FOB, Containers and a Conflicting Risk Rider: The Dropped CNC Control Unit

Under unamended FOB (Incoterms 2020). The seller delivers by placing the goods on board the vessel nominated by the buyer, and risk passes at that point. Handing containers to a rail operator at Uiwang on 4 May is not delivery under FOB, and stacking in the terminal yard on 6 May is not delivery either. On the default rule the damage on 7 May is KMW's loss, and KMW's cargo insurer responds, not the buyer's.

Under the rider. The rider borrows the FCA formula ('handed to the first carrier') and the CPT/CFR logic ('seller concludes the contract of carriage on the buyer's behalf'). Incoterms 2020 is a default set that parties may modify, so the express typed term can prevail - in which case risk passed on 4 May and the buyer bears the loss. But the buyer will immediately counter that if the seller contracted carriage, the seller must have chosen a competent carrier on usual terms, and that a rider this confused does not clearly displace the printed FOB term. There is a real prospect that a tribunal treats the rider as too vague to override FOB.

The drafting failure. This is the textbook reason not to mix rules. FOB was designed for conventional, not containerised, cargo: the seller loses physical control of the goods long before they reach the ship's rail or the on-board point. The correct rule for three containers handed to a rail operator inland is FCA Uiwang (Incoterms 2020), under which risk passes on handing to the carrier, and the credit could then call for a forwarder's cargo receipt rather than an on-board ocean bill.

Immediate steps. Notify the terminal operator and the rail carrier in writing to preserve recourse (terminal liability is capped by its standard terms), claim on KMW's own cargo policy now rather than waiting for a risk decision, and stop using the rider in future contracts.

The discrepancy: late shipment. The only on-board date is 12 May against a latest shipment date of 10 May - a discrepancy under UCP 600 article 20(a)(ii). The trap is psychological: KMW believes it 'shipped' on 4 May because the rider says risk passed then, but banks deal with documents only (UCP 600 article 5), and the only shipment date the examiner can read is 12 May.

Options, ranked.

1. Amendment. Ask the applicant to extend the latest shipment date and the expiry and to accept the 12 May on-board date. This is the cleanest route: the buyer wants the machine, the delay is three days, and no fact is being distorted.
2. Waiver of discrepancies. The issuing bank can approach the applicant for a waiver (article 16). It works, but it is revocable until the bank accepts, and the bank has five banking days to examine, so it costs time the goods cannot spare.
3. Re-presentation is not available. The on-board date is a fact recorded by the carrier. Do not ask for a re-dated bill of lading: that is documentary fraud, it would void the cargo policy, and it converts a commercial problem into a criminal one.
4. Re-negotiate the deal. If the buyer refuses, KMW holds the bill of lading and therefore the goods, but a custom-built grinding line has almost no resale market, so the leverage sits with the buyer. Expect a price concession.

Lesson for the next order. Book the vessel with slack against the credit's latest shipment date, and where goods move by rail to the port, use FCA so that the credit can call for a document dated at the inland handover.

Risk and conformity are different questions. Under FOB, risk passed when the goods were on board on 12 May, so loss or damage after that date is prima facie the buyer's. But risk transfer does not license the seller's own breach: article 36 provides that the seller is liable for any lack of conformity that exists at the time risk passes, and article 35(2)(d) requires the goods to be packed in a manner adequate to preserve and protect them. If the control unit was inadequately secured for a rail leg plus an ocean leg, that is a packing defect and KMW answers for it whatever the risk rule says. The rider actually helps KMW on risk and hurts it on packing, because it confirms KMW arranged the carriage.

Notice obligations. The buyer must examine the goods, or have them examined, within as short a period as is practicable (article 38), and must give notice specifying the nature of the lack of conformity within a reasonable time (article 39(1)). Failure to notify deprives the buyer of the right to rely on the non-conformity. The outer limit is two years from the handing over of the goods (article 39(2)) unless the contract sets a shorter warranty period, which is permissible. A bare 'the machine does not work' is insufficient - the notice must identify what is wrong.

Remedies. Repair or replacement (article 46), price reduction (article 50), and damages (articles 74–76). Avoidance under article 49 requires a fundamental breach; a repairable control unit worth USD 78,000 in a USD 1.2 million line is unlikely to meet that threshold, particularly if the buyer can still commission the machine. Damages are limited by foreseeability (article 74) and by the buyer's duty to mitigate (article 77), so a claim for lost production must show what alternative capacity was available.

Practical handling. The buyer should notify in writing on discharge, keep the damaged unit, and allow KMW's surveyor access; KMW should offer to airfreight a replacement unit and a technician, which caps the loss far below any litigation outcome.