Under Incoterms 2020, the rule you chose decides who must buy cargo insurance, if anyone. Many buyers assume the supplier or the carrier covers damage in transit, but under common terms such as FOB that is not the case. This is general guidance on the ICC rules, not legal advice, so check your own contract and policy.

FOB

Under FOB the seller delivers when the goods are placed on board the vessel at the named port. After that, the risk of loss or damage passes to the buyer. The rules do not require either party to buy insurance, though the buyer may choose to. If your contract is FOB and nobody bought cover, the loss from damage at sea falls on the buyer.

CIF and CIP

Under CIF, the seller must obtain cargo insurance, at a minimum level of cover under the Institute Cargo Clauses (C), covering at least 110% of the contract price to the named destination port. Under CIP the seller must obtain cover at the higher Institute Cargo Clauses (A) level, also at least 110% of the price. In both cases the seller buys the policy for the buyer’s benefit, while the risk passes to the buyer earlier in the journey, so check that the cover starts where your risk starts. A minimum cover may not include the damage you worry about, such as water damage, so read what is included.

Carrier liability is not insurance

A carrier’s liability for cargo is limited by the contract of carriage and by law and is often much lower than the value of the goods. It also depends on proving the carrier’s fault. Cargo insurance responds to defined risks regardless of the carrier’s liability. Treat the two as separate.

What to do

Ask your forwarder or broker for a cargo policy for each shipment or an annual policy, with an agreed value, the right clause level for your goods, and cover from the factory to your warehouse if possible. Check how to report damage: photograph cartons, note damage on delivery documents and inform the insurer promptly. Keep packing lists, the invoice and the bill of lading.

Packing for wet risk

Ask the factory to pack tees in sealed poly bags inside strong cartons, and consider desiccant or container liners for long voyages.