Group F (FCA, FAS, FOB) and things you may not know

This group consists of three rules:

 

·  FCA (“Free Carrier);

·  FAS (“Free Alongside Ship”);

·  FOB (“Free On Board”)

 

Group F (the first letter of the word “Free”) can be understood as the seller being “Relieved from liability” for delivery and “costs” after delivering the goods to the carrier at the named place, or delivering the goods alongside the vessel (Alongside Ship) or on board the vessel (On Board) at the named port of loading.

 

The rules of Group F stipulate that the obligation to contract for carriage is of the buyer because the seller can only deliver the goods when the buyer has appointed a carrier or a ship to take delivery of the goods. If the buyer can contract for carriage at a favorable rate or on favorable terms, the buyer should use the F-class terms to gain the right to arrange the contract of carriage.

 

1. Distinguish the rules in Group F[1]

 

While FCA can be used for any mode of transport, FAS and FOB can only be used when goods are transported by sea or inland waterway. The difference between FAS and FOB is the obligation to load goods onto the carrying vessel. FAS means that the goods must be placed alongside the vessel and FOB means that the goods must be placed on board the vessel upon delivery.

 

Seller's Obligations	Loading at the seller's premises	Domestic transport to the collection point/port of loading	Loading the goods onto the ship at the port of loading	Overall obligations of the seller
FCA seller's premises				EXW + Loading + Exporting
FCA collection point/port of loading				EXW + Domestic transport +Export
FAS				FCA + Domestic transport
FOB				FAS +Loading

Table of distinctions of group F’s rules based on the seller's obligations

 

2. Contrast between group F and group D
3. Domestic transport

 

Under the F rules, the seller must arrange any domestic transport to bring the goods to the specified place for delivery to the carrier, and it is the responsibility of the buyer to arrange and pay for the main carriage. The F rules do not mention anything about domestic transport, since it is not necessary to specify how the seller can bring the goods to the place of delivery to the carrier.

 

4. Time and place of delivery

 

Since the F group buyer designates the carrier or the ship to take delivery of the goods, the buyer has the right to choose the specific time and place of delivery within the delivery period and at the place of delivery or the port of shipment specified in the contract. The buyer exercises this right by notifying the seller before delivery.

 

This often leads to disadvantages for the seller. The seller may have difficulty preparing the goods for delivery if the delivery time is too early, or the seller may have to bear additional storage costs at the place of delivery if the delivery time is too late. In addition, if the place of delivery is far from the place where the goods are assembled, the seller may incur additional costs, time, and risks of the goods during the domestic transport to deliver the goods to the location chosen by the buyer. The seller needs to minimize its disadvantages by specifying the delivery time and location as accurately as possible.

 

5. Designation of means of transport

 

The seller under an F rule can only deliver the goods when the buyer has fulfilled the obligation to designate a transport vehicle. Therefore, the designation of a transport vehicle in an F-term contract is considered a fundamental condition of the contract. If the buyer breaches that obligation, it means the buyer fails to designate or fails to designate a transport vehicle on time, or the designated transport vehicle fails to receive the goods at the specified place, the seller has the right to demand that the buyer bear all arising costs and risks provided that the goods have been properly identified.

 

If the transport vehicle designated by the buyer is unable to reach the place of delivery for some reason, the buyer is obliged to arrange for a replacement of transport vehicle and bear the cost of doing so. The buyer can only designate a replacement transport vehicle within the time limit specified in the contract or within a reasonable time limit if the contract does not specify.

 

The damages that the seller may claim compensation from the buyer include storage fees, goods preservation fees, insurance fees until the replacement vessel designated by the buyer arrives. If the buyer cannot specify the means of transport, the damage shall be calculated based on the difference between the contract value and the price of the goods on the date of the contract violation. If the goods cannot be exported and the seller has to sell them in the domestic market, the buyer must compensate for the difference between the contract price and the price the seller receives in the domestic market. The seller must deduct the value of the goods from any damages it suffers. The amount deducted depends on whether the goods can be consumed or whether they comply with the specifications specified in the contract.

 

In cases where the market value cannot be determined because the goods are produced according to the buyer's specific specifications, the seller has the right to require the buyer to pay the full amount of the goods under a clause stipulating that the goods must be paid on a fixed date, regardless of whether the appropriate means of transport are designated by the buyer.

 

If the seller shows reluctance to deliver the goods during the performance of the contract, even though the buyer has urged many times, the buyer will not be required to hire transportation, as doing so will be useless and cause additional damage to the buyer.

 

For example, in an FOB contract, the seller is required to notify the buyer of the readiness to deliver the goods within a certain period before the delivery date. If the buyer has not received this notification from the seller by the end of this period, the buyer may assume that the seller does not want or cannot deliver the goods. In this case, the buyer is not required to hire a ship and has the right to claim compensation for the damages caused by the seller's failure to deliver the goods.

 

6. Additional services of the seller under Group F

 

The obligation to sign a transport contract is the fundamental difference between Group F and Group C, however, this difference is sometimes blurred in reality because the seller still uses the Group F terms with additional services for the buyer, which is arranging for the transportation of goods under normal terms, but with the risks and costs borne by the buyer.

 

In practice, sellers using Group F can do this when the choice of signing a transport contract is less important to the buyer. This often happens when there is only one option due to the location or nature of the goods or when the freight rate is unchanged for all carriers. For example, in maritime transport, when there is a regular cargo ship route between the loading port and the destination port, sellers of FAS or FOB often reserve space on the cargo ship instead of the buyer.

 

When the seller provides this additional service to the buyer, for convenience, the seller should agree with the carrier that the freight charges will be paid by the buyer upon arrival. In cases where the carrier requires the freight charges to be paid by the seller in advance, the seller must create two invoices for the buyer, one for the goods according to commercial terms and one for the freight charges that the seller has paid. The seller may also charge interest for the period from the time the seller pays the freight charges to the carrier to the date the buyer repays the freight charges to the seller.

 

In any case, when the seller agrees or voluntarily signs a transport contract to transport goods under Group F rules, the buyer always bears the risk of unforeseen situations, such as a lack of transport or transport not arriving on time, etc.

 

7. Loading fees and Freight

 

When using FCA for transportation methods other than by sea, whether loading fees are included in the freight charges related to delivery at the seller's premises or outside the seller's premises needs to be determined. Therefore, the FCA buyer needs to specify in the transport contract whether the freight charges include appropriate loading fees for the delivery location.

 

If the FCA delivery location is the seller's premises, the seller is responsible for loading the goods onto the means of transport designated by the buyer. Therefore, the transport contract needs to specify that the freight charges do not include loading fees. Conversely, if the delivery location is not the seller's premises, the seller is not obliged to unload the goods from the means of transport and load them onto the means of transport designated by the buyer. Therefore, the transport contract needs to specify that the freight charges include loading fees. These provisions are to ensure consistency with the provisions in Incoterms.

 

When an FCA buyer agrees to delivery at an inland location but does not want to incur additional costs compared to delivery at the port of loading, such as domestic transportation costs, loading fees, THC,... the buyer may negotiate with the seller to share the costs or to have the seller bear the entire cost by stipulating that "the seller pays 50% of the transportation costs for handling" or "the THC fee is borne by the seller."

 

The delivery fee under FOB will depend on the agreement between the seller and the buyer. Typically, the delivery fee under FOB will include the cost of transporting goods from the seller's warehouse to the export port, the cost of loading and unloading goods onto the ship, the cost of storing goods at the port, and the cost of inspecting and packaging goods. However, these costs may vary depending on specific terms in the sales contract between the seller and the buyer.

 

Transportation cost under FAS usually include packaging, transportation to the port, and fees related to transporting goods alongside the ship. However, delivery charges within FAS are not included in the transportation cost.

 

Therefore, if the buyer wants to deliver goods to a location other than the port, the buyer will be responsible for and incur the cost of transporting the goods from the port to their location.

 

In sea or inland waterway transportation, goods can be shipped by Liner or on a basis of Voyage Charter Party (C/P). If goods are transported by (Liner)[2], the loading and unloading costs have been included in the freight rate. If goods are transported on a Voyage Charter Party basis, the loading and unloading costs may or may not be included in the freight rate depending on the terms of the Voyage Charter Party. Whether loading fees are included in the freight rate or not will depend on the choice of FAS or FOB terms.

 

If the buyer plans to transport goods on periodic Liner routes or on a Voyage Charter Party basis under Liner Terms or Liner In, in these cases, the loading fee has been included in the freight rate and the buyer is responsible for paying the freight. Therefore, using FAS is more appropriate than FOB.

 

If the buyer enters into a Voyage Charter Party (C/P) for the carriage of goods under Free In (FI), Free In and Stowed (FIST), or Free In and Out (FIO) terms, the carrier is exempt from the loading fee at the port of loading, so the seller must bear the loading fee. In this case, it is more appropriate to choose FOB than FAS.

 

Loading fees	Transport	Rules
Calculated in charges	All methods	FCA delivered outside of seller's premises
	Liner   Voyage Charter Party of Liner Terms/Liner In	FAS   FOB + the buyer bears the loading fees (loading charges for buyer's account)
Not calculated in charges	All methods	FCA deliver at seller's premises
	Voyage Charter Party of FI/FIST/FIO	FOB   FAS + the seller bears the loading fees (loading charges for seller's account)

The rules in group F and whether or not the loading fees is included in the freight cost

 

8. Security requirements

 

Although the seller under Group F has no obligation to sign a transport contract, the seller still has to comply with any security requirements related to the shipment arranged by the buyer, provided that the buyer has provided information to the seller. The provision of information may be through the provisions in the contract or through a notice from the buyer to the seller before delivery. If the buyer provides information to the seller by sending a notice, the seller should also specify in the contract about this notification obligation, to ensure that it can timely comply with those security requirements.

 

9. Delivery documents and transport documents

 

Sellers using group F must bear the cost of providing customary proof of delivery to the buyer. This customary proof may not be a transport document, but rather a document confirming receipt of the goods from the seller. If the buyer requests that the seller provide a transport document, the seller may assist the buyer in converting the customary proof into a transport document. However, the cost and risk of obtaining the transport document shall be borne by the buyer.

 

Although under F-group rules, the buyer is responsible for arranging and paying for transport fees (meaning the buyer directly contracts with the carrier), the carrier may still issue a transport document to the seller to prove that the seller has delivered the goods to the carrier. In this case, the transport document will serve as both evidence of the transport contract and proof of delivery by the seller to the carrier.

 

However, if the seller cannot obtain a transport document from the carrier, the seller only needs to obtain any evidence to prove that they have delivered the goods to the carrier. From a legal perspective, it is the buyer (the one who directly contracts with the carrier) who is responsible for obtaining the transport document from the carrier so that the buyer can receive the goods and make claims for cargo at the port, not the seller. In many cases, the carrier does not issue a transport document because the buyer has not fulfilled their obligations to the carrier under the transport contract (such as not paying some or all of the transport fees as per the transport contract), and the buyer bears these risks.

 

10. Notification obligation

 

The buyer of group F has the right to choose the carrier as well as the delivery time and location, unless the buyer has authorized the seller to arrange transportation. If the contract using group F does not specify the buyer's obligation to notify the seller before delivery, this causes certain difficulties for the seller.

 

Within the delivery period specified in the contract, the buyer has the right to request the seller to deliver the goods at any time if the buyer has designated the means of transport to receive the goods. Therefore, within the delivery period specified in the contract, the seller must always be ready to deliver the goods at any time when receiving notice from the buyer about the name of the means of transport, the time, and the place of delivery.

 

Therefore, in the contract, the seller should clearly stipulate the deadline for the buyer to send a notification to the seller about the designated means of transport so that the seller can prepare the goods. Such notification obligation is considered a fundamental condition, so if the buyer violates it, the seller has the right to refuse their delivery obligation.

 

In the event that the buyer has notified the delivery location but later wants to change it to another location, the seller is not obliged to bear the cost of moving the goods to a new delivery location, as long as the seller has acted in accordance with the buyer's initial instructions and has the right to consider the new notification from the buyer as delayed[3].

 

In practice, when using group F, the seller can arrange transportation on behalf of the buyer. If the parties agree on the seller's additional obligations in this regard, the contract needs to specify the buyer's notification obligation to the seller about the necessary information when the buyer wants to ask the seller to sign a transportation contract. However, the seller has the right to refuse this and must notify the buyer in advance. Therefore, the contract should specify the deadline for this notification so that the buyer can arrange for transportation in time.

 

The seller in group F must notify the buyer early about the details of the delivery so that the buyer can proceed to purchase insurance for the goods to avoid losses during transportation. Incoterms do not clearly state the consequences in the event of no notification from the seller, so the buyer needs to specify this obligation of the seller in the sales contract. At that point, the seller's failure to notify is a breach of contract, and the seller may be liable according to the applicable law for the contract.

 

When buying and selling goods in large quantities, the contract usually stipulates a tolerance for the quantity of goods. Typically, the buyer is given the right to choose the tolerance for the quantity, with the reason being that the buyer is responsible for the cost of hiring transportation to carry the goods. If there is no provision for the buyer to notify the seller of this quantity tolerance early enough, the seller will be completely passive in preparing the quantity of goods for delivery.

 

If the contract stipulates that the seller has the right to choose the tolerance for the quantity of goods, the buyer needs to specify in the sales contract the obligation for the seller to notify the readiness to deliver the quantity of goods that the seller decides to deliver. Based on that, the buyer designates appropriate means of transport for transportation. To bind the seller to this obligation to notify, the buyer should specify that if the seller violates the obligation to notify, the seller must bear all risks of loss or damage to the goods and all associated costs.

 

11. Seller's premises" and "Seller's means of transport" according to FCA

 

The concept of "Seller's premises" in FCA is similar to that of EXW and can be any place under the control of the seller. However, there may be cases where the seller considers the place of delivery specified in the contract (such as a warehouse or storage yard) as not being the seller's premises, and therefore refuses the obligation to load the goods onto the carrier designated by the buyer. Therefore, the place of delivery must be clearly defined in the sales contract to determine whether it is the seller's premises or not, in order to allocate the obligation of loading the goods onto the carrier designated by the buyer to either the seller or the buyer.

 

"Seller's means of transport" may be a carrier hired by the seller and not necessarily be the seller's own means of transport. Therefore, if the place of delivery has been determined not to be the seller's premises, the seller is not obligated to unload the goods from any means of transport (whether hired by the seller or owned by the seller) that arrive at the place of delivery.

 

12. Delivery Point under FAS

 

The FAS term is appropriate when the delivery to the carrier is to be made immediately alongside the ship at the loading port. Goods are considered "alongside" when they are placed:

 

• On the quay or on any other transport at the quay, if the vessel can berth alongside the quay, or
• On a lighter or on another vessel that can be brought alongside the vessel (board and board) designated by the buyer, if the vessel is anchored at the port or not at the quay.

 

In any case, the goods must be delivered at the point alongside the vessel that can be reached by the port crane or the ship's tackle or by any other person who can put the goods onto the vessel.

 

If the goods are transported by road or rail to the point alongside the vessel at the loading port, they are delivered on trucks or railcars ready to be unloaded onto the vessel. Some argue that using FCA for delivery at the quay may also be appropriate. However, FAS is more appropriate than FCA because the method of transport for the goods is actually maritime or inland waterway transport.

 

For oversized and overweight cargoes (sometimes called "project cargo"), such as large structures in the oil and gas industry, mining equipment, and power plants, special requirements apply to transportation and delivery. If the seller does not want to bear the risk during the loading of the cargo onto the vessel, FAS should be chosen instead of FOB. Both buyers and sellers, whether using FAS or FOB, should use the services of logistics companies that specialize in handling “project cargo”.

 

If delivery is made at a location other than the berth, FCA is more appropriate. In this case, the carrier representing the buyer will receive the goods and be responsible for them. The carrier may be a road, rail, air, or multi-modal carrier, or simply a local delivery agent in the seller's country.

 

13. Risk transfer under FOB

 

Traditionally, the point of risk transfer from seller to buyer under FOB is the ship's rail at the port of shipment. However, taking the ship's rail in FOB as the point of division of risk between the seller and the buyer has been criticized as not reflective of what actually happens at the ports. How will the risk for goods during the process of loading through the ship's rail be divided between the seller and the buyer? If the goods fall outside the ship (i.e., before passing the ship's rail), will the seller be responsible, while if they fall inside the ship (i.e., after passing the ship's rail), will the buyer be responsible?

 

In the dispute between Pyrene Co Ltd and Scindia Steam Navigation Co in a UK court from 1954, a judgment said: "Only the most ardent admirer of the art of the conveyancer could be satisfied with contemplating the shuffling of responsibility as it passes from one side to the other in such crude fashion, while the cargo moves precariously on the brink of the quay across the right-angled imaginary line from the ship's rail.”[4].

 

In such situations, the risk will usually belong to the party who pays for the loading and hires the stevedoring services to load the goods onto the ship. This also depends on the specific customs of the industry and the port of shipment. For example, at the port of Stockholm, if wood products are sold under "FOB Stockholm" terms, the buyer must pay for loading the goods onto the ship; under this trade usage, FOB delivery is transformed into FAS delivery. If there is no specific custom involved, the seller will have to bear the risk according to the literal meaning of the term "Free On Board".

 

Since Incoterms 2010, the phrase 'passed the ship's rail' has been replaced with 'on board the vessel' to unify the allocation of risk and costs. If goods fall during loading and are damaged, this will be considered a risk for the seller because placing goods on board the vessel did not involve a proper process, resulting in damage. However, if the goods are considered 'on board the vessel', the risk will be borne by the buyer. Nevertheless, as before, the specific point of risk allocation still depends on industry practices and customs at the loading port.

 

If both parties are familiar with the customs at the loading port, there should be no difficulties. However, buyers often do not know the customs at the seller's loading port and only discover them later to be unfavorable for themselves. For this reason, before signing a FOB contract, the buyer needs to thoroughly research whether there are any specific customs at the loading port, and if so, consider this issue when negotiating the price of the goods.

 

14. Replace FOB with FCA

 

As noted, if delivery is by container including by means of transport other than by sea, FOB is not appropriate and should be replaced by FCA. FOB should only be used in cases of delivery by sea without the use of a container by means of:

 

(a) being loaded onto the ship by crane, or

 

(b) being pumped onto the ship through hoses for liquid cargo, or

 

(c) being conveyed from silos onto the ship for large quantities of bulk cargo.

 

In all other cases, FOB should not be used and should be replaced by FCA with the place of delivery for transport specified.

 

15. Customs clearance and importation

 

To import goods or to transit through a third country (if necessary), the buyer needs to have certain documents to complete the procedures in accordance with the regulations of the importing country and the transit country. These documents usually include a certificate of origin (C/O), a consular invoice (CI), etc.

 

If the buyer requests, the seller will assist the buyer in obtaining these documents or equivalent electronic notifications that are signed and transmitted in the country of shipment or the country of origin. According to Incoterms, the cost of obtaining these documents must be borne by the buyer. However, this issue can also cause disputes because the buyer may consider these costs as pre-shipment charges and the seller is obliged to provide these documents in the payment document set, therefore, the seller should bear these costs. To avoid disputes, the parties should define this obligation in the contract, and the seller can include these costs in the FOB price of the contract.

 

Export customs clearance obligation under FAS

 

Incoterms 1990, as well as previous Incoterms, stipulate that the FAS buyer has an obligation to carry out export customs clearance because the delivery alongside the ship is considered as delivery within the seller's country (the ship's rail creates an imaginary customs border). However, FAS was changed in Incoterms 2000, where the seller has an obligation to carry out export customs clearance, which is in line with commercial practice requiring the resident party in the exporting country to carry out export customs clearance (except for EXW, which provides for the minimum obligation for the seller). Nevertheless, the parties may still agree that the obligation to carry out export customs clearance belongs to the buyer by a clear provision in the contract or by referring to FAS of Incoterms 1900 in the contract to require the buyer to carry out export customs clearance for the goods.

 

Conclusion for group F:

• The contract needs to clarify whether the place of delivery under FCA is the seller's premises or not.
• Use FCA instead of FAS and FOB when delivering goods in containers or by non-maritime transport methods.
• FOB buyers need to understand the practices in the industry and at the port of shipment.
• Sellers need to customize the goods before delivery.

 

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