QUESTION OF THE WEEK: What Are Shipping Terms?

Shipping terms are also called INCOTERMS. Incoterm is the elided word that shortens International Commercial Terms. They are 3 letter abbreviations recognized throughout the world. They tell each party concisely what is expected of them in selling and in contract negotiations. In all international transactions, shipping can be paid for and done by either the shipper or the consignee. For example, the shipper can pay for everything: from their dock to the consignee’s dock with customs clearance and duties paid on their behalf. This is called Delivered, Duty Paid (DDP). Or the shipper can do none of the shipping. Instead the buyer picks up the freight from the shipper’s factory dock. This is called ex-works (EXW). In between these two extremes, there are a number of places where the shipping can pass from one party to another. The scope can end once loaded on the carrier (FOB) or at a named place (DAT) or at a port or terminal (CFR and CPT). There are about a dozen of these shipping terms.

Basically, Incoterms indicate three things. (1) Who arranges for transport and the carrier. (2) Who pays for transport. (3) Where/when does title (ownership) of goods transfer from seller to buyer. Consequently, shipping terms tell where costs are transferred and where the risk is transferred from the shipper to the consignee. Therefore, shipping terms are NOT optional. Even when they are not stipulated or mentioned, both parties have expectations about the shipping. Ignoring the shipping terms only invites confusion at best and legal trouble at worst. Every sale, every quote, and every international contract here goods are exchanged must have Incoterms. 

If you are trying to figure out the shipping terms for a contract, then call us. If you are encountering Incoterms that you do not understand, then reach out to us. There are few things that are easier to understand than Incoterms in international shipping. But there are just as few things that can hurt a business deal than Incoterms, if ignored or underappreciated.