[MUSIC] Transportation of international goods and freight is not without its perils as this photo of a sinking container ship illustrates. In this video we'll discuss insurance for international shipments, and then we'll investigate widely used Incoterms which are standardized terms of international commerce. International freight and cargo is subjected to a variety of hazards as they move from seller to buyer. These can include damaging weather conditions, such as storms, hurricanes, hail, and wind. Accidents, wrecks, and fires, often caused by human error. Damage to cargo from drops and shifts in transit. Bulk cargos can become contaminated or liquefied, meaning that fine-grained cargos behave as quasi-liquids. Theft and piracy such as theft from warehouses and docks, or piracy on the high seas, and work stoppages and slowdowns to the port strikes and labor actions. So we see that there are many ways that international cargo can be delayed, damaged or lost. This indicates the important need for insuring against these hazards. During transit. Starting in the 16th and 17th centuries,European trading ships were travelling to the far regions of the world to bring back spices,ivory and other valuable goods.When these ships returned great fortunes were made by ship the owners and their investors. But given the hazards of ocean travel at that time, it was not uncommon for ships, never to return and never to be heard from again, when this happened, owners, investors lost great amounts of money and where sometimes it was ruined to protect against potentially ruin this losses, ship owners, investors over time developed methods and agreements to spread the risk of losses or many participants. Hence shipping insurance was born. An interesting bit of history is that of Lloyd's of London. Lloyd's first existed as a coffee house owned by a man named, not surprisingly, Edward Lloyd in about 1686. That's more than 325 years ago. Why'd encouraged ship captains and owners and merchants to visit his establishment. So at a time when communications are unreliable, White's gained an enviable position and reputation as a source of trustworthy shipping news. This information was critical to successful insurance underwriting. Successful insurance underwriting and ensure that Lloyd's became recognized as a place to go for obtaining both information and purchasing marine insurance. Lloyd's remains very involved today in insuring marine cargo and shipping, but it's also famous for underwriting insurance for a much wider variety of hazards. For example, Lloyd's has insured actress Betty graybles legs, the hands of rollingstone guitarist Keith Richards, and singer Bruce Springsteen's voice, but most of its business remains ensuring more prosaic items such as satellites, buildings and stadiums. So a small coffee house in London 300 plus years ago was the prosaic start of a storied company that survives yet to this day. This brings us to the deceptively important topic of Incoterms, which is shorthand for international commercial terms. Incoterms define the terms of shipping transactions between buyer and seller. So the both parties understand their test costs, risks and responsibilities, as well as their logistics and transportation obligations. In short, Incoterms are standard terms and agreements between buyers and sellers, which determine how ownership and transport or transportation liabilities are attributed while a shipment is in transit. Incoterms specify the point of delivery or location or shipment changes from hands from seller to buyer designate which party pays for required transportation, which party arranges for import and export formalities and documentation And which party paid for insurance expenses. [INAUDIBLE] incoterms, the terms of transport for every shipment would be negotiated separately, a huge, inexpensive undertaking. There are 13 standard incoterms divided into four main groups. Group E, terms specify that ownership of a shipment transfers from seller to buyer at the seller's door. Group F, Incoterms specify that the buyer is responsible for transportation costs to the point of main transport. Group C specifies that a seller is responsible for transportation cost to the point of arrival of main transport. In Group D Incoterms. specify that the seller is responsible for cargo until is received by the buyer at its final destination. This busy chart shows details for all 13 standard Incoterms on a number of important shipping dimensions. Across the top are listed the 13 standard incoterms. Note that those in blue only apply to C transport. Each of the rows indicate the responsibilities belonging to either the seller or the buyer. Under each incoterm I read colored cell indicates that a specific responsibility belongs to the buyer. A green sell indicates that that responsibility belongs to the seller. As you see the mix of responsibilities can vary from almost 100% for the buyer for terms on the left to almost 100% for the seller for terms on the right with many variations in between Depending on the value and risk of a shipment the specification of Incoterms can result in intense negotiations between seller and buyer. Pause the video for a moment to study the variety of many ways that Incoterms assign transportation risks to either buyer or seller. To better understand Incoterms here are four of the most commonly used Incoterms. The Ex Works incoterm specifies that a buyer takes goods at the factory and is entirely responsible for the shipment once it leaves the buyers premises. The free alongside ship incoterm specifies the seller is entirely responsible for a shipment until it is delivered to the shipping port for transport. The free onboard incoterm is similar to the free alongside ship, except that the seller is responsible for a shipment until it is actually loaded onto a ship. And finally the duty delivery or delivery duty paid incoterms specifies that the seller is entirely responsible for shipment and all of its costs until it is delivered to the final location of the buyer. Incoterms are important to understand when companies and international managers are responsible for moving shipments across international borders. Misspecification of Incoterms can prove to be very costly for the unwary. For example, a naive buyer might accept the next works incoterm and unwillingly agreed to significant and unanticipated costs as well as unwelcomed responsibilities. Conversely, a naive seller might accept a deliver duty paid incoterm which would also proved to be costly and burdensome. The lesson here is to be fully aware of the terms of carriage when arranging cross country, cross border shipments, either as a buyer or a seller. In summary international transportation has many hazards which must be protective against. Insurance products of many types are available for which to mitigate these hazards. And incoterms are widely use and accepted to provide clear shipping terms and responsibilities for international trade They specify points of delivery, transportation costs, export and import formalities, and insurance costs. In the next video, we'll explore the logistics intermediaries which are three Third party companies in business to assist with managing the complexities of international logistics. We'll see you there [MUSIC]
