It is quite important to evaluate the transportation risk in international trade for better financial stability of export business. About 80% of the world major transportation of goods is carried out by sea, which also gives rise to a number of risk factors associated with transportation of goods.
The major risk factors related to shipping are cargo, vessels, people and financing. So it becomes necessary for the government to address all of these risks with broadbased security policy responses, since simply responding to threats in isolation to one another can be both ineffective and costly.
While handling transportation in international trade following precaution should be taken into consideration.
- In case of transportation by ship, and the product should be appropriate for containerization. It is worth promoting standard order values equivalent to quantities loaded into standard size containers.
- Work must be carried out in compliance with the international code concerning the transport of dangerous goods.
- For better communication purpose people involve in the handling of goods should be equipped with phone, fax, email, internet and radio.
- About the instructions given to the transport company on freight forwarder.
- Necessary information about the cargo insurance.
- Each time goods are handled; there risk of damage. Plan for this when packing for export, and deciding on choice of transport and route.
- The expected sailing dates for marine transport should be built into the production programme, especially where payments is to be made by Letter of Credit when documents will needs to be presented within a specified time frame.
- Choice of transport has Balance Sheet implications. The exporter is likely to received payments for goods supplied while they are in transit.
- Driver accompanied road transport provides peace of minds, but the ability to fill the return load will affect pricing.
Export and import in international trade, requires transportation of goods over a long distance. No matter whichever transport has been used in international trade, necessary insurance is must for ever good.
Cargo insurance also known as marine cargo insurance is a type of insurance against physical damage or loss of goods during transportation. Cargo insurance is effective in all the three cases whether the goods have been transported via sea, land or air.
Insurance policy is not applicable if the goods have been found to be packaged or transported by any wrong means or methods. So, it is advisable to use a broker for placing cargo risks.
Scope of Coverage
The following can be covered for the risk of loss or damage:
- Cargoimport, export cross voyage dispatched by sea, river, road, rail post, personal courier, and including associated storage risks.
- Good in transit (inland).
- Freight service liability.
- Associated stock.
However there are still a number of general exclusion such loss by delay, war risk, improper packaging and insolvency of carrier. Converse for some of these may be negotiated with the insurance company. The Institute War Clauses may also be added.
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.
Whereas standard marine/transport cover is the answer for general cargo, some classes of business will have special requirements. General insurer may have developed specialty teams to cater for the needs of these business, 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.
Example of this are:
- Project Constructional works insurers can cover the movement of goods for the project.
- Fine art
- Precious stonesSpecial Cover can be extended to cover sending of precious stones.
- Stock through put cover extended 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 not 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 extended cover to apply if the title in the goods reverts to the insured party until the goods are recovered resold or returned.
Loss of Profits/ Consequential Loss Insurance
Importers buying goods for a particular event may be interested in consequential loss cover in case the goods are late (for a reason that id insured) and (expensive) replacements have to be found to replace them. In such cases, the insurer will pay a claim and receive may proceeds from the eventual sale of the delayed goods.