Companies who import goods from overseas countries need to carefully consider their terms of sale (which are usually Incoterms 2000) when deciding to insure the international cargo risk themselves or via the seller (terms of sale are then usually “CIF” or similar). Insuring your imports on a “CIF” basis through the seller can have serious uninsured risk consequences.
Disadvantages of Importing “CIF”
- Delay. Delay in claim settlements will be experienced as the cover is arranged overseas and is therefore handled through agents of the overseas insurance company as against policies issued by South African insurers who will arrange immediate claim surveys and speedier claim settlement
- Cover. The buyer has no control over the type of cover purchased. Cover arranged by the seller could be restricted to “B” or “C” Clauses which essentially reduces you cover from All Risk type cover to one of restricted perils. In terms of Incoterms 2000, the seller is only contractually obliged to insure for “C” Clauses (very restricted cover) as opposed to “A” Clauses (All Risks type cover) which you would usually insure if the cover is effected in South Africa. In the final analysis the question is, how often in your busy day-to-day activities do you have time to check what cover the seller has arranged – a problem you would not have if you insured locally
- Premiums and Excesses. You (as the “buyer”) would have no control over the premium included by the seller in his charges and the excesses imposed (which may be exorbitant). Quite often the insurance premium and excesses will not be shown separately in the shipping documentation – the result is that you are in the dark as to the cost of insurance in relation to the total landed cost of product. It follows that since you have no control of the rates you will not enjoy any premium reductions due to a good loss record. The converse applies if insured locally as you would be fully aware of the total cost of insurance, who the insurer is, the extent of the excesses and you would enjoy the benefits a good claims record brings
- Cover until Final Destination. CIF cover ends at the port of discharge. The transit from port to final destination is your responsibility to insure. Often companies think that as they have insured CIF they are covered only to find out at claim stage that the risk passed to them at port of discharge. A second common misperception is that the risk from port to final destination is covered by their Inland Transit policy. This is not the case as your local Inland Transit and Marine policy will not respond where you collect the goods yourself from the port in that it is a policy condition that the goods be consigned to you (by way of consignment notes) in order for cover to apply. In addition, local Goods in Transit policies exclude "loss arising whilst in transit by sea or inland transit incidental thereto".This Inland Transit cover is extremely difficult to secure as not only is it always a short period journey, but more importantly insurers usually find it difficult to ascertain when the loss occurred and are thus reticent to insure this short journey until final destination. This would not be the case if you insured the entire risk from "Warehouse to Warehouse" i.e. Ex-Works
- Currency Fluctuations. Currency fluctuation risks are negated when covered locally as premium and claim settlements are made in Rands
- Extra Costs. The Seller may only secure cover for the property for their CIF value. Costs such as Custom Duties, Freight and Clearing & Forwarding Costs etc are not then insured which would result in a claim shortfall. These costs are factored into your basis of valuation when insuring locally
Solution
We strongly advocate that you avoid insuring your imports on a “CIF” basis given the above disadvantages. Chadwicks has the expertise and wherewithal to ensure that your international cargo risk is correctly transferred to your insurance policy at the best terms available in the South African insurance market. An added feature of using Chadwicks, in terms of your international cargo risk, is that we ensure that your Marine Insurance Policy dovetails with your Business Insurance Policy thereby eliminating the prospect of that dreaded gap in insurance cover.