Elements of Shipping Contract


What are the essential elements of a Contract?

There are four (4) elements of a basic contract:

  1. Offer
  2. Acceptance: acceptance must be in identical terms to the offer, otherwise it will be a counter-offer, and acceptance must be given in a reasonable manner and in a reasonable time
  3. Consideration: consideration is the price of the two sides of the bargain i.e. what each person will receive in consideration for performing his part of the contract
  4. Intention: intention to create legal relationse. parties of a contract must intend legal consequences to attach to their agreement

In a contract for the sale of goods there are three (3) important points:

  • Time or circumstances under which the ownership of the goods passes from the seller to the buyer
  • when payment is due
  • at what stage the risk of damage to or loss of the goods moves from seller to buyer

In international sales it is common for one party to make an offer on his own Standard Terms, and another party to accept that offer on his own Standard Terms. If seller’s and buyer’s terms are different, there will not, in strict legal theory, have been an acceptance in identical terms to the offer. This may well lead to the conclusion that there was no valid contract. Adoption of an internationally recognized set of standard terms (such as INCOTERMS) of governing International Sales prevents this by ensuring that both parties (buyers and sellers) are in agreement as to the terms contained in their contract, there is a valid contract and both parties are well aware of their rights and obligations. INCOTERMS form produced by the International Chamber of Commerce.

Under English law, a sale of goods is defined as ‘A contract to pass the property in goods for a money consideration, the price’. Hence, the ownership of the goods are transferred in exchange for a payment of money.


What are the elements of a Shipping Contract?

A shipment contract will generally include the following:

  1. Identification of the buyer
  2. Identification of the seller
  3. Description of the goods sold
  4. Quantity of goods sold
  5. Price at which the buyer is purchasing the goods
  6. Payment obligations
  7. Shipment details
  8. Seller’s liability
  9. Buyer’s liability
  10. Agreement on when there is a shift of risk of loss from the seller to the buyer


Elements of Shipping Contract

A shipping contract is a legal agreement between two or more parties related to the transportation of goods from one location to another. These contracts outline the terms and conditions under which the transportation of goods will take place. Below are the main elements that are typically included in a shipping contract:

  1. Parties Involved: The contract should clearly identify the parties involved, which typically include the shipper (sender), the carrier (transporter), and the consignee (receiver). Each party’s roles and responsibilities should be clearly defined.
  2. Description of Goods: The contract should detail the type of goods being shipped. This could include the weight, quantity, value, and any other specifics relevant to the shipment.
  3. Delivery and Pickup Locations: The contract should specify the origin and destination points of the shipment, including any intermediate ports or locations.
  4. Transportation Method: The contract should specify the mode of transportation, such as sea, air, rail, or road. If multiple methods are used, each should be specified.
  5. Pricing and Payment Terms: The cost of the shipping services, along with payment terms and conditions, should be clearly stated. This includes any fees or surcharges, payment deadlines, and the repercussions of late payments.
  6. Shipping Schedule: The contract should outline the expected delivery dates or timeframes. This could also include provisions for delays, such as penalties or adjustments.
  7. Insurance and Liability: The contract should include details about the insurance coverage for the goods being shipped. It should also outline the liability of each party in the event of loss, damage, or delay.
  8. Dispute Resolution: The contract should provide a method for resolving any disputes that arise, such as arbitration or litigation. The governing law and jurisdiction should also be specified.
  9. Force Majeure: This clause exempts the parties from fulfilling their contractual obligations due to unforeseeable circumstances beyond their control, such as natural disasters or wars.
  10. Termination Clause: The circumstances under which the contract can be terminated should be stated, along with any penalties or consequences for early termination.
  11. Special Handling Instructions: If the goods being shipped require special handling, such as refrigeration or delicate packaging, this should be specified in the contract.
  12. Inspection and Acceptance: The contract should outline the process for inspecting the goods upon delivery and stipulate the conditions under which the receiver can reject the goods.
  13. Demurrage and Detention: These clauses cover the charges applicable when the shipper holds the carrier’s container inside or outside the port, terminal or depot beyond the given free time.
  14. Documentation: All necessary shipping documents, such as the bill of lading, commercial invoice, packing list, and any necessary customs documents, should be specified in the contract. The party responsible for each document should also be clearly identified.
  15. Indemnification: This is a clause that requires one party to bear any costs or damages that the other party may incur due to their actions or inactions, or due to specific circumstances outlined in the contract.
  16. Compliance with Laws and Regulations: The contract should include a clause stating that all parties will comply with applicable laws and regulations, including those related to customs, import/export, and hazardous materials.
  17. Amendment and Modification: The contract should stipulate the process for making changes to the agreement. Typically, amendments must be agreed upon by all parties and put in writing.
  18. Severability: This clause states that if any part of the contract is found to be invalid or unenforceable, the rest of the contract will still remain in effect.
  19. Waiver: This clause indicates that if a party fails to enforce a certain contractual right or provision, it does not mean they have waived their right to do so in the future.
  20. Confidentiality and Non-Disclosure: If applicable, the contract may include terms to ensure the privacy of sensitive information that is shared between parties during the shipping process.

Each shipping contract is unique, and the elements it contains will depend on the specifics of the shipping arrangement and the goods being shipped. Given the complexity of these contracts, it’s always a good idea to consult with a legal expert before finalizing anything.

It’s important to note that while this is a general guideline, the exact contents of a shipping contract can vary widely depending on the specific needs and circumstances of the parties involved. It’s always advisable to seek legal counsel when drafting or signing a shipping contract to ensure all necessary terms are included and interests are protected.


What are the most significant contracts in the Maritime Industry?

The maritime industry plays a pivotal role in the economic advancement of nations. Business activities in this sector are conducted through cargo ships, container ships, bulk carriers, and tankers. To ensure seamless operations, companies must adhere to rules and regulations, ensuring that their trade activities are within the boundaries of the law and devoid of any prohibited actions.

In such cases, the involved parties can seek the guidance of attorneys to engage in negotiations and formulate agreements that serve their purposes while upholding legal obligations. These agreements are commonly referred to as maritime contracts.

Outlined below are some of the crucial agreements in the maritime industry:

1- Ship Charter Contracts

A lease agreement is a contractual arrangement between the shipowner and the lessee or charterer. Under this agreement, the charter party rents the vessel, either in its entirety or partially, for a specified period of time.

The terms of this agreement are established based on the shipowner, charterer, and market conditions. The parties involved will also adhere to the relevant laws to ensure smooth trading without any legal interference.

There are two types of charters, namely time charter parties and voyage charter parties. In the case of a voyage charter, the parties have the freedom to negotiate their own contractual terms and, if feasible, make modifications to the standard terms to align with their specific requirements.

In a time charter, the vessel is leased for a predetermined duration, agreed upon by both parties. In this arrangement, the charterer assumes control over the ship’s commercial activities. Therefore, the contract terms should encompass details regarding fuel consumption, loading capacity, ship speed, and most importantly, clearly specify the duration for which the vessel will be utilized.

2- Ship Sale and Purchase (S&P) Contracts

The sale and purchase of ships or vessels is a fundamental aspect of the maritime industry.

Ship or vessel sale and purchase agreements are entered into between sellers and buyers of ships or vessels.

Engaging in such transactions requires substantial capital, specialized knowledge of specific types of ships, legal acumen, and negotiation skills.

To minimize future disputes and facilitate smooth transactions, the involved parties need to negotiate each term related to the ship sale and purchase agreement. This entails engaging in numerous conversations to finalize the contractual clauses.

The agreement should address essential provisions, such as buyer and seller protection, obligations of each party, payment terms, termination clauses, and remedies available to the buyer and seller in case of a breach. Through extensive communication during the negotiation process, the parties can determine the pricing and terms of the ship sale and purchase contract.

3- Ship Management Contracts

When parties enter into contracts for the transportation of goods and commodities via maritime routes, they also consider the management of the vessels involved in such transactions. In the past, shipowners used to handle various functions, including financial management, personnel employment, vessel maintenance, technical supervision, and operations. However, nowadays, shipowners typically outsource these responsibilities to professionals while focusing on supplying goods.

A ship can be as valuable as a factory, making it more sensible to employ experts to oversee ship operations. Consequently, shipowners delegate their functions across different areas to ship management companies and chartering companies. When a ship manager enters into a contract with a third party for the purchase of goods or services and transportation, they become a contracting party obligated to the third party.

4- Contract of Affreightment (COA)

A contract of affreightment refers to an agreement between a ship owner and another party, wherein they mutually consent to transport goods within a specified timeframe. This type of contract is commonly used for small coasters engaged in short voyages, as it proves to be cost-effective. Government authorities also utilize contracts of affreightment for international trade purposes.

5- Freight Forwarding Contracts

Freight Forwarding is a service utilized by companies involved in the import and export of goods. It ensures the secure and efficient delivery of goods to their intended destinations. To facilitate this, companies enter into agreements with Freight Forwarders. A Freight Forwarder acts as a representative of the importer and exporter, handling various activities including loading and unloading, warehousing, quality control, local transportation arrangements, and customer payments. In essence, a freight forwarder provides comprehensive services encompassing the entire transportation and distribution process.

A freight forwarding agreement encompasses the rights and responsibilities of the parties involved, sets standard quality criteria, defines terms related to import and export of goods for customers, specifies delivery terms, modes of payment, termination procedures, indemnification, and more.

6- Transportation Services Contracts

Transportation services agreements are entered into between goods providers and transportation service providers. These agreements involve the goods provider agreeing to pay a certain amount to the service provider, who, in turn, commits to delivering the goods to vendors, distributors, or customers. In this agreement, the parties must agree on the delivery date and time, quality standards, respective obligations, rights, termination conditions, and compensation in case of a breach. The parties should also address the insurance clause, covering scenarios such as the destruction of shipped goods due to force majeure or liability for delays in delivery caused by uncontrollable events. In case of a contract breach, the agreed-upon compensation and responsibility for compensating the other party for any losses should be clearly stated.

7- Import and Export Contracts

An import and export contract serves as an agreement between importers and exporters from different countries for the sale and purchase of goods and commodities. These contracts are essential for facilitating international trade involving various products such as industrial supplies, raw materials, manufactured goods, or e-commerce deliveries. The contract typically includes provisions related to quantity orders, unit prices, delivery conditions, payment terms, documentation, and retention of title, among other aspects.

8- Marine Insurance Contracts

Throughout history, merchants have engaged in maritime commerce to mitigate the risks associated with their trade, posed by natural and human-made perils. Marine insurance provides coverage for the loss or damage of ships, cargo, terminals, and other means of transportation used for the transfer, acquisition, or storage of goods and commodities between origin and delivery points. It is crucial to protect the parties’ assets from unforeseen damages or uncontrollable events.

A marine insurance contract entails an agreement whereby the insurer agrees to compensate or indemnify the affected party against losses or damages incurred during maritime activities. Such a contract includes elements commonly found in general contracts, such as insurable interest, utmost good faith, indemnity, subrogation, warranties, proximate cause, assignment and nomination of the policy, as well as the return of premiums. The proposal for marine insurance can be initiated by either a broker or the insurer itself. The broker may prepare a slip that records all the essential information.

9- Crew Members’ Employment Contracts

The significance of crew members’ employment contracts has grown since the implementation of the Maritime Labour Convention (MLC). The MLC stipulates that shipowners/employers must establish written employment agreements with all seafarers employed on seagoing vessels. The remuneration of seafarers must adhere to the standards prescribed by the MLC. Both parties, namely the seafarer and the employer/shipowner, are required to sign the agreement.

10- Collective Bargaining Agreement

A Collective Bargaining Agreement refers to a mutually agreed contract between an employer and a trade union, wherein they establish terms and obligations pertaining to employment, such as wages, working hours, and other conditions for the crew working on the ship.

What is a Contract?

A contract represents an accord forged between two private entities, giving rise to reciprocal legal responsibilities for said parties. Although a contract may exist in oral or written form, oral agreements pose greater challenges in terms of enforcement and should be avoided whenever feasible.

Moreover, certain contracts necessitate a written format to be deemed valid, particularly those involving a substantial monetary value exceeding $500. Irrespective of the contract’s substance, all legally enforceable agreements must encompass the following elements:

  1. An offer
  2. An acceptance of the aforementioned offer
  3. A commitment to perform
  4. Valuable consideration
  5. A stipulated time frame or event for performance
  6. Terms and conditions governing the performance
  7. Actual performance

Contracts falling under the purview of the Statute of Frauds require written documentation for their enforcement. Such contracts include:

  1. Matrimonial agreements
  2. Contracts not capable of performance within one year
  3. Contracts pertaining to an interest in land
  4. Guarantees for the repayment of a deceased individual’s debts
  5. Contracts for the sale of goods surpassing a specific monetary threshold, as previously mentioned.

Furthermore, contracts must serve a lawful purpose and may not be employed for illicit intentions. For instance, entering into a contract to commission a criminal act, like hiring a hitman, exemplifies an illegal application of a contract. Additionally, mutual agreement between the parties, commonly referred to as “the meeting of the minds,” is an indispensable requirement. Signing a contract serves as an illustration of the presence of mutual agreement among the involved parties.

It is noteworthy that certain offers may not possess an expiration period, thus remaining open for a “reasonable” duration. Additionally, offers can be withdrawn until acceptance transpires. Acceptance typically implies conformity to the offer’s terms, and any alteration to these terms within the acceptance constitutes a counteroffer.

Thirdly, consideration assumes pivotal importance in validating a contract, denoting the agreement of both parties to provide something of value in exchange for a benefit. Consideration can assume various forms but must hold tangible value. Moreover, a clear distinction exists between gifts and promises. For instance, if someone presents you with an item as a gift, it does not constitute a contract. However, a contractual agreement arises when the item is exchanged for the completion of a promised task.

Fourthly, all parties involved must possess legal competency, meaning that minors and individuals with mental impairments are incapable of entering into valid contracts. Furthermore, contracting parties must be of sound mind, free from the influence of drugs or alcohol. Finally, all parties must arrive at an agreement willingly and of their own volition. Contracts become void in the event of a mistake, duress, or fraud perpetrated by one or more parties.


What is a Shipment Contract?

A shipping agreement is linked to the exchange of merchandise, referred to as the transfer of a tangible item for a monetary consideration, as well as other business transactions governed by the Uniform Commercial Code (“UCC”). Executed by a purchaser and vendor, the shipping agreement specifies the purchaser’s responsibility for any loss or damage that may occur during the transportation of goods.

Moreover, shipping agreements establish the vendor’s liability until the goods are handed over to a common carrier or the port of shipment. At that point, liability is either transferred to the carrier or reverted back to the buyer.

The UCC is a codified compilation of laws and regulations aimed at achieving consistency among states in terms of commercial transactions. The UCC governs various commercial and business transactions, including:

  • Sales
  • Leases
  • Funds transfers
  • Documents of title
  • Secured transactions
  • Investment securities, among other commercial transactions.

It is important to note that while the UCC governs the transfer or sale of personal property, it does not regulate transactions associated with real property. Additionally, the UCC mandates that certain sales of goods be documented in writing to be legally enforceable. Shipping agreements address the risks faced by both the buyer and the seller. Furthermore, the agreement should encompass all aspects of the requirements for a valid contract pertaining to the sale of goods, including but not limited to price, payment, quantity, and delivery.


Is a Shipment Contract Distinguishable from a Destination Contract?

A destination contract can be utilized for a transaction involving the sale of goods, governed by the UCC. Within a destination contract, the seller commits to delivering designated goods to the buyer’s specified destination, ensuring their actual arrival. The responsibility for any loss lies with the seller until they fulfill their delivery obligations under the destination contract.

Furthermore, if the goods sustain destruction or damage during transit, the seller assumes the risk of loss. Once a common carrier has delivered the goods to the buyer’s destination, the seller is no longer accountable.

Similar to a shipment contract, a destination contract is a freight contract type pertaining to the sale of goods, governed by the UCC. In contrast, a shipment contract specifies that the seller’s liability generally ceases when the goods are loaded onto the carrier or delivered to a designated location for shipment to the buyer. At that juncture, the liability is transferred to the buyer or, by agreement, to the common carrier.


What are some terms commonly included in a shipment contract?

As per the UCC (Uniform Commercial Code), the shipment contract enables the buyer and seller to allocate risk in case the goods are lost or damaged before the buyer takes possession of them. The seller commits to delivering the goods to a common carrier to facilitate the transfer from the seller to the buyer. The shipment contract typically indicates “free on board” (FOB) and specifies the seller’s location.

If your contract contains similar language, it likely constitutes a shipping contract. Furthermore, the shipment contract may resemble the following:

FOB, along with the Place of Shipment or Seller’s Location: The location from where the goods are shipped is mentioned after the “free on board” (FOB) clause. For instance, if the seller is shipping a shipment of televisions from London to the buyer in Manchester, the contract states “FOB London Factory.” This signifies that the seller is responsible for loading the goods from its factory in London, and once completed, it relinquishes liability under the contract;

FAS [name of the port/vessel]: This denotes “free alongside ship” and is followed by the name of the port or vessel from where the goods are shipped to the buyer; and CIF or

CF: This stands for “cost, insurance, and freight” (CIF) or “cost and freight” (CF), indicating that the seller assumes the costs and responsibility for shipping the buyer’s goods to the designated port. The seller’s CIF might result in a higher price for the buyer’s goods. Additionally, the risk shifts back to the buyer once the goods are loaded onto the ship.

Alternatively, the following terms generally indicate a destination contract:

FOB Destination: Also referred to as “FOB Buyer’s Factory”;
Ex Ship: This implies that the seller’s price includes charges up to the port of destination or arrival, at which point liability is transferred to the buyer, who becomes responsible for unloading the goods; and
No Arrival, No Sale: This is a UCC term that grants the buyer the option to cancel the contract or accept the goods at a discounted price. This provision applies to situations where the goods are lost or damaged during delivery to the specified location by the seller.