In the world of international trade, having clear guidelines on who is responsible for what during the shipment of goods is crucial. This is where Incoterms come into play. Incoterms, short for “International Commercial Terms,” are a series of pre-defined trade terms published by the International Chamber of Commerce (ICC). These terms are used globally to clearly define the responsibilities of buyers and sellers in international transactions. Incoterms help avoid confusion and misunderstandings between parties by specifying who is responsible for the cost and risk at each stage of the shipment process.
One of the lesser-known but widely used Incoterms is Free Alongside Ship (FAS). In this article, we will explore FAS in detail and compare it to other common Incoterms, such as FOB, CIF, EXW, and DDP. By the end of this article, you’ll have a clear understanding of how FAS works and how it compares to other Incoterms.
What is Free Alongside Ship (FAS)?
Free Alongside Ship (FAS) is an Incoterm that places specific responsibilities on both the seller and the buyer in a shipping transaction. Under FAS, the seller delivers the goods to a designated port and places them alongside the buyer’s vessel. This means the seller’s responsibility ends once the goods are alongside the ship, ready to be loaded. From that point on, the buyer assumes all risks and costs, including loading, transportation, and insurance.
Responsibilities of the Seller
The seller under FAS must:
- Ensure the goods are properly packed and meet the buyer’s specifications.
- Deliver the goods to the port specified in the sales contract.
- Place the goods alongside the buyer’s vessel, ensuring they are accessible for loading.
- Handle all export formalities, such as customs documentation and clearances.
Responsibilities of the Buyer
Once the goods are alongside the ship, the buyer is responsible for:
- Arranging and paying for the loading of the goods onto the vessel.
- Covering the cost of freight, insurance, and transportation to the final destination.
- Handling import duties and customs clearances in the destination country.
FAS is typically used in sea or inland waterway transport, especially for bulk cargo like grain, coal, and other commodities. It is important to note that FAS is only applicable to shipments that involve vessels and ports. It does not apply to container shipments handled at terminals, where Incoterms like FOB (Free on Board) or FCA (Free Carrier) are more appropriate.
How FAS Works in Practice
Let’s look at a real-world example of how FAS works. Imagine a company in Brazil selling 5,000 tons of iron ore to a buyer in China. The sales contract specifies FAS as the Incoterm.
- Seller’s Responsibility: The seller arranges to transport the iron ore from their warehouse to the port of Rio de Janeiro. They pay for all domestic transportation costs and ensure the goods are ready for export. Once the ore arrives at the port, it is placed on the dock next to the buyer’s vessel.
- Transfer of Risk: As soon as the iron ore is placed on the dock “alongside” the ship, the risk transfers to the buyer. If anything happens to the goods after this point (e.g., damage due to weather or handling during loading), the buyer bears the loss.
- Buyer’s Responsibility: The buyer now arranges and pays for loading the ore onto the ship. They also pay for sea transportation to China, as well as insurance. Upon arrival in China, the buyer is responsible for import duties, unloading the goods, and transporting them to their final destination.
FAS vs. Other Popular Incoterms
Now that you understand how FAS works, let’s compare it to some other commonly used Incoterms. This will help you see when FAS might be the best option and when other terms might be more appropriate.
FAS vs. FOB (Free on Board)
One of the most commonly confused terms is FAS versus FOB (Free on Board). While these terms are similar, there is a key difference in responsibility.
- Under FOB, the seller is responsible not just for delivering the goods to the port, but also for loading them onto the ship. The risk only transfers to the buyer once the goods are on board.
- In contrast, under FAS, the seller’s responsibility ends when the goods are placed alongside the ship, and the buyer is responsible for loading.
FOB is typically used for containerized goods and is one of the most widely adopted Incoterms, particularly for global shipping transactions. It is also seen as a more complete service for buyers, as the seller manages the loading process.
FAS vs. CIF (Cost, Insurance, and Freight)
Another term often compared to FAS is CIF (Cost, Insurance, and Freight).
- Under CIF, the seller is responsible for delivering the goods to the port, loading them onto the ship, paying for the freight, and arranging insurance coverage until the goods reach the buyer’s port of destination.
- With FAS, the seller only ensures the goods are alongside the ship, and the buyer takes on all costs from that point forward.
CIF is more comprehensive and places far more responsibility on the seller than FAS. It is often used when the buyer prefers to have fewer logistical responsibilities and wants the seller to manage most of the shipping process. CIF is common in industries where the buyer may not have the resources or knowledge to handle the shipping arrangements.
FAS vs. EXW (Ex Works)
EXW (Ex Works) is an Incoterm that places the maximum responsibility on the buyer.
- Under EXW, the seller’s responsibility ends as soon as the goods are available for pickup at the seller’s premises (factory, warehouse, etc.). The buyer is responsible for loading the goods, transporting them, arranging export and import formalities, and covering all costs and risks associated with the shipment.
- With FAS, the seller takes on more responsibility by delivering the goods to the port and handling export formalities.
EXW is often used when the buyer has a strong logistical network and can manage the entire shipping process from the seller’s location to the final destination.
FAS vs. DDP (Delivered Duty Paid)
On the opposite end of the spectrum from EXW is DDP (Delivered Duty Paid).
- Under DDP, the seller is responsible for delivering the goods to the buyer’s location and covering all costs, including transportation, insurance, and import duties.
- With FAS, the seller’s responsibility is limited to delivering the goods alongside the ship at the port, and the buyer takes on the costs and risks from that point onward.
DDP is used when the seller is willing to handle all the logistics and costs to ensure the buyer receives the goods at their location without any additional effort. It is commonly used in international trade when the buyer does not want to handle import formalities or deal with customs issues.
Advantages and Disadvantages of FAS
Advantages of FAS
- Lower Costs for the Seller: The seller’s responsibility ends once the goods are alongside the ship, meaning they don’t have to cover the costs of loading or transportation beyond the port.
- Control for the Buyer: The buyer has full control over the shipping process after the goods are alongside the vessel. This is beneficial for buyers who want to negotiate their own freight rates or handle transportation themselves.
- Export Formalities Handled by Seller: The seller manages export documentation, reducing the buyer’s burden in the seller’s country.
Disadvantages of FAS
- Risk to the Buyer: The buyer assumes risk as soon as the goods are placed alongside the ship. If something happens to the goods during loading or transit, the buyer bears the loss.
- Limited Seller Involvement: FAS requires the buyer to handle everything from loading onwards, which might be challenging for buyers without a strong logistical setup.
When to Use FAS
FAS is best used in situations where the buyer wants control over the shipping process and has experience handling freight and insurance. It is ideal for bulk cargo that is shipped by sea, such as raw materials like oil, minerals, or agricultural products.
FAS is also commonly used in industries such as:
- Commodities: Bulk shipments of raw materials like coal, iron ore, and grain.
- Oil and Gas: Transporting large quantities of crude oil or petroleum products by sea.
Buyers with established shipping networks and relationships with freight carriers often prefer FAS because it allows them to negotiate better shipping rates or use their own vessels.
Conclusion
Free Alongside Ship (FAS) is a versatile Incoterm that places more responsibility on the buyer while reducing costs and risks for the seller. It is primarily used in sea and inland waterway transport for bulk goods and is ideal for buyers who have experience managing shipping logistics. Compared to other Incoterms like FOB, CIF, EXW, and DDP, FAS offers a balance of responsibility but requires careful management by the buyer after the goods are delivered to the port.
By understanding the differences between FAS and other Incoterms, you can make more informed decisions about which term is best suited for your international trade transactions.
