International Shipping – Cargo Insurance
As with health, automobile, and life having good insurance coverage is important. The uncertainty involved with international shipping also requires that competent insurance coverage be contracted. Once “insurable interest” has been proven, meaning there is no question as to who the goods belong to and that financial loss will occur in a case where the goods were damaged or lost during transport, then the insurance policy is binding and valid.
The responsibility of the international shipping company in regards to the cargo they are transporting varies according to international conventions. The true value of the goods is not always covered by the policy. The actual value that is protected will end up varying from country to country. So it is prudent to thoroughly check what the laws are in the countries you are moving from and to.
Contracts of Sale and Insurance
The most common risks that occur in international shipping are damage, delays (which include customs and quarantines), and complete loss of the cargo. How these risks are settled between the buyer and the seller of the insurance policy should be explicitly detailed within the contract using what is called Incoterms. Incoterms are a internationally recognized set of trading terms which define exactly when costs and risks change from buyer to seller and vis-a-versa. In fact, the Incoterms detailed in the contract will have a direct impact on the cost of the policy since the more risks that are assigned to you, the more insurance coverage you will need to recoup your losses in case of an event.
For example in Ex-Works, or EXW contracts, the seller of the merchandise is recognized as having delivered the goods once they are made available for pick up at his factory. The responsibility for insuring the merchandise falls on the buyer from that point on. With Delivered-Duty-Paid, or DDP contracts, the exposure to risk remains on the seller until the merchandise has arrived at the location designated by the buyer free from all import duties and regulations. Therefore, the seller will need to contract an insurance policy until that point.
Although, there is no obligation to buy an insurance policy when executing a EXW and DDP contract. Only the Incoterms CIF, Cost Insurance Freight, and CIP, Cost Insurance Paid, require an insurance contract, and in both cases the obligation falls on the seller.