Damaged Cargo and Runaway Port Charges Under FOB, CIF or DDP: Who Pays When You and a Philippine Counterparty Disagree

Three questions before any argument: term, edition, named place

Step one is not persuasion. It is pulling out the contract and checking three items. Which trade term appears in the contract, proforma invoice or order confirmation; whether an edition of the Incoterms rules is specified; and how precisely the named place is written, whether simply Manila or a particular terminal, warehouse or the buyer's door. The vaguer these are, the longer the dispute runs.

The usual problem is that the documents contradict each other. The chat thread promised a door price, the proforma says CIF Manila, and the bill of lading shows freight collect. Where they conflict, the signed or mutually confirmed contract text generally prevails, followed by later written amendments. Oral understandings rarely hold unless the correspondence supports them. So lay every written reference to price terms in date order and identify the last version both sides confirmed.

The second problem is a term that does not fit the transport. FOB and CIF were designed for sea and inland waterway carriage. Containerised goods are handed to the carrier at a yard, and from that moment they are no longer fully in your control, yet under those terms the risk has not passed. The contract is still valid, but if the damage happened between the yard and the vessel both sides will find wording that favours them, and the matter will be decided by evidence rather than by definitions.

Write the answers to the three questions on a single page and send it to the other party. That often achieves more than ten phone calls, because many disputes turn out to rest on the two sides reading different documents. It also gives you a neutral opening: you are not accusing anyone, only confirming which paper governs the deal.

The risk transfer point decides who chases the claim

Liability for damage turns on one question: did it occur before or after risk passed. FOB and CIF share the same transfer point, the moment the goods are on board the vessel at the port of shipment. The difference is that under CIF the seller books the space, pays the freight and buys minimum cargo insurance. Under DDP the seller carries every risk until the goods are at the named destination, cleared for import and ready for unloading.

It follows that under FOB and CIF damage at sea is in principle the buyer's risk. The buyer claims on the insurance or against the carrier and still pays the price. Many Philippine buyers do not see it that way and reason that goods which arrived broken need not be paid for. You can explain the rule, but cooperation works better: under CIF you bought the policy, so endorse it to the buyer and help file the notice. That resolves more than a debate about who is right.

Risk passes only on goods that were sound and properly packed at the time. If the damage came from packing unfit for a sea voyage, poor stuffing and lashing, or an inherent defect, responsibility returns to the seller whatever the term. Stuffing photographs, the packing list, factory inspection records and the container seal number are therefore the seller's four key pieces of evidence.

Under DDP there is less to argue: damage before the named place is the seller's problem and the seller pursues carrier and insurer. The real exposure under DDP lies at the Philippine import end, where clearance holds, reassessed duties and examinations all run at the seller's time and cost. See what to do when customs holds your cargo.

Destination charges: terminal fees, demurrage and storage

Destination costs fall into two layers: ordinary charges follow the term, overtime charges follow the cause of delay. Ordinary discharge, terminal handling and documentation fees are normally the buyer's under FOB and CIF unless the contract of carriage already includes them in the freight the seller paid, and they are entirely the seller's under DDP. The point most often fought over under CIF is exactly this one: whether the carrier's freight quotation included destination terminal charges. The booking confirmation and freight invoice answer it.

Demurrage, storage and container detention are costs that should not have arisen, and the term does not allocate them directly. The working rule is that whoever caused the delay pays. Late payment for the documents, late import filing or a missing import permit point to the buyer. Documents sent late, documents with errors, or a certificate of origin or inspection certificate not supplied on time point to the seller. For events neither side controls, such as a customs examination, port congestion or a typhoon shutdown, look to the contract; where it is silent the party bearing risk and handling formalities on that leg usually bears the cost first.

Whoever pays in the end, stopping the meter is more urgent than fixing blame. These charges accrue daily, and the shipping line and terminal bill the consignee or shipper on the bill of lading regardless of your private arrangement. Practical steps are in how to stop demurrage and storage piling up. A sensible device is a short written agreement that one party will advance the charges without admitting liability, to be settled later under the contract, so the goods can be released.

If the cause is an unresponsive customs broker, that is a separate track; see when your customs broker goes silent.

Evidence: build a timeline, not a list of grievances

These disputes are won on evidence, and the backbone of the evidence is a timeline. List every milestone from stuffing to delivery: stuffing date, gate-in at the yard, on-board date, date documents were dispatched, arrival, payment or document release, import entry, customs release, pull-out, and the date damage was found. Attach one document to each. Once the timeline exists, the leg where the delay occurred and the leg where damage most likely occurred usually become obvious.

The seller should assemble the contract and all written amendments, stuffing photographs and packing list, factory inspection records, the bill of lading with its issue date, the insurance policy under CIF, courier proof or the telex release notice for the documents, and the reminders sent to the buyer about payment and import formalities. The buyer should produce the arrival notice, payment and document release records, the import entry and release papers, the equipment interchange receipt at pull-out, unpacking photographs and video, and any third-party survey.

Two documents carry the most weight. The first is the equipment interchange receipt and delivery record: whether it notes container damage or a seal irregularity largely decides whether the loss can be tied to the voyage. The second is an independent survey report. When each side has its own story, a report from a surveyor both accept is often the only thing that moves the matter forward. Propose a joint survey as soon as the problem is found and offer to split the fee for the time being.

Keep originals and exchange copies promptly. A photograph with no date or location data persuades nobody, and chat histories should be exported in full, not kept only as screenshots.

Negotiating with a Philippine counterparty: separate three accounts

The key is to unbundle three accounts that tend to be argued as one: the damage, the port charges and the price. The usual move by a buyer is to tie them together, saying the goods were damaged and the port cost extra so the balance will not be paid. Answer each separately: damage by reference to the risk transfer point, port charges by reference to the cause of delay, and the price by reference to the payment clause. None is set off against another unless both sides agree in writing.

Once the accounts are separate, concessions become easier. Workable outcomes include: the insured party leads the cargo claim, the other supplies documents, and the proceeds are divided as agreed; overtime port charges are shared by the number of days each side caused; the price is paid on time, or most of it is paid with a modest amount held against the open point. Record each concession in a brief written confirmation stating that agreement is reached on that single issue for that shipment and that all other rights are reserved.

If the shipment is covered by export credit insurance, clear any discount, instalment plan or settlement with the insurer first. The reasons are explained in claiming on export credit insurance when a Philippine buyer defaults.

If talks fail, turn to the dispute clause. Arbitration applies where agreed; otherwise the case may have to be brought in the Philippines or abroad, and the practical costs are set out in handling a contract dispute in the Philippines. A cross-border lawsuit over one shipment's port charges is rarely worth it, and the great majority of these disputes should end at the negotiating table. For your specific case consult a licensed lawyer; this article is not legal advice.

Drafting the next contract, and how Yixing can help

Every point fought over this time can be closed with a sentence or two in the next contract. State at least five things: the term, its edition and a named place precise to the terminal or warehouse; a list assigning each destination charge; the deadline and method for sending documents; the principle that overtime charges follow the cause of delay; and the period and procedure for a joint survey when damage is found. For containerised goods consider a term designed for multimodal carriage so that no gap is left between the yard and the vessel.

Two working habits matter as much. Keep the freight and price terms identical on the proforma, the contract and the bill of lading, and if a salesperson quotes a door price in chat that differs from the contract, correct it in writing the same day. And be cautious about quoting DDP: it makes you the importer in the Philippines, with the duties, taxes and compliance exposure that go with it, and it should not be offered without a local entity and a reliable clearance arrangement.

Yixing Travel Consultancy (SEC Registration No. CS202009551, Bureau of Immigration Accredited Agency No. CA-202624381-1) provides compliance retainer services to foreign companies operating in or trading with the Philippines: reconstructing the document timeline, gathering evidence at ports and warehouses, coordinating customs brokers and surveyors, attending discussions with Philippine buyers or suppliers and reducing the outcome to writing, and referring matters to licensed counsel where needed. We do not replace a lawyer and we do not rule on liability. If the goods are still sitting at the port, stop the charges first, then bring the contract, the bill of lading and the correspondence to us and we will put the timeline in order. For your specific case consult a licensed lawyer; this article is not legal advice.