Air & Sea Freight Shipping: Incoterms and Arbitration Explained

In international freight—whether by air or sea—clear definitions of responsibility are crucial. That’s where Incoterms and arbitration clauses play a vital role in governing global trade agreements and resolving disputes.

🔍 What Are Incoterms?

Incoterms (short for International Commercial Terms) are standardized rules issued by the International Chamber of Commerce (ICC) that define the responsibilities of buyers and sellers in global trade contracts.

Common Incoterms for Freight Shipping:

Incoterm	Mode	Buyer’s Responsibility Begins	Includes Insurance?
EXW (Ex Works)	All	From seller’s warehouse	❌ No
FOB (Free on Board)	Sea	Once goods are loaded onto vessel	❌ No
CIF (Cost, Insurance & Freight)	Sea	After goods reach port of destination	✅ Yes
DAP (Delivered at Place)	All	Upon delivery at destination	❌ No
DDP (Delivered Duty Paid)	All	None – seller covers all risks	✅ Yes

✈️ Air Freight Specifics

Incoterms such as CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To) are often used for air freight.
The Air Waybill (AWB) itself is not a title document but includes carrier liability terms under conventions like the Montreal Convention.

🚢 Sea Freight Specifics

Traditional ocean freight heavily uses FOB, CFR, and CIF.
Bills of lading (B/L) serve as a document of title, allowing for ownership transfer and financing.

⚖️ Arbitration in Freight Shipping Contracts

In cross-border logistics, disputes can arise from:

Cargo damage or delays
Misinterpretation of Incoterms
Payment and insurance issues

To manage this, most contracts include arbitration clauses to resolve conflicts outside of court.

Benefits of Arbitration:

Confidential proceedings
Faster resolution compared to litigation
Enforcement under the New York Convention (valid in 170+ countries)
Panels with logistics and legal experts

Common Arbitration Bodies:

London Maritime Arbitrators Association (LMAA)
Singapore International Arbitration Centre (SIAC)
International Chamber of Commerce (ICC) Court of Arbitration

Sample Clause for Freight Agreements:

"All disputes arising out of or in connection with this Agreement shall be finally settled under the Rules of Arbitration of the ICC by one or more arbitrators appointed in accordance with the said Rules."