Sales by sea on arrival are a special category of contract in international trade. Unlike the more common outward sales, the transfer of risk is postponed until the goods arrive at their destination. This offers greater security for the buyer, but implies specific obligations for the seller. There are two main forms of sale under French law: sale on designated vessel and sale on shipment, each of which meets different commercial needs.
Common characteristics of inbound sales
Sales on arrival differ fundamentally from other maritime sales in the way they transfer risk.
Transport at the seller's risk
Article L. 5424-6 of the French Transport Code lays down the essential principle: in sales on arrival, "the goods travel at the seller's risk and expense". This provision constitutes a major difference from outward sales such as FAS, FOB or CIFThe risks are transferred to the buyer as soon as the goods are shipped.
This distribution of risk meets the needs of certain specific markets, in particular when the buyer wishes to protect himself against the hazards of maritime transport or when he is not in a position to insure the goods effectively. It may also be preferred for particularly sensitive or high-value goods.
The direct consequence of this mechanism is that if the goods perish during the journey, the seller bears the financial consequences. He will not be able to demand payment from the buyer for goods that never arrive at their destination.
The seller's general obligations
In any sale on arrival, the seller must naturally organise and finance the sea transport, since he bears the risks. Unlike FOB or FAS sales, it is up to the seller to conclude the contract of carriage or charter.
The seller is free to decide whether or not to take out marine insurance. However, given the risks involved, adequate insurance cover is strongly recommended. In practice, sellers almost systematically opt for insurance, the cost of which they generally pass on in the selling price.
Actual delivery of the goods on arrival is the seller's fundamental obligation. This delivery must take place within a reasonable time after the arrival of the vessel at the port of destination.
The buyer's general obligations
The buyer's obligations in an inward sale are relatively straightforward. Mainly, he must:
- Pay the agreed price, generally after checking the conformity of the goods
- Receiving goods at the port of destination
- Completing customs formalities on import
The buyer does not have to worry about transport or insurance, which is a definite advantage over outright sales. In return, the selling price is generally higher to take account of the risks and costs borne by the seller.
Sales on designated vessels
Among inbound sales, sales on designated ships have special characteristics that give them an intermediate status between outbound and inbound sales.
Definition and legal characteristics
According to Article L. 5424-7 of the French Transport Code, a sale on a designated ship is a "sale to be delivered of goods shipped on a specific ship in the event of their arrival at destination". The text adds that the seller "must inform the buyer of the name of the ship on which the goods are loaded".
There are three key elements to this formula:
- This is a sale on arrival, because delivery is only due when the goods arrive at their destination.
- The goods are identified by being loaded onto a specific vessel, designated to the buyer.
- The sale relates to a definite body, identified by the designation of the vessel
Designated vessel sales have historically been adapted to transport by "tramp" vessels, i.e. vessels that do not operate on regular lines but are chartered for specific voyages.
Specific obligations of the seller
The seller in a designated ship sale must:
- Concluding the sea transport contract
- Embark the goods on the vessel designated in the contract or subsequently communicated to the buyer
- Inform the buyer of the name of the ship on which the goods have been loaded
- Delivering the goods to the port of destination
The description of the vessel is an essential obligation. It must be precise and unambiguous, enabling the buyer to clearly identify the vessel carrying his goods. This description may appear in the initial contract or be communicated subsequently by the seller.
Once the vessel has been designated, the seller cannot change this designation without the buyer's agreement. The designation is irrevocable, as it contributes to the individualisation of the goods.
Consequences of loss of goods
The most notable feature of sales on designated ships is the consequences of loss of the goods during transport. Article L. 5424-7 of the Transport Code states that "in the event of loss of goods, the seller is not obliged to replace them if the loss occurred after the ship on which they were loaded was designated".
This rule is explained by the fact that the designation of the vessel identifies the goods, which become a definite object. Under ordinary sales law, the accidental loss of a definite object results in the contract being rescinded: the seller is released from his obligation to deliver, and the buyer from his obligation to pay.
The mechanism is as follows: if the goods perish after the ship has been designated, the sale is cancelled. The buyer does not pay the price, and the seller does not have to replace the goods. This solution differs from that applicable to the sale on board, which we will now examine.
Sales at boarding
Sale on board is a more flexible variant of sale on arrival, offering more flexibility to the seller but also greater protection for the buyer in the event of loss of the goods.
Definition and special features
Article L. 5424-8 of the French Transport Code defines sale on board quite succinctly: "the seller hands the goods over to a carrier and informs the buyer of the name of that carrier". Unlike sales on a designated vessel, the seller does not have to indicate the name of the specific vessel carrying the goods.
This formula is particularly well suited to liner shipping, where goods can be transhipped from one vessel to another during the voyage. It offers the seller greater flexibility in the logistical organisation of the transport.
In a sale on shipment, the goods are not individualised when they are handed over to the carrier. It remains a thing of a kind until it arrives at its destination, which has important legal consequences.
Distinction from sales on designated vessels
The main difference between these two types of incoming sales is the individualisation of the merchandise:
- In a sale on a designated vessel, the goods are identified by being shipped on a specific vessel designated to the buyer.
- In a sale on board, the goods are still something of the kind, since the buyer only knows the identity of the carrier, without knowing on which specific vessel the goods are travelling.
This distinction may seem technical, but its practical consequences are considerable, particularly in the event of loss of the goods.
Return obligation in the event of loss
Article L. 5424-8, paragraph 2 of the French Transport Code states that "if the goods perish en route, the seller must send the buyer the same quantity of goods sold under the terms of the contract".
This rule follows directly from the characterisation of a thing of kind: in common law, the loss of a thing of kind does not extinguish the debtor's obligation, because "kinds do not perish" (genera non pereunt). The seller therefore remains obliged to deliver the quantity stipulated in the contract, which obliges him to send new goods to replace those that have perished.
It should be noted, however, that this obligation to redispatch does not apply if the sale involves certain bodies, as specified in article L. 5424-8. In this case, we return to the solution applicable to sales on a designated vessel: accidental loss releases the seller from his obligation to deliver.
Sale on board thus offers greater protection to the buyer, who is assured of receiving the goods ordered, even in the event of a maritime incident. This security partly explains the popularity of this formula in certain sectors of international trade.
Points to watch and legal risks
The implementation of sales on arrival requires particular attention to certain aspects, which are a potential source of disputes.
Ship/carrier designation
In a designated ship sale, the precise and unambiguous designation of the ship is crucial. An imprecise designation may render the identification of the goods uncertain and compromise the very characterisation of the contract.
The timing of this designation is also of considerable practical importance: the longer the seller takes to designate the vessel, the greater the risk of having to replace the goods in the event of loss.
In the case of sale on board, although the requirements are less stringent, the seller must nevertheless ensure that the buyer is properly informed of the identity of the carrier. This information is essential to enable the buyer to take delivery of the goods on arrival.
Conformity of goods
As with any sale, the seller has a fundamental obligation to ensure that the goods conform to the contractual specifications. In the case of sales on arrival, this conformity is verified at the port of destination, at the time of actual delivery.
A particular point of attention concerns the clauses defining the compliance criteria and the verification procedures. These clauses must be carefully drafted to avoid divergent interpretations that could give rise to disputes.
In practice, it is often advisable to arrange for an independent expert to assess the condition of the goods on arrival, particularly for sensitive or high-value products.
Frequent disputes and how to resolve them
The main disputes encountered in inbound sales concern:
- Late delivery of goods
- Non-compliance of goods with contractual specifications
- Disputes over the obligation to return lost items
- Disagreements over the determination of the price, in particular when it is calculated on the basis of the quantity delivered
To prevent such disputes, contracts must be clearly and precisely drafted. In particular, the parties must define the terms unambiguously:
- Delivery times
- Conformity criteria for goods
- Verification and approval procedures
- The exact consequences of a maritime claim
In the event of a dispute, the parties can use the various dispute resolution methods available in international trade: negotiation, mediation, arbitration or litigation. Maritime arbitration, which allows disputes to be settled by specialists in the field, is often a solution adapted to the specific features of maritime sales.
Inbound sea sales are valuable contractual tools, offering a different balance of rights and obligations between the parties compared to inbound sea sales. outgoing sales. However, their effective implementation requires in-depth knowledge of their specific mechanisms and particular attention to the drafting of contractual clauses.
The complexity of these contracts and the often considerable financial stakes involved fully justify the use of specialist legal advice, both at the negotiation stage and in the event of performance difficulties. Visit financing these operationsThis adds an extra dimension that must be mastered to secure the entire transaction.
If you are faced with questions relating to incoming sea sales or if you want to secure your international commercial operations, our firm specialises in commercial maritime law can help you draw up your contracts and defend your interests.
Sources
- Transport Code, articles L. 5424-6 to L. 5424-8
- International Chamber of Commerce, Incoterms 2020
- United Nations Convention on Contracts for the International Sale of Goods (CISG)
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