Shipping freights across the globe is considerably more multifaceted than merely transporting a good from point A to point B. There is a manifold of processes and ordinances to ensure that these products get safely conveyed to their final stop. Keeping track of shipping terminology is vital as these play a crucial role for everyone associated with the freighting process. By learning the essential shipping terms, you can circumvent misapprehensions and minimize falsities in the supply chain. Let’s deep-dive into why it is imperative for a shipper to be acquainted with the common shipping related terms.

Understanding Incoterms:

Shipping terminologies are also known as INCOTERMS. Incoterm is the elided word for International Commercial Terms. They apprise each party succinctly about what is awaited of them in the selling as well as contract negotiations. In all international businesses, shipping can be paid for and done by the consignor or the consignee. For instance, the shipper can pay for everything starting from their dock to the receiver’s dock with customs clearance along with duties paid on their behalf. This is called the DDP (Delivered, Duty Paid). Otherwise, the shipper won’t be able to do any of the freighting. Alternatively, the purchaser/receiver picks up the freight from the sender’s factory harbor. This is known as EXW (ex-works ). Between these two extremes, there are several places where the shipping can pass from one party to another. The scope can end once loaded on the carrier such as (FOB) or at (DAT) or at a port or terminal such as CFR and CPT. There are about a dozen of such shipping terms.

Significance of Incoterms with Shipping Terms:

Primarily, Incoterms indicate three things. They have been touched based on, below.

  • Who arranges for transportation and transport.
  • Who pays for this transport.
  • Where or when does the ownership of goods shift from the merchant to consumer.

Hence, knowing Incoterms is crucial as it apprises you about the transferred costs and the risk transferred from the consigner to the consignee. Therefore, being acquainted with shipping terms is NOT optional. Even when they are not conditioned or mentioned, you should know that both parties have certain expectations from the shipping. Overlooking the shipping terms can only invite uncertainty at best and legal struggle at worst. Goods exchanged, for every sale, quote, and international contract, must have Incoterms.

Significance of Shipping Terms for Shipment Contract:

The most crucial point to be aware of is that risk relinquishes only when the freight is deemed delivered. To know when the delivery transpires, you first need to know about the shipment contract. The risk of loss passes on delivery to the carrier in shipment contracts. If the agreement calls for the goods to be shipped, then it is a shipment contract. Also, the delivery of the goods to a conveyor is then delivered to the buyer. Under a shipment contract, the seller’s duties are to deliver the freight to the courier, make an amenable freight arrangement, inform the consumer, and transfer any needed documents.

Significance of Shipping Terms for Destination Contract:

The risk of loss indeed passes on rendering the delivery at the destination by the destination contracts. If the contract specifies delivery at a particular point other than the seller’s warehouse, it is a destination contract. Hence, the seller must deliver the goods to the buyer at a specified destination. A seller’s duties under a destination contract are to render the products to a particular destination and hold the goods there for the consumer for a reasonable period if need be.

Note: The delivery terms conclude as to whether it is a shipment contract or a destination contract.

The Bottomline

When a consumer purchases products that need to be delivered later, how should the shipper respond when the customer declines to pay? Because those products were delivered late or the products got delivered damaged, or there was some other quandary with delivery. To counter these claims competently, a credit professional will need to understand the shipping terms in the contract. In a nutshell, shipping terms are more than just delivery instructions. These terminologies also indicate risk in the event of delivery difficulties when the goods are transported to the buyer.

Hence in this article, we have curated an elucidative reference guide why you need to be well apprised with the various shipping terms as a shipper. Prevention is so much more fuss-free than cure, right?