Know Your Shipping Terms

Posted by Land Link Traffic Systems on Apr 27, 2022 9:33:13 AM

A bill of lading is one of the most important documents in the shipping industry.  A BOL is a legal contract for securing freight transportation services specifically describing the content of the shipment, delivery instructions, title transfer and payment terms. Always be aware of section 7 if you are not utilizing an established 3rd Party Logistics provider. The working notion of Section 7 is that it relieves the shipper of its normal obligation to pay freight charges where the party who was otherwise supposed to pay them fails to do so. That’s basically so, but it’s the way Section 7 accomplishes this that’s important.  Post a reply for details.

A bill of lading must be transferable, and serves three main functions:

  • it is a conclusive receipt, i.e. an acknowledgement that the goods have been loaded; and
  • it contains or evidences the terms of the contract of carriage; and
  • it serves as a document of title to the goods, subject to the nemo dat rule.

Payment Responsibility

Prepaid means that the shipper owns the freight payment responsibility. Collect means that the consignee owns the freight payment responsibility. Prepaid/Collect Beyond means that the shipper or consignor owns the prepayment portion with the balance of the freight charge being the responsibility of the consignee. Point of title transfer is also defined in the FOB agreement. FOB, Free On Board, is a transportation term that indicates that the price for goods includes delivery at the Seller’s expense to a specified point and no further. The FOB term is used with an identified physical location to determine the responsibility and basis for payment of freight charges, and the point at which title for the shipment passes from Seller to Buyer. The FOB location terms, origin and destination, may be qualified by modifiers. The modifier determines the payment of the transportation charges. Modifiers denote nothing about the title of the goods or filing of claims. The three common modifiers are: Collect, Prepaid & Add, and Prepaid & Allow. Collect, the carrier collects the transportation charges from the Buyer. Prepaid & Add, the Seller prepays the transportation charges, but adds the charges to the invoice for reimbursement from the Buyer. And Prepaid & Allow, the seller prepays the transportation charges and they are already included in the contract price.

Free on Board Shipping Point
FOB shipping point indicates that the buyer takes responsibility for loss or damage the moment the goods get to the shipper. Since FOB shipping point transfers the title of the shipment of goods when the goods are placed at the shipping point, the legal title of those goods is transferred to the buyer. Therefore, the seller is not responsible for the goods during delivery. FOB shipping point is a further limitation or condition to FOB, as responsibility changes hands at the seller's shipping dock.

Free on Board Destination
FOB destination indicates that the seller retains liability for loss or damage until the goods are delivered to the buyer. Conversely, with FOB destination, the title of ownership is transferred at the buyer’s loading dock, post office box, or office building. Once the goods are delivered to the buyer’s specified location, the title of ownership of the goods transfers from the seller to the buyer. Consequently, the seller legally owns the goods and is responsible for the goods during the shipping process. FOB contracts have become more sophisticated in response to the increasing complexities of international shipping.

An Evergreen cargo ship, Ever Forward was recently a ground in Chesapeake Bay for a month. To refloat her hundreds of containers were removed. It took 35 days of work and nearly 500 shipping containers needed to be removed at the container owner’s expense as outlined in the FOB agreement.

Carrier Liability

First things first, the term "Carmack Amendment" is frequently thrown around in the industry, but what exactly is it and why should shippers care? Put simply, this law was set in place in 1935 to draw the line between carrier and shipper liability. Prior to that, with the Bill of Lading serving as a legal contract of carriage, carriers were almost exclusively held responsible for damage or loss. Now, in the digital age, the purchase order has come to supersede the Bill of lading.  Carrier tariffs state the shippers BOL is the primary legal document as soon as the freight is on the truck.  Any written rules on the shipper's BOL are meaningless.   It is merely a documentation of piece count and weight.  Any special instructions or requirements should be included in the purchase order agreement.

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Michael Gaughan
Technology Officer
Land Link Traffic Systems


Topics: Supply Chain Management, Third Party Logistics, Transportation News, Reducing Freight Rates, Logistics Business, Maximizing Routing Efficiencies, 3D Printing, Logistics News, Technology, dimensional pricing