We live in uncertain economic times and it is important to recognise that with New Zealand being a country reliant on imports and exports, transit risk needs to be managed well.
All too often in a bid to secure an overseas sale, exporters will agree to buyers’ terms without giving them much thought. INCOTERMS, which are internationally recognised trading terms, define the boundaries of where “risk” attaches – in other words, who will carry the loss if the goods are damaged, destroyed or go missing; and also dictate which of the parties (buyer/seller) has the responsibility for arranging insurance.
If an export sale is made on a CFR or FOB basis, any loss or damage to the cargo which occurs after the goods are loaded on the ship is the responsibility of the buyer. In an ideal world, that would mean the buyer honouring the sale contract and paying for the goods in spite of the damage.
But what happens if the buyer does not have insurance or fails to pay for the goods they have ordered?
You must implement some risk management strategies into your sale or purchase procedures. Examples of this can include:
1) Sell on a CIF basis. Under INCOTERMS this requires you to take out the insurance, although you can charge the cost of it to the buyer.
Having local insurance allows you to have control over any insurance claim at the source, which benefits you and gives your buyer better peace of mind.
An insurance certificate needs to be supplied as part of the documentation on a CIF sale. This gives the buyer direct access to the insurer.
2) Make sure you get paid! How is your buyer paying for the goods? Letters of credit, telegraphic transfers, payment in advance and payment on presentation of documents are some ways to protect your sale.
3) If you are selling on an FOB or CFR (C&F) basis, ask your buyers for evidence of their cargo insurance (request a “certificate of currency” from them or their broker). You don’t want to be left unpaid for risks which your buyer can claim for under their cargo policy.
Why Selling CIP/CIF is so important
▪ Non Payment
▪ Brand Protection
Marine Cargo policies are typically designed to cover you for physical loss or damage to your cargo whilst in transit. They have limited scope to cover your “commercial risks”, which should be managed as part of a comprehensive risk management strategy.
Maximum Value Per Conveyance
Make sure you have an adequate sum insured per conveyance (not just per container) as you may have more than one container on a vessel or in storage.
The maximum value per conveyance will not normally effect your insurance premium.
The “Rena” highlighted…..
▪ Insufficient Sums Insured for total losses on the vessel
▪ Buyers on FOB or CFR terms not honouring the contracts