Cargo Disputes: Lesson 1-Overview
When a party ships goods by sea, there are two main contracts that will be involved: (1) the underlying sale contract; and (2) the contract of carriage to transport the goods from A to B. Either the buyer or the seller will organise the contract of carriage, but the carrier might end up in a dispute with either of those parties, so both buyer and seller want to be able to have privity of contract with the carrier. The following diagram shows how that happens.
The diagram also shows what happens at the financial level. A buyer thousands of miles away from a seller doesn't want to run the risk of non-delivery of the goods (or documents representing title to the goods), so they frequently use banks as intermediaries who give cross-undertaking to each other, which makes the process more secure (although not always!).
Because this diagram has lots of moving parts, we recommend you download the dynamic PowerPoint presentation below as well as look at this static diagram. It talks you through each stage.
overview powerpoint (dynamic)
Cargo Disputes: Lesson 2 - incoterms
Almost all international contracts for the sale and purchase of goods allocate key responsibilities to either the buyer or the seller (one example is where the goods will be delivered). They also indicate when/where risk to damage to the goods passes from seller to buyer. These considerations have been codified into internationally recognised three-letter acronyms called "Incoterms" which can be incorporated by the parties into an international sale contract.
Where goods carried by sea are sold, the 2 most common Incoterms incorporated into that contract are: "CIF" ("carriage insurance and freight") which means the goods are delivered on board, but the seller bears the cost of the carriage, insuring the goods and the freight payable for their transport on the vessel; and "FOB" ("free on board"), which also means the goods are delivered to the buyer when they are on board the ship, but the carriage arrangements and any insurance are typically taken care of by the buyer.
Confusingly, FOB contracts are further sub-divided into three slightly different types, as this slide demonstrates.
NB: The passage of "risk" is NOT the same as the passage of "property" in the goods, and Incoterms DO NOT address the question of the passing of property, which is dealt with separately.
For a more detailed look at Incoterms the book "Incoterms 2020" can be purchased on the ICC website.