Letter of Credit Forum

Hello there Hmandelid,

Phew – very big question – I can only give you some broad strokes on this, and the devil is in the detail, so be careful...
In each instance the seller will be off-risk (in the sales contract at least) in the country of supply.
With CFR and FOB this will be on loading the vessel and FCA/CPT on handover to a carrier.

The disadvantage with FOB and CFR is that the seller needs to be sure they are able to get into the restricted area of the port. In this, note that under FOB the seller is further disadvantaged in that the vessel is NOT of their nomination – so they need to be sure they can get into the port AND be sure the ship will accept the cargo. At least with CFR, the seller will have made the initial booking etc. But they still can never be sure that the dock may not go out on strike or some other frustration arise to stop them getting to the vessel.

With FCA and CPT the end of the contract (‘delivery’) is on handover to a carrier. This does not require the seller to have access to restricted area and so is much easier to achieve. However FCA still requires the seller to hand over to the buyer’s carrier (which implies the buyer has an opportunity to frustrate the handover by delaying the carrier’s actions) whereas CPT only requires the seller to hand over to the seller’s own carrier – again, much easier to achieve.
So, operationally – i.e. if considering only what is easiest to achieve physically: CPT is the better choice.

BUT: The downside is that in with any C-prefix the seller must pay the freight and in so doing must become the ‘shipper’. As the shipper to the carrier, the seller is exposed if the buyer (as consignee) has no insurance cover: for example, if the vessel goes into distress and the ‘consignee’ is obligated to make a contribution to the costs, such as with a General Average – and yet if the consignee has no insurance cover for such a contribution, the consignee can avoid the liability by simply abandoning the cargo, leaving the ‘shipper’ with this exposure to contribute. So although the seller may be off risk in the country of supply, the shipper is on-risk right they way through to destination and release of the goods. Accordingly the seller has to contemplate how to minimise the risk of the consignee abandoning the cargo and how to ensure there is in fact insurance in place. The answer to this to secure payment up front or through a bank instrument like a credit (triggered on handover, not on shipment) and – the big factor -  to sell WITH insurance cover included in the price – and that makes CIP (or even CIF) an essential aspect of Seafreight. In your four examples, the seller does not have this option to force insurance into the price and if I can assume this is because insurance cover is not available, this one risk alone would leave the seller so exposed that FCA would become the preferred choice, despite the downside of needing the buyer’s carrier to fulfil delivery. The mere prospect of being the shipper with no guarantee of insurance cover would make the seller resists any C-prefixed sale in Seafreight and so the seller would move their risk ‘backwards’ up the supply chain and away from interaction and contract with the sea carrier.

The seller has relief in Incoterms should the buyer frustrate the FCA delivery by failing to nominate a carrier in time etc, but the best protection the seller would have is to ensure they are prepaid in their FCA arrangement, thus whether the cargo is collected or not, the seller has little exposure.
Note also how in an F-prefixed sale, the seller will resist getting involved in any transport document – they have no wish to be the shipper and face the exposure noted above.

There is so much more to this, but as I say these are the broad strokes: given the choices you have on hand, it would be FCA, pre-paid and the seller limits their involvement with the buyer’s carrier to accepting their handover documents and they do not sign any of the carrier’s papers, resisting involvement in the subsequent transport documents.

I hope this points you in the right direction.

Cheers

phill
“...in the kingdom of the blind; what you see is what you get...”