by Sherri Lane, Director of Consulting and Cargo Insurance at Trade Technologies, Inc.
It is commonplace that a buyer requests warehouse to warehouse coverage of the goods they are purchasing. Furthermore, insurance companies routinely provide the coverage at no additional charge. But the insurance provider agreeing to offer no charge coverage for warehouse delivery does not translate to being automatically insured, and neither does typing the warehouse clause on the insurance certificate. So how can you know for certain if you are fully covered in the case of partial or total loss of goods in transit from the port to the buyers’ door?
The following are three crucial details to help you bridge the coverage gap, eliminate associated risks, and realize the true effects to the physical and financial supply chain.
Detail 1: Correct Application of the Incoterm©2010 rule
The Incoterm rules clearly defines the obligations, transfer of risks and division of costs between the buyer and seller. The application of DAT, DAP and DDP rules requires the seller to deliver the goods at a place designated by the buyer. Therefore, the ‘D’ rules incorporates the warehouse to warehouse clause eliminating all risks and liability associated with the delivery of the goods.
The major risk and potential losses are associated with sales under the CIF or CIP rules when the buyer requests warehouse to warehouse coverage to be added to the insurance conditions. The incoterm ‘C’ rules define the sellers’ delivery obligations and responsibility only to the destination port or airport. The warehouse clause extends the sellers responsibility to the buyers’ door creating an obvious gap in liability. If you encounter a sell with this dilemma, you can still eliminate the delivery risk and salvage the sell by adhering to details 2 and 3.
Detail 2: Maintain control of the delivery
It is imperative that the seller maintains control of the goods up to delivery to the buyers’ door in order to eliminate non-covered risks. The seller can accomplish this by engaging the carrier and/or the forwarder for executing the overseas delivery. There may be additional freight charges added by the carrier or forwarder but that will be far less expensive than the cost of the goods in the event of damage or loss.
However, some buyers will insist on controlling the delivery aspect and contracting the inland carrier. The insurance coverage you thought you had to the buyers’ door will be null and void. If you surrender control of the delivery any loss or damage incurred in this phase of the transportation will be solely out of pocket.
Herein lies the rub. Who is liable for the goods from the port to the door? The answer is the party controlling the delivery. If you encounter a buyer such as this and lose control of the delivery, be sure to decline warehouse to warehouse coverage and have the clause deleted from the Letter of Credit and other pertinent documents. Otherwise, the buyer will look to you for replacement of the goods which could be catastrophic.
Detail 3: The accuracy of the transport document
Warehouse to warehouse delivery will require a ‘final destination’ and a ‘delivery to …’ instruction from the buyer. This detail is particularly important under letter of credit shipments. The letter of credit will need to state the port of discharge and the final delivery point in swift tags 44F and 44B respectively. Accordingly, the transport document will need to state the same detail as in the letter of credit. This final detail reiterates the liability and responsibility of seller in door delivery.
So, go ahead and offer warehouse to warehouse coverage to your buyer. Just be sure to assess and implement the details to make it a successful endeavor. The take away is this bottom line rule: Warehouse to warehouse coverage by the seller ceases when or where the buyer takes possession of the goods. The result of your efforts will keep dollars in your pocket and the relationship with your customer intact.
To learn more about Trade Technologies services for exporters and importers, please visit our website: www.tradetechnologies.com
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