Farming Magazine - July, 2014

COLUMNS

Business: Marine Cargo Insurance

Ten tips for successful exporting
By Bob Furjanic

Your export customer should receive their shipment of machinery tomorrow. However, they advise you they will be holding the container at the pier for 30 days. They are unable to clear the shipment due to a backlog of containers that recently arrived. What can you do to assist your customer? To whom do you communicate this information?

To be a successful exporter, your company needs to establish operating procedures to ensure that your shipments will arrive safely at their destination without delay. Here are 10 tips that can help you achieve this goal.

1. Be sure you are not prohibited from trading with your customer. All insurance contracts are based on an implied or expressed warranty of legality. The marine cargo insurance policy must be legal not only in the U.S., but in all the countries to which you are exporting and with respect to shipments to certain governments, groups and individuals located abroad. It may even be subject to the laws of the country in which your insurance company is located.

The U.S. Treasury Department's Office of Foreign Assets Control "administers and enforces economic and trade sanctions," which specify lists of countries, specially designated nationals, and other parties with which your company cannot conduct trade. Your company should become familiar with the sanctions and perform your own due diligence to be in full compliance with U.S. laws, including licenses. Failure to adhere to U.S. sanction laws and regulations can result in civil penalties and details of the violation being put on the U.S. Treasury website.

You also will need to determine whether your company can ship CIF (cost, insurance and freight) to your customers. Certain countries in Africa, South America, the Middle East and South Asia require that all imports are to be insured in the local market, and the buyer is prohibited from insuring imports abroad. While these laws may not always be enforced, the American exporter must be compliant with local law to avoid breaching an implied or expressed warranty of legality. While there are ways to insure to these restrictive insurance countries using "admitted" carriers, space does not permit a full explanation.

2. Check the terms of sale. Are the terms of sale detailed in the purchase order based on 2010 or 2014 Incoterms? What are the seller's and buyer's responsibilities under the terms of trade for insurance? Adopting this practice will minimize most disputes.

3. Verify the insurance requirements in the letter of credit. Does your company's certificate of insurance include all insurance requirements specified in the buyer's letter of credit? If it doesn't, this information must be placed on the insurance certificate. The buyer's bank will deem any omission in the insuring conditions to be a discrepancy that requires agreement by the buyer. This mistake will delay receipt of funds. In the meantime, your shipment may be in transit.

If the letter of credit stipulates institute cargo clauses (British), does your policy cover these special conditions when typed on the face of the insurance certificate? Ask your insurance broker or logistics provider to show you where such coverage is located in the policy so your company does not issue a certificate of insurance broader than your policy.

4. Route the shipment to save time in transit. When your company routed the shipment, was the freight booked at the lowest possible rate regardless of transit time? Did you provide the consignee with options to receive the goods promptly at a higher freight cost? If you choose the cheapest option, it may impact your marine cargo insurance policy.

A container that is held at a discharge port or transshipment point for an extended period of time may be exposed to extremes of weather, port flooding and container accidents. Likewise, each loading or discharge operation onto different vessels increases the possibility of damage.

You might want to consult with your logistics provider to determine the duration of the entire voyage, the number of transshipment points, and how long the container will be at any one location. Having your container at a transshipment point in the Caribbean for an extended period of time during hurricane season may not be in anyone's best interest.

5. Be aware of the political situation in the country to which you are exporting. Recent events in the world have demonstrated that political upheaval can occur rapidly. If your company has shipments destined for areas where war, strikes or riots have occurred, you may wish to delay shipment. If there are shipments awaiting discharge, it may be prudent to advise your insurance company promptly that there are goods at risk in an area of unrest.

6. Consider weather conditions during transit. Certain severe weather conditions may be present during ocean transit: heavy seas, extreme cold and wind in the North Atlantic from November through March; hurricanes in the Gulf of Mexico/Caribbean/Atlantic from June to November; typhoons in the Far East from May to November; and monsoons in South Asia from June to September and December to March. Avoiding these periods of extreme weather may be prudent.

7. Use moisture absorption units if you must ship during severe weather. If your company must ship cargoes during extreme weather, utilizing moisture absorption units inside the container can minimize the moisture evaporation/condensation cycle inside the container. The manufacturer will suggest the proper number of units for each type of container. Removing more than a half-gallon of water per unit can make a difference in the outturn of your product. Yes, it is an extra expense, but necessary to minimize the risk of your goods being damaged.

8. Use kiln-dried wood for construction of pallets. Pallets that have been stored outside or constructed with green wood should not be placed in the container, since they will release additional moisture into the atmosphere of the container during transit. Use kiln-dried pallets and dunnage to minimize the release of moisture.

9. Be sure you have a container inspection report. The container inspection report establishes the condition of the container at the time of shipment. You might want to have your drayage company be the first line of detection for unsatisfactory containers. They can make the initial selection based on the criteria you give them: no holes in the roof or sides; clean and dry; no obvious odor or stains on the floor; and door gaskets in good condition, with no missing sections. Do not repair any loose patches or holes. Your company may reject substandard containers more than once.

10. Communicate changes in the voyage to the insurance company. Finally, the most important tip: Tell your insurance company (through your broker or logistics provider) if your company or another party required an unscheduled stop of the container or changed its direction. There are several provisions in the policy that require the assured to report changes in the course of transit. Such events as goods placed in a warehouse or held in pier storage after discharge, refused shipment, or deviation in the voyage are examples of when the exporter or customer needs to advise the insurance company.

In the example provided at the beginning of the article, the exporter might assist the customer by advising the insurance company that the shipment would be delayed in delivery. This notice to the underwriter could result in an additional premium being charged due to the increased risk of having the shipment remain on the pier for an extended period of time. However, the assured has discharged its obligation under the policy by providing prompt notice of an increased risk.

The foregoing information is a general overview of marine cargo insurance considerations in making export shipments. It is not meant to be a complete treatment of the subject. The actual coverage is always subject to the policy terms and conditions of your particular marine cargo insurance policy.

Bob Furjanic is a freelance contributor on marine cargo insurance and president of Four Anchors Worldwide LLC, Pleasantville, New York.