FAS Incoterm: Key Rules, Benefits & Best Practices

The International Chamber of Commerce (ICC) plays a crucial role in global trade by creating a set of Incoterms, officially known as international commercial terms. These terms are like a rulebook that helps avoid confusing contracts between buyers and sellers from different countries.

The global shipping industry was valued at $438.5 billion in 2023 and is projected to grow by 6.6% annually through 2028. People in both local and international trade often use Incoterms as a shortcut to understand precisely what they need to do in their business deals. Some Incoterms work for moving things by different modes, while others are just for carrying cargo on the water.

One such term is FAS (Free Alongside Ship), and it helps everyone involved in the trade understand what needs to happen when goods are placed next to a ship for export. This blog explores how FAS helps your businesses manage custom compliance.

Free Alongside Ship (FAS) Incoterm 2020: Definition and Related Terms

In international trade, when you encounter the term “Free Alongside Ship” (FAS) under the Incoterms 2020, it means that, you are responsible for clearing the goods for export.

Your job is to deliver the goods to a specific port and place them beside the buyer’s designated vessel. This Incoterm is one of several globally recognised terms in international business for smooth communication between buyers and sellers.

The Incoterms 2020, the current version in use, includes 11 regulations covering all modes of transport. It has 7 rules that cover all the modes of transport and 4 that are specific to transporting cargo over water.

These Incoterms rules are as follows:

1. EXW (Ex Works): You have to make goods available at the warehouse or factory. All responsibility for transport, customs clearance, and other costs falls to the buyer.
2. FCA (Free Carrier): You need to deliver the goods to a specified location, such as a port, airport, or terminal. While you will handle export clearance, the buyer takes on the transport, including import duties.
3. CPT (Carriage Paid To): Here, you have to cover the cost of transportation to a designated destination, but the risk passes to the buyer once the goods are handed over to the carrier.
4. CIP (Carriage and Insurance Paid To): Similar to CPT, but here you are also responsible for providing insurance coverage during transit. This is used by buyers who want additional protection in case of loss or damage during transportation.
5. DAP (Delivered at Place): You will deliver goods to a specified place, but the buyer is responsible for unloading. Here, buyers can manage local logistics, and you can take care of international transport.
6. DPU (Delivered at Place Unloaded): You must deliver and unload goods at the agreed destination. This is used when buyers do not have the necessary unloading equipment or labour.
7. DDP (Delivered Duty Paid): You have to take care of everything transportation, customs clearance, and duties—until the goods reach the destination.

The Incoterms that are specific to water transport are the following:

1. FAS (Free Alongside Ship): You have to deliver the goods alongside the ship at the port of departure. The buyer then assumes responsibility for loading, transport, and associated risks. This is commonly used for bulk orders, like raw materials.
2. FOB (Free On Board): You will cover loading costs and export clearance. Once the goods are on board the ship, the buyer takes on responsibility. This is used in maritime shipping, where buyers need assurance that their goods are safely loaded onto the vessel.
3. CFR (Cost and Freight): You have to pay for transportation to the destination port, but the risk is transferred to the buyer once the goods are on board. Here buyers handle the insurance but prefer you to manage the shipping costs.
4. CIF (Cost, Insurance, and Freight): It is similar to CFR, but you are responsible for insuring the goods during transit here. It’s ideal for buyers who want the seller to handle the shipping and insurance.

Understanding Customs: What Does FAS Signify?

FAS, or Free Alongside Ship, represents an agreement between a buyer and a seller regarding the delivery of goods in international trade. This Incoterm precisely outlines each party’s responsibilities during the delivery process. In the context of FAS, the seller delivers goods to a specified port for transaction transparency.

FAS features a distinct point where the risk shifts from the seller to the buyer when the goods are placed alongside the ship. This moment is crucial for effective risk management and clarifies each party’s obligations.

Operating within standardised Incoterms, FAS facilitates international trade by establishing a common understanding among trading partners about the tasks, costs, and risks of delivering goods. FAS contributes to a more efficient and standardised global trade landscape.

Conditions of Free Alongside Ship (FAS)

When dealing with FAS, it’s essential to understand that you must deliver the goods, along with commercial invoices and any additional proof of conformity outlined in the contract, like an analysis certificate or weighbridge document. These documents can be either in paper or electronic form, based on what’s agreed upon in the contract.

On the agreed-upon day and time, you must place the goods near the vessel provided by the importer. How the goods are delivered depends on the nature of the products and the customs regulations at the port. You are not tasked with arranging for the carriage or transportation of the goods.

FAS is designed explicitly for ocean or inland waterway transport and is particularly popular for bulk cargo like oil or grain. It’s important to know that FAS is unsuitable for containerised shipments delivered solely to a terminal. In such cases, the appropriate Incoterm would be FCA (Free Carrier). This distinction ensures clarity and adherence to the specific conditions of each Incoterm.

Advantages of FAS Incoterm

The FAS Incoterm offers distinct advantages to both you and your buyers in international trade:

1. Simplified Seller Responsibility

One of the primary benefits for you under FAS is the simplicity of the responsibilities. The seller’s obligation concludes once the goods are placed alongside the named vessel, streamlining their role in the transaction.

2. Buyer’s Control and Responsibility

FAS gives buyers significant control over the process. The buyer takes charge when the goods are delivered alongside their designated shipping vessel. However, it’s essential to note that the buyer assumes responsibility for ensuring their vessel is equipped for loading and covers associated loading costs.

3. Reduced Risk and Expenses for the Seller

FAS minimises the risk and expenses borne by you. After unloading the goods close to the expected vessel, the exporter shifts risks and costs to the importer, who becomes responsible for transporting the goods to the final destination.

4. Cost Savings for the Importer

Importers benefit from FAS as they are not required to spend on transporting products to their location. This cost-saving aspect allows you to engage in international trade to optimise your business investment. This further potentially increases the total invoice value of the goods.

5. Limited Responsibility for Product Protection

Once goods are positioned close to the vessel, your responsibility ends. The products are then at the importer’s disposal for continued transportation, reducing your burden in protecting the goods during the subsequent journey stages under FAS delivery standards.

Incorporating Free Alongside Ship (FAS) in Contracts

Integrating Free Alongside Ship (FAS) into international trade contracts means that the goods will be delivered next to the buyer’s ship, ready for reloading. FAS is an incoterm, a set of rules established by the International Chamber of Commerce to govern global transactions. Incoterms, including FAS, provide:

• A framework for sellers and buyers
• Specifying responsibilities such as insurance
• Customs clearance
• Shipment management

By including FAS in contracts, both parties gain clarity on their roles. Contracts for international transportation detail crucial aspects like delivery time and place, payment terms, and cost allocation for freight and insurance. 

The contract also designates the point at which the risk of loss shifts from the seller to the buyer. This clear delineation ensures transparency and minimises potential disputes throughout the transaction.

Exporter’s Responsibilities under FAS Incoterm

Under the Free Alongside Ship (FAS) Incoterm, you will assume specific obligations to facilitate a smooth international trade transaction. The key responsibilities of the exporter (seller) include:

• Goods, Commercial Invoice, and Documentation: Furnish specified goods, a meticulously detailed commercial invoice, and all necessary documentation to facilitate a smooth export process.
• Export Packaging and Marking: Ensure the proper packaging and labelling of goods to meet international standards, safeguarding them during transit.
• Export Licences and Customs Formalities: Obtain essential export licences and proficiently handle customs procedures to adhere to regulatory requirements.
• Pre-Carriage to Terminal: Arrange and cover the costs of transporting goods to the designated terminal or port, ensuring a seamless transition.
• Delivery Alongside Vessel at Port of Shipment: Deliver goods efficiently by placing them alongside the buyer’s nominated vessel at the agreed port of shipment, adhering to the agreed-upon terms.
• Proof of Delivery: Provide irrefutable evidence that goods have been delivered as per the mutually agreed-upon terms, fostering transparency in the transaction.
• Cost of Pre-Shipment Inspection: Bear the costs linked to any required pre-shipment inspection, demonstrating a commitment to quality and compliance in international trade.

Importer’s Duties under FAS Incoterm

The buyer’s obligations under FAS encompass various stages of the shipping process, from loading at the port of departure to the final delivery at the destination. Understanding and fulfilling these duties is essential for a seamless and efficient import process under the FAS Incoterm. The importer’s Duties under FAS Incoterm are as follows:

• Payment Obligations: The buyer is responsible for paying the mutually agreed-upon price for the goods stipulated in the sales contract, ensuring financial commitment to the transaction.
• Loading Charges: Incur the costs associated with loading the goods onto the designated vessel, ensuring a secure and proper loading process.
• Main Carriage: Take charge of organising and managing the transportation of goods from the port of departure to the final destination, overseeing the main carriage for the seamless cargo movement.
• Discharge and Onward Carriage: Manage discharge procedures at the destination port and arrange for the onward carriage of goods from the port to the final destination. Thus, ensuring a smooth transition throughout the logistics chain.
• Import Formalities and Duties: Undertake all necessary import formalities, ensuring strict compliance with local regulations. Also, cover any associated import duties to facilitate a compliant entry of the goods into the destination country.
• Cost of Pre-Shipment Inspection (for Import Clearance): If a pre-shipment inspection is deemed necessary, the buyer is responsible for covering the associated expenses. This ensures adherence to quality and regulatory standards during the import clearance process.

Effective Tips for Using FAS

Avoiding potential issues when using Free Alongside Ship (FAS) for your shipping needs is important. Below are some practical suggestions for making the most of FAS in your shipping arrangements.

1. Clear Contractual Agreements

In your sales contract, clearly outline the responsibilities and obligations of both parties. Specify the port of shipment, delivery instructions, and any other specific requirements. This will reduce the chances of misunderstandings and ensure that you and the buyer are on the same page regarding the shipment details.

2. Communication Between Parties

Establish open communication channels with everyone involved in the shipment process—suppliers, freight forwarders, carriers, and customs agents. Regular updates and feedback from each party will help you quickly address any challenges and ensure the shipment moves properly from start to finish.

3. Proper Documentation

Keep detailed records of all shipping documents, including commercial invoices, packing lists, bills of lading, and shipping instructions. These records are essential for tracking goods, ensuring they are delivered on time, and complying with customs regulations.

4. Using Technology

Incorporating technology can simplify the entire process. Use software solutions to manage and track Incoterms compliance, including FAS. Automated systems for document management and compliance monitoring can help you stay on top of requirements and improve efficiency throughout the shipping process.

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Conclusion

Incoterms serve as valuable tools in international trade, offering clarity by categorising responsibilities between buyers and sellers based on transportation modes. The FAS Incoterm is suitable for buyers with the infrastructure to handle goods from the departure port to the destination. 

Your responsibility ends once the goods are alongside the ship, and you manage export customs formalities. Yet, it may not be apt for special handling or specific destinations. In such cases, CIF or FOB Incoterms are more fitting alternatives. Understanding these nuances ensures a smoother and well-defined international trade process.