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  • 5.5.8-LOGISTICS AND INSURANCE-TERMINATION OF RISK

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  • Termination of risk

     
     

    Depending on the terms of the contract of sale contract, risk may terminate at different stages of the shipping process.

    FCA or FOT (can be either CY or CFS). The buyer or their agent takes delivery at an inland place, probably at the seller's mill or warehouse, the receiving station or on the carrier's truck. No risk of physical damage or destruction attaches to the exporter after this point, but the exporter remains responsible for errors or omissions that occurred while the goods were under their care and responsibility.
    In other words, if you deliver an FCL container that is unsuitable (e.g. tainted) then you remain responsible for all the consequences. The same goes for short weights beyond the permitted tolerance. But if the container is stolen after it leaves the premises, then the loss is not the responsibility of the exporter.

    FOB (and CFR). As discussed in chapter 4, Contracts, there are differences between FOB according to Incoterms and FOB as per the ECC and GCA contracts for coffee. In insurance terms:

    • Incoterms: FOB means that you must bring the goods safely and in sound condition under ship's tackle at your risk and expense.
    • ECC: FOB means that the risk, or rather the obligation to keep the goods insured, passes to the buyer when the coffee leaves 'the ultimate warehouse or place of storage at the port of shipment'. This certainly does not mean that the entire inland haulage or storage is at the buyer's risk - all it means is the very short time span from the last place of storage immediately before shipment. (This stipulation removes any uncertainty regarding insurance cover being in place for FOB shipments. The seller's contractual responsibility ends 'when the goods cross the ship's rail' but for insurance purposes it is difficult to establish when exactly this happens.) In the case of container shipments it means the removal of the container from the stack in the port of shipment for direct placing under ship's tackle - not the removal of the coffee from the warehouse for stowing it into containers.

    ECC then goes on to state that 'the sellers shall have the right to the benefit of the policy until the documents are paid for'. This ensures that the exporter has recourse to the buyers' insurance policy in case the goods or the container itself are damaged, destroyed or stolen between the time the container is placed in the export stack in the port and its receipt on board.

    Under GCA contracts, however, title to the goods is transferred when they cross the ship's rail and the shipper is therefore obliged to insure up to this point. The structure of the American coffee trade is different from that in Europe: the vast majority of American roasters buy coffee 'ex dock' so it is the trade house or importer that deals with marine insurance matters whereas in Europe many roasters buy basis FOB.

    CIF. In addition to paying the ocean freight the shipper must also arrange and pay for an insurance that must be in conformity with the stipulation of the European Contract for Coffee: warehouse to warehouse, all risks including SRCC (strikes, riots, civil commotions commodity trade) risk and war risks at a value of CIF + 5%. (For more on this see 04.05.05 - very few CIF sales take place nowadays.)