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FICTIONAL CASE — companies, people and figures are invented for teaching. Any resemblance to a real dispute is coincidental.

What went wrong?

FOB used for a container handed over at an inland depot

An Indian tool maker hands a container to the shipping line at an inland depot under FOB Mundra. It is damaged on the rail leg — whose loss is it?

Reviewed by: pending — expert review by TermVisa's editor (retired VP, international transport) in progress · Last updated

The deal

FOB Mundra Incoterms® 2020

Seller
Hand-tool maker, Ludhiana, India
Buyer
Tool distributor, Valencia, Spain
Transport
Multimodal — truck to an inland container depot, rail to Mundra, then sea to Valencia

The seller, Punjab Forge (fictional), a hand-tool maker in Ludhiana, India, sells a 40-foot container of spanners and pliers to the buyer, a tool distributor in Valencia, Spain, under FOB Mundra Incoterms® 2020. The buyer books a shipping line that offers a through service from Ludhiana's inland container depot (ICD). The seller stuffs the container at its plant and trucks it to the ICD; the line rails it about 1,200 km to Mundra port for loading on the vessel. The seller's transit insurance ended 'on delivery to the carrier'.

What happened

In a shunting accident in a rail yard, the container is badly damaged. Most of the tools are crushed or soaked before the ship even reaches Mundra.

The seller says the risk was the buyer's once the box was in the shipping line's hands. The buyer points to the contract: under FOB, risk passes only when the goods are on board at Mundra — so the loss is the seller's. It refuses to pay.

The seller's insurance has already ended, and the carrier's liability, limited by its contract and the applicable rules, covers only a fraction of the value. The seller absorbs most of the loss.

Where the risk really sat

▶ Seller: Ludhiana, India Buyer: Valencia, Spain ■ 1 Loading at theseller's premises Seller 2 Export clearance Seller 3 Pre-carriage to thedeparture terminal Seller 4 Rail to the port ofloading Depends 5 Departure terminalhandling andloading Depends 6 Main carriage(ocean) Buyer 7 Import clearance,duties and taxes Buyer SellerSellerSellerSellerSellerBuyerBuyer Who pays Who bears the risk ◆ Seller hands the container to the line here ⚠ Risk passes to the buyer here ▶ Seller: Ludhiana, India Pays Risk 1 Loading at theseller's premises Seller 2 Export clearance Seller 3 Pre-carriage to thedeparture terminal Seller 4 Rail to the port ofloading Depends 5 Departure terminalhandling and loading Depends 6 Main carriage (ocean) Buyer 7 Import clearance,duties and taxes Buyer SellerSellerSellerSellerSellerBuyerBuyer◆ Seller hands the container to the line here ⚠ Risk passes here ■ Buyer: Valencia, Spain
  • Seller
  • Buyer
  • Depends on contract / carrier or port practice
  • Point where risk passes
  • Seller hands the container to the line here

⚠ Under FOB Mundra, risk stayed with the seller until the container was on board at Mundra — two stages after the seller had lost control of it at the inland depot.

  1. Loading at the seller's premises — Seller: Seller stuffs the container
  2. Export clearance — Seller: Seller files the Indian export declaration
  3. Pre-carriage to the departure terminal — Seller: Truck to the line's inland depot (ICD) — seller loses control here
  4. Rail to the port of loading — Depends: Rail ICD → Mundra, billed by the line: who pays depends on the contract and tariff
  5. Departure terminal handling and loading — Depends: Terminal handling at Mundra — a classic FOB dispute
  6. Main carriage — Buyer: Ocean freight Mundra → Valencia
  7. Import clearance, duties and taxes — Buyer: EU import clearance in Spain

Why it went wrong

  • FOB ties risk to loading on board the ship. For a container handed over inland, that point comes long after the seller has lost control of the goods.
  • The seller's insurance was written for where it thought risk ended, not where the contract said it did.
  • Rail and port handling costs between the depot and Mundra were never allocated clearly.

✓ Lesson learned

For containers, use FCA naming the place where the container is actually handed over (here, the line's inland depot in Ludhiana). Then the point where risk passes matches the point where the seller lets go.

  • Agreed term should have been: FCA [inland depot address], Ludhiana, Incoterms® 2020.
  • Align the seller's insurance with the contract's risk point — whatever rule is used.
  • If FOB must stay (some buyers insist, and some customs valuation habits favour it), the seller should insure until on board and agree in writing who pays rail and terminal charges.

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