Contract of carriage: FOB, CIF/CFR, FOT and FCA

The coffee trade uses four basic contract conditions: FOB, CIF (or CFR), FOT and FCA, of which the first two are most common.

FOB - free on board: The seller's obligations are fulfilled when the goods have passed over the ship's rail at the port of shipment. For contracts FOT (free on truck) and FOR (free on rail) this occurs when the goods have passed over the truck's tailgate or the railcar's loading gate.

Under present-day FOB contracts it is nearly always the buyer who arranges the contract of carriage and who is liable for all costs and risk from that point onwards. Nevertheless ECC clearly states that an FOB contract is in fact to be considered as an ill-defined cost and freight contract, with the freight being for account of the buyers. The exporter's contractual responsibility ends only when the coffee crosses the ship's rail. But ECC also states that the buyer is responsible for insuring the goods from the time the goods leave the ultimate warehouse or other place of storage at the port of shipment. This is important because it is increasingly difficult to establish the precise time a container leaves the stack on the quayside and is transferred across the ship's rail. Under GCA contracts the risk of loss transfers upon crossing of the ship's rail and exporters must insure accordingly. See 05.05 Insurance for more on this.

CIF - cost, insurance and freight (or CFR - cost and freight): Here the shipper arranges and pays the contract of carriage but otherwise the transfer of risk is as under FOB.

FCA - free carrier: Here the seller's obligations are fulfilled when the goods, cleared for export, are handed to the carrier or the carrier's official agent(s) at the named place or point of handing over. (Sometimes also called free in container or free in warehouse.) The buyer's responsibility starts here and they are liable to pay all and any inland transportation costs as well as the cost of loading at the port of shipment.

The total freight cost takes all this into account. Not everyone is willing to purchase basis FCA though, especially if the goods are not handed over at the carrier's own premises or at a recognized container filling station. Remember that inland and marine transports are covered by different international conventions and even though a shipping line may arrange for the inland transport it will not necessarily accept liability for events occurring before the goods reach the port of shipment or cross the ship's rail.

Cost distribution between sellers (S) and buyers (B)

	FOB	CIF/CFR	FOT
Loading at sellers' premises	S	S	S
Inland transport (from the named place)	S	S	B
Trade documentation at origin	S	S	S
Customs clearance at origin	S	S	S
Export charges	S	S	S
Loading terminal handling charges (THC)	S	S	B
Ocean freight	B	S	B
Unloading terminal handling charges (THC)	B	B	B

In the United States a considerable amount of business is transacted either FOT or FCA because of the coffee imported from Mexico through the land border between the two countries (around 2 million bags a year). Seller and buyer may not always be clear on the difference between the two terms. Basically, in the case of FOT or FOR the risk of loss transfers to the buyer when the goods are placed on the truck or railcar, whilst in the case of FCA that risk transfers to the buyer the moment the goods are received by the carrier, whether for overland or maritime transport.

Customs Documentation charges or Cargo Declaration fees are a new type of charge, introduced by shipping lines to cover the cost of complying with maritime cargo security regulations now in force for both the United States and the European Union. Cargo that does not comply with these regulations may not be loaded and the lines have to ensure only correctly documented cargo is loaded. Whilst there is no denying that there is an administrative and IT cost to this, many exporters consider these charges to be linked to importation and therefore should be paid by the receiver. However, the general consensus on the receiving side sofar is that these charges are part of the cost of bringing cargo to FOB, i.e. they form part of the export charges and as such are to be paid by shippers.