The responsibilities for the risks of loss or damage of goods in transit are defined by the term of delivery – INCOTERMS. It is normal for an exporter to purchase insurance to cover for the risk of loss or damage to goods in transit, including for any delivery to the port or airport. This is known as cargo insurance or marine cargo insurance.
Cargo insurance is a specialized service. Cover and conditions will vary according to the commodity or goods that are being transported – some will be inherently difficult or dangerous to transport – and the method of transport.
Normal risk management procedures apply – the insurance policy will not pay out if the goods have been packaged or transported inappropriately. It is wise to use a broker for placing cargo risks. A specialist may be able to provide additional covers.
Image Source: bromwall.co.uk
Scope of Coverage:
ADVERTISEMENTS:
The following can be covered for the risks of loss or damage:
a. Cargo – import, export, cross voyage – dispatched by sea, river, road, rail post, personal courier, and including associated storage risks.
b. Goods in transit (inland).
ADVERTISEMENTS:
c. Freight service liability.
d. Associated stock.
However there are still a number of general exclusions such as loss caused by delay, inherent vice, war risks, improper packaging, and insolvency of the carrier. Covers for some of these may be negotiated with the insurance company. The Institute War Clauses may also be added to add defined war cover.
Regular exporters may negotiate “open cover”. It is an umbrella marine insurance policy that is activated when eligible shipments are made. Individual insurance certificates are issued after the shipment is made. Some letters of credit will require an individual insurance policy to be issued for the shipment, while others accept an insurance certificate.
Specialist Covers:
ADVERTISEMENTS:
Whereas standard marine/transport cover is the answer for general cargo, some classes of business will have special requirements. General insurers may have developed speciality teams to cater for the needs of these businesses, and it is worth asking if this cover can be extended to export risks.
Cover may be automatically available for the needs of the trade.
Examples of this are:
a. Projects – Constructional works insurers can cover the movement of goods for the project.
b. Fine art.
c. Precious stones – Special Cover can be extended to cover sending of precious stones.
d. Stock through put – Cover extends beyond the time goods are in transit until when they are used at the destination.
Seller’s/Buyer’s Contingent Interest Insurance:
An exporter selling on, for example FOB (INCOTERMS 2000) delivery terms would, according to the contract and to INCOTERMS, have no responsibility for insurance once the goods have passed the ship’s rail.
However, for peace of mind, he may wish to purchase extra cover, which will cover him for loss, or will make up cover where the other policy is too restrictive. This is known as Seller’s Interest Insurance.
Similarly, cover is available to importers/buyers.
Seller’s Interest and Buyer’s Interest covers usually extend cover to apply if the title in the goods reverts to the insured party {e.g. on exercise of Retention of Title or lien) until the goods are recovered, resold or returned.
Loss of Profits/Consequential Loss Insurance:
Importers buying goods for a particular event (e.g. fireworks for Diwali) may be interested in consequential loss cover in case the goods are late (for a reason that is insured) and (expensive) replacements have to be found to replace them. In such cases, the insurer will pay a claim and receive any proceeds from the eventual sale of the delayed goods.
Charterer’s Liability Insurance:
This is the cover for persons chartering a ship, for example for a bulk shipment.