Cargo Disputes: Lesson 2 - incoterms

Almost all international contracts for the sale and purchase of goods allocate key responsibilities to either the buyer or the seller (one example is where the goods will be delivered). They also indicate when/where risk to damage to the goods passes from seller to buyer. These considerations have been codified into internationally recognised three-letter acronyms called "Incoterms" which can be incorporated by the parties into an international sale contract. 

Where goods carried by sea are sold, the 2 most common Incoterms incorporated into that contract are: "CIF" ("carriage insurance and freight") which means the goods are delivered on board, but the seller bears the cost of the carriage, insuring the goods and the freight payable for their transport on the vessel; and "FOB" ("free on board"), which also means the goods are delivered to the buyer when they are on board the ship, but the carriage arrangements and any insurance are typically taken care of by the buyer. 

Confusingly, FOB contracts are further sub-divided into three slightly different types, as this slide demonstrates.

NB: The passage of "risk" is NOT the same as the passage of "property" in the goods, and Incoterms DO NOT address the question of the passing of property, which is dealt with separately. 

For a more detailed look at Incoterms the book "Incoterms 2020" can be purchased on the ICC website. 

commonly used incoterms in shipping

© 2020 by Francis Hornyold-Strickland.