Underlying contract

The underlying contract is the original cargo sale or trade contract that sits beneath a charter or carriage arrangement and drives the shipping terms. The sale contract, often an FOB or CIF deal under Incoterms, fixes who arranges and pays for carriage, what documents the seller must tender, and the delivery and risk-transfer point, which in turn shapes the charter party and the bill of lading the parties need. Disputes over freight, demurrage, or documents frequently turn on the underlying contract, since a letter of credit and the bill of lading must conform to its terms for the seller to be paid.