‘Named Place’ Invokes Complex Rule Variations
In a continuing series by former Halliburton vice president of global logistics John Vogt, you’ll gain the critical information needed to reduce shipping risks to your company whether you’re the buyer or shipper. Look for John's new installments in the first issue of BreakbulkONE each month.
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In the last article on Ex Works (EXW), we introduced a special consideration of the “Free Carrier At,” or FCA, rule to overcome some of the issues with EXW. The FCA rule is one of the more recent rules compared to EXW, which has existed from the inception of the Incoterms® rules.
In 1980 the International Chamber of Commerce introduced a rule, Free Carrier, to meet “modern transport” requirements. It was described as “similar to the FOB” rule of that time, but with the named place being other than the ship. The 1990 version altered this to FCA. The rule was broadened progressively as multimodal movements as well as container traffic became common, and Incoterms® became accepted for domestic as well as international movements. These expansions have made the rule complex, with multiple cases describing its use.
The named place alone invokes variations in the rule:
1. The named place is at the seller’s location, and the seller has no transport commitment. This can be used for domestic distribution or as part of an international movement.
2. The named place is remote from, but domestic to the seller for domestic distribution or sale and the seller must provide the transport to the named place.
3. The named place is at a location which is used for international movements, with the seller providing transport to this named location, and this is the initial leg of an international movement.
Case 1, or FCA (Loaded at seller’s facility), is an extreme one where the goods are loaded by the seller, at the seller’s facility, onto the transport provided by the buyer. Risk transfers once the goods are loaded correctly. The transport commitment is from the buyer, and the seller merely loads the goods, and files for export if the buyer wants to export the goods.
Case 2, the delivery is to any named place domestic to the seller, but the goods will be consumed in the same country as the seller, without being exported. Care must be taken that the seller has a reasonable expectation that no export will be done with these goods. A seller delivering to a company registered in the same country would use this case of the rule. One can see Company A in City X sending goods to a location in City Y with this term as FCA (City Y named place location in the same country as the seller).
Case 3, the delivery is to any location associated with international movements and is known to form the initial leg of the international movement. The rule specifically states this is the appropriate rule to use for containers delivered to a container terminal. In this case, FCA (Container Terminal A in the Port of X) means the seller is delivering the container to the container terminal at its cost, on transport it arranges, in accordance with the booking for the voyage. Note, it is to a terminal and not to the ship or quayside, as different terms would be used for these moves. Equally this could be used for a delivery of air cargo to a consolidation depot near the airport if the airline takes responsibility for the consolidation of the goods at this depot as the named place.
An Additional ‘Wrinkle’
If this is not complex enough, the latest version adds an additional ‘wrinkle’ to the use of, and extent of, FCA related to Case 3. The rule has previously acknowledged that the seller may require a bill of lading (BoL), which in many cases is used to trigger payment to the seller. However, this has been expanded in this latest rule to add the option of requiring a BoL with on-board notation, meaning it is on a ship but prior to the ship sailing. The seller and buyer must agree this is a requirement, and then this obligation must be communicated by the buyer to the carrier it appoints to do the onward movement of the goods from the named place.
All this is cumbersome, and the indication is that the requirement is often caused by bank or letter of credit (L/C) requirements. No time scales are specified for the BoL with on-board notation to be issued to the seller, so there may well be a delay for the execution with the bank or the L/C, which is not in the interest of the seller. Practically, the time taken to issue a special BoL with on-board notation is probably not much faster than a BoL for a container ship. It would seem of value to ensure the L/C requirements match the Incoterms® rule exactly, and ideally the bank or L/C should be triggered at the named place of the Incoterms® rule. L/Cs are complex and will be dealt with in later articles.
It becomes evident that this rule is far more complex in its nuances than just a simple domestic transport rule as was introduced in 1980. Trade has become far more complex, and banking procedures have become deeply involved in these trades. Companies want to minimize cash flow and receive payment as fast as possible, so this rule was expanded once again with this on-board notation. One can see the need for the domestic side of the rules to expanded to cater for all the variations and, with the issues with EXW, may see further changes in future versions of the rules. On top of all this, remember, if an export is to take place, the seller must file the export declaration to the Customs authority.
Digging Deeper
We need to delve a little deeper into some of the issues of the rules at this point.
Firstly, we need to introduce a general point. The precise point of transfer is critically important, but this gets even more problematic when the goods being transported require special handling as the unloading equipment is costly. While we know delivery occurs at the named place, it is inherent in most of the rules that the period for delivery can also be specified. In practice this is rarely used but is highly valuable as one can specify the delivery place and period of the delivery. The value of this can be to ensure the buyer has the specialized equipment available for the period specified to handle and offload or face the additional costs for delaying the carrier. This helps to reduce the risks and costs. Container Terminals have “stack times,” where the terminal will receive containers for a particular ship, which essentially represent this period.
The loading “correctly” by the seller is of importance. Multiple transportation methods can be included in the movement. One can see it is feasible to move it by truck, then rail, then truck and then made available to the buyer or its representative to unload for onward movement by ocean carriage. The packing quality and/or the loading and “blocking and bracing” of the load to prevent movement of the goods is important, as these need to cater for the portion of the journey that provides the highest potential for damage, so this logistics route needs to be known for the packing and loading to be done competently. The obligation for this packing and loading is established in the Incoterms® rule, but not the details. The packing robustness and method, and the loading with blocking and bracing for the journey need to be in a Packing and Loading Standard. Please do not ignore these or assume the seller is aware and competent to do these. I have dealt with an importer who imported via containers expensive glass vases in thin board display packing and was distressed to find a high breakage level. The supplier thought containers would provide the protection!
We can deal with these standards at a later stage; if this is of interest, please let Leslie Meredith or myself know and we can add this to later topics.
For the next article we will look at the first of the water-only terms of FAS and FOB, which are not only of interest for the breakbulk and bulk cargoes, but also for some types of container moves. These also complete the F terms, and are unusual in their own way.
Missed Jon Vogt’s Previous Articles? Find Them Here:
Why Use Ex Works Incoterm Rule? (March 3, 2022)
For Incoterms, Devil is in the Details (February 8, 2022)
Why Everyone Needs a Better Understanding of Incoterms (January 11, 2022)
About the Author
John Vogt has his own consulting company and, at the end of his 42 years in industry around the world, was the Vice President of Global Logistics for Halliburton. Thereafter he spent five years as a Professor of Record for the University of Houston-Downtown MBA for International and Supply Chain courses. He has experience as a Board Director and has traveled the world to improve trade.
In his career, he has driven the correct use of Incoterms as part of the trade improvements he has implemented to drive efficiency and effectiveness. In his role as a professor of record, he taught multiple courses on the use of Incoterms and trade-related agreements. He has published with colleague Dr. Jonathan Davis (Associate Professor, Supply Chain Management Chair GMSC Department, Marilyn Davies College of Business, University of Houston-Downtown), three formal research papers on Incoterms with two more in consideration, making him the most published Incoterms researcher. He has also published numerous articles, presented papers at multiple international conferences around the world on logistics, trade and compliance including Incoterms. He has served as track chair for multiple conferences as well.
John has a Ph.D. (Logistics), an MBA, and a B.Sc. (Engineering), holds the title of European Engineer (Eur. Ing), is a Chartered Engineer (UK) and has been elected as a Fellow of the Institute of Engineering and Technology (UK). You can reach John at [email protected].
