A shipping contract (or carrier agreement) is a legally binding document between a shipper and a carrier defining the terms for transporting goods. Essential for any business moving cargo, these freight contracts outline responsibilities, allocate risk, and set payment terms, forming a critical component of supply chain management. In 2025, understanding these agreements is critical for navigating new compliance mandates, including the U.S. FMC’s billing rules, the EU’s ICS2 security filing requirements, and upcoming IMO 2027 emissions regulations.
Key Takeaways
- Contracts define risk and cost: They are essential legal agreements for any shipment.
- Stay compliant: Be aware of new shipping regulations for 2025 from the U.S. FMC, EU, and IMO.
- Know when risk transfers: “Shipment” contracts pass risk to the buyer early; “Destination” contracts keep risk with the seller until delivery.
- Protect your cargo: Basic carrier liability is very limited. Consider separate cargo insurance for valuable goods.
What is a Shipping Contract?
A shipping contract (also known as a shipping agreement) is a formal agreement that outlines the rates, fees, responsibilities, and liabilities between a shipper and a carrier. Its primary functions are to allocate risk, define delivery terms, and establish clear price and payment structures, serving as the governing document for the entire shipping process.
The main parties involved include:
- The Seller (Shipper): Responsible for preparing goods, providing accurate data, and ensuring regulatory compliance for shipment handling.
- The Buyer (Consignee): The party receiving the goods, who seeks timely and cost-effective delivery and provides necessary documentation.
- The Carrier: Responsible for the safe and timely transport of goods from pickup to the final destination.
Types of Shipping Contracts: Shipment vs. Destination
The two primary types of freight contracts are the shipment contract and the destination contract. They mainly differ on when the risk of loss transfers from the seller to the buyer, and thus when the buyer assumes liability.
| Feature | Shipment Contract | Destination Contract |
| Risk Transfer Point | When goods are delivered to the first carrier. | When goods arrive at the buyer’s specified destination. |
| Who Bears Loss in Transit? | The buyer. | The seller. |
| Pros | For Seller: Lower liability, as risk ends early.
For Buyer: More control over the final leg of transit. |
For Seller: Can offer better customer service.
For Buyer: Lower risk, as the seller is liable until delivery. |
| Cons | For Seller: Potential for poor customer experience if goods are damaged.
For Buyer: Higher risk during transit. |
For Seller: Higher liability and potential cost.
For Buyer: Less control over carrier choice and transit. |
| Ideal Use Case | Domestic shipments where buyers have established logistics partners. | High-value goods or international shipments where buyers want minimal risk. |
Key Clauses & Components
A robust transport contract includes several critical components to prevent disputes.
Risk Allocation
This section defines which party is responsible for potential issues. In international trade, where risks are higher, this section is paramount. Common risks to allocate include:
- Liability for lost, stolen, or damaged goods.
- Delays due to labor disputes, weather, or port congestion.
- Pricing volatility from fuel costs or new regulations.
- Penalties for violating legal or environmental regulations.
A key clause here is for environmental compliance. A common example is incorporating language like BIMCO’s CII Operations Clause (2022) to assign responsibility for operational efficiency and data sharing related to the International Maritime Organization’s (IMO) Carbon Intensity Indicator ratings.
Price Terms & Calculating Costs
Payment terms must be explicitly stated. Calculating transportation costs and securing favorable freight rates is a primary goal. These rates are often subject to market volatility, so contracts must be clear. Key factors include:
- Package Dimensions & Weight: Carriers use the greater of actual weight vs. dimensional (DIM) weight. Note for 2025: FedEx and UPS will round any fractional inch up, potentially increasing costs.
- Destination & Delivery Speed: Longer distances and faster service levels increase rates.
Incoterms (International Commercial Terms)
International Commercial Terms (Incoterms) are standardized definitions that clarify tasks and risks. Incoterms® 2020 remain current as of September 2025. These terms clarify who handles tasks like arranging shipping space and paying customs duties.
| Incoterm | Risk Transfer Point | Who Pays Freight | Who Pays Insurance | Primary Mode |
| FCA (Free Carrier) | When goods are handed to the buyer’s nominated carrier at a named place. | Buyer | Buyer | Any Mode |
| FOB (Free On Board) | When goods are loaded on board the vessel nominated by the buyer. | Buyer | Buyer | Sea/Inland Waterway |
| CIF (Cost, Insurance, Freight) | When goods are loaded on board the vessel. Seller pays for insurance to the port. | Seller | Seller (to port) | Sea/Inland Waterway |
Negotiating for Long-Term Success
To secure contracts that are beneficial for the long term, effective negotiation is key. It involves several strategies focused on more than just price.
First, gather information on your specific shipping needs and current market rates. Approach several carriers to find competitive rates. However, true business success in the supply chain comes from building relationships. Focusing on long-term relationships with carriers can lead to better service levels, more flexibility, and a stronger partnership. For complex needs, partnering with a freight forwarder can streamline this process and help manage the various aspects of your transportation logistics.
2025 Compliance Quick Guide
Staying current with regulations is non-negotiable. Shippers and carriers must work together to ensure compliance.
- U.S. FMC Detention & Demurrage Billing: The FMC’s Final Rule (effective May 28, 2024) mandates specific invoice content and defines dispute timelines for U.S. ocean shipments.
- EU ICS2 Security Filings: For maritime/road/rail shipments, Release 3 requires Entry Summary Declarations (ENS). Contracts must assign responsibility for timely data filing.
- IMO Mid-Term GHG Measures: New GHG rules were approved in April 2025 for enforcement in 2027. Contracts should include clauses to address future costs from these changes.
Insurance, Liability & Claims
Understanding the different ways to protect your cargo’s value is key. The concepts of carrier liability, declared value, and cargo insurance are distinct.
| Feature | Carrier Liability | Declared Value | Cargo Insurance |
| Purpose | The carrier’s default, minimum financial responsibility for loss or damage. | Increases the carrier’s maximum liability limit for a specific shipment. | A separate policy to protect goods against loss or damage during transit. |
| Coverage Limit | Low, fixed amount (e.g., $100 per package). | The value stated by the shipper, up to the carrier’s maximum (e.g., $50,000 for FedEx/UPS). | The insured value of the goods, as stated in the policy. |
| Cost | Included in the base shipping rate. | An additional fee paid to the carrier, based on the value declared. | A premium paid to an insurance provider, separate from freight charges. |
| Example | A carrier loses a package; their automatic liability is $100. | A shipper declares a $5,000 laptop and pays a fee; the carrier is now liable for up to $5,000. | A shipper buys a policy to cover a container of goods; if lost, they file a claim with the insurer. |
Shipping Contract Checklist
Use this checklist to ensure your freight contract covers all critical areas:
- Parties: Full legal names and addresses of shipper and carrier.
- Scope of Services: Clear description of goods, origin, and destination.
- Service Levels & Prompt Delivery SLAs: Agreed-upon transit times and performance expectations.
- Rates & Surcharges: Base rates, fuel surcharges, and accessorial fees.
- Liability & Declared Value: Carrier’s liability limit and process for declaring higher values.
- Insurance: Specifies who is responsible for securing cargo insurance.
- Documentation Duties: Assigns responsibility for bills of lading, customs forms, and ENS filings.
- Compliance Clauses: Addresses relevant regulations and shipping requirements.
- Claims Procedure: Clear steps and timelines for filing claims.
- Dispute Resolution & Governing Law: Specifies the methods (e.g., arbitration) and jurisdiction.
- Data-Sharing: Outlines obligations for sharing data related to compliance and performance.
- Term & Termination: Defines the contract time period and conditions for termination.
Frequently Asked Questions (FAQ)
What clauses should every shipping contract include?
Every contract should include parties, scope of shipping services, payment terms, liability limits, claims procedures, compliance with laws, and dispute resolution methods.
How do shipment vs. destination contracts affect risk?
In a shipment contract, risk transfers to the buyer once the goods are with the carrier. In a destination contract, the seller retains risk until the goods reach the buyer’s specified location.
Are Incoterms the same as a shipping contract?
No. Incoterms define terms of sale between a buyer and seller. A shipping contract is the agreement with the carrier to transport the goods.
How is liability different from declared value?
Carrier liability is the default amount a carrier is responsible for (e.g., $100). Declared value is when a shipper pays a fee to increase the liability limit up to the value of the goods.
Who files the ICS2/ENS for EU shipments?
Typically, the carrier files, but contracts should explicitly assign this responsibility and require the shipper to provide accurate data on a strict timetable.
Do FMC billing rules change my invoices?
Yes. For U.S. ocean shipments, invoices for detention or demurrage must now contain specific information, be sent to the correct party, and be issued within 30 days.
How do FOB vs. CIF vs. FCA differ in risk & cost?
The key differences are the point where risk transfers and which party is responsible for paying for freight and insurance. Under FCA, risk transfers at a named place. Under FOB, risk transfers when goods are on the vessel. Under CIF, risk also transfers on the vessel, but the seller pays for freight and insurance to the destination port.
When should I buy separate cargo insurance?
You should buy separate insurance when your goods’ value exceeds the carrier’s liability limit or you need broader protection against risks not covered by the carrier.