Sale terms

Incoterms for chartering

Published 18 October 2026

Before any ship is chartered, a seller and a buyer have agreed a sale. The Incoterms rule in that sale contract decides which of them must arrange the sea transport, and so which of them becomes the charterer. Brokers meet this every day without seeing the sale contract: the "charterer" on an enquiry is a seller under CFR or CIF, or a buyer under FOB. The trouble starts where the sale contract and the charterparty say different things about time.

What Incoterms are

Incoterms are standard trade terms published by the International Chamber of Commerce. The current edition is Incoterms 2020. Each rule is three letters that say who arranges and pays for transport, insurance and export or import clearance, and where the risk of loss passes from seller to buyer. Four of the eleven rules are for sea and inland waterway only: FAS, FOB, CFR and CIF. These are the ones that matter for chartering a whole ship.

Who charters the ship

Rule	In full	Who charters	Risk passes
FAS	Free Alongside Ship	Buyer	When the goods are alongside the ship at the load port
FOB	Free On Board	Buyer	When the goods are on board at the load port
CFR	Cost and Freight	Seller	When the goods are on board at the load port
CIF	Cost, Insurance and Freight	Seller	When the goods are on board at the load port

Under CFR and CIF the seller pays the freight to the discharge port, but the risk still passes at the load port. So the buyer carries the risk of the sea voyage on a ship the seller chose. Under CIF the seller must also buy cargo insurance for the buyer. Incoterms 2020 kept the minimum cover for CIF, Institute Cargo Clauses (C), unless the parties agree more.

Why containers use other rules

FOB, CFR and CIF assume the goods pass to the buyer as they go on board. A container is handed to the carrier at a terminal, often days before loading. For container cargo the matching rules are FCA (Free Carrier) in place of FOB, and CPT (Carriage Paid To) or CIP (Carriage and Insurance Paid To) in place of CFR and CIF. FOB is still often used for containers out of habit, and then the seller keeps the risk while the box sits in the terminal. For a chartered bulk ship, the sea rules fit.

FOB: the buyer finds the ship

Under FOB the buyer must nominate a ship that can arrive in time to load within the delivery period in the sale contract. If the buyer does not present a suitable ship, the seller can usually cancel or claim. The seller must load within the period once the ship is ready. So the FOB buyer, as charterer, carries the risk that the ship is late, and the seller carries the risk of slow loading. Under many forms the seller pays for load port delays it causes, but only if the sale contract says so.

CFR and CIF: the seller finds the ship

Under CFR and CIF the seller charters the ship and owes the owner demurrage at both ports. At the load port the seller controls the cargo, so the delay is its own. At the discharge port the buyer controls the berth and the receivers, so the seller wants to recover the discharge demurrage from the buyer. Whether it can depends entirely on the sale contract.

Where the two contracts stop matching

The sale contract is often agreed weeks before the charter, on a different standard form, by different people. The gaps that cost money are these:

Laytime is not implied. Under English law a sale contract has no laytime or demurrage unless it says so. A seller who owes demurrage under the charter may have nothing to claim from the buyer.
"Demurrage as per charterparty" is not enough. The courts have held that this wording imports the charter's rate but not necessarily all its terms. In one case the charter's 90-day time bar for claims was not carried into the sale contract.
Laytime can start at different times. On some oil sale forms a ship that arrives after the agreed discharge window gets a longer notice period before laytime starts under the sale contract than under the charter. The seller then pays the owner for hours it cannot recover from the buyer.
The same word means different things. "Laycan" and "ready to load" in a sale contract may not mean what they mean in the charterparty. Using "laycan" in a sale contract can narrow the shipment period by accident.

What to check before fixing

Which Incoterms rule is the sale on, and so which party the charterer really is.
Whether the laycan in the charter fits inside the delivery or shipment period in the sale contract.
Whether the sale contract has its own laytime and demurrage terms, takes them from the charter, or has none.
Whether the demurrage rate, the notice of readiness rules and the time bar are the same in both contracts.

A broker cannot fix the sale contract, but asking these questions before fixing protects the charterer from a demurrage bill it can pay but cannot pass on. See how to charter a ship for your cargo for the steps before an enquiry goes out.

References

International Chamber of Commerce, Incoterms 2020, 2019. iccwbo.org
Goods Across Borders, Incoterms 2020 explained. goodsacrossborders.com
Skuld, Aligning sales contract and charter party terms, 2021. skuld.com

How to charter a ship for your cargoThe order the work goes in when you have a cargo and need a ship, from the first enquiry to the signed charterparty. How to calculate laytime and demurrageWhen the clock starts, what stops it, how the demurrage figure is worked out, and why most claims fail on the paperwork, not on whether they were right. Laycan: laydays and cancellingTwo dates with opposite jobs: the earliest date a charterer must accept the ship, and the latest date after which they may refuse it. Bills of ladingA receipt, proof of a contract and the key to the cargo, all on one piece of paper. Most disputes come from mixing up the three. Notice of readinessThe one page that starts the laytime clock: arrived, ready, tendered, and the different way each of those three is challenged. Demurrage vs detentionOne is a daily rate agreed before the delay, the other is a loss proved after it. Container shipping uses both words for something else.

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