1. Chapter 5 International Logistics

2. Learning Objectives After learning this chapter, you will be able to:
Understand the international trade terms
Understand the modes of international cargo transportation
Understand the procedures and skills in insurance
Know the major documents involved in international logistics

3. Outline of the chapter 5.1 Introduction to International Logistics
5.2 International Trade Terminology
5.3 International Cargo Transportation
5.4 International Cargo Insurance

4. 5.4 International Cargo Insurance
There are various kinds of risks when the goods are being shipped from one country to another as well as being handled and stored at the airports or ports. For example, in the course of loading or unloading of cargo, derricks or gears may suddenly break, causing dropping of cargo onto the ship deck or into the water, damaging ship and/or cargo. While on voyage, the ship may encounter heavy weather and the seawater on deck may find its way into the holds, causing damage to cargo. In order to avoid the loss and damage, the owner of the cargo should insure for their goods.

5. 5.4 International Cargo Insurance
Cargo insurance, especially marine insurance, is a contract between an insurance company or an insurance broker and the owner of cargo or a freight forwarder acting on behalf of the owner.
The purpose of insurance is to provide compensation for those who suffer from financial loss.

6. 5.4.1 Fundamental Principles of Cargo Insurance
Insurable Interest
(可保利益）
Utmost Good Faith
(最大诚信）
Indemnity
（补偿）
Subrogation
（代位追偿）
Proximate Cause
(近因）
Share in Double Insurance
（重复保险的分摊）

7. 5.4.2 Marine Risks and Losses
International cargo transportation insurance refers to the fact that the insured（受保人，投保人） covers insurance for the shipment with the insurer（承保人） , i.e., the insurance company before shipment.
The insured pays insurance premium to the insurance company on the basis of insurance amount, insurance cover as well as insurance premium rate, and obtains the insurance policy. The insurer shall compensate the insured for the losses, and damage to the goods, if any, during the transportation within the scope of insurance cover.

8. Marine Risks
The definition of marine risks is the dangers existing during the course of the ocean transport.
It can be divided into two kinds:
General perils of the sea(海上风险/海难)
Extraneous risks(外来风险，附加险).

9. General perils of the sea
Include natural calamities（自然灾害） and fortuitous /unexpected accidents（意外事故）.
Natural calamities are caused by the forces resulting from the changes of natures, e.g., vile weather, thunder, lightning, earthquake, flood, etc.
Unexpected accidents include accidents resulting from unexpected causes, the carrying conveyance being grounded, stranded(船舶搁浅), or in collision with floating ice or other objects(触礁碰撞), as well as fire or explosion(火灾爆炸).

10. Extraneous risks
Extraneous risks include theft(偷窃), fresh or rain water damage(雨淋), shortage(短量), leakage(渗漏), breakage (碰损), sweating and heating(受热受潮), intermixture and contamination(混杂玷污), odor(串味), hook damage(钩损), breakage of packing(包装破裂), rusting (锈蚀）,etc.

11. Ocean losses and expenses sustained
Ocean losses refer to the direct or indirect losses of the insured subject matter during the voyage owing to the perils of the sea.
Loss can be classified into two types according to the level of loss:
Total Loss
Actual total loss(实际全损）
Constructive total loss（推定全损）
Partial Loss
General average（共同海损）
Particular average（单独海损）

12. Total Loss
Actual Total Loss: The insured subject matter is totally and irretrievable lost;
Constructive Total Loss（推定全损）: It is estimated that the actual total loss of cargo is inevitable or the cost of salvage or recovery could have exceeded that the value of the cargo.
In case of a constructive total loss, the insured may apply to the insurer for compensation according to partial loss and constructive total loss. In case of the latter, the insured shall submit to the insurance company the notice of abandonment(委付通知). In this way, the insured willingly, and applies to the insurer for compensation according to the total loss.

13. Partial Loss
General average(G.A.共同海损)refers to a certain special sacrifice and extra expense intentionally incurred for the general interests of the ship-owner, the insurer, and the owners of the various cargoes aboard the ship.
Particular average(P.A.单独海损):Particular average: it means that a particular cargo is damaged by any cause and the degree of damage does not reach a total loss, i.e., only a partial loss, which shall be borne by the owner of this individual consignment.

14. Expenses incurred
Maritime charges are usually incurred in saving the insured cargoes. ①Sue and labor charges（施救费用） when the insured cargo suffers natural calamities or fortuitous accidents within the scope of insurance cover, the insured or his agent or any employees pays the expenses caused in saving the insured cargo in order to prevent the losses from further expending. These charges shall be covered by the insurer.

15. ②Salvage charges（救助费用）
Expenses incurred
②Salvage charges（救助费用）
when the insured cargo suffers a natural calamity or a fortuitous accident within the scope of insurance cover, the third party who has no contracted relations with the insured and the insurer salvages the cargo successfully. According to the relative laws, existing in the world, the insurer shall pay to the salvor (救生 船). But there is a principle, i.e., 'no cure-no pay' （无效果，无报酬）

16. 5.4.3 Coverage of Marine Cargo Insurance of CIC
The most commonly used terms in cargo insurance in China is China Insurance Clauses, shortened as CIC.
The contract of our marine insurance clauses include the scope of cover(责任范围), exclusions（除外责任）, commencement and termination of cover (责任起讫) , duty of the insured(被保险人的义务), time of validity of a claim( 索赔期限 ), etc.
The Insurance Coverage Includes
Basic Insurance (基本险/主险)
Additional Insurance(附加险 )

17. Basic risks
Basic insurance is also called main insurance which may be underwritten independently. It is classified into three conditions, i.e.,
Free From Particular Average(F.P.A.) (平安险)
With Particular Average(W.A/W.P.A.) (水渍险)
All Risks(一切险)
Where the goods insured here under sustain loss or damage, the People’s Insurance Company shall undertake to indemnify therefor according to the Insured Condition specified in the Policy and the Provisions of the clauses.

18. ①free from particular average(f.p.a平安险，单独海损免赔情况)
FPA indicates non-liability of indemnification to a particular average.
The scope of F.P.A includes:
Actual total loss or constructive total loss of the consignment caused by natural calamities, such as vile weather, thunder and lightening, Tsunami, earthquake and flood.
Total or partial loss caused by fortuitous accidents.

19. Partial loss caused by vile weather, lightning and/or Tsunami, etc.
Total or partial loss consequent on falling of entire package or packages into sea during the process of loading, unloading or transshipment.
Sacrifice in and contribution to general average, and salvage charges.
Losses reimbursed by the cargo owner under the contract of Affreightment 'Both to blame collision' clause(船舶互有责任碰 撞条款）

20. ② With particular average(W.P.A. or W.A.水渍险，单独海损赔偿)
W.P.A. covers partial loss due to vile weather, lightning, tsunami, earthquake and/or flood as well as the risks covered under F.P.A. condition as mentioned above.
③All risks
Aside from the risks covered under the F.P.A. and W.A. conditions as above, this insurance also covers all risks of losses or damage to the insured goods whether partial or total, arising from external causes in the course of transit.

21. Additional risks (附加险)
①General additional risks(一般附加险)
Theft, Pilferage and Non-Delivery（偷窃，提货不着险)；
Fresh Water and Rain Damage（淡水雨淋险）;
Shortage（短量险）;
Intermixture and Contamination（混杂、玷污险）;
Leakage（渗漏险）;
Clash and Breakage（碰撞、破碎险）;
Odor（串味险）;
Sweating and Heating（受潮受热险）;
Hook damage（钩损险）;
Loss or Damage Caused by Breakage of Packing（包装破裂险）;
Rust（锈损险）.

22. Additional risks (附加险)
②Special additional risks (特殊附加险)
Failure to delivery（交货不到险）;
On deck risk（仓面险）;
Aflatoxin risk（黄曲霉素险）;
Survey in customs risk（海关检验险）;
Survey at jetty risk（码头检验险）;
Strike, riot and civil commotion(SRCC) （罢工险）;
War risk;
Contingency insurance（意外事故险） ‘cover seller’s interest only’
(卖方利益险).

23. Exclusion usually include:
Exclusions (除外责任)
Exclusions refers to losses and expenses for which the insurance company declares clearly not to be responsible.
Exclusion usually include:
1) Loss or damage caused by intentional act or fault of the insured;
2) Loss or damage due to the responsibility of the consignor;
3) Inferior quality or shortage in quantity before the commencement of the insurance duty;

24. 4) Natural loss, inherent vice (固有缺陷） or nature of the insured goods;
Exclusions (除外责任)
4) Natural loss, inherent vice (固有缺陷） or nature of the insured goods;
5) Loss of the market price of the insured goods;
6) Loss due to delay in transportation and any expenses arising there from.

25. Duration of basic Insurance
Commencement and Termination of Basic Insurance (基本险的起讫期限）
i.e. Duration of insurance is the period throughout which the insurance company undertakes an insurance liability.
It is usually stipulated by adopting the customary ‘W/W’ clause, warehouse to warehouse , the liability of the insurer is extended to cover pre-shipment and post- shipment risks.
By the clause warehouse to warehouse, the liability of the insurer is extended to cover pre-shipment and post-shipment risks. The insured goods are covered from the time when they leave the warehouse at the place named in the policy for the commencement of the transit and continue to be covered until they are delivered to the final warehouse at the destination named in the policy, but the policy provides an overriding（溢额） time limit of sixty days after the completion of discharge of the insured goods from the seagoing vessel at the final port of discharge.
On the expiration of that time limit of 60 days the cover ceases to protect the goods even though they have not reached the final warehouse.

26. By the clause warehouse to warehouse, the liability of the insurer is extended to cover pre-shipment and post-shipment risks. The insured goods are covered from the time when they leave the warehouse at the place named in the policy for the commencement of the transit and continue to be covered until they are delivered to the final warehouse at the destination named in the policy, but the policy provides an overriding（溢额） time limit of sixty days after the completion of discharge of the insured goods from the seagoing vessel at the final port of discharge.
On the expiration of that time limit of 60 days the cover ceases to protect the goods even though they have not reached the final warehouse.

27. 5.4.4 Coverage of Marine Cargo Insurance of ICC
London Insurance Institute Cargo Clauses (I.C.C) （英国伦敦保险业协会货物保险条款）
The newly revised (I.C.C) include 6 kinds:
Institute Cargo Clause A, or ICC (A);
Institute Cargo Clause B, or ICC (B);
Institute Cargo Clauses C, or ICC (C);
Institute War Clause-Cargo;（协会战争险条款）
Institute Strikes Clause-Cargo;（协会罢工险条款）
Malicious Damage Clause.（恶意损害险条款）
ICC(A),ICC(B) and ICC(C) have independent and complete structures and can be covered independently without being attached to any other particular coverage.

28. Institute Cargo Clause A/ICC (A)
Risks covered
All risks except exclusions;
General average and salvage expenses;
Proportion of losses under the contract of affreightment 'Both to Blame Collision' clause.
The scope of clause A is comprehensive, so the method of 'all risks except exclusions'

29. Institute Cargo Clause A/ICC (A)
Exclusions
General exclusions(一般除外责任)
Unseaworthiness and unfitness of the carrying vessel or lighter（不适航、不适货）, including the containers;
War, capture, hostile behavior, distraint(扣留) and conventional weapons;
Strikes, terrorists.
The scope of clause A is comprehensive, so the method of 'all risks except exclusions'

30. Institute Cargo Clause B/ICC(B)
Risks:
Fire , explosion ; Ship or lighter colliding with rocks, running aground, sunk or capsized; Conveyance (运输) overturned (翻车) or derailed (出 轨); Ship, lighter or other conveyance colliding with any external object excluding water;
Loss or damage due to unloading at the port of refuge (躲避); earthquake ; eruption of volcano(火山爆发); lightning or thunder; jettison (投弃) and washing overboard; being plunged (掉入) into water by waves; water entering the ship, lighter, conveyance, container or storage place;
Sacrifice in general average;
Total loss caused by falling of the entire package or packages into sea during the process of loading and unloading.
Clause B lists all risks covered so that the insured may choose the proper insurance cover.(列明风险)

31. Institute Cargo Clause B/ICC(B)
Exclusions of clause B are those mentioned in clause A, but the following two are not included:
Piracy;
Malicious damage.
Clause B lists all risks covered so that the insured may choose the proper insurance cover.(列明风险)

32. Institute Cargo Clause C /ICC(C)
Institute Cargo Clause C only covers major casualties （因果）. Comparing with clause B, it excludes the following risks:
Loss or damage due to earthquake, eruption of volcano, lightning or thunder;
Falling of the goods into sea during the process of loading and unloading, water entering the ship, lighter, conveyance, container, storage plane, etc.
Exclusions of clause C are the same as those in clause B

33. 5.4.4 Other types of Cargo Insurance
Overland Transportation Insurance
Air Transportation Insurance
Parcel Post Insurance

34. 5.4.6 Procedures of Cargo Insurance
In international trade , who effects insurance depends on the particular trade terms adopted. Whoever arranges insurance, he will undergo different steps in the completion of the insurance contract. Normally , these steps are as follows:
To calculate the insurance amount
To determine the insurance coverage
To obtain the insurance premium rate
To apply for marine insurance and pay the insurance premium
To obtain an insurance policy
To lodge an insurance claim at the time of loss or damage

35. Insurance Amount
also known as the Insured Amount or the Sum Insured, stands for the amount of insurance in the insurance policy and agreed upon by the insurant and the insurer.
the highest amount of indemnity given by the insurer when the subject matter is subject to a loss or damage and serves as the basis for the calculation of insurance premium.

36. To Calculate the Insurance Amount
The recommended way of obtaining insurance amount is the total CIF or CIP invoice value plus a certain percentage ( known as markup) covering the expected profit and incidental costs incurred in the transaction.
Then the insurance amount under CIF trade term includes:
①Invoice value which is made up of 3 parts, i.e., cost of the goods, amount of freight, insurance premium.
②Markup percentage which is usually 10 percent of the CIF value.
Formula for the calculation of insurance amount is:
Insurance amount= CIF (CIP) ×(1+markup rate)

37. Group
Quotations
Abbre.
In Chinese E
Ex-Work
EXW
工厂交货 F
Shipment contract
Free carrier
FCA
货交承运人
Free alongside ship
FAS
装运港船边交货
Free on board
FOB
装运港船上交货 C
Cost and freight
CFR
成本加运费
Cost, insurance and freight
CIF
成本保险费加运费
Carriage paid to
CPT
运费付至
Carriage and insurance paid to
CIP
运费保险费付至 D
Arrival contract
Delivered at frontier
DAF
边境交货
Delivered ex-ship
DES
目的港船上交货
Delivered ex-quay
DEQ
目的港码头交货
Delivered duty unpaid
DDU
未完税交货
Delivered duty paid
DDP
完税后交货

38. To determine the Insurance Coverage
According to Incoterms 2000, the insurance coverage for CIF or CIP is the minimum coverage.
The factors that need to be taken into account for the decision on insurance coverage under contracts are:
The nature of product
Packing considerations
The carriers of transport
Shipping route and ports considerations, etc.

39. To Obtain the Insurance Premium Rate
Insurance Premium is calculated on a basis of a percentage of the insured amount. The percentage is know as the premium rate.
Once the insurance coverage is determined, it is easy to obtain the insurance premium rate, which generally determined by insurance company according t the factors of the goods such as the carrying vessel, nature of the packing used, type of coverage needed, previous experience with the insurer, etc.

40. To Apply for Marine Cargo Insurance and Pay the Insurance Premium
Upon applying for marine cargo insurance, the applicant needs to pay the premium to the insurer. The applicant pays the premium is the precondition for the indemnity liability undertaken.
Insurance premium is determined by the relationship between the insurance amount an insurance rate.
The formula is :
Insurance Premium (I)= insurance value ×premium rate (R)
=CIF ( CIP) ×(1+markup rate) ×R

41. Illustration:
Suppose the CIF invoice value is USD and goods are insured against All Risks and Rejection Risk with premium rate to be 0.5% and 0.05% respectively. If markup rate is 10%, the insurance premium will be?
It will be USD 363. Your answer is correct? If yes, how to conclude it?
I = 60000×(1+10%) ×(0.5%+0.05%)
=363

42. To Obtain an Insurance Document
An insurance document, although not an insurance contract itself, is the evidence of the insurance contact entered into by the insurer and insurant. It serves as a document defining the obligations of the insurer and the insured.
The most widely adopted insurance documents in cargo insurance practice are
Insurance policy (保险单)
Insurance certificate(保险凭证)
Open policy (预约保险单)
And combined certificate (联合保险凭证)

43. Insurance Policy Contents of the insurance policy usually include:
1)Name and addresses of the insured and the insurer;
2)Subject matter insured;
3)Kinds of risks and accidents covered;
4)Commencement date of insurance as well as time limit;
5)Insurance amount;
6)Date and place of taking out the policy;
7)Insurance premium;
8)Signature of the insurer; etc.

44. Insurance Certificate
It is a kind of simplified insurance policy.
The insurance certificate only indicate the name of the insured, name of the insured cargo, quantity, mark, conveyance, place of shipment, place of destination, insurance cover, and insurance amount. But the rights and obligations of the two parties are omitted.
The insurance certificate has the same legal validity as the insurance policy.

45. Open Policy
Also known as Open cover, provides coverage for alll goods shipped by the insured during a given period while the policy is in effect.
Traders who do a large volume of business and have to effect shipment at frequent intervals always find it much more convenient to arrange an Open Policy with the insurer to hold all shipments there under covered during a given period.
The duration of this policy may run from six to twelve months or may , sometime, last indefinitely.

46. Combined Certificate
This is a certificate which combines the invoice with the insurance policy. It is the simplest insurance certificate in use.
When the goods are exported to Hong Kong, and some countries in Southeast Asia, the insurance company sometimes adds the coverage, insurance amount and serial number of insurance on the commercial invoice which is made out by a foreign trade company.

47. To Lodge a Claim at the Time of Loss or Damage
Advice and inspection of goods damaged
Evidence of lodging a claim
besides the written application for claim and detailed list of claim, he should also provide the following documents to indicate and evidence the degree of loss or damage, and the compensation duty of the insurer:
The inspection declaration of loss or damage;
The insurance policy or insurance certificate;
The invoice, B/L, packing list or weight memo;
The sea protest;（海事报告）.The record of vile weather, fortuitous accidents or other perils during the voyage, etc.

48. Sub summaries:
In international trade, the insurer will undergo different steps in the completion of the insurance contract:
Determining the insurance amount of the goods to be insured,
The insurance coverage and insurance premium rate,
Applying for marine insurance,
Paying insurance premium,
Obtaining an insurance policy,
Lodging an insurance claim at the time of loss or damage.

49. Exercises Example 1.
Points to consider :
CIF合同发票金额
应付保险费
净价（net price ) =? FOB价
净收入人民币按银行美元买入价折算
合同规定由我供应某商品60 000打,每打的CIF西 欧某港价为1.8美元,运费总计为5000美元, 投保金 额为发票金额的110%, 保险险别为水渍险和战争 险, 查中国人民保险公司的保险费率表, 水渍险费 率为0.3%, 战争险费率为0.4%. 问我方人民币净收 入为多少元?(当时中国银行外汇牌价: 100美元 =826.49/828.97元)
: RMB Yuan

50. Exercises Example
.合同规定由我供应某商品60 000打,每打的CIF西 欧某港价为1.8美元,运费总计为5000美元, 投保金 额为发票金额的110%, 保险险别为水渍险和战争 险, 查中国人民保险公司的保险费率表, 水渍险费 率为0.3%, 战争险费率为0.4%. 问我方人民币净收 入为多少元?
(当时中国银行外汇牌价: 100美元=826.49/828.97元)
: RMB Yuan
CIF合同发票金额应为：1.8× = 美元
应付保险费按投保金额×保险费率计为 : × 110% ×(0.3% + 0.4%) = 美元
FOB价为: – 5000—831.60= 美元
净收入人民币按银行美元买入价折算应为: × = 元

51. 我公司不 应理赔, 以CIF条件成交, 风险划分以转运港船舷为界, 其后的风险由买方负责, 货物在 运输途中灭失, 应由买方向保险公司索赔.
Exercises Example 2.
我某出口公司按照CIF条件向某国出口一批 草编制品,向中国人民保险公司投保了一切险, 并规定用信用证方式支付. 我出口公司交货并 完成了议付. 第二天接客户来电, 称装货的海 轮在海上失火,货物全部烧毁, 并要求我公司 出面向中国人民保险公司索赔, 否则要求我公 司退回全部货款. 问: 对客户的要求我公司该 如何处理? 为什么?
我公司不 应理赔, 以CIF条件成交, 风险划分以转运港船舷为界, 其后的风险由买方负责, 货物在 运输途中灭失, 应由买方向保险公司索赔.