What is the importance of insuring imports and exports in the supply chain and how can we mitigate risk?
Within the supply chain there are many risks regarding the damage or loss of cargo, non-payment of services, supplier issues and many more. This means that the insurance of imports and exports in the supply chain is crucial in keeping the transportation processes as smooth and secure as possible. Risks can be minimised if you arrange insurance for goods that you import. This feature explores the importance of insuring imports and exports in the supply chain and the ways we can mitigate risks.
Risks come in all forms in all industries, various risks are prominent in the supply chain. Some of the risks regarding exporting include: loss of or damage to goods in transit, non-payment for goods or services, the cost of returning to your premises any goods that a buyer abroad refuses to accept, political or economic instability in the buyer’s country, a new customer’s credit worthiness, currency fluctuations and a fault that causes an end-customer to sue. In terms of importing, risks include: supplier problems, transport delays and potential hold-ups at ports, the risk of performance or health and safety problems, import duties and the storage of goods in bonded warehouses. Global supply-chain risk events grew by 36% in 2018 due to the increasing globalisation of the economy and the volatility of the geopolitical situation.
Foreign currency and exchange risks are common with international trade. This is because some currencies are more volatile than others because of their unstable economies or inflation. As exchange rates can go both up and down, it can be tempting to gamble that this will work out in your favour. Although this is very risky and could lead to significant financial loss. The best way to mitigate risk in this circumstance is by insuring against the rate of the currency.
In some cases, there can be a fault with the product supplied. This can result in the end user taking legal action, to cover this risk it is worth considering taking out insurance to cover this.
In exceptional circumstances, a fault with the product supplied may result in an end user taking legal action against your business. Depending on the nature of the product or service, insurance may need to be taken out to cover this risk.
Types of insurance
It is extremely important to choose a reliable and trusted insurer, some banks may actually offer a trade finance package that includes cargo insurance. There are various types of insurance packages and policies that businesses can rely on, these include:
- Insuring employees: As with all companies, regardless of the industry, insuring employees is essential. Compensation insurance laws tend to depend on location, usually workers compensation covers the company for illnesses or injuries that employees may get on the job. This is especially crucial when working in the supply chain and transportation sector, employees are required to do practical, hands-on jobs that come with danger. This makes it vital for companies within the industry to invest in insurance for their employees.
- Cargo insurance: Cargo insurance covers lost or damaged products, most cargo insurance policies usually include enough to cover lost profits like extra time. It is often recommended to purchase all-risk insurance. All-risk insurance covers pretty much everything except situations like war, strikes or riots. The general average insurance is also worth considering, this is effective in the event of someone else’s cargo loss. Cargo loss is bound to be a common occurrence within the sector, making cargo insurance an extremely important requirement for companies.
- Marine insurance: It is defined as a type of insurance designed to provide coverage for the transportation of goods either on the ocean or by land as well as damage to the waterborne instrument of conveyance and to the liability for third parties arising out of the process.
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