International Trade and Export Transactions
International Trade and Export Transactions
This domain tests whether you can trace who bears risk at each stage of a trade transaction, and therefore who buys insurance, on what minimum terms, and with which documents.
The sale contract fixes the insurance obligation
Under Incoterms 2020 only two rules oblige a seller to insure:
- CIF - the seller insures for at least 110% of the contract price, in the contract currency, at minimum Institute Cargo Clauses (C), from shipment to the named destination port.
- CIP - from 2020 the seller must arrange ICC (A) cover, a deliberate upgrade from the old (C) requirement. EXW, FCA, FAS, FOB and CFR impose no insurance obligation; risk passes at the seller's premises, on delivery to the carrier, or on board. DAP, DPU and DDP leave transit risk with the seller but still require no insurance. No Incoterm governs title.
Payment, carriage and documents
Under UCP 600 article 28 the credit's insurance document must appear to be issued and signed by an insurer, underwriter or their agent; cover notes and brokers' certificates are rejected. Cover must be at least 110% of CIF/CIP value, in the credit currency, running from the named shipment place to final destination. The bill of lading evidences the carriage contract and, when negotiable, transfers rights of suit under the Carriage of Goods by Sea Act 1992; sea carriage is governed by the Hague or Hague-Visby regime with its one-year time bar.
Worked example
A Japanese buyer purchases machine tools CIF Hamburg; the seller tenders an ICC (C) policy at 110% of invoice value. An earthquake at Hamburg damages the containers before delivery. Risk passed to the buyer on shipment, so the buyer is the claimant - but earthquake, volcanic eruption and lightning are covered under ICC (B), not (C). The buyer is uninsured for that event even though the seller complied strictly with CIF. The loss is the buyer's commercial problem, not a seller's breach.
Marks-losing traps
- Assuming FOB or FCA obliges the seller to insure.
- Believing the 110% figure comes from Incoterms (it is credit practice and a UCP requirement).
- Confusing risk transfer with ownership or with the right to sue the carrier.
- Forgetting CIP now calls for (A) while CIF still calls only for (C).