In your contracts, a typical "Shipment and Delivery" clause
may be: Delivery will be F.O.B. (Supplier's) Corporate Headquarters in (city).
Title to Products and risk of loss and damage thereto shall pass to Authorized
Reseller upon delivery of Products to a common carrier at the F.O.B. point.
Sometimes your equipment
arrives damaged, typically as a result of the rough handling or other
negligence by the carrier's employees. But if your contract is as above, the
Supplier is not responsible for the damages. While the carrier is normally
responsible, it is very difficult to gain relief. Carriers deny all and it is
hard to prove their errors, although they are certainly responsible for the
goods if there is no other agreement.
Within the United States, the
term FOB is commonly used when shipping goods to indicate who pays loading and
transportation costs, and/or the point at which the responsibility of the goods
transfers from shipper to buyer.
"FOB shipping point"
or "FOB origin" indicates the buyer pays shipping cost and takes
responsibility for the goods when the goods leave the seller's premises.
"FOB destination" designates the seller will pay shipping
costs and remain responsible for the goods until the buyer takes possession.
Previously, under the Uniform
Commercial Code ("UCC"), both "FOB origin" and "FOB
destination" left the seller responsible for paying costs of loading goods
on board the carrier; hence "Free On Board". When the buyer was
responsible for loading costs as well, the UCC term was "FAS",
"Free Alongside". Today, the UCC has dropped those terms, but the
concepts remain and many state laws still use them. Parties also may use
"incoterms" shipping, terms from the International Chamber of
Commerce. If the parties agree to "FOB Origin" or "FOB origin
with freight charges collect," the charges are paid by the dealer (buyer)
and the risk of loss and the responsibility are the dealer's.
If the parties agree to
"FOB origin with freight charges prepaid," the charges are paid by
the Supplier and added to the Supplier's invoice to the dealer, but the dealer
still has risk of loss and must make the claim against the carrier.
As noted, the best situation for the dealer is "FOB
destination" (or "FOB destination, freight collect" or "FOB
destination, freight prepaid"), because then risk of loss is the
responsibility of the Supplier until the goods reach the dealer. The Supplier
must pay the dealer for the loss and the Supplier recovers from the carrier.
That, of course, is why Suppliers do not often use "FOB destination"
Insurance is available for all
these risks. Ask your agent or broker. Premiums may vary widely.
Allan Hillman drafted the Model Manufacturer-Dealer Contract
(NAGASA Standard 2005-1). He is Chair of the Connecticut Franchise, Dealer and
Distribution Law Section, was Chair of the same section in Maryland, and for
several years was Associate Editor of the American Bar Association Franchise
Law Journal. He specializes in dealer, distributor, franchise, trademark,
copyright, trade secret, and antitrust law and litigation. He is a partner at
Kern & Hillman LLC in Hamden, CT. Allan acknowledges the assistance of
Marty Ellis in this article.