LEGAL TERMS SURROUNDING THE TRANSPORTATION
PROCESS THAT HAVE SIGNIFICANT IMPACT ON HOW BUSINESS IS CONDUCTED
AND WHERE RESPONSIBILITY IS ASSIGNED
how to harvest the terms.
terms, terms of sale/purchase, freight prepaid and collect and
FOB are terms that are continually being misused and misunderstood. In many instances the necessary and appropriate
terms to establish a position are left un-stated on the belief
that a stated term takes the place of one that is silent. Where silence does speak, we are left to the
mercy of interpretation.
The purposes of this white paper
are to address these conditions and to provide the reader with
insight, shared definitions and appropriate application.
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order to benefit from this white paper, it is necessary that a
mutuality of understanding be achieved.
In this connection, the following definitions will be used
throughout this and subsequent discussions.
identify the party responsible for the payment of freight
and are usually expressed as: prepaid or collect with the following
nuances: prepaid to a stated location and collect beyond or third
party or pre-pay and add. While there are other subtleties, these examples
means that the shipper owns the freight payment responsibility.
Collect means that the consignee owns the freight payment
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.
Third Party establishes that a party neither the consignor
nor consignee owns the payment processing function. The legal
payment obligation may or may not belong to the third party and
the assignment of the legal responsibility is determined from the parties identified
on the Bill of Lading Contract.
Simply put, unless the payment party is a party to the
Bill of Lading contract, they have no legal obligation for payment. “Third Party” is typically invoked when there
is an outsourced payment service to handle the freight payment
Pre-pay and Add typically means that the shipper advances
the freight charges to the carrier and then bills the beneficial
owner of the freight for an amount approximating or equal to the
actual freight charges.
Terms of Sale/Purchase identify the passage of title and are typically expressed
as “FOB, stated point or place”.
In their most simple and usual expression they appear as
FOB Origin or FOB destination.
FOB Origin means that title to the merchandise passes
at time and place of pick-up.
FOB Destination means that title to the merchandise passes
at time and place of delivery.
Bills of Lading convey freight terms and act both as
a contract for carriage and receipt for the freight.
Uniform or Straight or Short Form Bills of Lading are reasonably
similar and for the most part interchangeable.
The Short Form Bill of Lading is identical to the Straight
or Uniform, except that the Short Form does not have the contractual
terms and conditions printed thereon, but makes reference to and
embraces those terms and conditions printed on the Straight or
Uniform Bill of Lading. Contrary to popular belief, the Short Form
has nothing to do with size.
Bills of Lading, described above, are made up of, at least, three
(3) parts: Original, Shipping
Order and Memorandum (there can be multiple copies of the Memorandum). The Original is retained by the shipper (consignor),
the Shipping Order is taken by the carrier (used for billing,
interlining and records maintenance) and the Memorandum is supposed
to be forwarded to the consignee.
Other uses of the Memorandum could be for duplicate payment
control (although this is extremely ineffective and establishes
a false sense of security), or for various departmental uses.
Order Notify Bills of Lading are
negotiable and act in a similar fashion with Letters of Credit.
Sales/Purchase Orders convey, amongst other things, the
passage of title.
documents are, in all instances, considered to be legal instruments
and they can either be negotiable or non-negotiable.
documents contain the conditions of sale or purchase and unlike
the Bill of Lading are not necessarily standard.
They do however contain similar conditions and in all cases
must identify the time and place where title passes, if not properly
and clearly stated elsewhere.
many instances the necessary and appropriate terms to establish
a position are left un-stated on the belief that a stated term
takes the place of one that is silent.
Where silence does speak, we are left to the mercy of interpretation. As an example, if the Terms of Sale/Purchase
are silent, and the respective Freight Terms are prepaid, it is
constructively deemed that title passes at time and place of delivery. This rebuttable presumption is reached on
the basis that the shipper is maintaining care of the shipment
until delivery is accomplished and that the invoice value is enhanced
to the extent of the freight charges.
This position is supported by virtue of the shippers’ willingness
to pay the freight through delivery.
At this point, it should be clear that interpretation can
be dangerous and controvert the desired meaning.
area that is generally overlooked with respect to the passage
of title is the imposition of sales or uses taxes.
This is critically important and for the naïve, can amount to
significant future expense.
of Title is the controlling factor with respect to the “beneficial
owner of the freight” regarding the handling of loss and damage
claims. Additionally, it is the determining factor
is establishing the, “formula of damages”.
Sales/Uses Taxes are imposed based upon where the sale
occurred. In this regard,
if your Terms of Sale/Purchase are stated as FOB Factory, title
passing at the factory will incur those taxes imposed (if such
tax exists) by the governmental agency responsible for that specific
geographical area. Astute businesses people determine, as one
of the critical cost/competitive assessment criteria the best location for title to pass.
Unfortunately, the writer as seen, far too many times,
where passage of title was treated lightly and that a tremendous
tax burden was building over many years.
consider this white paper as a beginning in this subject area,
succeeding white papers will address common issues and address
them with common solutions. We
encourage our readers to direct any specific questions or comments
information presented above represents
the opinion of the author and not necessarily the opinion of TransportGistics,
Inc. nor is it presented as a legal position.
content copyright by TransportGistics, Inc. All rights are reserved.
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