Who is responsible for shipping in a Foreign Military Sale?

5.1 The USG agrees to deliver and pass title to the Purchaser at the initial point of shipment unless otherwise specified in this LOA. With respect to items procured for sale to the Purchaser, this will normally be at the manufacturer’s loading facility; with respect to items furnished from USG stocks, this will normally be at the U.S. depot. Articles will be packed, crated, or otherwise prepared for shipment prior to the time title passes. If “Point of Delivery” is specified other than the initial point of shipment, the supplying U.S. Department or Agency will arrange movement of the articles to the authorized delivery point as a reimbursable service but will pass title at the initial point of shipment. The USG disclaims any liability for damage or loss to the items incurred after passage of title irrespective of whether transportation is by common carrier or by the U.S. Defense Transportation System.

Section 5.1 identifies where title transfers and delivery occur. Title represents ownership. This condition states that the international partner becomes the owner of materiel at the initial shipping point. Delivery, in this context, does not mean the materiel has arrived at the final international partner’s destination. Delivery refers to the point where transportation responsibility transfers from the USG to the international partner. The delivery term code applied to each LOA line will indicate where the international partner becomes responsible for transportation. Under certain delivery term codes, the USG may arrange for transportation in various increments up to and including movement to an inland location within the international partner’s country. Regardless of when the international partner assumes transportation responsibility, the title will still transfer at the initial shipping point. This means that the USG will not be financially liable for items damaged in transit, even if USG arranges or provides the transportation.

This condition should not be interpreted to mean that the international partner’s financial liability does not begin until title transfer. Financial liability begins to accrue as soon as the USG starts work on the case, well before title passes. In Section 3, the international partner agrees to indemnify the USG and its contractors. Additionally, in Section 2, the international partner agrees to be liable for termination costs if they elect to delete items or to cancel the case.

5.2 The Purchaser agrees to furnish shipping instructions which include Mark For and Freight Forwarder Codes based on the Offer Release Code.

Section 5.2 describes the international partner’s obligation to provide the required transportation information so that items are shipped through the appropriate channels to arrive at the correct international partner’s destination.

The freight forwarder code identifies the commercial freight company employed by the international partner to accomplish overseas transportation. The mark-for code identifies the ultimate in-country destination address.

5.3 The Purchaser is responsible for obtaining insurance coverage and customs clearances. Except for articles exported by the USG, the Purchaser is responsible for ensuring that export licenses are obtained prior to export of U.S. defense articles. The USG incurs no liability if export licenses are not granted or they are withdrawn before items are exported.

Given the fact that the international partner bears the risk of any damage that may occur during shipment, the international partner is responsible for obtaining any desired insurance coverage. Additionally, the international partner is responsible for completing the necessary documents to clear customs. Most international partners delegate the task of coordinating customs paperwork to their freight forwarder for FMS cases.

5.4 The Purchaser agrees to accept DD Forms 645 or other delivery documents as evidence that title has passed and items have been delivered. Title to defense articles transported by parcel post passes to the Purchaser at the time of parcel post shipment. Standard Form 364 (Supply Discrepancy Report (SDR)) will be used in submitting claims to the USG for overage, shortage, damage, duplicate billing, item deficiency, improper identification, improper documentation, or non-shipment of defense articles and non-performance of defense services. The Standard Form 364 will be submitted promptly by the Purchaser. The USG will disallow any claim, including a claim for shortage or nonperformance, received more than 1 year after delivery or more than 1 year after passage of title to the defense articles, whichever comes first, or received more than 1 year after the end of the scheduled period of performance for defense services, unless the USG determines that unusual and compelling circumstances involving latent defects justify consideration of the claim. Claims for non-shipment or non-receipt of an entire lot will be disallowed by the USG if such claims are received more than 1 year after the scheduled delivery date or initial billing, whichever is later. The Purchaser agrees to return discrepant articles to the USG’s custody promptly in accordance with any direction provided by the USG. The Purchaser may submit SDRs for documentation purposes regardless of the dollar value, but only SDRs valued at $200 or more will be reviewed for possible compensation regardless of the type of discrepancy. This minimum value includes the value of the item plus any transportation and handling costs.

Section 5.4 delineates the international partner’s obligation to accept certain USG documentation as evidence that title transfer and delivery have occurred. Additionally, this section outlines the process and conditions under which the international partner can submit claims for discrepancies. Although the USG would like the FMS enterprise to operate error-free, in reality, things sometimes go wrong. The international partner has an avenue to request reimbursement for shipping or billing discrepancies. This process is called supply discrepancy reporting.