A company receives a large order from a new overseas customer.
Research on the customer shows they are established and of financial substance, but there are question marks over their reliability.
The exporter agrees to supply the goods on a “collections” basis – control of the goods is maintained though the shipping documents until they have been paid for.
The agreed Incoterms 2010 rule is Carriage Paid To (CPT), with seller paying for transport to a port in the buyer’s country, and the buyer insuring the goods in transit.
What might go wrong here?
Unfortunately the containers are lost overboard during very bad weather.
The exporter now learns that the buyer has not taken out freight insurance.
Although contractually responsible for the cargo, the buyer decides to walk away from the transaction, reasoning that the seller will not have the appetite for pursuing the matter through the courts.
So it is likely that the seller will be forced to “write off”
the value of the cargo.
Moral
For CFR or CPT, if there are doubts about the reliability of the buyer, then it is reasonable for the seller to ask to see evidence of freight insurance, or even for the seller to insist on being named as beneficiary of the insurance