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Rotterdam, September 1857
British merchant William Browne from Bristol signs a contract with Dutch merchant Thomas Hare. The subject of the transaction is a large consignment of rapeseed oil - a valuable commodity that is challenging to transport.
The agreement is concluded based on the then-current, local understanding of a formula resembling today's FOB. Thomas Hare fulfills the contract impeccably: On September 8, 1857, barrels of oil are loaded onto a ship in Rotterdam, and the captain signs the bill of lading. The documents, including the invoice and bill of exchange, are sent by separate land mail to England, and the ship sets sail.
During the voyage, as the ship approaches England in the Bristol Channel, the weather rapidly deteriorates. A powerful storm hits, causing the sailing ship to sink with its entire cargo before it could reach its destination port.
When the documents arrive in Bristol on September 10, William Browne - already aware of the disaster at sea - categorically refuses to sign the bill of exchange and make payment. Since the cargo never reached him, and he had not accepted the documents, the demand for payment for goods lying at the bottom of the sea was baseless...
These dramatic 19th-century disputes, which lacked clear rules of engagement, compelled the business world decades later to create a unified Incoterms convention.
How did the British court resolve this dispute over documents, and did William Browne have to pay for the oil that sank en route?
Before the court, a heated discussion arose about the exact moment when, under transport conditions similar to today's FOB, risk and ownership transfer to the buyer. Browne argued that since the bill of lading was originally issued "to the order of the shipper," the goods en route still belonged to the Dutchman. Thomas Hare, in turn, demonstrated that by endorsing the bill of lading to the buyer's name and sending it by mail on the day of loading, he had irrevocably transferred the rights to the cargo to him. The risk transferred to the Englishman the moment the barrels crossed the ship's rail in Rotterdam.
The judgment of the Court of Exchequer was unequivocal: William Browne was compelled to pay the full amount for the rapeseed oil he never saw. The fact that the ship sank en route and did not complete its voyage did not absolve the buyer of the risk he had voluntarily assumed at the port of loading. Unclear provisions and the lack of unified standards in international shipping led to financial disasters. The response to these crises was the establishment by the International Chamber of Commerce (ICC) of the first set of unified trade rules.
The first official convention and set of rules were published under the full name: Incoterms 1936 (International Commercial Terms) in July 1936 in Paris.
Modern sea transport, sea freight, air transport, and road transport are based on the current version of these rules (Incoterms 2020), which divides 11 trade rules into four basic groups, allocating costs, risks, and documentary obligations between the seller and the buyer:
Group E (Ex Works): Includes only one rule: EXW. It places minimal responsibility on the seller, who only needs to make the goods available to the buyer at the point of delivery (e.g., at the ramp of their own factory or warehouse). The buyer bears the full cost, risk, and arranges international transport and export clearance from the manufacturer's doorstep.
Group F (Free – Main Carriage Unpaid): Includes rules: FCA, FAS, FOB. It obliges the seller to complete export clearance and deliver the goods to the carrier or means of transport directly designated by the buyer. The key fact is that the seller does not bear the costs or risks of the main international carriage - these transfer to the buyer at the designated port or loading terminal.
Group C (Carriage – Main Carriage Paid): Includes rules: CFR, CIF, CPT, CIP. It is characterized by a split in the moment of transfer of costs and risks. The seller is obliged to conclude a contract of carriage and pay the costs of international transport to the port or place of destination. However, the risk of accidental loss of or damage to the goods transfers to the buyer much earlier - at the moment of loading onto the means of transport in the country of dispatch (exactly as it happened in the historical FOB dispute in Rotterdam).
Group D (Delivered): This group includes rules: DAP, DPU, DDP. It places maximum responsibility on the seller, often referred to as the 'arrival' group of rules. The seller bears all costs and full risk of transporting the goods until they are delivered to a specified destination point in the buyer's country. Depending on the chosen rule, the seller is responsible for unloading (DPU) or even for the full import clearance procedure and costs, including customs duties (DDP).
If you wish to consult on delivery terms, cargo insurance, and the optimal sea freight cost for your business, contact our experts and explore your options.
Official citation source: Browne v Hare (1858) 3 H & N 730; aff'd (1859) 4 H & N 822.