How to move goods by sea
Cargo insurance for goods at sea
As with any commercial transactions, there are risks associated with trading internationally and it's important to arrange appropriate insurance cover. You're likely to see the phrase 'marine insurance'. This doesn't only apply to ocean shipping - it also covers transport by road, rail and air.
Shipping companies' liability for the cargo they carry is set by various international conventions and does not always equate to the full value of the goods. The level of protection this offers varies from market to market, so you should check what the position is - see transport insurance.
Contracts of sale and insurance
The main risks that arise in international trade are loss, damage and delay (including detention at customs). How these risks are shared between buyers and sellers should be covered in the contract of sale (not the contract of carriage), using Incoterms.
Incoterms are a standard set of trading terms that indicate precisely when responsibility for costs and risks shifts from seller to buyer. This affects your insurance, because the more costs you're responsible for, the greater the insurance cover you'll need. For example:
- In an ex-works transaction, the seller is considered to have delivered the goods once they've been made available for collection at the factory or warehouse. From that point on, risk passes to the buyer, so the buyer should insure the journey from that point.
- With a delivered-duty-paid (DDP) sale, the risk only passes to the buyer once the goods have arrived at their place of destination and have been cleared for import. In this case, the seller should insure the journey up to that point. There is no obligation under DDP for either buyer or seller to contract for insurance. Only two terms in Incoterms - CIF and CIP - require insurance to be contracted - in both cases it is the seller's obligation. For all other Incoterms, it is recommended that buyer and seller agree who will be responsible for taking out insurance to cover the safe delivery of the consignment.
For more information, see our guide on international commercial contracts - Incoterms, but be aware that Incoterms are terms for contracts of sale and they do not apply to contracts of carriage. You are advised to check whether the Incoterm you currently use continues to apply as a revised set of Incoterms applies as of 1 January 2011.
Traders often tend to under-insure themselves, so it's recommended that you add 10 per cent to the amount of cover you think you need. You can also arrange cover for contingencies, eg the buyer refusing to accept your goods when they arrive.