Transition of risks and insurance in international trade

International trade is always associated with risks: damage to cargo, delays, accidents, errors in overloading or even loss of goods. To avoid disputes between seller and buyer, an international set of rules is used. IncotermsThe International Chamber of Commerce.

These rules define, At what point the risk for the goods passes from the seller to the buyerand Who is obliged to organize and pay for cargo insurance. Understanding these principles is particularly important for companies dealing with container shipping, maritime and rail logistics.

What the Incoterms Rules Regulate

Incoterms - It is the universal language of international trade. They define:

• moment Transition of risks of damage or loss of goods
• transporter
• insurance
• Who is responsible for export and import clearance
• Who bears the costs of loading, transshipment and delivery

Current version of the rules Incoterms 2020It is used in most foreign trade contracts.

It's important to understand: Incoterms regulate the allocation of risks and responsibilities.It does not replace the delivery contract itself.

Moment of risk transition

One of the key provisions of Incoterms - it the moment when liability for the goods passes from the seller to the buyer.

Depending on the chosen term, this may occur:

• warehouse
• at the time of transfer
• port
• port of destination
• final delivery

For example:

• EXW (Ex Works) - The risk passes immediately after the transfer of the goods in the warehouse of the seller
• FOB (Free On Board) - The risk passes after loading the goods on the ship
• CIF (Cost Insurance and Freight) the seller pays for transportation and insurance to the port of destination, but the risk passes at the time of loading on the ship
• DAP (Delivered at Place) the seller carries risks almost until delivery to the destination

Therefore, the choice of the term directly affects the allocation of financial responsibility between the parties to the transaction.

Who is obliged to insure the cargo

Not all Incoterms terms provide for compulsory insurance.

In most cases:

• insurance organize the party on which the risk is
• The parties may additionally specify requirements in the contract.

However, there are two exceptions where insurance necessarily:

• CIF (Cost Insurance and Freight) maritime
• CIP (Carriage and Insurance Paid To) transport

Under these conditions, the seller is obliged to issue a cargo insurance policy buyer.

In the version Incoterms 2020 CIP conditions have a higher level of insurance coverage - usually Institute Cargo Clauses (A).

Why is it important to choose the right delivery terms

Errors in choosing Incoterms can lead to serious problems:

• litigation
• uncertainty in insurance
• double logistics costs
• failure of insurance companies to pay

For example, if the company purchases goods under the terms of n EXWBut does not organize insurance and transportation, then all risks remain on the buyer’s side. since shipment from the seller's warehouse.

In reality, many companies only find out about this after an insurance event occurs.

International trade practices

In practice, Incoterms terms are selected based on:

• Experience of parties in foreign trade
• Logistics capabilities
• level of trust between partners
• supply and warehouse structures

For example:

• major importers More often working on FCA or FOB
• beginner prefer CIF or DAP
• producer They often sell on EXW.

When working with China, it is especially important to consider multimodal transport - a combination of sea, rail and road transport.

Incoterms - It is the foundation of international trade. These rules allow us to determine in advance:

• Who is responsible for the goods at each stage of transportation
• transporter
• insuranceman
• When the risk passes to the other party

The use of Incoterms helps reduce financial risks, avoid disputes and protect participants in foreign trade transactions.