International sales contracts use standardised three-letter terms to allocate responsibilities between seller and buyer. They look like jargon; they are actually the part of the contract that decides who loses money when something goes wrong in transit.
| They allocate | who arranges and pays for transport |
|---|---|
| And | who handles export and import clearance |
| And critically | the point at which risk passes |
| They do not | transfer ownership or set payment terms |
The three questions each term answers
Every term answers the same three questions, and reading them in this order makes the whole system clear:
One: who arranges and pays for carriage, and how far?
Two: who handles customs formalities on each side?
Three: at what precise point does risk of loss or damage pass from seller to buyer?
The third is the one that matters most and gets the least attention. Risk passing is not the same as cost ending. Under some terms the seller pays for carriage to a distant point but risk has already passed to the buyer at an earlier one.
That combination is exactly where disputes arise: goods are damaged in transit, the seller points out that risk passed at loading, the buyer points out that the seller booked and paid for the voyage. Both are right about their part, and only the term settles it.
The broad families
Rather than memorising every code, understand the families along the spectrum from minimum seller responsibility to maximum.
Seller does least. The buyer collects the goods at the seller's premises and handles everything from there, including export formalities. Cheapest headline price, most work and most risk for the buyer.
Seller delivers to a carrier or to the port. The seller gets the goods to an agreed point and handles export clearance; the buyer takes over from there. This is a common and balanced arrangement.
Seller pays main carriage. The seller arranges and pays freight to the destination port, and in some variants insurance too. The critical detail is that under several of these terms risk still passes at the origin even though the seller pays onward.
Seller delivers at destination. The seller carries cost and risk all the way to a named place in the buyer's country. Simplest for the buyer, and the price reflects it.
Seller delivers cleared. The seller additionally handles import clearance and duties. Convenient for the buyer, but the seller takes on obligations in a country where they may have no presence — which is why sellers often decline this.
Choosing sensibly
The right choice depends on who is better placed to manage each part, not on who has more bargaining power.
Take on more responsibility when:
- You have better freight rates than the other party
- You ship frequently and have reliable providers
- You want visibility and control over timing
- You understand the formalities on that side
Take on less when:
- You are new to importing or exporting
- The other party genuinely has better logistics
- The route or the destination formalities are unfamiliar
A note specific to smaller operators: a term where the seller pays freight can hide the true freight cost inside the goods price. That is convenient but it removes your ability to compare and negotiate. For repeated shipments, arranging your own carriage usually reveals savings.
The mistakes that cause disputes
One: naming a term without naming the place. These terms must be followed by a specific named location. "Delivered at destination" without saying where is incomplete and unenforceable in practice.
Two: using a maritime-only term for container or air shipments. Some terms were designed for goods loaded over a ship's rail and do not fit container traffic, where goods are handed over at a terminal well before loading. Using them anyway creates a gap about when risk actually passed.
Three: assuming insurance is included. Only some terms oblige the seller to insure, and where they do, the required cover may be minimal. If you need proper cover, arrange it yourself and say so in the contract.
Four: forgetting the term does not decide payment. Delivery terms and payment terms are separate. A term saying the seller delivers to your warehouse says nothing about when you must pay.
Five: not stating the version. The rules are periodically revised. Contracts should reference which edition applies, because definitions have changed between versions.
What to write into the contract
- The term, the named place, and the version being used
- Who insures, for what value, and against what
- What happens if the vessel or flight is delayed
- Who bears demurrage and storage if clearance is slow
- What documents the seller must provide, and by when
- How the goods will be inspected and what counts as acceptance
Point four deserves emphasis because it is the cost most often left unallocated: demurrage accrues quickly and the contract usually does not say whose problem it is. Settle it in writing before the first shipment rather than after the first bill.
Frequently asked questions
What do these three-letter terms actually decide?
Who arranges and pays carriage, who handles customs on each side, and the precise point at which risk of loss or damage passes from seller to buyer.
Is risk passing the same as cost ending?
No, and this is the main source of disputes. Under several terms the seller pays freight to a distant point while risk has already passed to the buyer at an earlier one.
Does the term include insurance?
Only under some terms, and where it does the required cover may be minimal. If you need proper cover, arrange it yourself and state it in the contract.
Which cost is most often left unallocated?
Demurrage and storage when clearance is slow. It accrues quickly and contracts usually do not say whose problem it is — settle it in writing before the first shipment.
