Boat Cargo Damage: Who Takes The Fall?

When it comes to damaged goods on a boat, the question of responsibility is a complex one. The transport of goods, especially in international waters, is a risky endeavour, and damage can occur due to various reasons beyond the control of the buyer or seller. In such cases, determining liability can be challenging. The seller aims to transfer the risk to the buyer as soon as the goods are dispatched, while the buyer seeks to delay assuming risk until the goods are received. This often leads to disputes, and it is crucial to establish clear terms and conditions to mitigate these issues.

The seller's interest vs the buyer's interest

When goods are damaged during transit, the interests of the buyer and seller are at odds. The seller's interest lies in the buyer paying the price without requesting new goods, while the buyer's interest is in not paying the price again if the goods are damaged. This situation raises the question of who bears the responsibility and subsequent financial loss.

In the absence of a prior agreement, disputes may arise between the parties, leading to litigation. To avoid this, the contracting parties can agree on a transport clause that regulates the manner of transferring risks and costs from the seller to the buyer. The most popular edition of transport clauses are Incoterms – International Commercial Clauses, which are adopted by the International Chamber of Commerce.

Incoterms clauses outline the specific conditions under which the seller's responsibility ends and the buyer assumes the risk. For example, in an FOB (Free on Board) clause, the seller is responsible for any loss or damage to the goods until they touch the deck of the ship. On the other hand, in an EXW (Ex Works) clause, the buyer assumes all risks and costs as soon as the seller makes the goods available at the designated place.

In cases where the goods are damaged through no fault of either party, the Uniform Commercial Code (UCC) provides guidelines on risk of loss. If the seller is required to ship the goods by carrier, the risk of loss passes to the buyer when the goods are delivered to the carrier. However, if the seller is responsible for delivering the goods to a specific destination, the risk remains with the seller until the goods are tendered at the specified location.

It is important to note that both the buyer and seller can have an insurable interest in the goods during transit. The buyer has an insurable interest as they have made a financial investment, while the seller retains an insurable interest until the goods are delivered and payment is received. Adequate insurance coverage is crucial for both parties to protect their financial interests.

Transport clauses

One of the most popular sets of transport clauses are the Incoterms, or International Commercial Clauses, adopted by the International Chamber of Commerce (ICC) Paris. The Incoterms have been updated over the years, with Incoterms 2020 being the most recent version. These clauses do not represent a complete sales and purchase agreement but are a crucial part of it.

• EXW (Ex Works): This clause indicates that the buyer is responsible for taking over the goods from the seller's designated place, such as a warehouse or factory. The buyer organises transportation independently, bearing all risks and costs associated with accidental damage during transport.
• FCA (Free Carrier): Similar to EXW, but the seller delivers goods cleared through customs to an agreed-upon place. The seller bears the cost of transporting the goods to the designated place, and the risk transfers to the buyer when the means of transport arrives at the agreed-upon location.
• CPT (Carriage Paid To): Under this clause, the seller negotiates a higher price as they bear the cost of transportation to the designated place. However, the buyer assumes the risk of accidental loss or damage during transport once the goods are handed over to the first carrier hired by the buyer.
• CIP (Carriage and Insurance Paid To): This clause is similar to CPT, with the addition of the seller's obligation to obtain insurance for the goods during transport. In case of damage or loss, the buyer is entitled to insurance compensation.
• DAP (Delivered at Place): This clause places a higher burden on the seller, who bears the costs and risks associated with transportation to the designated place. The risk of damage transfers to the buyer when the goods are ready for unloading from the seller's vehicle. The buyer is responsible for obtaining import customs permits and unloading the goods.
• DPU (Delivered at Place Unloaded): This clause is similar to DAP, but the seller is responsible for unloading the goods at the designated place. If any damage occurs during unloading, the seller is obliged to provide the buyer with new quantities of the same type of goods at their own expense.
• DDP (Delivered Duty Paid): This clause places the maximum liability on the seller, who bears all costs and risks associated with transportation and customs clearance. The buyer assumes minimal liability and is not responsible for any aspect of transportation or customs until the goods are delivered to the designated destination.

In addition to the above clauses, there are also Incoterms clauses specific to maritime transport and inland navigation, such as FAS (Free Alongside Ship) and FOB (Free on Board), which allocate responsibility for damage or loss during the loading process differently.

It is important to note that transport clauses, including Incoterms, should be explicitly agreed upon by both parties to ensure their applicability. Consulting experts in international trade and transportation law can help buyers and sellers choose the appropriate clauses that align with their business needs and risk tolerance.

Incoterms clauses

Incoterms, or International Commercial Clauses, are a set of 11 internationally recognised rules that define the responsibilities of sellers and buyers in an export transaction. They specify which party is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.

The Incoterms clauses that are relevant to the question of who is responsible for damaged goods on a boat fall into two categories: those that can be used in any mode of transport, and those that can only be used in maritime transport and inland navigation.

• EXW (Ex Works): The buyer bears all risk once the seller makes the goods available for pickup from the designated place.
• FCA (Free Carrier): The buyer bears the risk once the goods arrive at the designated place, but the seller must deliver the goods with customs clearance.
• CPT (Carriage Paid To): The buyer bears the risk once the seller hands over the goods to the first carrier, but the seller covers transport costs to the designated place.
• CIP (Carriage and Insurance Paid To): Same as CPT, but the seller must also obtain insurance for the goods during transport.
• DAP (Delivered at Place): The buyer bears the risk once the goods are ready for unloading from the seller's vehicle at the designated place, but the seller covers all transport costs and export duties.
• DPU (Delivered at Place Unloaded): Same as DAP, but the seller is also obligated to unload the goods.
• DDP (Delivered Duty Paid): The seller bears all risk and cost, including import duties and taxes, until the goods are delivered to the designated destination.
• FAS (Free Alongside Ship): The buyer bears the risk once the goods are placed next to the designated vessel at the port of delivery.
• FOB (Free on Board): The seller bears the risk until the goods touch the deck of the ship, after which the risk transfers to the buyer.
• CFR (Cost and Freight): The seller bears the cost until the goods arrive at the port of destination, but the risk transfers to the buyer once the goods are loaded onto the ship.
• CIF (Cost Insurance and Freight): Same as CFR, but the seller must also insure the goods during transport.

What Incoterms Do Not Cover

It is important to note that Incoterms do not address all conditions of a sale. They do not identify the goods being sold, list the contract price, reference the method or timing of payment, specify when ownership of the goods passes from the seller to the buyer, or address liability for failure to conform to the contract of sale, delayed delivery, or dispute resolution mechanisms.

Insurance

Marine insurance is a must for ship owners, shipping corporations, and cargo owners to protect their interests. It covers any damage or loss related to ships, cargo, terminals, transports, or transfer. The coverage includes:

• Physical or structural damage to the vessel due to collision with another submerged or above-water vessel.
• Damage to property on board and bodily injuries.
• Towing, assistance, and gas delivery in case you are stranded on the boat.
• Ship and cargo problems during transportation, including liabilities in the event of damage or loss of the goods.

There are several types of marine insurance cover to cater to different needs, including freight insurance, freight demurrage and defence insurance, hull insurance, liability insurance, marine cargo insurance, and machinery insurance.

The premium for marine cargo insurance is determined based on factors such as the value of the goods, the nature of the cargo, the chosen route, the claim history, the fitness of the cargo, and the insurer's assessment.

In the context of damaged goods on a boat, marine cargo insurance would be the relevant type of insurance. It covers the transportation of goods from one place to another, including sea, rail, road, and air transport. It provides coverage for loss or damage to the goods during the loading and unloading process, malicious damage, collision of goods-carrying vessels, fire, lightning, explosion, collision, overturning, or derailment of land conveyance, and more.

It is important to note that certain exemptions apply, and marine insurance does not cover planned or intentional damage, riots, strikes, war damages, damage due to inadequate packaging, delays in transportation, wear and tear, or leakage of the cargo.

Contractual agreements

One commonly used set of transport clauses are the Incoterms, or International Commercial Clauses, established by the International Chamber of Commerce (ICC). The Incoterms 2020 version is currently in force, with previous versions applicable for specific periods. These clauses cover various scenarios and modes of transport, including maritime transport and inland navigation.

For example, the EXW (Ex Works) clause indicates that the seller has fulfilled their obligation by making the goods available at their designated premises, and the buyer assumes all risks and costs from that point onwards. On the other hand, the DDP (Delivered Duty Paid) clause places the maximum liability on the seller, who is responsible for delivering the goods to the designated destination in the buyer's country, covering all transport and customs clearance costs.

In the context of maritime transport, clauses like FAS (Free Alongside Ship) and FOB (Free on Board) specify the transfer of risk and costs. Under FAS, the seller's responsibility ends once the goods are placed next to the vessel, and the buyer assumes all subsequent costs and risks. With FOB, the seller bears the costs and risks until the goods are loaded onto the ship's deck, after which the buyer assumes responsibility.

Other clauses, such as CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To), offer more nuanced arrangements. In CPT, the seller covers transportation costs to the designated place but transfers the risk of loss or damage to the buyer once the goods are handed over to the buyer's chosen carrier. CIP includes an additional obligation for the seller to obtain insurance for the goods during transport, providing the buyer with insurance compensation in case of loss or damage.

It is essential for contracting parties to explicitly agree on these transport clauses to ensure their enforceability. By carefully selecting and incorporating these clauses into their contracts, buyers and sellers can effectively manage their risks and costs associated with the transport of goods.

Frequently asked questions