Shipping terms: Overview, definition, and example
What are shipping terms?
Shipping terms refer to the agreed-upon conditions that govern the transportation and delivery of goods between buyers and sellers. These terms define the responsibilities of both parties, including who is responsible for the cost, risk, and handling of goods during transit. Shipping terms are typically outlined in contracts or invoices and can include terms such as delivery methods, shipping costs, and when the title of goods transfers from the seller to the buyer.
Common shipping terms are often derived from international trade conventions such as Incoterms, which provide standardized guidelines for the delivery and risk distribution of goods.
Why are shipping terms important?
Shipping terms are important because they clarify the obligations of both the buyer and the seller, reducing the risk of misunderstandings or disputes. By clearly defining responsibilities such as who pays for shipping, who assumes responsibility for damaged goods, and when the ownership of the goods transfers, shipping terms ensure smooth transactions. Properly agreed-upon shipping terms can also prevent additional costs and delays in the shipping process.
For businesses, having clear and well-understood shipping terms is crucial for managing logistics, budgeting, and maintaining good relationships with customers and suppliers.
Understanding shipping terms through an example
Imagine a business that sells furniture to international customers. The shipping terms agreed upon in the sales contract specify that the seller will be responsible for delivering the furniture to the port in the buyer’s country (CIF: Cost, Insurance, Freight). This means the seller will cover the cost of shipping and insurance, but the buyer will assume responsibility once the goods arrive at the destination port.
In another example, a company selling products to domestic customers might use "FOB: Free on Board" shipping terms, meaning the seller is responsible for delivering the goods to the carrier, but once the goods are loaded onto the transportation vehicle, the buyer assumes the risk and costs of the shipment.
An example of a shipping terms clause
Here’s how a shipping terms clause might look in a sales agreement or contract:
"The Seller agrees to deliver the Goods to the Buyer under FOB (Free on Board) terms, with delivery occurring once the Goods are loaded onto the transportation vehicle at the Seller's warehouse. The Buyer shall assume responsibility for the risk, insurance, and cost of shipping from that point onward."
Conclusion
Shipping terms are a vital component of sales and transportation agreements, as they define the responsibilities of both parties regarding the delivery of goods. By specifying who pays for shipping, when responsibility shifts, and who covers the risk during transit, shipping terms help businesses manage logistics and minimize disputes. Clear shipping terms are essential for smooth transactions and efficient management of goods from seller to buyer.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.