If you often have cross-border trade, "maritime terminology" is an important knowledge you can't get around. These terms define who pays, who bears the risk, and who transports what, when and where. They tell you, your buyer and your carrier the specific responsibilities of each party at each step of the shipping process. Understanding these "shipping terms" can help you better protect your interests in cross-border trade. As a professional freight forwarding service company, that's why we've created this up-to-date, concise guide to help you understand maritime terms like a freight forwarding professional.
What Are Shipping Terms? (And Why They Matter)
Shipping terms (especially Incoterms) are standardized contract clauses used in international transactions to define the responsibilities of buyers and sellers. They cover who arranges transportation, who handles customs clearance, who pays for what, and-most critically-when the risk of loss or damage shifts from seller to buyer.
Let's break that down with a real-world example. If you're shipping machinery from Germany to the U.S., are you paying for ocean freight? Are you responsible if the goods get damaged at the port? Or does that fall on your supplier? Your chosen term (like FOB, CIP, or DDP) spells all that out clearly-before the shipment even moves.
Getting this wrong leads to surprise shipping costs, disputes, and delays. Many first-time importers learn this the hard way-especially with long-distance routes and multi-leg transport chains. Choosing the wrong term means you might unknowingly agree to handle export customs in a country you've never even been to.
That's why experienced freight forwarders like us always start with the shipping term before quoting anything. It sets the rules of the game. And in 2025, with compliance tightening across regions, having this clarity up front protects your shipment and your profit margin.
Overview of Incoterms® 2020 & 2025 Updates
Incoterms® (International Commercial Terms) are published by the International Chamber of Commerce (ICC). They're updated roughly every 10 years to reflect how global trade is evolving. The latest edition-Incoterms 2020-is still the most widely used in 2025, though businesses are already preparing for the upcoming updates.
Here's a quick breakdown of the last two versions and what's changing:
|
Version |
Key Highlight |
What Changed |
|
Incoterms 2010 |
Covered 11 standard terms |
Basic structure with less clarity on risk & documentation |
|
Incoterms 2020 |
Introduced DPU (Delivered at Place Unloaded), added more clarity on insurance, and updated security requirements |
Better aligned with digital workflows and multimodal shipping |
|
Incoterms 2025 (expected) |
Expected to reinforce green logistics, electronic trade docs, and stricter clarity on carbon/emissions clauses |
Under development, but adaptation is already starting |
One big takeaway: not all Incoterms are suited for sea shipping.
Here's how they break down by modes of transport:
Multimodal (air, road, rail, or sea): EXW, FCA, CPT, CIP, DAP, DPU, DDP
Sea and inland waterway only: FAS, FOB, CFR, CIF
If you're in ocean freight, focus on those last four. They're built specifically for port-to-port transactions and account for vessel loading/unloading, which is critical in sea freight.
And remember: even though Incoterms don't override local law, they help your contracts avoid ambiguity. That's a big deal when your cargo is crossing five time zones and three legal systems.
The 11 Key Incoterms for Sea Shipping Explained (with Use Cases)
Here's where we get practical. Below are the 11 official Incoterms, explained in simple terms, with B2B shipping examples that make them easy to apply. Each one affects how you plan your shipment, what your bill of lading looks like, and how you handle customs.
|
Term |
What It Means |
Seller Pays For |
Buyer Pays For |
Risk Transfers At |
When to Use |
|
EXW (Ex Works) |
Buyer picks up goods at seller's site. Seller does nothing beyond packaging. |
None (just makes goods available) |
All shipping, export, import, insurance |
Seller's warehouse |
Experienced buyers who want full control, esp. long distance |
|
FCA (Free Carrier) |
Seller delivers goods to a named place (port or warehouse). Buyer arranges main transport. |
Export clearance, delivery to carrier |
Main freight, insurance, import fees |
When goods handed to carrier |
Good when buyer has a forwarder but wants seller to clear export |
|
CPT (Carriage Paid To) |
Seller covers main carriage to destination. Buyer handles risk and customs. |
Freight to named destination |
Insurance, import clearance |
Once goods handed to carrier |
Ideal for regional exports with trusted carriers |
|
CIP (Carriage and Insurance Paid To) |
Like CPT, but seller also pays for insurance. |
Freight + insurance |
Import duties |
Once goods handed to carrier |
For high-value cargo or cautious buyers |
|
DAP (Delivered At Place) |
Seller delivers goods to buyer's door-but doesn't unload or clear import. |
All costs to destination point |
Import taxes, customs, unloading |
Upon arrival at buyer's site |
Great for importers with local clearance setup |
|
DPU (Delivered at Place Unloaded) |
Like DAP, but seller unloads goods too. |
All costs + unloading |
Import duties, customs |
After unloading at destination |
Ideal for sites lacking labor or equipment |
|
DDP (Delivered Duty Paid) |
Seller handles everything-including import clearance & duties. |
All-in: freight, insurance, taxes |
Nothing |
At final delivery point |
Hassle-free for buyer, but heavy on seller |
|
FAS (Free Alongside Ship) |
Seller delivers goods beside the vessel at port. Buyer handles loading. |
Delivery to port, export clearance |
Loading, ocean freight, import |
Once placed alongside ship |
Useful for bulk goods or buyer-managed shipping |
|
FOB (Free On Board) |
Seller loads goods onto ship and clears export. Buyer takes over from there. |
Packaging, export, loading |
Freight, insurance, import duties |
When cargo is on board |
Most common for sea freight; buyer controls freight |
|
CFR (Cost and Freight) |
Seller pays ocean freight to destination, but buyer assumes risk once shipped. |
Freight to destination port |
Insurance, local handling, import |
Once goods loaded on vessel |
Affordable for buyers who arrange own insurance |
|
CIF (Cost, Insurance & Freight) |
Like CFR, but includes basic marine insurance. |
Freight + minimum insurance |
Import clearance |
Once goods loaded on vessel |
Safer than CFR; suits shipments with moderate risk |
Other Common Sea Shipping Terms You Should Know
Not every important term in sea shipping comes from Incoterms. If you work in international freight-especially B2B-you'll hear plenty of other terms that matter just as much. They don't define responsibilities like Incoterms, but they help you manage cargo, documents, costs, and compliance.
Here's a categorized breakdown to keep handy:
Transport & Equipment Terms
|
Term |
Meaning |
|
TL (Truckload) |
Full truckload shipment. Over 15,000 lbs. Common in door-to-port moves. |
|
Trailer |
A non-powered freight container towed by a truck. Used for inland drayage. |
|
Vessel |
Ocean-going ship for container or bulk cargo. Different from barge or ferry. |
|
Turnaround Time |
Total time for a vessel to complete loading/unloading and return. A key efficiency metric. |
|
Ullage |
Empty space left in a tank or container to allow for liquid expansion (e.g. oil). |
Documentation Terms
|
Term |
Meaning |
|
Bill of Lading |
Legal document issued by carrier. Acts as receipt and title of goods. Crucial in letter of credit transactions. |
|
Manifest (Ship Manifest) |
List of all cargo, crew, and passengers on board. Used for customs clearance. |
|
UN Number |
4-digit number assigned to hazardous cargo (e.g., UN1203 for gasoline). Must match declaration documents. |
|
USPPI |
U.S. Principal Party in Interest-who benefits most from the export. Typically the seller or manufacturer. |
Handling & Storage Terms
|
Term |
Meaning |
|
Transshipment |
Cargo transfer from one vessel or carrier to another, typically at a hub port like Singapore or Hong Kong. |
|
Unclaimed Cargo |
Cargo not picked up by consignee. Often auctioned by carriers. |
|
Unit Load |
A pallet, crate, or container prepared for handling as one unit. |
|
Warehouse |
Storage facility used at origin or destination. Important for consolidation or customs hold. |
|
Dock |
Port platform where ships load/unload cargo. Also called berth or quay. |
Tax & Regulation Terms
|
Term |
Meaning |
|
VAT (Value Added Tax) |
Tax applied at each stage of supply chain. Must be paid on imported goods in many countries. |
|
USML |
U.S. Munitions List. Exports of items on this list require special State Dept. approval. |
Trade Agreements & Institutions
|
Term |
Meaning |
|
WTO |
World Trade Organization. Sets rules for global trade, helps resolve disputes. |
|
WCO |
World Customs Organization. Creates standards for customs procedures and goods classification. |
|
USMCA |
Trade agreement between U.S., Mexico, and Canada. Replaced NAFTA. |
|
KORUS / CTPA / Chile FTA, etc. |
Free trade deals that lower tariffs on certain goods between U.S. and partner countries. |
|
War Risk |
Additional insurance required when shipping into conflict zones. Premiums vary by region. |
About the Author
Zhejiang Wilson Supply Chain Management Co., Ltd. was established in 2011, with its headquarters in Ningbo and branch offices in Shanghai, Shenzhen, and Hong Kong. As a global supply chain management company, Wilson specializes in international freight forwarding, supply chain management, chemical logistics, oversized cargo transportation, and special container shipping, committed to providing efficient, professional, and secure logistics solutions for clients. Contact us now to learn more about shipping terms. ( gm@wilson-cargo.com )
