Do you know your CIF from your CFR?

Do you know your CIF from your CFR?

Cargo insurance does not automatically cover your importers or exporters on a warehouse-to-warehouse basis, as the terms of sale between the buyer and seller will determine which party is at risk during each stage of the transit and which party is responsible for arranging insurance.

As an example, if your client purchases goods from overseas on CIF terms of sale (that will include cargo insurance as part of the purchase price of the goods), insurance cover may cease at the final port/airport in Australia and may not necessarily extend to cover the overland trip to final destination. It depends on how the terms of sale are stated on the commercial invoice or agreed between the parties.

When purchasing goods from overseas on CIF terms, buyers need to be clear from the outset as to the scope and extent of the insurance cover included. Ensuring that coverage is adequate and appropriate is also in the Freight Forwarder’s best interests, as buyers often look to their Forwarder if something goes wrong. If your clients import under CIF terms, the supplier has an obligation to arrange insurance for the goods, but they are only legally obliged to provide a minimum level of cover. That may only extend to major perils such as fire, explosion and grounding or sinking of the carrying vessel.

Some of the most common questions we get asked at AlphaXO Risk Partners are in relation to CIF imports and how to insure goods for the final overland leg of the transit within Australia.  If not covered under the agreed CIF terms, it is rarely possible to arrange insurance for this final leg of the journey on full all risks conditions. Damaged goods are usually only discovered on delivery and so, from an insurers’ perspective, it is almost impossible to know when any loss or damage occurred. Given this, insurers only want to cover products for the whole of their journey.

Other than checking the scope and extent of cover included in any given CIF transaction, an alternative is to encourage clients to import goods on different terms of sale where the importer is required to arrange its own insurance (e.g. CFR terms of sale). The ability for your clients to select their own local insurer and ensure that the terms & conditions and sum insureds are appropriate will provide greater peace of mind.

In a future article, we will provide a brief commentary on the insurance of goods from an exporters’ perspective – if in the meantime you have any questions or require advice on this subject please don’t hesitate to contact the Howden Marine & Logistics team.