Carriage of Goods by Sea Law: moving from the sales contract to the transport contract
What is carriage of goods by sea law?
It is about the law that underlines the transportation of goods (for the most part by sea). It takes what you have already learned in international shipping and tells you the law that is behind it all.
It speaks to the rights, obligations and liabilities of all the parties involved in the shipping process. The course seeks to explain the contracts and relationships involved in moving goods from point A to point B.
The Sales Contract
It all starts with the sales contract. A buyer and seller enter into a contract for goods. The buyer has the right to have the goods in good condition and has the obligation to pay for the goods. The seller has the right to be paid for the goods and has the obligation to hand over the goods to the buyer.
International nature of the Sales Contract
Buyers and sellers often reside in different countries which by necessity calls for contacts to be concluded which includes terms as to how the goods are to get to the buyer. The buyer may pick the goods up from the seller’s factory or warehouse (this is what is known as Ex Works) or either the buyer or seller enter into a contact with a third party (a carrier) to have the goods the goods transported from the buyer to the seller. How this transportation contract, which is the contract of affreightment or the charter party, concluded will depend on what the sales contact says.
Connection between the Sales Contact and the Transport Contact (affreightment or the charter party)
The transport contract may come in two forms: affreightment or the charter party. What types of contract is used will largely depend on the type of cargo being transported. In our course we will be primarily focusing on contacts of affreightment.
In an attempt to standardize these transport contacts (of affreightment) the Incoterms were invented. The Incoterms (ExWorks, FOB, CIF and so on) appear as terms within the sales contact to:
- Indicate the agreement between the buyer and seller in the sales contact as to how the goods will be transported from the buyer and seller
- Indicate the agreement between the buyer and seller in the sales contact as to which one of them will contract with a third party (a carrier) to get the goods transported and to where
- Depending on who is responsible to enter into the agreement of affreightment with the third party (carrier) that party (buyer or seller) becomes the Shipper
- The Shipper then enters a contract of affreightment with the carrier based on the Incoterm used in the sales contract.
The Incoterms sets out who is responsible for what and when between the buyer and seller to get the transportation of goods. For example in EX Works the buyer is responsible to go pick up the goods from the named placed in the contract (eg. the seller’s warehouse or factory) and the seller has to make the goods available for transport). In another example in a Cost Insurance Freight (CIF) where the seller arranges and pays for transport to named port. The Seller delivers goods, cleared for export, loaded on board the vessel. However risk transfers from seller to buyer once the goods have been loaded on board, i.e. before the main carriage takes place. The Seller also arranges and pays for insurance for the goods for carriage to the named port.
Incoterms
Here is a good resource that explains incoterms: http://www.incotermsexplained.com/featured-tools/tabbed-reference-tool/
Contract of affreightment
This is the transport contract between the Shipper and the Carrier to carry goods from point A to B. The bill of lading is evidence of this contact. The Carrier has the responsibility to receive and deliver the goods in the same condition it received it in. The carrier has the right to be paid for its services. The shipper has the obligation to get the goods to the carrier and to pay the carrier for its services. In turn the Shipper has the right to have the goods delivered to it in the same condition that it was delivered to the Carrier in.
When the goods are delivered to the Carrier the Carrier takes possession of the goods but does not become the owner. This is a bailment.
