A shipment contract is a legal document concerning the sale of goods (transfering a tangible item for a price) and other commercial transactions that are subject to the Uniform Commercial Code (UCC). Entered into by a buyer and seller, the shipment contract states the buyer’s risk for any loss or damages that result during the shipment of goods.
Shipment contracts can also provide other types of information. For instance, they also establish the seller’s liability up to the moment when the goods are delivered to a common carrier or port of shipment, when liability is transferred to the carrier or back to the buyer.
The UCC is a codified set of laws and rules intended to achieve uniformity among the states concerning commercial transactions. The UCC concerns commercial and business transactions involving sales, leases, funds transfers, documents of title, secured transactions, and investment securities, among other commercial transactions. While UCC addresses the transfer or sale of personal property, it does not regulate transactions dealing with real property.
The UCC does require some sales of goods to be in writing to be legally enforceable. As stated earlier, shipment contracts discuss the risks of both the buyer and the seller. The shipment will also have all the earmarks of good contract requirements concerning the sale of goods, including price, payment, quantity and delivery.
Like a shipment contract, a destination contract is a type of freight contract that concerns the sale of goods and is governed by the UCC. In a destination contract, the seller agrees to ensure delivery of the specified goods to the buyer’s destination, and the seller’s liability continues until the goods are actually delivered. Risk of loss or damage to the goods while they are in delivery is borne by the seller.
In comparison, with a shipment contract, the seller’s liability typically ends when the goods are loaded onto the carrier or delivered to a specified location for shipment to the buyer. At that point, the liability is transferred to the buyer, or to the common carrier by contract.
Under the UCC, the shipment contract allows the buyer and seller to allocate risk in the event the goods are lost or damaged before the buyer receives the goods. The seller promises to get the goods to a common carrier to make delivery of goods from seller to buyer. The shipment contract will typically state “free on board” and list where the seller is located.
If your contract has language that is similar to that above, you probably have a shipping contract. Additionally, the shipment contract may read like the following:
- FOB Plus the Place of Shipment or Seller’s Location: The place from which the goods ship is stated at the end of “free on board” or “freight on board” (FOB) clause. For example, the seller is shipping a load of televisions from New York to the buyer in Chicago. The contract states “FOB New York Factory,” which indicates that the seller is required to load the goods from its factory in New York. Once it does so, it no longer has any liability to buyer under the contract.
- FAS [name of the port/vessel]: This means “free alongside ship,” which is followed by the name of the port or vessel from which the goods are shipped to the buyer.
- CIF or CF: You also may have a shipment contract if it includes the terms “cost, insurance, and freight” (CIF) or “cost and freight” (CF). This means that the seller assumes the costs and responsibility for the freight (which includes insurance) to deliver buyer’s goods to the port of destination. The seller’s CIF may be reflected in a higher price on buyer’s goods. The risk transfers back to buyer once the goods are loaded on the ship.
On the other hand, the following terms generally point to a destination contract:
- “FOB Destination” or “FOB Buyer’s Factory.”
- Ex Ship: This means seller’s price includes charges up to the port of destination or arrival when liability passes to the buyer who is responsible for unloading the goods.
- No Arrival, No Sale: This is a UCC term that gives the buyer the option to cancel the contract or accept the goods at a discounted cost. This covers scenarios in which the goods are lost or damaged while the seller is delivering the goods to a specified location.
Freight contracts are fairly standard in the shipping industry. However, if you are dealing with a complicated arrangement concerning your obligations under a shipment contract, you may wish to consult with a qualified contract lawyer to help you negotiate and draft your shipment contract. Your attorney also can help you if the shipment contract has been breached and you have suffered damages as a result.