Insuring Cargoes

Guide to Marine Insurance-Part 7

2012-01-12T09:40:00.002+05:30

InstituteCargo Clauses (ICC)

The 1982 version of ICC A/B/C/Air andassociated War/Strikes clauses have been replaced by the 2009 edition.

Other Clauses such as Institute Frozen Food/Bulk Oil etc Clauses are undergoingrevision and will be released by the Joint Cargo Committee (JCC) soon.

Many markets are yet to adopt the 2009edition and continue to use the 1982 edition.

This article examines the 1982 edition-a later article in this series will examine 2009 edition

GeneralNotes

ICC A is an all risks form. Theemphasis is on risk and therefore any fortuitous loss or damage is coveredunless any of the exclusions operate.

ICC B and C are named perils Clauses.

Coverage provided by ICC (A), (B) and (C)- (applicable to both 1982 and 2009 editions):

Actual Total Loss
Constructive Total Loss[1]
Particular Average i.e. partial loss to thecargo by an insured peril in case of B and C and by any fortuity/accidental cause(s) inthe case of ICC (A)
General Average Sacrifice
General Averageand Salvage Contributions
Collision Liability (Both to Blame
Expensessuch as :

· Survey Fee and Reconditioning costs

· Sue & Labour expenses (those incurred to prevent/minimizea loss)[2]

· Forwarding Expenses (when transit is terminated short of destination)

Though not specified as such all theseclauses only cover physical loss of or damage to goods so thatclaim on account of goods (otherwise ina sound condition) arriving late so as to miss the Christmas sales will notbe admissible under these clauses.

ICC (A)is an all risks form subject toexclusions whereas (B) and (C) are named-perilsform (and also contain a set of exclusions). This has an implication of burdenof proof as detailed below

All Risksis a legal term-it does not literally mean all risks-the loss or damage must becaused by a fortuity and there are named exclusions.

Burden of Proof:

Theassured must prove, on a balance of probabilities that accidental or fortuitousloss or damage has occurred during the period of transit covered by the policy.” However in anall risk form such as ICC (A), the assured does not have to prove the exactnature of the peril that caused his loss.

Under thenamed-perils form such as ICC (B) and (C) the assured is required to prove on abalance of probabilities that the loss was reasonably attributable to one ofthe listed perils (compare this with the position in ICC (A) Clauses).

TheInsurer’s burden of proof: Once the assured overcomes the initial hurdle ofproving a fortuity (A) or a named peril (B or C), the burden then shifts to theInsurer to prove an exclusion-which is a heavier burden under A clauses.

Inpractical terms, the assured discharges his burden of proof by means ofdocumentation viz., a clean B/L and a damage/shortage report at destination.

Exclusions:

In ICC(A) the following are the exclusions:

4.1 Wilfulmisconduct of the assured

4.2 Ordinaryleakage, ordinary loss in weight or volume, or ordinary wear and tear

4.3 Insufficiencyof packing/unsuitability of packing or preparation of thecargo (includingstowage in a container if carried out prior to attachment of the insurance of by the assured or his servants

4.4 InherentVice or nature of cargo

4.5 Lossdamage expense caused by delay even if delay is due to an insured peril

4.6 Exclusionrelating to financial insolvency or default ofshipowners/managers/charterers/operators of the vessels

4.7 Nuclearetc exclusion

4.8 Unseaworthiness/Unfitness

4.9 Warexclusion

4.10 Strikesexclusion

Exclusions 6 and 7 relate to war and strikes. There is a separate war and strikes clauses available at an additonal premium. It should be noted that Institute War and Institute Strike Clauses do not override all the perils excluded in 6 and 7 and only provide for war and war like perils.

There areadd-on clauses (non-Institute or manuscript wordings to override or water downsome of these exclusions)-see later part of this article.

Note: These exclusions are common to A, B and C clauses but ICCB and C have one more exclusion “deliberate damage or destruction…… by an actof any person(s).”

Duration of Cover

8 8.1 This insurance attaches from the timethe goods leave the warehouse or place of storage at the place named herein forthe commencement of the transit, continues during the ordinary course oftransit and terminates either

8.1.1 on delivery to the Consignees' or otherfinal warehouse or place of storage at the destination named herein,

8.1.2 on delivery to any other warehouse orplace of storage, whether prior to or at the destination named herein, whichthe Assured elect to use either

8.1.2. for storage other than in theordinary course of transit or

8.1.2.2 forallocation or distribution,

8.1.3 onthe expiry of 60 days after completion of discharge overside of the goodshereby insured from the oversea vessel at the final port of discharge,

whichevershall first occur.

8.2 If,after discharge overside from the oversea vessel at the final port ofdischarge, but prior to termination of this insurance, the goods are to beforwarded to a destination other than that to which they are insured hereunder,this insurance, whilst remaining subject to termination as provided for above,shall not extend beyond the commencement of transit to such other destination.

8.3 Thisinsurance shall remain in force (subject to termination as provided for aboveand to the provisions of Clause 9 below) during delay beyond the control of theAssured, any deviation, forced discharge, reshipment or transhipment and duringany variation of the adventure arising from the exercise of a liberty grantedto shipowners or charterers under the contract of affreightment.

Explanation

When doesthe cover attach?

This happens when goodsleave the warehouse/place of storage for commencement of transit. If the lorry carrying the goods getsengulfed within the warehouse complex, there is no cover since the goods haveto leave the gate of the factory or the warehouse (the “threshold test”).Loading onto the vehicle parked outsidethe gate is covered.

Brokers often add the Loading and Unloading Clause in order to override thisrestriction in the 1982 edition of ICC.

When doesthe cover terminate? It will be noted that Clause 8 provides for a number ofsituations when cover might terminate:

Whengoods are delivered to the Consignees’ warehouse or any place of storage. Thusif goods are unloaded at port of discharge but the assured decides to put thegoods in a bonded warehouse for his convenience (e.g. lack of storage space inhis warehouse/factory or waiting for exchange rate to be in his favour beforehe clears the goods from customs etc), cover terminates when goods enter thebonded warehouse even though it is not the final intended warehouse or 60 days is still not over.

If theassured decides to store the goods in any warehouse for the purpose ofallocation/distribution of his goods or simply for storage , again the coverterminates even before reaching the final intended warehouse.

Finally,there is a cap of 60 days from date of discharge from oversea vessel. However this 60days is only a limit. For example if on the 15^th day, theassured decides to bond the goods in a bonded warehouse, cover terminates.

Theduration clause also uses a phrase “ordinary course of transit”. What does thisphrase mean? In marine cargo insurance it is recognised that during thetransportation of goods there would be incidental storages which are in theordinary course of transit. For example goods will be in port premises pending customs examination, in Carriers’warehouses etc. So long as the goods are in their ordinary course of transit,cover continues. A good example of a storage which is not in the ordinarycourse of transit is storage for the convenience of the assured.

Clause8.2: if the assured decides to change the original destination, then coverceases when goods leave the port for commencement of transit to the newdestination. In such cases the assured should request the insurer to hold himcovered.

8.3: theduration clause adds comforting held covered provisions in this section-anydelay beyond the control of the assured, deviation, transhipment etc does notterminate the cover.

To understand the duration of cover, Clause 8should be read along with Clauses 9 and 10.

Thoughall the three Clauses viz. A, B and C provide for warehouse to warehouse cover,this is to be read along with the insurable interest clause. Thus if theassured is an FOB seller, he does not automatically get the benefit of thewarehouse to warehouse clause i.e., therisk would cease when he loads the cargoon board the oversea vessel. SometimesInsurers modify the duration of cover in ICC by writing “no cover afterdischarge” or restricting cover only upto port of discharge and excludinginland transit to final destination. In other words the Duration stated in the Certificate of Insurance would override the printed clause (i.e, the duration clause containing in ICC providing a warehouse to warehouse cover). For example, the Certificate may provide for cover until unloading from the vessel at discharge port.

Institute Cargo Clauses-B and C:

	ICC(B)	ICC (C)
*Loss of or damage to the subject-matter insured reasonably attributable to:*
fire or explosion	V	V
vessel or craft being stranded grounded sunk or capsized	V	V
overturning or derailment of land conveyance	V	V
collision or contact of vessel craft or conveyance with any	V	V
discharge of cargo at a port of distress	V	V
earthquake volcanic eruption or lightning,	V	X
*Loss of or damage to the subject-matter insured caused by:*
general average sacrifice	V	V
jettison or washing overboard	V	Only Jettison, not W.O.B
entry of sea lake or river water into vessel craft hold conveyance container liftvan or place of storage,	V	X
total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft	V	X

ICC B and C are often used for used /second-hand goods, bulk cargoes.

Following is a list of commonly used add on covers (called non-Institute or broker wordings) used along with ICC:

Standard Add On covers	Institute Cargo Clauses (A)	Remarks

Airfreight Replacement Clause/Expediting Expenses Clause	Not covered if the original insured transit was by sea	Often there is a cap on the recoverable amount.
Brand Protection Clause	ICC covers only physical loss or damage and not protection of brand names	Provides protection by giving a final say to the Assured regarding disposal of damaged cargo as salvage. Again various versions of this clause are available.
Buyer’s Interest (Contingency) coverage	Not provided for	-do-
Concealed Damage (also called Delayed Discovery of Loss Clause)	Burden of proof on Assured to prove that the loss took place during the insured period	Concealed Loss covered under the policy subject to discovery of loss/reporting of loss within 30/60 days (standard is 30 days but sometimes extended to 60 days by the insurer if there is a valid reason for this request)
Difference in Conditions coverage	Not provided for	-do-
Full GA Clause	GA and Salvage charges are covered but subject to under-insurance	No underinsurance applied
Insolvency of shipowners, charterers etc	Excluded (see Clause 4.6)	Exclusion wording significantly modified in favour of the Assured
Insufficiency of Packing	Excluded (See Clause 4.3)	The insurer cannot invoke the defence of insufficiency if the Assured’s privity was not involved. For example import cargo where cargo is packed by seller and not the assured buyer
Loading and Unloading Clause	It is often not realised but ICC(A) does not include loading risks inside the warehouse	The loading/ Unloading clause will provide this cover whether loading inside or outside your warehouse
Presentation Packing/Packing Clauses	ICC (A) covers goods and not the packing thereof	Packing itself covered so that repacking and/or repair charges are part of the claim
Removal of Debris-often a severe burden on the assured	Not covered	Covered upto (usually) 20% of the sum insured.
Return Cargo Clause	Not provided for
Seller’s Interest (Contingency) coverage	Not provided for	There are different versions of this clause and utmost care need to be exercised to understand the cover being provided.
Shortage and/or Non Delivery from Seal intact containers	No coverage unless Assured is able to prove a skilful pilferage. Again the burden of proving the loss took place during the currency of the policy is on the assured if the seal of the container arrives intact	Such a clause has a limited value-read Insuring Cargoes for a detailed comemntary
Storage at forwarder’s consolidators, hauliers, warehousemen, exhibition, demonstration, trade fair or show premises	Not always provided for unless within the 'ordinary course of transit'	The Open Cover should have a Duration of Cover wording that overrides the duration of the ICC

There are a number of manuscript wordings but theabove is a list of the more popular ones.

In Marine Insurance, the assured isunder a duty to take all reasonable measures to avert or minimise a loss (SeeDuty of the Assured clause in ICC A, B and C/MIA S. 78(4). ICC A, B and Cprovide for such expenses, reasonably incurred to be reimbursed if suchexpenses were taken as there was an imminent risk of a loss/damage from aninsured peril, such costs were incurred to save the insured cargo and thesecosts were extrodinary costs.

Note: The book Insuring Cargoes contains a very detailed chaper on Institute Cargo Clauses supported by caselaws from English and American courts. It also critically examines some of the broker woredings.

Tobe continued

[1] A CTL occurs when the subject matterinsured is so damaged that either:

(a) its actual total loss appears to beunavoidable, or

(b) in order to prevent it from becoming atotal loss, expenditure greater than its value when preserved would have to beincurred.

[2] It is the duty of an Assured to act at alltimes as a prudent uninsured, and to take whatever steps are reasonably andproperly necessary in order to avoid or minimise an insured loss. Even if suchsteps are not successful and the insured loss is not avoided or minimised theAssured is nonetheless entitled to recover his sue and labour costs andexpenses in addition to his loss, subject only to the sue and labour expensesbeing limited again to the value insured.

Know Your Cargo -2 (Aluminium Ingots)

2012-01-02T09:05:00.001+05:30

There are usually no problems at all with Ingots if loaded with properdunnage.

These are semi-finished and shipped as break-bulk as strapped bundles.

First, being semi-finished, any water damage and resultant qualityproblem can be overcome while processing (being semi-finished, furtherprocessing is assumed). In fact these ingots are stored in the open in portterminals and loading continues during rain.

If ingots are made to order i.e. a specific size and for a specificpurpose as per receivers specifications, then a little caution may be requiredto avoid damage due to forklifts etc. Such ingots will have to fit the machinesof the receivers.

Lashing is most important factor for aluminium ingot cargo and requiresregular checks. There are always some bands broken during loading /discharging.Usually aluminium ingots are strapped in small bundles and then strapped about1 mt or 2 mtrs with stronger strap for loading. In case

loading / discharging straps break cargo is discharged piece by piece orin smaller bundles. One rare occasions there could be a claim for re-bundling charges.

Oxidation: Can be removed since it is not as severe as rust removal. Ifthere is serious wetting by sea water, some receivers may probably reject them as theycould damage the furnace in their factories.

Tallying: The ship may not have sufficient time to count the pieces perbundle or weigh them and you may have a situation where some pieces from eachbundle may be missing (due often to short-shipment). The Bs/L are often Clausedas “weight and quantity unknown.”

Reconditioning of ingots due to bursting, scratching and gouging,chipping of alluminium billet might involve some charges (roughly US$ 4000 for say for 40 odd bundles towards cost of reconditioning involving labour, fork lift trucks, electric grinder, polishing grinder etc). Again such claims are very rare indeed.

Metal prices fluctuate a lot. During peak LME prices, theft or Hijacking of vehicle cannot be completely ruled out but again have not heard of such instances as far Aluminium Ingots are concerned.

Generally speaking Ingots are not claims prone.Readers with experience in this cargo are welcome to share their views.

Know Your Cargo-1 (Alumina)

2012-01-01T13:44:00.001+05:30

Alumina

Author's Note: In my career asan underwriter and adjuster, I kept notes of my experience with various cargoesincluding information gathered from various sources on different dates (and hence not always current). While I cannot always guarantee accurancy of the information, thesenotes hopefully would inspire the underwriters tomake further enquiries from their customers before writing the risk. Yourcomments and feedback would enable me to refine and edit these notes. Doshare your experience!

Bauxite is an orebut Alumina is an intermediate product (refined). Both are relatively easy tocarry and do not shift. The moisture ranges between 0 to 10%. Mainly shippedfrom Australia-Bauxite is more internally traded in Australia but Alumina isexported.

Exported from theports of Kwinana which is the outer port, Freemantle being the main port andBanberry in Western Australia. Here the quantity is determined not onshore scale but on the basis of draught survey which is reliable in fairweather if properly done by an experienced surveyor.

Dry Weight versusWet Weight

Alumina can beexported either as dry alumina or wet alumina. If wet, water is sprayedbut sale contract should normally be on the basis of dry weights so that anywater in the bilges and pumped out do not enter the shortage calculation. WetAlumina is sold, in other words, on dry weight basis. Insurers should be awareof this.

Risk ofShortage

Like in the case ofany bulk cargoes, a deductible is a must-0.50% to 0.75% depending onthe port of loading and/or discharge. Use of vacuators is fine but some portsuse gantry crane and estimated to lose 2 to 3% of cargo due to blowingeverywhere. A draught survey at both ends by a reputed firm of surveyor is amust as in the case of any other bulk cargo.

Risk of contamination

Alumina requires the hold tobe washed and dried and as it is sensitive to contamination from residues ofprevious cargoes, rust (loose/hard rust, flakes etc) which is notalways easy to remove. All exporters generallyarrange hold washing and drying.

It is important fo find outwhat agreements have been reached between the buyer and the seller regardingrust etc Some contracts say “no rust whatsoever.”

Usuallyshippers/charterers arrange surveys (survey of the holds, cargo loadiing,draught reading etc) and in Australia, the quality of surveys and controls arevery good. This also means that the assured would resist another surveyor to beappointed at the request of cargo insurers.

Cleanliness is required upto grain standard. It is believed that there have been huge claims in USA(which accounts for 70% of Alumina imports) due to contamination of alumina.

Effectof Water (fresh/rain or sea) on Aluimina

There are several grades ofAlumina exported. Some experts say,depending on the grade involved, sea water may change the chemicalcomposition of the product. However generally speaking Alumina does not appearto be sensitive to water (in fact alumina is loaded during rains thoughthe charterer would obtain a guarantee certificate against claim for wet damageat disport.)

I had occasion to consult a Chemist in Londonregarding the effect of water (salt or fresh) on Metallurgical Grade CalcinedSandy Alumina used by Aluminium smelters. The response received was :

“In theoryalumina, aluminium oxide is chemically inert and insoluble in water. Thissort of data is available from any standard MSDS. However if you go a bitdeeper, then you start to find papers on the hydration of aluminium oxide and researchitems demonstrating surface reactions involving water and aluminium oxide(Science.Vol.282.No5387, 0 October 1998). I've looked further into this andregret that there is not much info available. My previous comments stand,it is described as unreactive but I think that it can be hydrated and that'sabout all."

What does happen in case of wet damage to alumina is that the wetted material driesinto a cake which might then need further processing. Certainly wetalumina is described as a difficult material to handle. Particles insuspension are very small.

Since the onlypeople who really know the answer to this are the users such as Aluminium Metalproducers, a leading manufacturer was contacted. Their reply was

“ We need alumina which have a maximum of 0.8% moisture forthe process to get best results - they engage a contractor for drying and crushing the lumps. There wouldnot be any chemical effect on the material but handling of lumps(i.e not free flowing) including loading/unloading from railway wagons becomesdifficult and with greater moisture would have process related problemsespecially in the pot due to temperature variations/ moisture.”

Often in the case of bulk cargoes, small quantities of dried cargo is mixed with larger quantity of sound cargo as a mechanism to mitigate the loss

Guide to Marine Cargo Insurance-Part 6

2011-12-26T07:46:00.001+05:30

Who arranges marine insurance? The seller , the buyer or both? This is determined by the mechanism of risk transfer. There is a "critical point", during a voyage, when the risk of loss or damage to the goods is transferred from the seller to the overseas buyer.

The Incoterms envisage differernt critical points for the purpose of risk transfer:

At seller’s preemies or named place: ExW or could be FCA

Carrier at agreed location: FCA

Placed alongside vessel: FAS

Delivered to first Carrier: CPT/CIP

On board the vessel: FOB/CFR/CIF

At agreed wharf, warehouse, port of destination: DAT

Named place of destination: DAP/DDP

This blog contains a very detailed article on Incoterms 2010. However the following chart summarises the risk transfer point under each term along with a recommendation as to who should arrange the "main" insurance:

Incoterm 2010	Risk Transfer	Main Insurance covered by
CIP	When delivered to first carrier (it will be usually seller’s premises)	Seller
CPT	When delivered to first carrier (it will be usually seller’s premises)	Buyer
DAP	Named place or terminal	Seller
DAT	Discharging port of arrival	Seller
DDP	When goods are delivered duty paid at named place at destination (could be buyer’s premises)	Seller
ExW	When goods are placed at disposal of the buyer (usually at seller’s premises) ready for loading	Buyer
FCA	When goods delivered to the Carrier at named place (could be seller’s premises like in ExW or a terminal)	Buyer
CFR	When goods loaded on board the ship	Buyer
CIF	When goods loaded on board the ship	Seller
FAS	When goods are placed alongside the ship at the named port of loading. (could be a barge or a wharf)	Buyer
FOB	When goods loaded on board the ship	Buyer

Note: Only in CIF and CIP, insurance is mandatory as per SaleTerm. For others the above chart only recommends who should arrange the maininsurance.

Under ExW, the buyer will typically arrange a warehouse to warehouse marine insurance cover. The seller will need no insurance but in cirtain circumstances may procure a Seller' Interest (also called Sellers' Contingency) cover.

In CIF/CIP, the seller procures marine insurance and the premium is included in the invoice that is raised on the overseas buyer. This policy may insure the transit upto the time of discharge from the oversea vessel or may extend right upto the buyer's warehouse.

In all other terms, there would be typically two insurances-one protecting the seller upto the time he bears the risk and another protecting the overseas buyer.

In international trade the passing of risk and title is at different times. For example, the risk passes upon loading in the case of FOB or CFR but the ownership or title passes much later-typically when the buyer pays for the goods. What if the overseas buyer repudiates the contract of sale and the seller remains unpaid? The unpaid seller will not be able to claim for the lost or damaged goods from the buyer's insurance policy as he had no insurable interest in the voyage (the goods were at buyer's risk). To address such scenarios, the seller has the option of buying what is called a Seller's Interest (also called Seller's Contingency) insurance cover. This is not to be confused with credit risk insurance. The Seller's Interest cover responds only when there has been a physical loss or damage to the goods by an insured peril during the voyage and the buyer has repudiated the contract of sale.

It is therefore advisable that when risk and title pass at differernt times, the seller not only insures the goods till the risk transfer takes place but also opts for an additional protection by way of a Seller's Interest cover.

Similarly the buyer should carefully examine if he requires a buyer's Interest cover.

Note: There is a wide variety of Seller's Interest wording. Differernt underwriters have differernt views on when the risk under a Seller's Interest clause attaches! Yet, very few cargo owners or their brokers examine this cover carefully enough. My book Insuring Cargoes devotes an entire chapter on this complex subject.

Non-Institute Clause-9

2011-12-19T09:36:00.001+05:30

SpecialReplacement Clause (Duty)

Notwithstanding theprovision in the Institute Replacement Clause hereto, it is speciallyunderstood and agreed that the Insures shall also be liable to pay for loss, ifany sustained, by payment of duty on part or parts for replacement or repair incase the full duty is not included in the amount insured but only in respect ofsuch shipments where either the anticipated cost of duty was originallyincluded in the sum insured or the Insured agreed to retroactively pay thepremium calculated on the actual amount of duty to be paid in respect of theshipment.

Explanation:The Institute Replacement Clause provides for customs duty paid on partsreplaced following an insured loss including duty provided "fullduty" is included in the original policy. Insuring Cargoes contains a verydetailed commentary on wha "full duty" could possibly mean. Thepercentage of duty on parts is generally more than the percentage of duty onthe machinery as a whole. The above clause (but requires a bit of modificationto make intentions clearer) is quite useful in project insurance.

RestClause:

Risk to cease on arrival at____ attaching againupon being re-consigned.

ReissueClause:

It is agreed that in the event of loss ofnegotiable securities caused by a peril hereby insured against or from anyoccurrence entailing their destruction, Underwriters shall only be liable forexpenses incurred in reissuing such negotiable securities, of forwarding todestination and insurance premiums and charges connected therewith.

Explanation: There are wider versions of this clause.

Repacking Clause

It is understoodand agreed that should outer packing be damaged from any cause which rendersinterest unfit for on-shipment or distribution, irrespective of finaldestination shown herein, Underwriters to pay the cost of reasonable repackingexpenses, provided such damage occurred during the currency of this Insurance.

Explanation:This is a simple version-there are many wider versions available (discussed inInsuring Cargoes)-e.g. for pharmaceutical products

Returned Shipments Clause

Shipments uponwhich delivery to the consignee cannot be accomplished because of refusal ofacceptance and which are returned for this or any other reason are coveredwhile at the risk of the Assured until sold or otherwise disposed of, subjectto cover terms and conditions.

Explanation: Underwriters should exercise caution before agreeing tosuch clauses-often the goods are repacked by the overseas buyers and this isseldom to the same standard of packing of the seller when he exported thegoods. Again, there are many versions-some warrant that returned shipmentsshould be repacked to same original standard and this is often difficult toensure by the seller who is now at the mercy of his buyer(who has rejected thegoods).

Salvage Loss Clause

At the option of the Assured, claims for damageto insured property hereunder may be adjusted on a Salvage Loss basis wherebythese Insurers will pay the proportionate insured value of the damaged quantityafter deducting any salvage proceeds.

Explanation:Insuring Cargoes has a detailed commentary on this clause which overrides theadjustment formula of the Marine Insurance Act!

Seals Clause

It is hereby notedand agreed that in respect of consignments shipped in containers or curtainsided trailers or full vehicle loads that claims in respect of Theft, Pilferageand Non Delivery of a whole package will not be invalidated by the fact that theseals appear intact and that such claims will be settled in full on productionof loading and discharge tally sheets. Underwriters hereon to be subrogated toAssured’s rights against Carriers and/or other bailees.

Explanation:Insuring Cargoes has a detailed commentary on this clause. This clause is notas wide as a cursory reading of the clause would suggest. Further in the book Ihave explained that this clause needs to be used along with another clausewithout which its efficacy is even further restricted.

TransitExtension Clause

Notwithstanding thelimitations of the “Duration” Clauses of the Institute Cargo Clauses andInstitute Strikes Clauses, Insurers hereon agrees to hold covered, at anadditional premium to be agreed, any interest failing to arrive at consignee’swarehouse within the 90 days period in normal course of transit aftercompletion of discharge from the overseas vessel due to circumstances beyondcontrol of the Insured, subject to notification of such delay at the earliestpossible moment.

Unexplainedloss or inventory shortage:

In no case shallthis insurance cover loss or damage caused by or resulting from unexplainedloss, mysterious disappearance or shortage disclosed upon taking inventory(except when in the custody of a bailee)

This is the concluding part of the series on Non-Institute Clauses.Seller’s Interest (also called Seller’s Contingency) clause has not beenincluded as there are many versions which require a detailed understanding ofthe subject. In my book there is a separate chapter on Contingency Insurance.

My book Insuring Cargoes has several versions of each clause withcommentary on each version.

How to select a Vessel

2011-12-05T10:43:00.001+05:30

Vessel Selection Criteria

The Terms of Sale (Incoterms forexample) determine who (Seller or Buyer) will nominate a vessel. However,notwithstanding the Incoterm to be used, in the Contract of Sale, there shouldbe an agreement that vessels selected fulfil certain norms listed below.

In the case of bulk cargoes, as atrader you will approach a ship broker to select a vessel. If you advise thebroker along following lines, the latter will have a clear idea of type ofvessel (and documentation) you have in mind.

The ship broker should providethe following information to you:

1. Name of vessel with IMO Number[1]

2. Flag [2]

3. Year of Build [3]

4. Class (to be as per IACS) [4]

5. P&I (to be member of IG of Clubs) [5]

6. Confirmation that vessel has“Owners’ & Charterers’liability for cargo loss or damage” [6]

7. H&M Insurance details (Name of Insurers,Amount of Insurance) [7]

8. Vessel is a Singleton or one belonging to afleet? [8]

9. ISM with DOC [9]

10 Name of Owners/Disponent Owners/Managers of vessel(if possible) [10]

11. Detention by Port State Control-details of [11]

12. Previous voyages (say last 6 voyages) made bythe vessel with details [12]

Explanatory Notes:

[1]IMOnumber is important and you must insist on this information from your ship brokerswho recommend vessels to you. The IMO number is unique to thevessel and remains with it for life. Often vessel names “sound” familiarbut when you check in Lloyd’s database, you don’t find the vessel-IMO number istherefore a must. IMO number is also important as in some cases there aremultiple ships carrying the same name, or the vessel name has changed but thevarious databases are not updated. It also enables your insurer to check vesseldetails from websites such as Sea Searcher or Equasis.

2] Flag: To equate all FOC[1]vessels with sub-standard operation is a wrong notion. However some Flags dohave a higher share of casualties. Thereare flags which are blacklisted by EU. There are

[others who have had apoor record in terms of safety and maintenance. In the case of FOC’s there isalso the question of the beneficial Owners and the real Owners of the vesselshiding behind a corporate veil. Some of the FOCs have not ratified importantinternational conventions such as SOLAS.

The top 11 FOCs in terms of percentage of theworld fleet in DWT terms are Panama, Liberia, Marshal Islands, Bahamas, Malta,Cyprus, Antigua, Bermuda, St. Vincent, France RS, Cayman and Islands

[3]Year ofBuild: This is important as Overage Premium would be higher for oldervessels-especially bulk carriers. If you are the buyer and the vessel isselected by your suppliers, then it is sometimes possible to debit the OAP tothe suppliers account. Older vessels, particularly old bulk carriers are viewedwith concern as these vessels deteriorate rapidly due to stress created bydense bulk cargoes, use of grabs, high speed loading& unloading etc.

Vessels, irrespective ofthe type, have similar experience during the first 10 years of their lives.However different types of vessels deteriorate at different rates after this.For example, tankers deteriorate in the 15-19 year age group whereas dry bulkcarriers do in the 20-24 year age group. It is a fact however that majority oftotal losses pertain to older the vessels (especially bulk carriers).

[4]Class: The IACS (the International Association ofClassification Societies) has currently 13 members (there are several otherClassification Societies but a Society which is a member of the IACS gives thecargo Owners/Charterers and their Insurers the necessary comfort)

Also the current edition of theInstitute Classification Clause has a limited held cover provision for non IACSsocieties and therefore while selecting a vessel care should be taken that thevessel is entered with an IACS member’s class or get a specific approval ofcargo insurers in writing in case such a vessel is not available.

The IACS members are:

1	American Bureau of Ships	ABS
2	Bureau Veritas	BV
3	China Classification Society	CCS
4	Croatian Register of Shipping	CRS
5	Det Norske Veritas	DNV
6	Germanischer Lloyd SE	GL
7	Korean Register of Shipping	KR
8	Indian Register of Shipping	IRS
9	Lloyd’s Register of Shipping	LR
10	Nippon Kaiji Kyokai	NK
11	Polski Rejestr Statków	PRS
12	Registro Italiano Navale	RINA
13	Russian Maritime Register of Shipping	RS

[5]The International Group of Clubs (as opposed toFixed Cost Clubs): there are 13 separate and independent principal Clubs in theInternational Group. Some Clubs have affiliated and reinsured subsidiaryassociation and these names are given as footnotes below:

i. AmericanSteamship Owners Mutual Protection and Indemnity Association, Inc

ii. GardP&I (Bermuda) Ltd[1]

iii. iii SkuldMutual Protection and Indemnity Association (Bermuda) Ltd[2]

iv. TheBritannia Steam Ship Insurance Association Limited

v. The JapanShip Owners’ Mutual Protection & Indemnity Association

vi. TheLondon Steam Ship Owners’ Mutual Insurance Association Limited

vii. The Northof England Protecting & Indemnity Association Limited

viii. The ShipOwner’sMutual Protection & Indemnity Association (Luxembourg)

ix. TheStandard Steamship Owners’ Protection & Indemnity Association (Bermuda) Limited[3]

x. TheSteamship Mutual Underwriting Association (Bermuda) Limited[4]

xi. TheSwedish Club

xii. UnitedKingdom Mutual Steam Ship Assurance Association (Bermuda) Limited[5]

xiii. The west of England ShipOwners Mutual InsuranceAssociation (Luxembourg)

[1] Assuranceforeningen Gard

[2] Assuranceforeningen Skuld

[3] The Standard Steamship Owners’Protectionand Indemnity Association (Europe) Ltd.

TheStandard Steamship Owners’Protection and Indemnity Association (London) Ltd.

TheStandard Steamship Owners’Protection and Indemnity Association (Asia) Ltd.
- A reinsured subsidiary association

[4] he Steamship Mutual UnderwritingAssociation Ltd

[5] United Kingdom MutualSteam ShipAssurance Association (Europe) Ltd.

These 13 Clubs of the International Group of P&IClubs between them provide liability cover (cargo loss and damage, injury tocrew, third party liability, wreck removal etc besides providing a wide rangeof services to their members on claims, legal issues, loss prevention and playa key role in the management of casualties) for approx. 90% of the world’socean going tonnage.

Note on Fixed Cost Clubs:

A P&IClub which is a member of the International Group is better than the so calledfixed-cost Club:

1. Recently some ports did not recognise a Fixed Clubincluding Mumbai port.

2. Approach to claims is far better in the case ofInternational Group of Clubs

3. Fixed Cost Clubs often do not provide Guaranteesetc when a vessel is arrested.

4. The IGC members have an Omnibus Clause underwhich even if there is no liability, sometimes they pay claims-somewhat like ageneral insurers' ex gratia settlement.

5. Even though Clubs cover 1/4th liability andH&M 3/4ths, Clubs take the lead in collision cases. They will not hesitateto send assistance in case of collision cases by deputing their Master Marinersor those with legal background in such cases. Here again IGC members score overfixed Cost Clubs.

SomeFixed Cost Clubs have a good track record and a reference to the Insurer shouldbe made in such cases.

[6]A vesselentered with P&I Club with insurance for Owners’/Charterers’ liability forcargo loss or damage enhances the chances of recovery for a loss or damageduring sea carriage. It also enables the cargo Owner to seek Letter ofIndemnity from the Club. Sometimes a vessel has to be arrested to force the Clubto give a LOI to cargo interests. See the comments in [10] whereit has been recommended that the P& I details of intermediate Owners/Charterersare also obtained.[7]

[7]Avessels’ H&M Insurance is also an important source of information to verifythe quality of the vessel and its Owners. A good H&M Insurer gives comfortto the cargo Owners of properly maintained vessel. Sometimes as part ofrecovery proceedings, a Mareva Injunction (freezing the H&M claim pay outfollowing a total loss or a serious casualty to the ship) can be broughtthrough the court. This injunction can be vacated if a Bank Guarantee or a ClubLOI is forthcoming

[8]A vessel having sistership i.e., belonging to afleet (as opposed to be a singleton) is a better security

[9]ISM andISPS compliance avoids the risk of detention of vessel at intermediate ports byPort State Control which are increasingly getting strict.

[10] Owners/ Disponent Owners/ Managers

The namesof the registered Owners, Disponent Owners/ Managers/Operators are usually availablein Equasis website (one has to subscribe to it) but it is a good idea to askthe ship brokers to provide you with this information. The identity of theP&I Clubs of the intermediate Owners/Charterers should also be sought. DisponentOwner details are a good idea as well, since there may well be claims againstthem in the future and it is useful to know who they are.

[11]Avessel’s past history of detention (including the cause of such detentions) isalso gives an indication of the maintenance standard of the ship in question

[12] Previous Voyages made by the vessel: A vessel which had made several recent voyageswithout any incident is also a pointer to its quality.

Equasisprovides some of these details (this is free of charge but you need toregister). Sea Searcher and other providers of vessel information provide apassword to their data-base but at a fee.

Oftencargo Owners/Charterers go for older vessels to save on freight. Howeverconsidering the high values of bulk cargoes, is such a saving worth it? In someroutes/cargoes, younger tonnages are not available. Some insurers in such casesmay ask for a survey of the ship at cargo Owner’s cost-again a couple ofthousand of dollars for survey could save millions of dollar worth of claims

On ageneral note, if the vessel is old or does not have an IG Club cover or an IACSclass, money spent on a survey of the ship would be money well spent.

Finally,I would remind cargo Owners of the importance of disclosing these facts toinsurers when obtaining coverage for the shipment.

[1] FOCCountries The following 32 countries have been declared

Antigua and Barbuda
Bahamas
Barbados
Belize
Bermuda (UK)
Bolivia
Burma
Cambodia
Cayman Islands
Comoros
Cyprus
Equatorial Guinea
French International Ship Register (FIS)
German International Ship Register (GIS)
Georgia

Gibraltar (UK)
Honduras
Jamaica
Lebanon
Liberia
Malta
Marshall Islands (USA)
Mauritius
Mongolia
Netherlands Antilles
North Korea
Panama
Sao Tome and Príncipe
St Vincent
Sri Lanka
Tonga
Vanuatu

[7] You can have Head Owners–A, Time Charterer– B, Sub Time Charterer – C and Sub Sub Time or Voyage Charterer– D. The Club cover for C and D should also be obtained , if possible

B is the Charterer and will also be A’s disponentOwners. Same is the case with C.

Incoterms 2010-A detailed commentary

2011-11-27T16:13:00.000+05:30

Meaningand Purpose of Incoterms

Incoterms is the abbreviation for InternationalCommercial Terms.

“Provide a set of internationalrules for the interpretation of the mostcommonly used trade terms in domestic/foreign trade.”

Incoterms reduce uncertainty and “interpretationslippage” as parties are often unawareof each other’s different trading practices-they enable parties to know eachothers’ rights and obligations

Present edition (2010) came into effect w.e.f 1.1.2011and contains 11 Terms

ICC (International Chamber of Commerce, Paris) first published Incoterms in 1936. Later amendments in 1953, 1967, 1976, 1980, 1990, 2000 and 2010.

Remember:Incoterms

Donot deal with ownership/title to the goods
Donot deal with payment terms
Donot deal with payment methods
Do not replace Contract of Sale

Passing of title (also called ownership/property of goods) is a complex issue and depends, among other things on various ‘national’ laws-it is for this reason that Incoterms deal with “risk” rather than “title/ownership” - This ‘ risk’ vs. ‘title’ dichotomy often leads to very contentious issues and it is important that a detailed Contract of Sale is in place

UsingIncoterms Correctly

Remember - Incoterms are NOT the main contract of sale- Incorporate Incoterms® 2010 into your contract
Use the term appropriate to the goods
Use the term appropriate to the transport required -e.g., term suitable for airfreight)
Decide who will organise transport - e.g., domestic transportation in Seller’s &/or Buyer’s country, international (main) voyage
Decide who will organise Insurance (if required) -See *
Consider local customs or practices at the port or place
Specify Place as precisely as possible-Point/Port/Place to be described precisely
Some terms do not fit in with Documentary Credit term
Some terms are not very appropriate for containerized goods (e.g. FOB)

* Who bears the risk during each stage of transportation? Is insurance premium included in the Invoice? Do both seller and buyer have insurable interest (direct/contingent interest) etc

WhyIncoterms 2010?

Needto respond to current trading practices/global trend
Feedbackfrom users of Incoterm
Changesin US Legislations

For example:

Ø Growth of Customs Free Zones. For example EEU (doesnot have a customs boundary between member countries)-Incoterms 2000 did notdeal with such issues adequately

Ø EDI: Incoterms 2000 dealt with it but a decade ago,EDI was costly and used by large corporations. Today EDI is common place.

There was a need for Incoterms that did not require customs’ clearance at all to respond to inter-European Union trade and other regions where customs procedures are not required. 2010 edition only mention that clearing for import/export is required “where applicable.”

KeyChanges in 2010 edition

1. The structure of the terms has changed. 2000 started with ExW , going then to F and C terms and ending with D terms

Within these families of terms, the maritime terms appeared first. Themain concern was possibility of mis-use of Incoterms

In particular the choice of maritime terms where pointof delivery intended or eventual destination was “inland” point. For exampleFOB Manchester or CIF Frankfurt would lead to mismatch between the salecontract and carriage or insurance contracts.

Therefore 2011 cluster the 11 terms under twoheadings:

Rulesfor any mode of carriage (to be used when intended where either the intendedpoint of delivery or the intended destination (or both) is an inland pointrather than a port)

Rulesfor sea and inland water way transport ( to be used when intended point ofdelivery and/or destination is a port.

Under 2010 edition, it is not so much the mode of carriage but the points of delivery and destination which is important

2. One key change that has taken place is theremoval of “ship’s rail” as a critical point to determine the passage of riskof loss or damage to goods from seller to buyer. This was an archaic term andoften caused confusion

Now it is truly “free on board” rather than “free onrails”

3. Taking stock of the growth of Customs FreeTrade Zones (the most apt example being EEU) E.g., the new rules recognise thatthere is often no customs’ boundary. The new terms therefore use the expressioncustom’s boundary, if any.

4. While 2000 edition was intended for Internationaltrade, the 2010 terms are applicable for both domestic and international trade.

5.Due tothe events of September 11 and other subsequent events governments are carefulto take stringent actions against terrorist activity especially transfer of goodsacross borders. Now Incoterms cast responsibility on one of the parties toensure adequate documentation in this regard-including providinginformation in advance about goods, scanning/inspection of goods.

6.2000edition took note of a number of developments in Electronic Communication. Atthat time,
EDI was a high level and expensive form oftransferring documents electronically.Only large companies could affordthat format.

Duringthe last 10 years, Electronic Communication has become common place and easilyaffordable. This development finds a reflection in the 2010 edition

Note: Rule A1 appears in all 11 terms.

In 2000 edition of Incoterms, all kinds of electronicdocuments were mentioned and strewn across all terms.In 2010 deals only with the concept of electronicdocuments. It now accepts the functional equivalent of paper documents.

EDIand Incoterms

EDIallows one company’s computer system to be connected to those of its tradingpartners

Thedifference between EDI and electronic mail or other private computer networksis that EDI involves the transmission of standardized messages, like invoicesbetween two companies

With thehelp of a single software a company can communicate with hundreds of otherclients, suppliers

EDI isthus a computer-to –computer transmission of electronic messages often insubstitution of paper documents that were previously mailed or faxed

It leadsto instantaneous transmission of data-suitable for “just in time” era

Itenables quick ordering of goods and services and can reduce warehousing andinventory

Hurdles

EDI lacks a fully functional universal standard though UN’s EDIFACT (EDI for Administration, Commerce and Trade) may eventually become a standard
Legal uncertainties
Lack of awarenessCommercial Resistance
One of the principal application of EDI technology to business is in the transportation sector.
Therefore 2010 Incoterms provides for electronic documents (instead of paper documents) if either mutually agreed by parties or where customary.

CMI system of Electronic B/L: AB/L is negotiable. It can be endorsed. The electronic solution to this has beenthe Private Key (i.e. a code known only to one party). Only the holder of thisprivate key can give delivery instruction to the Carrier . With each sale, thecarrier cancels the previous private key and issues a new one.
CMI system has been criticisedsince the Carrier is now repository of all confidential information andmerchants have to depend on them.Bolero Project: (commissioned bythe Commission of European Communities).It has developed CMI by introducing an independent third party whowill maintain a central register independent of seller, buyer and carrier. Italso uses the mechanism of electronic signature.

7. StringSales

2010recognises that these terms can now be used when a sale contract forms part ofa string.

Main Trade Associations were not recognizing Incoterms but commodity traders were using them in their contracts. Such an incorporation however caused a problem-A CIF seller in the middle of a string/high sea sale could not meaningfully be said to be under a "duty to ship" goods already shipped by another seller upstream or to make a contract a of carriage already concluded by some other seller upstream. Incoterms2010 has addressed these issues: rather than ship goods and make a carriagecontract, a seller in a string can procure goods high seas and procure carriagecontract high seas and fulfill his obligation to the subsequent buyerdownstream

You will find mention of string sales only in maritime Terms (FAS, FOB, CFR and CIF)

8. Incoterms 2010 has deleted a few and introduced two new terms:

DAF (Delivery at Frontier)	Replaced by DAP
DES( Delivered Ex Ship)	Replaced by DAP
DDU( Delivered Duty Unpaid)	Replaced by DAP
DEQ (Delivered Ex Quay)	Replaced by DAT

Structure of New Incoterms 2010

2011 Edition-11 Terms

Rulesfor Any Mode (or modes) of Transport

CIP- Carriage and Insurance Paid
CPT - Carriage Paid To
DAP - Delivered At Place
DAT - Delivered At Terminal
DDP - Delivered Duty Paid
EXW - Ex Works
FCA - Free Carrier

Rulesfor Sea and Inland Waterway Transport Only
CFR - Cost andFreight
CIF - Cost, Insurance and Freight
FAS - Free Alongside Ship
FOB - Free On Board

In all the Incoterms, the risk passes from seller to buyer at the point of delivery i.e, when seller completes his delivery obligation

Remember: In some terms the seller pays for the freight & enters into Contract of Carriage but he does not bear the risk during the main voyage (eg. CFR, CIF, CPT, CIP)

l Thetrend towards Delivery terms instead of maritime terms for manufactured goods.

– View large annual turnover and constant flow of goods,the exporter finds it easier to entrust carriage of his goods in variousdirections of the globe to a logistic provider

– The logistic providers would like to communicatecontinuously with their original contracting party. If such a party is the Seller, then theyadvise the seller to control carriage and delivery to buyer.

– The seller is in a better position to bargain acheaper freight and also control quality of carriers.

A reputed car manufacturerreportedly said “ Although I may be relieved of the risk of damage to my carssold under an FOB contract, I am not pleased to see how they are being damagedwhen hopeless efforts are made to squeeze them into a cargo hold of a whollyinappropriate ship.”

2000 Edition	2010 Edition
Group E-Departure Contracts (ExW)	Rules for Any Mode (or modes) of Transport CIP - Carriage and Insurance Paid CPT - Carriage Paid To DAP - Delivered At Place DAT - Delivered At Terminal DDP - Delivered Duty Paid EXW - Ex Works FCA - Free Carrier Rules for Sea and Inland Waterway Transport Only CFR - Cost and Freight CIF - Cost, Insurance and Freight FAS - Free Alongside Ship

Group F- Main Carriage Unpaid FCA Free Carrier(...Named Place) FAS Free Alongside Ship (..Named Port of Shipment) FOB Free on Board(..Named Port of Shipment)
Group C- Main Carriage Paid CFR (Named port of Destination) CIF (Named port of Destination) CPT (Named port of Destination) CIP (Named port of Destination)
Group D -ARRIVAL DAF Delivered At Frontier(..named place) DES Delivered Ex Ship (..named port of destination) DEQ Delivered Ex Quay (..named port of destination) DDU Deliverred Duty Unpaid (..named place of destination) DDP Delivered Duty Paid (..named place of destination)

Incoterms 2010-Categories ofObligation

Only in CIFand CIP, insurance by seller is ‘mandatory’.

Again unlessotherwise agreed, seller obliged to only provide ICC(C) cover, not ‘all risks’

ICC (A) /War& SRCC covers: needs to be agreed

Passingof risk of loss or damage

Explanationof some of the Terms

Ex Works (ExW)

Risk transfer takes place usually at the Seller's premises (unless otherwise agreed, loading on board the lorry is buyer's responsibility).

Free Alongside Ship (FAS)

The risk transfer takes place when goods are delivered alongside ship -it could be the quay or even onboard a barge at the named port of shipment.

FCA is a better option if goods are containerised

Free on Board (FOB)

Tobe used only for sea or inland waterway transport

Notsuitable for container shipments or where the seller “hands over” goods to acarrier before they are placed on board

Freeon board means the seller delivers the goods on board the vessel nominated bythe buyer at the port of shipment or procures the goods already sodelivered.

Therisk of loss or damage passes when goods are on board the vessel, and the buyerbears all costs from that moment

Theseller is not required to arrange a contract of carriage or a contract of insurance.

It appears that unless the entire contracted quantity is not placed on board, the risk would be on the seller. Therefore if few of the goods have been placed on board but the rest is still awaiting loading, the risk has not passed to the buyer even in respect of goods that have been loaded.

Note: But whatis “placing the goods on board the vessel’? The default situation according toICC clarification is when goods first rest on the deck of the ship. HoweverIncoterms also refer to the ‘customary manner’ at the port and if the custom isto consider the goods to be on board when placed under a ship’s tackle, theposition is different.

If goods are containerised, FCA should be used

Cost and Freight (CFR)

Same as FOB but vessel nominated by the seller whoalso arranges contract of carriage.

Remember that in CFR though the named port ofdestination is mentioned and freight paid accordingly (e.g, CFR London though theseller is in New York), the risk passes upon loading on board the ship

There are thus two critical points-one for passing ofrisk and another for passing of cost.

If goods are containerised, CPT should be used

Avoid mentioning date of delivery at destination (e.g, CFR London not later than XX/XX/2011). This defeats the purpose of CFR Incoterm which is a shipment contract.

Bulk cargo is often carried these days from a point inland. In that case CPT should be used

Freight may include loading & unloading charges but bulk cargo are often shipped on chartered vessel which is on FIO (free in /free out) terms i.e, shipment as per liner terms but chartered vessel allowed in contract

Cost Insurance Freight (CIF)

Same as CFR but seller also arranges contractof insurance.

There are thus two critical points-one for passing ofrisk and another for passing of cost. Risk passes as in FOB or CFR i.e, whengoods are loaded.

Therefore CIF Antwerp sale from Singapore does not mean the seller is at risk after loading.

INSURANCE:

CIF and CIP are the only terms where contract of insurance is mandatory

Seller fulfills his obligation by procuring a minimum cover -on ICC ( C)terms

Duration of Cover: must coincide with the carriage and must protect thebuyer from the moment he has to bear the risk of loss or damage to the goods(i.e. when they are placed on board) until the goods arrive at the agreed portof destination.

Cover should be for Contract Price plus 10% which is to cover buyer’sprofit

Sum Insured should be in the same currency as in the contract

This also means the insurance procured by the seller is for the benefit of the buyer. This raises some complex issues –can the unpaid seller claim from the policy if there is a loss or damage to goods during the transit?

If goods are containerised, CIP should be used

CarriagePaid to
CPT(insertnamed place of destination)

Same as FCA except in CPT the seller enters into acontract of carriage and pays the freight till destination.

Two critical points: One for risk transfer (when goodsare handed over to carrier or any other person named by buyer) and another forcost transfer (agreed place of destination.

If FCA replaces FOB, then CPT replaces CFR.

Carriageand Insurance Paid to CIP (insert named place ofdestination)

Same as CPT but selleradditionally pays for Marine Insurance.

Under both CIP and CPT, if more than one carrier isinvolved and the parties do not agree on a specific point of delivery, bydefault the risk passes when goods are handed over to the first carrier.

More appropriate than CIF if containers used

NOTE:The ‘first carrier’ in CPT/CIP is the very first carrier independent of the seller (i.e., not the seller's own vehicle/vessel) with whom the seller has contracted for carriage according to a clarification from ICC

FCAand CPT

FCA	CPT
Seller delivers goods, cleared for export (if required) to carrier or other party nominated by buyer in seller's country	Is used instead of CFR when using containers
Can be seller's premises or another named place in the seller's country	Seller pays main carriage to destination but does not carry transport risk. Risk transfer when goods handed over to main carrier
Recommended for FCL and LCL container shipments	Buyer has main carriage risk though freight is controlled/paid by seller
First transport charges for seller's account. Subsequent transport, if any for buyer's account	If seller has a good marine insurance cover, then CIP can be used
Can be used for any mode of transit	Can be used for any mode of transit
Appropriate term when seller wants to only handle logistics in seller's country	Risk transfer can take place even at LCL or FCL container terminal i.e, once handed over to CFS or CY, the buyer carries the risk
Risk for seller in using L/C: buyer organises the main carriage and any non compliance with shipment date puts the seller at risk	Since seller has control over transportation, he carries less risk in case of L/C with a shipment date
Insurance: Must be clearly specified as Incoterm FCA is silent on this: Recommend proper pre and post shipment risks to be covered apart from main voyage.	Insurance: Must be clearly specified as Incoterm FCA is silent on this: Recommend proper pre and post shipment risks to be covered apart from main voyage.

FCA: the “critical point” that determined passage of risk from seller to buyer now before ship’s rail to an inland point

In FCA, this inland point can be within or outside the port area in the country of shipment.

DAT and DAP

DAT	DAP
Replaces DEQ	Replaces DAF, DES and DDU
Terminal "is intended to have a broad meaning including any wharf, quay, warehouse, rail/road/air terminal, container yard. It include any place whether covered or not but a terminal cannot be "simply an open field; there must be some organization of the space for receiving goods" (see ICC website)
Delivery takes places in Buyer’s country-can be the Buyer’s premise also	In Incoterm DAP, the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination (could be a port) This is exactly what the old Incoterm DDU stipulated.
Delivery is complete when the goods are unloaded from the “arriving means of transport” and are placed at the disposal of the buyer at the named terminal or place at named port/place at destination For example, DAT can be useful when containers are unloaded into a Container Yard/Stack at the terminal (as opposed to Buyer's premises) awaiting further transit/shipment.	An appropriate example would be the container on a lorry arrives at the buyer’s warehouse (import cleared) and the buyer can now arrange for its unloading. Similarly the container is unloaded from the carrying vessel into a port not unloaded or import cleared.
The essential difference between Incoterm DAT and DAP: DAT: goods have to be unloaded by the Seller DAP: Goods are to be unloaded by the Buyer

Itis interesting to note:

1. that Incoterms DAT and DAP arerules that are applicable to any modes of transport and

2. that these rules replace Incoterms that wereexclusive to sea and inland waterway transport.

This is indicative of a trend towards internationalmulti-modal transport, which is reflected in international documents such asthe United National Convention on Contracts for the international Carriage ofGoods wholly or party by Sea (The Rotterdam Rules).

DDP (Insert name of destination)

Rule can be applied irrespective of mode of transport and can also be used where morethan one mode of transit is employed.

DDP means seller delivers the goods when the goods areplaced at the disposal of the buyer, cleared for import on the arriving meansof transport ready for unloading at the place of destination.-same as

DAP butin DDP seller is responsible for import/customs formalities and pays the duty.

Till the above deliver takes place, goods at seller’srisk

Note: In my book Insuring Cargoes, there is a detailed commentary on appropriate insurance for the seller and buyer respectively under each Term. Since publication of the book, new Incoterms 2010 have come into effect and as part of my consultancy I advise my clients changes to be made to their open cover to reflect new Incoterms 2010. In the various workshops that I conduct, I also provide case studies to determine which Incoterm is appropriate in a given situation besides highlighting several practical problems while interpreting Incoterms.