You could have a fantastic product, the greatest export marketing plan and even transport your goods to your buyer utilising the most appropriate mode of transport and Incoterm®; however, it all means nothing if you don’t get paid. Engaging in international trade is risky. Not only do you have to contend with the risk of your product being damaged, lost or stolen during transit, but you must consider the risks of not getting paid. Recognising these risks, many exporters take out the relevant insurance cover. Two forms of insurance cover in international trade are export credit insurance and cargo insurance. However, cargo insurance and export credit insurance cover very different risks. This article examines the differences between the cover provided by export credit insurance and cargo or (marine) insurance.
Export Credit Insurance
Is a branch of insurance which offers protection to exporters against the risk of non-payment by a foreign buyer in exchange for the payment of a premium. Export credit insurance and domestic credit insurance are both commonly referred to simply as credit insurance. However, the critical difference between the two is that domestic credit insurance protects suppliers against the risk of non-payment by local buyers. In contrast, export credit insurance protects suppliers against the risk of non-payment by foreign buyers.
Marine insurance is one of the oldest forms of insurance and is often referred to simply as cargo insurance. The purpose of modern-day marine or cargo insurance is to transfer the risk of loss of, or damage to, cargo in transit from an exporter or an importer to an underwriter in exchange for a fee.
Export Credit Insurance vs. Marine Insurance
Cargo or marine insurance offers protection against physical loss of, or damage to goods, while export credit insurance provides protection against financial loss arising from non-payment.
Your business’s international success is heavily influenced by your ability to manage risk and identify opportunities. However, very few exporters know the full extent of the risk they face in the international market and even fewer know about the solutions available to mitigate that risk. Thankfully, Trade Forward Southern Africa, in collaboration with the International Trade Institute of Southern Africa, has created a free and comprehensive online training course on various aspects of global trade, including identifying and mitigating international financial risk. Modules provided include training on international finance, foreign exchange rates, Letters of Credit and Incoterms®. Click the links below to sign up for free and get started.
To sign up to the School of Export CLICK HERE.
If you already have a profile, CLICK HERE to login to begin the module.