Understanding How Incoterms are Related to Bills of Lading (2024)

Marine Cargo Insurance | Shipping Insurance

09 January, 2024

When it comes to the shipping industry, there’s a lot of terminology you not only need to be aware of but understand, too. After all, many of these terms outline your risks and responsibilities when engaging in shipping transactions. So, knowing how certain conditions may impact you, your cargo, and your finances is essential.

In our guide below, we detail how Incoterms relate to bills of lading.

Let’s start with Incoterms. Short for international commercial terms, Incoterms refer to a set of contractual obligations that define responsibilities, costs, and risks associated with the delivery of goods between buyers and sellers. Incoterms clearly outline the trade terms, so each party understands their roles and assumed liabilities during each stage of the shipment.

For example, the Delivered at Place (DAP) Incoterm determines the seller is responsible for all risks until the delivery is delivered and ready for unloading at a named destination. Meanwhile, the Cost, Insurance, and Freight (CIF) Incoterm says the seller is obligated to pay for costs, insurance, and freight while the cargo is in transit.

Now, how do Incoterms relate to a bill of lading? Incoterms outline the terms of the agreement between the buyer and seller, such as determining risk transfer points and cost allocations. These conditions are agreed upon before any transactions occur so both parties understand their obligations ahead of time. As for the bill of lading, it comes into play once the seller ships the cargo. In short, the bill of lading is a receipt, proving proof of ownership and confirming the seller fulfilled their responsibility by shipping the goods.

Both Incoterms and a bill of lading are crucial to international trade transactions. Incoterms help prevent misunderstandings, while the bill of lading proves the buyer and sellers have completed their obligations. While the two may not overlap, they both represent necessary parts of the shipping process.

Let’s review some examples of Incoterms that can influence a bill of lading:

• Risk Transfer Points:

  • Delivered at Place (DAP)
  • Delivered Duty Paid (DDP)

• Cost Responsibilities and Insurance Agreements:

  • Cost and Freight (CFR)
  • Free Carrier (FCA)
  • Cost, Insurance, and Freight (CIF)
  • Carriage and Insurance Paid To (CIP)

• Responsibilities:

  • Free on Board (FOB)
  • ExWorks (EXW)

• Documentation Rules:

  • Free Alongside Ship (FAS)
  • Carrier Paid To (PAD)

The more you familiarize yourself with these shipping terms, the more equipped you’ll be to face whatever comes your way during the shipping process. To find out more, contact us today.