Delivery of the goods: less risks with Incoterms

Marcello Mantelli
Lawyer in Milan and Turin


According to the Vienna Convention of 1980, the seller is obliged to perform the delivery of the goods, to return the related documents and to transfer the property to the buyer subject to the conditions laid down in the contract and in the Convention whereas the buyer must pay the price and take the delivery. For the seller, there are several critical profiles deriving from this obligation of delivery, among which the delivery time and transfer of risks.

Delivery time

The issue of delivery time does not entail particular problems when the date or period of time within which it must take place are indicated in the contract (for example, in the order confirmation accepted by the buyer) or can be determined on the basis of the same.

The situation in which nothing has been agreed is different: according to Article 33 of the Convention, delivery must be carried out within a reasonable time from the conclusion of the contract which is established, according to international jurisprudence, in the light of the type of goods, the uses of the sector, the behavior of the parties in previous sales between each other. For example, a ten-day delivery of fresh shellfish will not be considered to be carried out within a reasonable time, since their storage time is much less.

The risk for the seller is that in case of delay the buyer suspends or delays the payment, demands compensation for damages greater than the value of the goods together with the termination of the contract for essential non-performance according to Article 25 of the Convention.

Delivery and transfer of risks

Another critical profile related to the delivery is that of the transfer of risks of loss or damage to the goods being sold: in this hypothesis the practical effect is that from the moment in which the goods are legally delivered to the buyer also the transfer of risks of loss or damage of the same from the seller to the buyer takes place. In fact, not necessarily the delivery always takes place at the final destination.

Therefore, if the delivery took place when the products have not yet reached their destination, the buyer will be required to pay the price even if the goods were destroyed or damaged during the journey.

But how do you identify the moment when the delivery takes place and the transfer of risk? Most cases will be regulated by the Convention: when the contract of sale implies the transport of the goods the risk is transferred to the buyer when the goods are returned to the first carrier (carrier who first takes charge of the goods on behalf of the buyer). If, on the other hand, the seller is obliged to return the goods to a carrier at a specified location (for example, at the carrier’s warehouse), the risk is transferred from the seller to the buyer only when the goods have been returned to the carrier at that location (article 67). In other cases, the risk is transferred to the buyer when the latter takes delivery of the goods or when it is made available to the buyer and does not collect the goods (article 69). The best operational solution is to derogate the Vienna Convention by referring to the terms of return Incoterms 2020 of the International Chamber of Commerce. In fact, exporting using terms of return of national source (free destiny, free arrival) or apparently international (for example, free your factory) may involve risks of understanding the extent of the commitments and responsibilities assumed by the seller and the buyer in relation to the operations of delivery of the goods.

The Incoterms 2020 rules of the International Chamber of Commerce on the terms of return of goods, reflect the practice of business and constitute a global standard available to enterprises that resolves the above-mentioned issues, provided that they are correctly applied in the contract of sale. The function of Incoterms 2020 consists in the distribution between seller and buyer of: obligations (who does what in relation to the delivery of the goods); risks (when the goods are delivered and when the travel risk of the same are transferred); expenses (who is responsible for what costs with reference to delivery).

The 2020 edition of the Incoterms, which follows the 2010 edition, distinguishes between terms of return of the goods for each mode of transport and terms of return for maritime transport and inland waters, while a further classification divides the terms of return into four homogeneous groups, on the basis of the initial letter of each acronym, with obligations, risks and costs borne by the seller: Group E: EXW; Group F: FCA, FAS, FOB; Group C: CPT, CIP, CFR, CIF; Group D: DAP, DPU, DDP. From a practical point of view, seller and buyer must negotiate and agree on a return acronym between the 11 above; the agreed option must be reported in the contract of sale and in all the documents of execution of the sale (invoice, transport documents and so on). All this must then be coordinated with the other contracts that revolve around the sale (e.g. transport and insurance contract).

Incoterms 2020 scheme

Obligations, risks and expenses modalities shared between seller and buyer

GROUPINCOTERMS ICC 2020MODE OF TRANSPORT
Group E DepartureEXW(Ex Works)All types
Group F Main transport not paidFCA(Free Carrier) FAS(Free Alongside Ship) FOB(Free On Board)All types Only maritime* Only maritime*
Group C Main transport paidCFR(Cost and Freight) CIF(Cost, Insurance and Freight) CPT(Carriage Paid To) CIP(Carriage and Insurance Paid To)Only maritime* Only maritime* All types All types
Gruppo D ArrivalDPU(Delivered at Place Unloaded) DAP(Delivered At Place) DDP(Delivery Duty Paid)All types All types All types

(*) and inland waters. Source: Incoterms International Chamber of Commerce revision 2020

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Marcello

Dear Aurelia, the information you have provided are not sufficient for an answer which is subject to a professional engagement. In any case, we should study the provisions of the contract and identify governing law of the contract.If it does not provide anything on governing law then conflict law shall apply (in the most part of the countries likely the governing law will be the law of the country where the agent is domiciled). best regards Marcello Mantelli

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Aurelia

I signed a contract with a fashion agency but there were no termination clauses in the contract and decided to withdraw it before one week after signature so sent them an email but after 14 days they sent me an email and asserted that because i didnt withdraw in legal deadlines i have to perform the contract and pay whole money.Noboday told me about any deadlines and nothing was in the contract!! Why did they claim such a thing?

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