Insurance in

International
Trade
 INSURANCES IN INTERNATIONAL LOGISTICS

CONTENTS

1. Freight Insurance
2. Factors that affect the Insurance
Contract
3. Criteria to purchase an Insurance
1. Freight Insurance
At times, the goods get lost or damaged in
transit at the time of their buying and selling.

Whether you are buying and selling in the

national market or international market,
there is always a risk.

To overcome this risk, the members

involved in the supply chain insure their
goods from the damage and loss.

In this way, they limit their responsibility

or liability for the damage and loss.
Insurance not only includes national
boundaries but international transportation as
well.

Policy can be a renewal or permanent.

The amount and cost of policy rely on the value

of goods, route to transport goods and the date
at which the policy expires.

Open Cover Insurance Policy

This type of transport insurance depends on
specific timescale or total value.
The traders can renew this policy after its date
of expiry.
In the case of a permanent system, traders can
hold multiple shipments in a specific period.
Transport insurance contract is the document where the
insurer assumes the damage and loss which have occurred
to the products transported or traveling by sea, river, air or
land.
PARTICIPANTS IN FREIGHT INSURANCE

FREIGHT
INSURANCE

Linking 3
Elements

IMPORTER OR
THE INSURED
EXPORTER

The
BROKER

INSURANCE
THE INSURER COMPANY

LOAD OR
INSURED OBJECT CARGO
PARTICIPANTS IN FREIGHT INSURANCE

1.-The Insured: Is the customer or the policyholder of

the insurance transport of goods.

2.-The insurance broker (agent) who advises,

intermediate and takes part, to obtain the best coverage
applied to the area of Transport.

3.-The Insurer or Insurance Company: With technical

and financial capacity to sign (assuming) risks related
to transport and officially authorized to operate in the
area of Transport, by the Superintendence of Banking
and Insurance.

4.-The Insured Good: The goods or cargo to be

transported and therefore takes a risk.
 TERMS USED

1.-Risk: Probability of loss or damage ... / mathematical measure of

uncertainty.

2.-Claim: Fault / loss damage item ...

3.-Premium: The cost of insurance ...

4.-Compensation: The payment of the loss ...

It is important to insure goods for the proper value. If a

shipment is underinsured, then the claim will only be paid
to the percentage that the shipment was insured.
2. Factors that affect the
Insurance Contract
FACTORS THAT AFFECT THE INSURANCE CONTRACT

LOAD LOSS REASONS

TYPES OF RISK

TYPES OF INSURANCE

INSURANCE POLICY TERM

AND COVERAGE
LOAD LOSS REASONS
 TYPES OF RISK

1.-Dangers of the Sea: sinking, shipwreck, temporal, beaching, grounding and collision.

2.-Dangers on the Sea: Fire and explosion.

3.-Minor Dangers: Represented by the fall of the goods into the sea during loading and
unloading tasks, the fall and damage during transfer moves.

4.-Specific Dangers to Certain Goods: Composed of wetting of the goods by fresh or

sea water, sweat of the ship, rust, breakage, spills, oil spots, mud, contact with cargo and
pollution and scratches.
 TYPES OF RISK

5.-Hazards arising from Human Interference: Negligence Carriers (negligence of

the captain of the ship and crew ...), robbery, theft, failure to deliver.

6.-Social and Political Dangers: War, civil war, capture, sabotage, strikes and
civil commotion, malicious damage, vandalism and terrorism.
TYPES OF INSURANCE
 THE CLAIMS
Types of loss or failure

Total Amount Loss, Effective or Real: The complete destruction or disappearance

of objects (goods) insured, as a result of any of the hazards covered by the policy.

Total constructive loss: When the costs of the damaged materials, plus the costs
for reconditioning and forwarding them to the destination, equal or exceed its sales
value placed on the site of destination.
 THE CLAIMS

Simple or Particular Faults : Means, any damage suffered by the insured

objects in a PARTIAL form, caused by an insured risk and that is not a Total
Loss.

The Compensation: These are realized in a period of 30 days as soon as the

adjuster or liquidator, delivers to the insurance company, the corresponding Fault
Certificate.
INSURANCE POLICY TERM AND COVERAGE
 INSURANCE POLICY

The insurance policy is a contract (generally a standard

form contract) between the insurer and the insured,
known as the policyholder, which determines the claims
which the insurer is legally required to pay.

Is the document that contains detailed listing of the

insured objects, mode of transport, origin, destination
and the warranty conditions provided by insurers.
3. Criteria to purchase an
Insurance
CRITERIA TO PURCHASE AN INSURANCE
4. EXERCISES
PARTIAL FAULT INCIDENT

EXAMPLE - HOW TO LIQUIDATE A PARTIAL LOSS

USD TOTAL INSURED VALUE IN POLICY (CFR) 131,600

VALUE OF LOSS IN CFR TERMS 32,900

DEDUCTIBLE AGREED 1%
MINIMUM AMOUNT 250

PAYMENT OF THE LOSS BY THE INSURER 32,900

LESS (DEDUCTIBLE DUTY) -1,316
COMPENSATION TO THE INSURED 31,584

INSURANCE PAY (% OF LOSS) 96%

INSURED PAY (% OF LOSS) 4%
PARTIAL FAULT INCIDENT

EXAMPLE - HOW TO LIQUIDATE A MINOR LOSS

USD TOTAL INSURED VALUE IN POLICY (CFR) 21,500
VALUE OF LOSS IN CFR TERMS 245

DEDUCTIBLE AGREED 1%
MINIMUM AMOUNT 250

PAYMENT OF THE LOSS BY THE INSURER 245 LESS

(DEDUCTIBLE DUTY) -250
COMPENSATION TO THE INSURED -5

INSURANCE PAY (% OF LOSS) 0%

INSURED PAY (% OF LOSS) 100%
PARTIAL FAULT INCIDENT

EXAMPLE - HOW TO LIQUIDATE A PARTIAL LOSS

USD TOTAL INSURED VALUE IN POLICY (CFR) 21,500

VALUE OF LOSS IN CFR TERMS 2,900

DEDUCTIBLE AGREED 1%
MINIMUM AMOUNT 250

PAYMENT OF THE LOSS BY THE INSURER 2,900

LESS (DEDUCTIBLE DUTY) -250 Min
COMPENSATION TO THE INSURED 2,650

INSURANCE PAY (% OF LOSS) 91%

INSURED PAY (% OF LOSS) 9%
International
Payment
Methods and
Terms
 ARE PAYMENT TERMS AND
PAYMENT METHODS THE SAME?
International Payment terms
Moment
✓ Payment/cash in Advance - made ahead of Schedule

✓ Immediate Payment (“Cash on delivery” -COD or “Payable on Receipt” – Payment is due at the
same time as a product or service is delivered.)

✓ Payment against documents

✓ Net 7, 10, 30, 60, 90 days - agreed Payment terms; depending on the shipment date; Invoice
date; presentation of documents.

✓ Open Account terms – Payment is done within a certain time after receiving (30 to 180 days).

✓ Consignment - payment is sent to the exporter after the goods have been sold by the foreign
distributor to the end customer.

✓ Bank/Documentary collection - With a documentary collection, you’re relying on the bank to

control your product until payment is made
International Payment Methods
How
✓ Bank collection
✓ By credit card
✓ By e-check
✓ By wire transfer, or online service payment
✓ Through Export Letter of Credit - It is the international means of payment
through which the importer (buyer) bank agrees to pay - on demand or in
installment - to an exporter (seller) a certain amount, as long as all the terms
and conditions of the letter of credit.)
Export Letter of Credit Flow
What are the main problems that arise when charging a
letter of credit?

▪ Failure to comply with the dates of any of the processes involved with
the import.

▪ The lack of documentary agreement, that is, the documents stipulated

in the contracts are not presented.

▪ Inconsistencies between the information in the documents presented

and that established in the contracts, such as the details of the
merchandise, the amount agreed, among others.

▪ Badly performed administrative procedures: post-date stamps, the type

of document to be presented, the requested copies not presented.

= DISCREPANCIES
KEY PERFORMANCE INDICATORS (KPI´S)
IN THE SUPPLY CHAIN
SERVICE EFFICIENCY QUALITY
AND PRODUCTIVITY

PURCHASING AND SUPPLY MANAGEMENT

PLANNING AND INVENTORY MANAGEMENT

WAREHOUSE MANAGEMENT

TRANSPORT MANAGEMENT

CUSTOMER SERVICE DELIVERY MANAGEMENT

 PURCHASING AND SUPPLY MANAGEMENT
% Of Approved Suppliers = Approved Suppliers Number / Total Suppliers

% Purchase volume = Purchases Value / Total Sales

Generated Orders Quality = Orders Generated without problem/ Total Orders Generated

% Compliance Programming Logistics entry = Delivered / Planned

Nonconformities in Reception = Number receptions out specifications / Total Receptions

Supplier Delivery Failure = Number of Failures of Time / Total Receptions

 PLANNING AND INVENTORY MANAGEMENT
Turnover of Goods = Average Sales / Average Inventory
Coverage = Average Inventory / Sales Average
Inventory Accuracy = Number of items with difference / Number of items
inventoried
 WAREHOUSE MANAGEMENT

Cost of Storing = Cost of Storage / Logistics Cost

Logistics Cost as % of Sales = Total Logistics Costs / Value of Sales

Warehouseman Productivity = Number of items Worked / Warehouseman Man Hours

Storage Unit Cost = Cost of Storage / Number of Units in Warehouse

Cost per square meter = Cost of Storage / Warehouse Total Area

Cost of Inventory = Average Inventory x Unit value of the material

 TRANSPORT MANAGEMENT

Cost of Transport = Cost of Transport / Logistics Cost

Truck Operating Cost = Transport Cost / Number of Trucks

Total Capacity Used = Average Real Capacity in Kg or M3 Used / Installed Capacity of

Trucks
Comparative Transport = Cost of Owned Transport / Cost of Hiring a Transport

Driver Productivity = Number of delivery points Worked / Driver Man Hours

Maintenance Cost Share = Cost of Maintenance / Logistics Cost

 CUSTOMER SERVICE DELIVERY MANAGEMENT

Delivery Cost Average = Delivery Total Cost / Number of Orders delivered

% Compliance Logistics Output Programming = Delivered / Planned

On time Delivery = No. of Orders delivered on time / Total Number of Orders Delivered

Fill Rate = Number of Complete Orders dispatched / Total Number Dispatched Orders

Deliveries on time and complete = Number of Orders dispatched on time and complete /
Total Number Dispatched Orders
Thank
you