When I sent out a request for a survey to make this blog more useful, one of the suggestions received was that I involve the readers in more question/answer discussions.. Abiding by the wishes, here’s a question that I have been asked by a reader (Bouit Malika)..
Since 7 years we imported our products from Turkey using LC irrevocable, without paying insurance from our company and our supplier , and our country put us condition to use CFR.
Now our supplier force us to pay him but we didn’t receive goods.
Last month an accident happened to the ship cargo on Greece coming from Turkey, all containers fall in water.
He sent documents on time but our bank found some mistakes on the documents , and they reject them , please inform me what we do ?!
Shipping cargo without insurance – not a very good idea..
What do you think this client should do..??
CFR is a contract that involves international transportation for goods to be delivered at a particular place and at a specified time. The payment is based on cost and freight terms –
meaning the risk of loss (Insurance) shifts from the seller to the buyer who pays the costs of freight and insurance. Therefore, CFR means Cost and Freight for the goods, paid by the buyer who also has the responsibility of ensuring that his goods will get to his destination safe (cost of insurance) for them.
I was just telling a colleague the importance of not incurring in the exclusion 4.3 from ICC A:
4.3 loss damage or expense caused by insufficiency or unsuitability of packing or preparation
of the subject-matter insured (for the purpose of this Clause 4.3 “packing” shall be deemed
to include stowage in a container or liftvan but only when such stowage is carried out
prior to attachment of this insurance or by the Assured or their servants)
First of all, the incoterm is CFR therefore the responsibility of the beneficiary is up to your port. In this case, it wasn’t met.
Banks are not interested on what is happening on sea. They only deal with documents. Therefore, in your case, the documents were not compliant and therefore you do not pay him.
Its baffling to me how you don’t take insurance on CFR shipments….Most of the readers have already opined, GA itself is enough for you to weigh the cons of not having an insurance in place…Further the risk has passed to you once the consignment is placed on board the vessel and hence whether consignment reaches the destination or not is not the concern of the shipper…You will have to pay the seller. You could have recovered the loss had a cargo insurance been in place….
In today’s day and environment insurance cover is not an expensive exercise.
I can never understand the rational of Shippers / Consignee’s. These same people do not hesitate to insurance there house, car, boat and even in some cases themselves, yet when it comes to transit insurance they deem this as irrelevant. Absolute madness
If I can offer advice to any Freight Forwarder, it would be to always check with your clients to ensure they have cover. This one simple questions can save you and the business hours of paperwork if a claim was to arise. Your client will also be indebted if there cargo was damaged and cover was in place.
Harisesh , I personally feel more training needs to be provided to both Shippers , Consignee’s & Freight Forwarders when it comes to Transit Insurance. Especially with the claim process and on how to handle and protect yourself as an individual or Business. I myself are still trying to self-lean in this area.
Could you look into providing an education blog on the subject of Transit Insurance.
I feel this woudl be very beneficial for all.
Firstly, check out getting some cargo insurance. If you have gotten away with having no mishaps in seven years, you are very fortunate. Agree with most of the comments above, the goods were at your risk at the time of the loss,(not the sellers), they are entitled to payment because they’ve been ‘delivered’ as per the incoterms. There may be some recovery from the shipping line, depending on the circumstances of the loss, but they will have limited liability. ‘A shipping line’ makes a very valid point re GA, if it had been declared in this instance, you could find yourself with no cargo, out of pocket for monies paid to the seller for goods not physically received and a big contribution bill for the GA. It is worth having cargo insurance for this reason alone. What to do? try claiming from the shipping line or perhaps there may be some room for a commercial arrangement with the seller based on the relationship history?
I really do not understand this question. The first part of the question seems to be under a CFR shipment, should the buyer insure the cargo? Of course, that question is not a simple yes or no . . . It depends on the buyer’s willingness to assume the risk. If the buyer ships one container every month for ten years and the containers hold only $20,000 worth of goods and if the buyer can handle that kind of loss, he may be able to not insure and even if one of the ships sinks, he is probably money ahead. But if he ships fifty containers every month and each containers hold $200,00 worth of goods, he may be foolish not not insure.
The second part of the question seems to be . . . if the goods are lost must I still pay the seller? The answer, of course, is absolutely. Why would this question even be asked? The fact that there was a snafu in the Letter of Credit does not eliminate the obligation to pay for goods shipped CFR, whether the container arrives, or whether it does not. It’s a thing called business ethics.
As bank has found discrepancy in the shipping documents hence L/C should not be negotiated, as your shipper is shipping on CFR term therefore it still remains your shipper responsibility that cargo must reach named destination. You should inform your supplier to take up their claim with shipping company / freight forwarder and for you they should ship new consignment and this time they must take insurance coverage to safeguard their own interests as your shipper is the one who is forcing you to buy on CFR term.
@ Yousuf, You are incorrect. Under CFR it is not the “shipper’s responsibility that the cargo must reached named destination”. It may, however, be the responsibility of the “shipping line”. There is a difference between the “shipper” and the “shipping line”! – – – A huge difference. And what you are really talking about here is the “seller” and the “buyer”.
Under Incoterms 2010 rule CFR, A4 Delivery . . . “The seller must deliver the goods either by placing them on board the vessel or by procuring the goods so delivered. In either case, the seller must deliver the goods on the agreed date or within the agreed period and in the manner customary at the port.”
Under CFR, once the seller delivers the goods on board, the risk of loss passes to the buyer under Incoterms 2010 CFR A5, which states, “A5 Transfer of risks. The seller bears all risks of loss of or damage to the goods until they have been delivered in accordance with A4, with the exception of loss or damage in the circumstances described in B5.
Unter Incoterms 2010 rule CFR, B3 “Contracts of carriage and insurance
a) Contract of carriage
The buyer has no obligation to the seller to make a contract of carriage.
b) Contract of insurance
The buyer has no obligation to the seller to make a contract of insurance. However,
the buyer must provide the seller, upon request, with the necessary information for obtaining insurance.”
Therefore, the seller is not liable for the goods if they do not reach the destination. As to the liability of the shipping, line, you would need to read the shipping line’s Terms & Conditions and analyze the facts regarding the cargo loss and then get into the Law of General Average and all that other insurance stuff.
Therefore, you are also incorrect that the seller should ” . . .,ship new consignment and this time they must take insurance coverage to safeguard their own interests as your shipper is the one who is forcing you to buy on CFR term.” The seller is not liable.
As to the Letter of Credit, while that may not pay because of the defect, it does not eliminate the buyer’s responsibility to pay for the delivered goods.
As someone who works for a container carrier, I always think it’s a good idea not only to protect yourself from incidents like this, but also from the possibility of General Average. You find out a lot about your customers when General Average is declared!
However, some customers with big volumes disagree and “play the percentages”. They claim what they save in insurance outweighs the odd claim. Not sure I agree. Better safe than sorry.
Yes even though your shipper is covering most of the freight costs you have not asked them to provide insurance cover for the goods. This is your responsibility. For future shipments either take out marine insurance to cover these shipments yourselves or ask your supllier to quote on CIF terms
It is your responsibility to ensure suitable insurance cover for CFR shipments, check if your company has maritime insurance and make a claim.