International Marketing Management

Insurance & Negotiation of documents

Presented by

Aditya Mayank
MBA-4th semester

Insurance is based on this concept

transfer of risk from an individual to a group or community Sharing of loss by all on equitable basis

Marine/Transit insurance policy-

MARINE CARGO INSURANCE Marine insurance act, 1963

Act provides the legal framework or rules for transaction of marine insuranceFor both cargo and hull Act deals with principles of marine insurance Basis of valuation under the policy Basis of settlement of losses, etc.

Marine policies:

Its an evidence of marine insurance contract Policy form contains detail of insured, consignment, sum insured, insured perils, etc. Clauses attached to it specify the coverage , conditions and exclusions- icc clauses

Cargo Insurance covers transits by:

Water Air Road or Rail Registered Post Parcel

Courier

Or any combination of the above.

Buyers, Sellers, Import/Export merchants, Buying Agents, Contractors and Banks-in fact any one engaged in the business of movement of goods.

If there is one class of insurance that is an absolute necessity, it is Marine! Cargo can be damaged on exposure to a wide variety of risks, including an accident of the vehicle carrying the cargo, failure of the loaders in the port area, and damage to the container that can be washed overboard.

Who arranges insurance-the buyer or the seller? Or do both need some protection? The answer depends on the Sale Contract the two enter into. For each Sale Term such as FOB, CFR, DDP, DDU etc., many insurance companies have tailor-made policies for both the seller and the buyer respectively.

Marine Insurance

Cargo Insurance: Overseas- Import or Export

Institute Cargo Clauses- A, B, C Institute Cargo Clause- Air Duty Insurance

Inland Transit Clauses- A, B, C

Domestic- Inland Transit

Hull Insurance- Vessels, Barges, etc.

Institute Time Clause (Hulls)

Postal Consignments

ICC-C: Covers provided Fire or explosion Stranding, grounding, sinking of the vessel or craft Overturning or derailment of vehicle Collision or contact of vessel or conveyance with an external object Discharge of cargo at port of distress General Average Salvage charges Jettisoning ICC- B: In addition to the above Earthquake, Volcanic eruption or lightning, Washing overboard Sling loss Entry of sea, lake or river water into vessel or craft ICC-A: All Risks except exclusions specified in the

Proposal form is not necessary, a letter proposing for insurance policy or a declaration form is submitted with following information: Name of proposer/consignor/Insured Full description of goods to be insured Nature of commodity to be insuredHazardous, non-hazardous, solid, liquid, fragile item/precious item Packing in detail- in bales or bags, cases or bundles, crates, drums or barrels, loose packing, cardboard cartons or in bulk, in container, etc. Standard packing combat every level of rough handling, climatic and environmental hazard

Inland Transit Clause C- Provides cover for the risks of fire and lightning only Inland Transit Clause B- Provides physical loss or damage to the insureds goods caused by Fire, lightning, breakage of bridges, collision with or by the carrying vehicle, overturning of the vehicle or derailment or accidents of like nature to the carrying railway wagon/vehicle Inland Transit Clause A- Provides cover for all risks except those specifically excluded

Loss or damage to willful misconduct of the assured Ordinary leakage, breakage, wear and tear, ordinary loss or weight/volume Insufficiency in packing Inherent vice Delays Loss due to financial default or insolvency of the vessel owner. Charterers or operators Nuclear Perils Malicious Damage War and SRCC

Marine Insurance Documents

Marine Declaration Form
Details of subject matter are provided by the insured as per the declaration form:

Name and address of the proposer and his business: Whether any bank is interested in the goods, details of the Bank: Description of the goods, nature, quantity: Nature of packing and identification marks: Value/Sum Insured: Basis of valuation: Vessel Name: Voyage- From: to. Via. Transshipment, if any.. Bill of lading no./AWB no./RR no./LR no./Postal Receipt no. Type of Insurance Cover required: ICC (A), (B), (C); ICC (Air); Inland Transit Clause A, B, C, etc. : Claim payable at: Signature of Proposer Date:

Claim form

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Negotiation

Negotiation means the standard procedures that bank performs which includes checking of the documents and giving value to the seller. The issuing bank may issue the LC available by negotiation with a nominated bank or it may allow the LC to be freely negotiated with any bank.

letter of credit

A binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be transferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the necessary shipping documents confirming the shipment of goods within a given timeframe. It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability.

1. Negotiation without recourse 2. Negotiation with recourse 3. Negotiation against indemnity

4. Negotiation under reserve

A seller may present his documents drawn under LC directly to either

The issuing Bank (bank that issues the LC) or The confirming bank (bank that adds its confirmation at the request of the issuing bank) or To his own bank

Instructions for Opening a Letter of Credit

Items usually included in the instructions to open an L/C. An Irrevocable letter of credit subject to the UCP of the latest version Whether the L/C is to be confirmed by a bank or not. The name and address of the beneficiary: in favor of exporter. Whether the L/C is to be transferable or not Terms of payment such as at sight or usance Where negotiation or payment is to be effected

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Instructions for Opening a Letter of Credit

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Whether the payment is to be made in rupees or other foreign currency What trade terms are to be used Coverage of marine insurance: All Risks, WA, FPA, War Risks, Warehouse to warehouse or any special coverage such as a rejection clause Documents to be required for negotiation Commercial invoice Packing list Marine insurance certificate Ocean bill of lading Other documents requested by the buyer and accepted by the seller

Instructions for Opening a Letter of Credit

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Whether partial shipments are allowed or not Whether transshipments are allowed or prohibited Presentation period/date: A period of time for presentation of documents after shipment Ports of loading and unloading The latest shipping date The expiry date

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Examination of a Letter of Credit

When a letter of credit is received, exporter must: (1) Examine the conditions and documents specified in the L/C and determine whether he can meet them or not. (2) If there are any conditions he cannot meet, request his buyer to amend the L/C asap before he starts manufacturing export goods. (3) If the L/C calls for a time draft, have the L/C specify that the discount interest for the time draft shall be for account of accountee (importer), when agreement was a sight draft but L/C is opened with a time draft (4) Hold off shipping the order until he receives an amendments to the L/C as requested.

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Common Discrepancies

A discrepancy: any inconsistence or difference from the terms and conditions stipulated in the letter of credit in minute details.

(1) Drafts
a.

b.
c.

Draft amount is different from invoice Draft tenor is different from the L/C Wrong drawee

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Common Discrepancies
(2) Commercial invoices
a. b. c. d. e. f.

Different merchandise description from the L/C Invoices is not issued by the beneficiary Insufficient copies are presented Incorrect accountee's name and address are stated Different prices from the L/C Terms of trade such as FOB, CFR or CIF different from the L/C

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Common Discrepancies
(2) Commercial invoices (continued)
g.

h. i. j.

Marks and numbers of packages are different from all other documents Weight is different from the L/C A statement required in the L/C is not presented Different currency from the L/C

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Common Discrepancies
(3) Packing list
a.

Different description of merchandise from the L/C

b.

Different number of unit, net weight and gross weight from the L/C

Common Discrepancies
(4) Ocean Bill of Lading
a.

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b.
c.

d. e.

f.

Less than a full set of original B/L is presented The B/L not properly endorsed The B/L not marked with "On Board notation, if B/L contains the indication intended vessel or "Received for shipment" The B/L not properly consigned. In the case of CFR or CIF, the term "Freight Prepaid" is not marked, that is, no indication of freight prepaid by the exporter Merchandise description is different from the L/C

Common Discrepancies
(4) Ocean Bill of Lading (continued)

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Different ports of loading and/or unloading from the L/C Notations on the B/L that the merchandise or packages are damaged The B/L indicates the "On Deck" shipment Stale B/L : Not presented within time limit after shipment as stipulated in the L/C : within ____ days after date of issuance of bills of lading Late shipment: The bill of lading date marked later than the shipping date specified in the L/C

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Common Discrepancies
(5) Marine Insurance Certificate
a.
b. c. d. e.

f.

Different coverage from the L/C Insufficient coverage Not the same currency as the L/C Different merchandise description The effective date later than the shipping date Broker's cover note presented instead of insurance certificate or policy

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Common Discrepancies
(6) Other discrepancies Not all documents required in L/C presented Documents presented after the expiry date of the L/C

a.

b.

Negotiation with Discrepancies

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(1)

(2)

(3)

(4)

In case discrepancies are found by negotiating bank, exporter must correct the discrepancies. If exporter cannot correct them such as the shipping date, then exporter should request the issuing bank to amend the letter of credit to cover discrepancies or authorize to pay in lieu of discrepancies At the same time, inform the buyer of the discrepancies and request his acceptance and amendment to the Letter of Credit. Release shipping documents to issuing bank after the L/C is amended. Buyers acceptance of discrepancies are not enough. The Letter of Credit must be amended. Do not send the shipping documents to the issuing bank for an approval or on a collection basis.

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Documents for Negotiation

Depend on the stipulation in the letter of credit.

Exporter must present all documents specified in the letter of credit for negotiation. Any missing document or incorrect document becomes a discrepancy. Issuing bank of the L/C has under no circumstances an obligation to honor the draft and shipping documents with discrepancies.

Documents for Negotiation

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Common documents used in the international trade accompanying exporters Draft (Bill of Exchange) (1) Commercial Invoice (2) Packing List (3) Ocean Bill of Lading (4) Marine Insurance Certificate (5) Any other documents if required by the L/C Certificate of Country Origin Consular Invoice Inspection Certificate

Beneficiary's statement

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Presentation of Documents

Draft and all shipping documents must be presented to a negotiating bank together with the original letter of credit. Presentation must be made within a specified period of time after shipment in the L/C, but not later than 21 days after shipment A bank must determine whether or not presentation is a complying presentation in 5 banking days

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Presentation of Documents

If a nominated (negotiating) bank, a confirming bank, if any, or the issuing bank determines that a presentation does not comply,

it may refuse to honor or negotiate, then it must give a single notice to presenter no later than the close of the 5th banking days.

Presentation of Documents

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The notice must state

The bank is refusing to honor or negotiate Each discrepancy The banks disposal of shipping documents:

The bank is holding documents pending instructions from the presenter The issuing bank is hold documents until it receives a waiver from the applicant & agrees to accept it The bank is returning documents The bank is acting according to the previous instructions from the presenter

Presentation of Documents

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If a bank does not follow these negotiation and notice provisions, The bank cannot claim that the documents do not constitute a complying presentation The bank must honor or negotiate A document presented but not required by the Credit will be disregarded If a Credit contains a condition without stipulating the document to indicate compliance with the condition, Banks will deem such condition not stated and will disregard it

Proposal form

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Books International MarketingBy- P.R.Cateora, J.L.Graham & P.Salwan

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Web

www.wikipedia.com www.uiic.co.in rbi.com

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4/4/2013 11:32 PM