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Seller's Interest Clause: An essential protection to secure the transportation of goods.
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What is a "seller's interest" clause?
The different incoterms of sale define rules on the sharing of costs, obligations, and responsibilities between buyers and sellers.
The use of these rules alone and the burden placed on either party to bear the costs of insurance do not always protect the seller against unforeseen events that may disrupt the smooth progress of the transaction.
In many cases, it is It is necessary for the seller to include a clause called "Seller's Interest" To his Goods Transport insurance policy in order to provide him with extended protection, even after the risks have been transferred to the buyer.
According to the incoterms FOB (Free On Board) and CFR (Cost and Freight) The transfer of risks takes place at the time of delivery, that is, when the goods are placed on board the ship.
The transfer of risks takes place at the time of delivery, that is, when the goods are placed on board the ship.
Therefore, it is the buyer who bears the risk of loss of the goods or damage during their transportation, and it is up to them to take out transport insurance (if they wish, as there is no obligation under the incoterm, although it may be required by the sales contract).
The transfer of risks takes place at the time of delivery, that is, when the goods are placed on board the ship.
Free on Board
The seller delivers the goods on board the ship, and the risk is transferred to the buyer at that time.
CFR stands for Code of Federal Regulations.
The seller arranges the maritime transport to the destination port, but the risk is transferred to the buyer as soon as the goods are on board the ship.
However, The seller is not completely free from risks. Even if he is not required to take out insurance under the terms of sale used. Indeed, he may be faced with a claim during transport resulting in rejection of the goods, refusal or non-payment, or even a failure or non-existence of the buyer's insurance. He remains at risk in the face of several situations that could cause him significant harm.
Even if he is not required to take out insurance under the terms of sale used. Indeed, he may be faced with a claim during transport resulting in rejection of the goods, refusal or non-payment, or even a failure or non-existence of the buyer's insurance. He remains at risk in the face of several situations that could cause him significant harm.
In order to deal with this potential danger, the FOB or CFR seller may choose to maintain coverage for the goods they sell through the application of a seller's interest clause that will allow them to benefit from the coverage of their insurers up to their actual loss.
Even if he is not required to take out insurance under the terms of sale used. Indeed, he may be faced with a claim during transport resulting in rejection of the goods, refusal or non-payment, or even a failure or non-existence of the buyer's insurance. He remains at risk in the face of several situations that could cause him significant harm.
Case study of an exporter
Exporter X sells a shipment of wheat to importer Y under Incoterm CFR. Once the cargo is loaded on board the ship at the loading port, the risk is transferred to buyer Y. The payment terms are such that the buyer must pay 70% of the total amount of the order on the date of the Bill of Lading +30 days, with the remaining 30% already having been paid as a deposit. Thus, the exporting seller remains financially at risk for 70% of the price of the cargo.
During maritime transport, a fire breaks out on board the ship, destroying the entire cargo. Importer Y refuses to pay the remaining 70%, as the entire merchandise has disappeared.
Exporter X finds themselves, in this case, in an extremely detrimental situation:
The goods are no longer under his responsibility since they were loaded on board the ship.
There is no way to recover the value of the goods or the balance of the payment directly from his insurer (the burden of insurance falling on his buyer).
He will have to undertake long, costly, and commercially difficult steps to recover the amount due from the buyer.
By including a "Seller's Interest" clause in its transport insurance contract subject to the conditions of application thereof (NB: which may be varied depending on the wording of the clause, for example a waiting period, proof of contact with the buyer and/or their insurer, etc.), the seller will be able to be compensated directly by their insurer for their actual loss, according to the terms of their insurance policy, and thus limit the financial impact of the claim on their business.
The "seller's interest" clause is an essential component of a transport insurance contract. especially in the context of FOB sales but mainly CFR depending on the payment terms granted to the counterparties. It offers the seller valuable coverage and additional protection against financial risks related to losses occurring after the transfer of risks.
For actors involved in international trade, this clause is not just a protection tool; it represents a true strategy for resilience and proactive risk management.
An essential point is that this insurance is strictly confidential to the insurance subscriber and must not, under any circumstances, be disclosed to the buyer. It would be legitimate to fear that by knowing this clause, the buyer may forgo financing insurance coverage for the goods, or abuse the seller's coverage and situation by systematically accepting the goods at a reduced price, or by not accepting them.
to the insurance subscriber and must not, under any circumstances, be disclosed to the buyer. It would be legitimate to fear that by knowing this clause, the buyer may forgo financing insurance coverage for the goods, or abuse the seller's coverage and situation by systematically accepting the goods at a reduced price, or by not accepting them.
