Even in the olden days, trade occurred with the barter of a good or service, and presently it’s done in exchange of money. Whilst merchants of the past paid for new goods in kind, in sea freight nowadays there are sea freight shipments and payment terms that come attached to it to ensure that transactions occur smoothly to facilitate better global trade.
Trade transaction usually occur between two parties, the buyer who is seeking a product(s) or service(s), and the seller who has the sought after product(s) or service(s). Now, with concern to sea freight shipments which include goods obviously, there are various payment terms that they can opt for, whereby either one or both the buyer or seller may end up paying, concerning the different processes it takes to get the goods from Point A to Point B.
Essentially when a trade occurs, there is what we usually refer to loosely as a “Sales Contract” which essentially outlines the goods being traded, the specification and other essential information pertaining to the buyer/seller and modes of transport, and etcetera a. When it comes to sea freight shipments, these are outlined in what is referred to as IncoTerms, which are internationally accepted. With IncoTerms, the risks and obligations are detailed and can thus reduce trade complications. Thus, in sea freight shipments, the payment terms, i.e, IncoTerms, will detail the following;
- The Buyer’s and Seller’s obligation pertaining to the transaction
- Outlines the risks, and rules, and the point of which they pass from seller to the buyer
- Defines how the costs of the trade transaction is divided between the buyer and the seller
However, one must keep in mind that the IncoTerms cannot be considered the Sales Contract – there will be another form of documentation that the seller will issue the buyer separately. It should also be noted that the IncoTerms will not supersede the laws that govern the sales contract, and does not outline to where/whom the title of goods transfers to, and nor does it indicate the price, currency or credit terms. All those items will be included within the Sales Contract in detail. The additional costs will be allocated to the seller/buyer based on the chosen IncoTerms. It should be kept in mind that there are eleven IncoTerms, in the last updated 2010 edition, and the rule pertaining to selected terms will govern responsibilities/risks.
For more information related to IncoTerms and past blog posts, please refer to the following;
- How to Ensure You Choose Your Shipment Incoterms
- IncoTerms for International Shipping Quotes (Part 1)
- What Happens with Destination Handling
- Cargo Shipping Process Explained – Export Haulage
- International Shipping Documents for Shipments
- Factors to Consider in International Shipping: Air Freight Versus Sea Freight