Is there a link between demurrage and Incoterms..??

Is there a link between demurrage and Incoterms ®..??

This question was prompted by the below question from one of the readers.. Thank you Rizwan..

We have received huge shipment from our suppliers on CFR basis

In the Bill of lading the Consignee is To The order of Seller and our company name is in Notify party.

The seller has sent us the original Bill of lading 20 days after the vessel has arrived at destination port.

Hence there is a delay in clearing the goods. Can the shipping line claim demurrage charges from us or they should put claim on seller /shipper since the shipping line contract is with the seller and not us

Image for blank blRizwan, first of all pls check whether the bill of lading is issued “To Order of Seller” or “To Order of Shipper“..??

Bills of Lading are normally consigned To Order of Shipper since it maybe difficult to get the endorsement of the seller because in a lot of cases the seller, exporter and shipper in a shipment maybe different entities..

My answer is on the assumption that the bill is consigned To Order of Shipper and that the shipper and seller are the same and also that the shipper has endorsed the bill to you, making you the receiver of the cargo..

Back to the case, the seller endorsed the cargo to you and sent the original bills of lading late to you.. The shipping line promptly charged you for the demurrage because you cleared the cargo late..

From the shipping line’s perspective, they are right in doing so since you are the nominated receiver of this cargo and you cleared the cargo late..

Even though the shipment is under CFR terms according to which the shipper books the cargo with the shipping line, the shipping line may not charge the shipper for demurrage because

1) The contract between the shipping line and the shipper is a “contract of carriage” and not a “sales contract“.. CFR and (other Incoterms®) are commercial terms used in a sales contract between the seller and buyer..

The Incoterms® rules are not part of the contract of carriage, but there is a relationship between tImage for Incotermshe two because depending on the Incoterms® rule chosen, the shipper may need to  negotiate a specific contract of carriage with the carrier with particular conditions relative to the Incoterms® rule chosen..

In regards to this particular case, Point A8 of the Incoterms® 2010 guidance notes for CFR says

The seller must, at its own expense, provide the buyer without delay with the usual transport document for the agreed port of destination.

…………………………..

When such a transport document is issued in negotiable form and in several originals, a full set of originals must be presented to the buyer.

2) As per current market practice, the demurrage/detention incurred at the destination port is ALWAYS charged by the shipping line to the consignee/receiver unless there is a prior arrangement between the shipper, consignee and the shipping line that the shipper will pay for this..

In this case, the issues of delay in dispatch of the documents in contravention of above guidance notes, the reason for the delay and the accrual of costs due to this delay are all issues between the seller and the buyer and it has no bearing on the shipping line’s decision to charge the consignee for the demurrage/detention and/or storage..

So Rizwan, the answer to your question “Can the shipping line claim demurrage charges from us or they should put claim on seller /shipper since the shipping line contract is with the seller and not us” is

  1. YES the shipping line is well within its right to claim demurrage charges from you as nominated consignee (you may in turn, as a buyer forward that claim to the seller due to the above delay from their end)
  2. NO the shipping line cannot claim demurrage charges from the shipper on the basis of the shipping line contract

Has anyone else had any experiences such as above.. How did you solve it if you did..??

What did you think of the above article..?? Comment below..

8 comments on “Is there a link between demurrage and Incoterms..??

  1. Jit says:

    Rizwan – appreciate if you share with us what ultimately happened? Were you successful in getting a waiver from the shipping line? Or did you contact the seller for compensation? Pls let us know so we have a complete overview of what happens in similar cases.
    Rgds.

    1. Hi Rizwan, yes that would be a good idea and learning experience for all.. Thanks Jit..

  2. Kusum says:

    Even we had same experience.

    We shipped goods and incurred huge detention & demurrage due to non clearance of goods by consignee.

    So, Shipping line charged the demurrage from us (Shipper).

    We tried to clear all demurrage charges but not successful so, finally our cargo has been destroyed by Line.

    1. Hi Kusum, did the buyer not pay you for the product..??

  3. Great read, very informative. It’s important to note that demurrage that is incurred at the destination port is 100% of the time charged to the receiver. It’s really rare to see an agreement that bypasses that.

  4. Sys says:

    Great, that very helpful and educational…
    As a young growing man in Shipping Industry I enjoy reading this Blog..

  5. Soka says:

    Thank you Sir
    I always get new idea from you and your team

    1. Monteiro da Rocha says:

      I agree with the solution. But, normaly when the shipping line doesn´t receive demurrage/detention from the receiver he try to receive it from the shipper, exactly on basis of the carriage contract. Regards. Monteiro da Rocha – shipping lawyer

(Estimated reading time: 4 minutes)
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