Free Alongside Ship – Meaning, Obligations, Advantages and Disadvantages

Free Alongside Ship or FAS is a type of shipping arrangement between the buyer and seller in international trade. In this, the place/port of destination is very crucial. The seller, under FAS, has to deliver the cargo at the port of destination (alongside the ship at the port dock or near to ship’s lifting tackle). A point to note is that the buyer decides the delivery place. And this place could be a loading dock or a barge (not a container terminal).

Moreover, the cargo needs to be clear for export. After this, the buyer is responsible for loading the cargo and all charges after that. So, the risk passes from seller to buyer when the seller places the cargo alongside the ship as per the agreement.

A FAS agreement usually includes information about the delivery port, expected delivery time, payment policy, risk and responsibilities of the parties, and other relevant details. However, the buyer and seller need to agree on who would bear the freight and insurance costs.

The FAS is one of the newest Incoterms (international commercial terms) that came with the 2020 edition of Incoterms. Unlike many other Incoterms, FAS is only for ocean freight shipping (sea or inland waterway). The FAS is suitable in scenarios when the buyer has a direct link to the ship that would ship the cargo. Also, it suits non-containerized ocean shipments, such as bulk cargo like oil or grain. In the case of containerized shipments, where the buyer wants the delivery to a terminal, the parties should go for the FCA agreement.

Free Alongside Ship and Insurance

Like many other Incoterms, FAS also does not clearly fix requirements for insurance. As a general practice, however, both the parties take out insurance for their part of shipping and transport arrangements to cover such risk during carriage/transportation. This means the seller takes the coverage until delivering the cargo alongside the ship, and the buyer takes the coverage for the rest of the transportation. There are also instances when either buyer or seller takes the insurance for the entire shipping process from start to end. In such a situation, the agreement would especially clarify who will take the insurance for the entire journey of the cargo.

Free Alongside Ship – Obligations

Following are the obligations of a seller in a FAS agreement:

  • Preparing the cargo, billing it, as well as arranging other relevant documents.
  • Packing and marking the cargo properly.
  • Getting export licenses, as well as clearing customs formalities.
  • Making arrangements for pre-carriage to the terminal.
  • Paying customs handling fees at the origin.
  • Clearing the goods for export.
  • Ensure delivery of the consignment alongside the ship at the designated port as per the choice of the buyer.
  • Obtaining the delivery proof and keeping it safe.
  • Making payment for pre-shipment inspection.

Following are the obligations of a buyer in a FAS agreement:

  • Paying for the cargo as per the terms of the agreement.
  • Arranging for loading and paying the loading charges.
  • Arranging for the main carriage, as well as for the discharge and onward carriage.
  • Clearing import formalities and paying relevant duties.
  • Bearing the pre-shipment inspection cost (for import clearance).

Advantages & Disadvantages of Free Alongside Ship

Unlike many other Incoterms that put more burden on the seller, the FAS divides the responsibilities equally between the two parties. In fact, the seller seems to be at an advantage as they just need the deliver the cargo alongside the ship that would carry the cargo. Rest remains the responsibility of the buyer.

Drawbacks for Seller

A major disadvantage for the seller is that they may face problems if the ship does not arrive at the scheduled time. The seller will schedule their transportation, but if the ship gets delayed, then all the preparations would go to waste. In this case, the seller will have to re-adjust their schedule to arrange for the delivery. This is because, in FAS, the delivery will not be completed until the seller places the cargo alongside the ship. So, if the ship is not at the port, the seller can not place it alongside. Moreover, the risk remains with the seller until they place the cargo alongside the vessel. In such a situation, either the seller will incur additional demurrage/delay charges for the transport till the ship arrives.

Secondly, the seller also has the risk of the consignment lying idle while waiting for the ship at the destination port. So besides the extra cost, the seller also has to bear the additional risk until the cargo is placed alongside the ship on its arrival. Of course, the insurance coverage will be there. But the cost and contingency still remain.

Another drawback for the seller is that they need to assist the buyer in getting the relevant documents till the seller gets a transport document, usually the bill of lading.

Advantages for Buyer

The advantage for the buyer is that he has to handle his part of the cost and risks only. Secondly, the buyer remains in full control of the goods once reached alongside the ship. Hence, for any movement, transit delay, and for such issues, the buyer need not depend on the seller. 

Similar Terms

There are a few shipping terms that are similar to FAS. These are:

Free on Board (FOB)

In FOB, the seller needs to deliver the cargo on board a designated ship. The seller’s responsibility is over once the goods reach and are ready for onboarding the ship. And at this very moment, all further risk of transit passes to the buyer. 

Cost and Freight (CFR)

It is almost the same as FOB. But the risk passes to the buyer when the cargo is on board in the port. That means the seller also has to bear the freight cost in such a contract. So once the Bill of Lading is available, the responsibility of the seller is over.

Delivered Ex Ship (DES)

The seller, in this, needs to deliver the cargo to a port. However, this agreement does not specify a wharf. 

Delivered Ex Quay (DEQ)

The seller, in this, needs to deliver the cargo to a wharf at the destination port.

Final Words

Free Alongside Ship or FAS is one of the newest Incoterms that supports both the buyer and the seller. The seller is responsible (both cost and risk) for delivering the cargo alongside the vessel. After this, the buyer takes over, both in terms of cost and risk. The parties must remember that FAS is not for containerized shipments; instead, one can only use it for non-containerized ocean shipments.

Sanjay Borad

Sanjay Bulaki Borad

MBA-Finance, CMA, CS, Insolvency Professional, B'Com

Sanjay Borad, Founder of eFinanceManagement, is a Management Consultant with 7 years of MNC experience and 11 years in Consultancy. He caters to clients with turnovers from 200 Million to 12,000 Million, including listed entities, and has vast industry experience in over 20 sectors. Additionally, he serves as a visiting faculty for Finance and Costing in MBA Colleges and CA, CMA Coaching Classes.

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