Understanding Trade Terms Related to “Costs Additional to the Freight” involved in Sea Shipments

In international trade, when goods are transported by sea, the cost of carriage may involve not only the basic freight but also other associated handling costs such as loading, unloading, stowage and related port operations. Transport documents may mention these additional costs either by stating actual monetary figures (e.g., Terminal Handling Charges – THC in container shipments) or by using shipping trade terms that imply such costs, such as Free In (FI), Free Out (FO), Free In and Out (FIO), Free In and Out Stowed (FIOS) etc., generally used in bulk or break-bulk shipments.

In containerised shipments, freight may be booked on liner terms, which generally indicate that relevant loading and/or unloading costs are covered as part of the liner freight structure. Where the sales contract requires the seller to book freight on liner-based terms, the seller is expected to bear such related charges, meaning the buyer should not be required to pay port-handling charges to the carrier at destination in order to take delivery of the goods.

In bulk or break-bulk shipments under a charter-party agreement, the freight may be agreed as covering only ocean carriage, or negotiated to include certain port-handling activities, in full or in part. Handling costs that are not included in the freight may be represented by the following expressions in charter-party contracts or bills of lading:

• FI – Free In: Freight does not include loading costs.
• FO – Free Out: Freight does not include unloading costs.
• FIO – Free In & Out: Freight does not include either loading or unloading costs.
• FIOS – Free In, Out & Stowed: Freight does not include loading, unloading and stowage costs.
• FIOST – Free In, Out, Stowed & Trimmed: Freight does not include loading, unloading, stowage and trimming costs.

If, under the sales contract, the buyer is not responsible for these cost components, showing such indications on a transport document may be interpreted as potential cost responsibility connected to the consignee. To avoid this, the buyer may prefer that such cost-related expressions are not shown either expressly or implicitly on the transport document.

When payment is to be made under a letter of credit (LC), the buyer may include a condition in the LC requiring that the relevant transport document must not indicate costs additional to the freight, to avoid any perceived obligation toward the carrier for release of the goods at destination. When such a condition exists, under International Standard Banking Practice (ISBP), the transport document is expected not to expressly state or imply such cost-related indications, including through the use of trade terms.

Refer to ISBP 821 — D31(a) and (b), E27(a) and (b), F25(a) and (b), and G25(a) and (b) for guidance relating to indications of costs additional to freight in transport documents.