By Dr. Arun Kasi

Last Updated 12^th August 2021

International Trade

SOME TERMINOLOGIES

A shipper is the one who makes the contract of carriage with the carrier. A consignor is the one who consigns the goods, i.e. puts the good on board the ship.

It is important to note that a shipper and consignor may or may not be the same person. For example, in the case of a c&f contract, the seller contracts with the carrier for the carriage, then the seller consigns the goods. Here, the seller is both the shipper and the consignor. At the converse, in a fob contract, the buyer will possibly make the carriage contract with the carrier. Here, the buyer is the shipper while the seller is the consignor.

The consignee is the one who receives the goods at the destination. He may or may not be the original buyer. For instance, an original buyer buys the goods and get the bill of lading. He then negotiates the bill of lading to another, i.e. the end buyer. Now the end buyer, and not the original buyer, is the consignee.

Carrier is the one who makes the contract of carriage with the shipper. This may or may not be the shipowner or the actual carrier. It is common that freight forwarders or other non-vehicle owning carriers (NVOCs, also called non-vehicle owning common carrier [NVOCC]) to issue bills of lading, which are called by labels like ‘house’ bills. They will be called ‘multi-model, where more than one mode of transport is involved in carrying the goods to the destination. In such case the NOVC is the carrier, more accurately, the contractual carrier, insofar as the shipper is concerned.

Shipment means only the loading and not the carriage.

SHIPPING TERMS

Classical shipment terms are fob (free on board), c&f (cost and freight) and cif (cost, insurance and freight).

There are numerous variants of ‘fob’. A bare or straight fob means that the buyer arranges the carriage contract. A classical fob means that the seller arranges it on behalf of the buyer-shipper. Notably, the buyer’s name will appear as the shipper. There can also be fob with additional carriage services, where the seller will arrange the carriage contract in its own name as the shipper but invoices the cost to the buyer. In all cases of fob, it is the buyer who pays the freight.

Apart from classical shipment terms, a set of popular shipment terms is ICC INCOTERMS. The latest version is INCOTERMS 2020. Here, the corresponding terms are FOB, CFR and CIF. The detailed terms attached to use of any of these terms are set out in the relevant INCOTERMS document. Merely writing FOB, CIF or C&F (in capital letters) does not attract or incorporate the INCOTERMS. For INCOTERMS to be incorporated, there must be a clear reference to the relevant version of the INCOTERMS. There are more terms of shipment found in INCOTERMS. They are D-terms: (DPU, previously called DAT), DAP and DDP. DAT / DPU means Delivered at Terminal / Delivered at Place Unloaded. DAP means Delivered at Place. DDP means Delivered Duty Paid. There are E-terms: EXW (Ex Works, eg. EXW Seller’s Warehouse).

PASSING OF PROPERTY AND RISK

In Malaysia, Sale of Goods Act 1957 regulates passing of property and risk. Generally, property passes at the time intended by the parties (s 19). Risk passes with property, unless otherwise intended (26). In the context of carriage of goods by sea, it is well accepted that risk passes to the buyer when the goods are shipped (loaded), i.e. when the goods pass the ship’s rail. This is so irrespective of whether the sale contract is on fob, c&f or cif (or any corresponding INCOTERMS). However, the property passes only when the seller is paid in full, usually through letter of credit.

An out-turn clause is one that provides that price will be adjusted if goods arrive short in quantity/quality. Out-turn clause do not alter the passing of risk.

LETTER OF CREDIT

Payment in export-import trade is usually made by Letter of Credit, also called Documentary Credit. There is no special law regulating this, but the law of contract applies. In Malaysia, the contract law is largely codified in the Contracts Act 1950, which materially is modelled on the Indian Contract Act 1872. Letters of credit are issued by banks upon instruction usually of buyers. In practice, the UCP 600 terms are incorporated into letters of credit. UCP 600 is a standard set of terms made by ICC for use by banks when issuing letters of credit.

The bank that issues the letter of credit, abbreviated as L/C, is called the ‘issuing bank’. There will usually be a correspondent bank in the place of the seller. The correspondent bank will usually confirm the L/C to the seller. In such as case, the seller may hold both the issuing bank and the confirming bank liable on the L/C. Alternatively, the corresponding bank may merely advise the L/C, in which case only the issuing bank is liable to the seller. Of course, the buyer’s obligation to the seller to ensure payment is always there.

The bank’s duty is to pay when the compliant documents are presented to it by the seller. They documents will include B/L, invoice, packing list, certificate of quality/quantity, insurance policy (in case of cif/CIF sale contract), etc.

The issuing bank/confirming bank can be said to be on razor blade line. This is because, if the bank pays upon wrong documents, the bank will lose the right to be reimbursed by the buyer. If the bank refuses to pay upon right documents, the bank will be liable both to the seller (on the L/C contract) and to the buyer (on the contract upon which the L/C was issued).

• There are various types of L/Cs, such as:
• Revocable or Irrevocable L/C
• Confirmed or Unconfirmed L/C
• Straight or Negotiable L/C
• Sight or Deferred Payment L/C
• Transferable L/C
• Revolving L/C
• Red Clause L/C

It must be noted that a Bank Guarantee or Standby Letter of Credit (SBLC) is not a letter of credit.

This is a brief write-up only. More information can be found from relevant postings available in https://arunkasico.com/presentation-slides and https://arunkasico.com/bulletin.