Decoding the Alphabet Soup of Shipping Terms

Posted by Brian McCormac on Monday, June 17, 2019

Article written by BrownWinick 2019 Summer Associate, Mariah Kauder, and BrownWinick attorney, Brian McCormac

If you have been party to a contract for the sale of goods, the options for shipping terms might seem like a mystery of far too similar terms that can manage to make a world of difference. Understanding when the risk of loss transfers and what obligations rest on the buyer and seller are essential to selecting the best terms for your next business transaction.

The International Chamber of Commerce currently recognizes eleven International Commerce Terms, known as Incoterms, to standardize global shipping. While the latest version of the Incoterms came out in 2010, an update is set to be released in 2020 to help businesses prepare for the future of global trade.

Seven of the Incoterms currently in effect are appropriate for any mode of transport. These terms are identified in the chart below detailing when the risk of loss transfers from the seller to the buyer. As you might expect, the seller is responsible for all costs associated with transport up until the transfer of risk.

As you can see, the last Incoterm, Delivered Duty Paid (DDP), creates the maximum obligation for the seller by placing the burden of all risks and costs associated with bringing the goods to the named place in the country of importation, including all costs of export and import. Whereas, the first Incoterm listed, Ex Works (EXW), places the burden of transportation entirely on the buyer. Notably, the cost of insurance required for Carriage & Insurance Paid (CIP) is only for minimum coverage, so the seller must cover any additional cost or negotiate for an express agreement stating otherwise if higher coverage is desired.

Whereas the previous seven terms can function for any shipping mode, the remaining four outlined below are specific to sea and inland water transport. These water-specific terms function quite similarly with slightly different terminology.

While you still might see other shipping terms out there, this list provides the most up-to-date version of internationally recognized standards. Knowing the shipping terms available to you places you in a better bargaining position to effectively negotiate your next contract.

If you would like assistance with your next shipping contract, please feel free to contact an attorney from BrownWinick’s Business and Corporate Law practice group.