1. INTRODUCTION
A bill of lading is a negotiable instrument issued unilaterally by the carrier or the captain on behalf of the carrier, stating that the goods have been received for carriage and undertaking that the goods will be delivered to the person holding the bill at the port of destination in exchange for the return of the bill. The bill of lading is presented by the carrier to the shipper with whom he has agreed on the carriage of the cargo for the goods transported by sea. Between the seller and the buyer; It clarifies the obligations, the moment of passage of damage and who will bear the costs during the entire process until the cargo is loaded on the ship, its journey during the ship and unloaded at the port of destination and delivered to the carrier or the bearer of the bill of lading. Delivery methods, also known as Incorterms, are therefore considered as a set of rules that determine the responsibilities, risks and costs of the seller and buyer in international trade and have a special importance in maritime law.
In this article, the most frequently used forms of delivery in bills of lading, the importance of the inclusion of the forms of delivery in bills of lading for the seller and the buyer, and the effect of the forms of delivery in bills of lading on the carrier will be analysed.
2. WHAT ARE INCOTERMS AND WHY DO THEY EXIST?
Incoterms (International Commercial Terms) is a set of rules that determine the responsibilities, risks and costs of the seller and buyer in international trade. It was created in 1936 by the International Chamber of Commerce (ICC) and is still updated today according to the needs of the application. These rules are used to prevent misunderstandings between commercial parties and to facilitate trade. With the development of international trade, different legal and commercial practices between countries have become contradictory and have become challenging for the parties to the commercial relationship. For this reason, a standardised system was developed by ICC and first published in 1936 under the name ‘Incoterms 1936’. Later, it was updated in 1953, 1967, 1976, 1980, 1980, 1990, 2000, 2010 and 2020 and took its current form. Incoterms rules guide contracts used in international trade, regulating issues such as the manner of delivery of the goods, when the risk is transferred and what costs the parties are responsible for. It is usually included in documents such as sales contracts, commercial invoices and bills of lading.
Incoterms rules are of great importance especially in maritime trade. Since a significant portion of global trade is carried out by sea, these rules help the process to run smoothly by determining the obligations of the parties. The clarification of issues such as freight payments, insurance coverage, loading and unloading responsibilities, and the moment of transition of damage in maritime transport is of critical importance in terms of disputes that may arise. At this point, Incoterms rules provide an environment of trust between the parties by preventing disputes that may arise during the transport of goods.
Within the scope of Incoterms rules, the responsibilities of the parties are regulated through many elements of transport. For example, it is determined which party is responsible for obtaining the necessary licences and permits for export and import, fulfilling official procedures and customs procedures. Issues such as transport costs, insurance obligations, packaging of goods and pre-shipment inspection costs are also clarified within the scope of these rules. In addition, the seller’s responsibilities for cargo delivery, at what stage the delivery takes place and when the risk of loss or damage passes from the seller to the buyer at this point are also clearly stated in order to prevent any disputes that may arise.
Although Incoterms rules determine the obligations of the parties in international trade, some issues cannot be considered to be regulated by Incoterms rules. Firstly, addressing all the conditions of a sale, defining the goods sold or determining the contract price are not among the issues regulated by Incoterms. Because Incoterms is not a sales contract itself, but a record entered into that contract. In addition, dispute resolution mechanisms are not regulated under Incoterms.
3. FREQUENTLY USED INCOTERMS RULES FOR BILLS OF LADING
Although Incoterms rules, which determine the distribution of risks, obligations and costs between the buyer and the seller, are very diverse, the following three delivery conditions are mostly applied in maritime trade: FOB (Free on Board), CIF (Cost, Insurance and Freight), DAP (Delivered at Place).
a. FOB (Free on Board)
FOB is a delivery method used only in maritime transport and is an Incoterms rule in which the seller completes his responsibility by delivering the goods / cargo to the ship at the designated port for loading. From this point onwards, carriage costs and risk pass to the buyer. The use of FOB allows the buyer to make the transport arrangements itself and is generally preferred in international maritime trade. When FOB delivery method is applied, the seller is obliged to cover the export and customs permits and other related costs, all costs until the goods are loaded on the ship and any damage or loss that may occur in this process. On the other hand, the buyer is responsible for all risks, damages or losses that may occur after the import permits and loading are completed.
b. CIF (Cost, Insurance and Freight)
CIF is a type of delivery in which the seller’s liability ends when the goods are delivered to the ship at the port of loading and the risk of damage or loss of the cargo passes to the buyer. Similar to FOB, CIF starts with the seller delivering the goods to the ship at the designated port, but the difference here is that the seller is also obliged to pay the freight and a minimum level of insurance. The seller is obliged to cover the costs incurred until the goods are loaded on the ship, the export procedures, the cost of insurance and the freight charge. The insurance must provide minimum protection against the risk of loss to the buyer and must be arranged by a reliable insurance company. In addition, the seller must conclude a contract of carriage and present the transport document to the buyer in order to ensure that the cargo reaches the designated port of destination. In return, the buyer is obliged to bear all the costs of the goods from the moment of delivery, to complete customs clearance and to pay the price of the goods. The buyer is also obliged to provide the necessary information for insurance if requested by the seller and to take delivery of the goods at the designated destination.
c. DAP (Delivered at Place)
DAP delivery method is a delivery method in which the seller transfers the goods to the specified destination without unloading them from the transport vehicle, and it is sufficient for the seller to deliver the goods to the specified place. In this method, the transport contract required for the carriage of the goods and the customs clearance related to export transactions are carried out by the seller. Damages and expenses that may occur until the goods reach the destination belong to the seller; from the moment of delivery, this responsibility passes to the buyer. Customs clearance and related costs related to import transactions belong to the buyer. Although there is no insurance obligation in the DAP delivery method, it can be agreed between the parties by whom the insurance will be taken out. This delivery method is suitable not only for maritime transport but also for land, air or railway transport.
4. BENEFITS OF INSERTING INCOTERMS RULES INTO THE BILL OF LADING
It has been mentioned that the bill of lading has the characteristics of a negotiable instrument as explained in detail, and it regulates many elements throughout the carriage relationship, especially the nature of the cargo to be carried and the conditions of carriage. Especially considering the proof function of the bill of lading, the importance of the records included in it is undoubted.
Inclusion of Incoterms rules in the bill of lading prevents misunderstandings and possible disputes by more clearly determining the responsibilities of the parties in the carriage process. Clearly documenting critical issues such as the point at which the goods are deemed to have been delivered to the consignee and who is responsible for carriage and insurance obligations, ensures that the commercial relationship between the parties is more reliable and transparent. At the same time, the inclusion of Incoterms rules in the bill of lading provides legal assurance for both the seller and the buyer, clarifying the responsibilities of the parties and creating a strong reference point in case of any dispute. In addition, the inclusion of Incoterms in the bill of lading also helps logistics and insurance processes to proceed more regularly. When customs authorities and insurance companies know which Incoterms rule applies, they can plan their processes accordingly, thus avoiding unnecessary delays and additional costs. Especially in delivery methods such as CIF, when the insurance obligation is clearly stated in the bill of lading, the uncertainties that may arise are prevented. At the same time, it increases cost control by eliminating uncertainties about which party will cover transport, insurance and other logistics costs. This situation prevents the parties carrying out commercial activities from encountering unexpected additional costs and enables them to make a healthier commercial planning. Finally, writing Incoterms rules on the bill of lading will increase compliance with standards in international trade. This practice offers significant advantages to the parties by ensuring that international trade proceeds more transparently, safely and smoothly.
5. ARE INCOTERMS RULES IN THE BILL OF LADING BINDING ON THE CARRIER?
The Incoterms rules contained in the bill of lading regulate the responsibilities between the seller and the buyer, rather than determining the obligations of the carrier. However, the connection between the carrier and the bill of lading differs according to the chosen mode of delivery. Article 1237 of the Turkish Commercial Code No. 6102 (‘TCC’) states that ‘The bill of lading shall be the basis for legal relations between the carrier and the bearer of the bill of lading. The legal relations between the carrier and the shipper shall be governed by the provisions of the freight contract.’ and thus, the provisions of both the bill of lading and the freight contract are envisaged to be applied. However, in the event of a conflict between the provisions of the bill of lading and the freight contract, it should be discussed which document the carrier shall take into consideration. Considering the doctrine and jurisprudence of the Court of Cassation, if the carrier and the bearer of the bill of lading are the same person, the freight contract, not the bill of lading, will be valid for the carrier.
Incoterms rules in the bill of lading are not directly binding on the carrier, but they should be taken into consideration by the carrier as they may indirectly affect the carriage process. In particular, the determination of delivery points and loading responsibilities will also clarify the carrier’s obligations. Rules such as CIF or FOB will affect the insurance coverage of the carriage. However, in cases where the carrier is not a direct party, additional claims cannot be made from the carrier based on Incoterms rules. However, the liability of the carrier is determined by the contract of carriage and is independent of the Incoterms rules in the bill of lading. In addition to the contract of carriage, the responsibilities and obligations of the carrier regarding the carriage process have already been regulated by the TCC in Articles 1178 and following, primarily with mandatory provisions. Therefore, attributing the Incoterms rules, which regulate certain issues between the buyer and the seller, to the carrier, whose responsibility is regulated by both the contract of carriage and the TCC, will not provide the benefit intended by the Incoterms rules and will not result in direct liability of the carrier.
6. CONCLUSION
Incoterms rules in bills of lading ensure that international trade is carried out in an orderly and predictable manner. Rules such as FOB, CIF and DAP, which are most frequently used in maritime transport, increase legal security by clarifying the obligations between the buyer and the seller, the moment of damage and who will bear the costs. In addition, it should be kept in mind that the carrier is not directly liable for the Incoterms rules incorporated in the bill of lading, but is indirectly affected due to the carriage activity carried out as the carrier.
Best Regards,
Kılınç Law & Consultancy
REFERENCES
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- Ercan, T. (2021). Incoterms 2020 Kılavuzundaki Teslim Şekillerinin Analizi. Gaziantep Üniversitesi Sosyal Bilimler Dergisi, 20(3), 1187-1199. https://doi.org/10.21547/jss.885831
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