated damage claims, as the insurer normally assumes responsibility for possible litigation. The insured must, however, assume responsibility for inspection of the goods and processing of notices of defect.
By using standardized delivery terms, the parties avoid defining a number of details in the agreement regarding costs, transport risk and necessary actions and formalities associated with transportation of the goods from the seller to the buyer. The most common collection of delivery terms is the Incoterms 2010, published by the International Chamber of Commerce. In fact, Finnish companies active in international trade should not have any reason to use any other collection of delivery terms. Several publications relating to interpretation of Incoterms 2010 may be ordered from the Finnish branch of the International Chamber of Commerce.
A delivery term consists of an Incoterm or its abbreviation, the name or definition of location, and reference to the title and year of publication of the relevant collection of delivery terms (e.g., “FCA Espoo, Incoterms 2010”).
The purpose of a delivery term is to define the division of costs and transportation risk associated with the transport between the seller and the buyer. The seller’s obligation to arrange and pay for transportation may extend near to the buyer’s location, but liability for loss or damage to goods may transfer to the buyer already at the beginning of the shipment (e.g. CIP = cost and insurance paid to).
The critical point in time regarding transfer of risk in delivery terms is, accordingly, the moment when liabilities and obligations are transferred from the seller to the buyer. This critical point in time has two material implications:
The seller gains the right to receive payment for the goods, even if the goods are damaged, destroyed or lost thereafter.
The right to claim and receive damages lies with that party who has the risk for loss or damages when the damage occurred.
The delivery terms do not specify the transfer of title to the goods.
It is common to tie the transfer of title to the payment for and/or to possession of the goods. The law and interpretation regarding transfer of title and retention of title are complicated at the international level. An agreement on retention of title may prove, in practice, ineffective.