Many of the shipping terms in a contract for the sale of goods, have special significance under applicable law. The shipping terms assign the parties certain rights and obligations with regard to who will bear the cost of shipping and who must bear the risk of loss. However, important shipping terms mean different things in different countries. A potential for real confusion exists where the parties to a contract for sale of a medical device are unaware that terms ostensibly spelled identical to each other, mean very different things in different countries.
In the United States, the trade term FOB means a point of delivery that could be anywhere. Under the international Incoterms when adopted for purposes of international trade, the term FOB means ‘Free on Board’ and addresses the risk transfer point by deeming it to be the moment when the device passes the ship’s rail. In the 2010 revised Incoterms, the International Chamber of Commerce altered the Incoterms to provide that the seller must load the device on board the vessel designated by the buyer. In most FOB situations the seller is responsible for the goods to be cleared for export.
Two terms which appear close to FOB under the Incoterms, have also slightly different meanings. FOR means Free on Rail. FOT means Free on Truck. If you wished to adopt an Incoterm similar to the U.S. version of FOB, one would likely wish to use ‘DAP’ meaning Delivered at Place. But if you wish for the device to be unloaded, you really probably
want ‘DAT’ delivered at the terminal. Remember that the terms for container shipments are slightly different. FCA should be used for container shipments.
The practice tip which should be followed to address this fount of potentially confusing terms is to express conspicuously which law the parties wish to follow and when using Incoterms to go further and specify the particular version of the Incoterms to be incorporated (e.g., 2010 Incoterms). Mere insertion of the terms and the date of enactment are not sufficient. To perhaps state the obvious, by stating the applicability of the U.C.C. or the Incoterms, such does not address what happens if the terms are not followed and if a dispute arises. Standard
contract terms should supplement any incorporation of shipping terms.