Sales DAP: What is your risk exposure?

Customer problem:

We have sold DAP to inland areas, but buyers insist that they must arrange insurance. What is our exposure?

answer:

The interpretation of the international trade term rules DAP (delivery location) enables sellers to face the risk of loss or damage to the goods before “delivery”. Delivery in this rule refers to the place specified in the rules of the goods or the sales contract.

Although according to the rules, no party (seller or buyer) has no obligation to arrange insurance, but because the seller has insurance benefits (in this example is a foreign inland area), the seller’s usual approach is to ensure that they have sufficient guarantee.

However, if the buyer (such as) is a resident of a country that does not allow foreign suppliers to arrange insurance, the seller may find the situation described in the problem. The seller has the need for insurance, but the buyer has legal obligations to arrange insurance.

This type of country’s intervention in free market principles is very common in many “developing countries”. Among these countries, this intervention often evolves into indirect taxation forms of cross -border activities.
The worst case is that the buyer must arrange insurance, but the insurance is only attached at the exit point, so there is no insurance from the supply point to the departure port or the airport.

In addition, the seller’s preferred insurance company cannot insure inland areas of the destination country -therefore, even if the seller arranges a second insurance in the local area, the additional insurance will end when it arrives at the destination country for the first time, and they will be terminated, and they will also There is no compensation for the final inland segment.

In view of this extreme situation, the best way to seller is to re -negotiate the terms and describe the designated delivery location as the first arrival point. I mean that “designated locations” must be destination ports, airports or border points, not inland locations.

If this cannot be achieved, the seller can negotiate with insurance companies that may provide insurance inland areas to reach a private agreement. The seller incorporated the premium as an uninterrupted cost into its price (that is, the insurance has been arranged) The sales agreement or commercial price was not disclosed. .

If you cannot negotiate (because the insurance company is usually unable to meet the requirements), the seller may ask the buyer to provide a copy of the insurance arrangement (insurance bill/contract terms), and with the assistance of the local insurance company, the assessment is as far as their risks. Insurance is possible Accept.

One thing to note here is that one of the reasons why the country where the buyer is located may be to limit the flow of foreign exchange. If the seller arranges insurance, the price paid is higher than the price of the buyer’s locally arranging insurance and the price of the local currency settlement.

If this is the case, it is likely that if the seller accepts the guarantee of the buyer and subsequently files a claim, the seller may not be able to pay the funds paid when the settlement, that is, the claim has been paid, but the funds cannot leave the bank system of the destination country.

During the D prefabs sales negotiation, some of the seller’s “homework” is to understand the insurance conditions (and foreign exchange control) of the destination country. If the information cannot be obtained or is as restrictive as the above example, it is best to recommend the seller to adopt unintegosed cover and sell it to the arrival point or port to avoid being involved in the “inland area”. Local obligation.

If this is impossible and involves inland routes, it is recommended that the seller discussed with the underwriter or agent before signing the sales contract. Follow the guidance of insurance companies.

Of course, all business is risky. If the seller finds that he is facing risks and cannot manage this risk after checking all the options, then if the seller has risk preferences, they can still decide to trade.

Avoiding risks is one thing, but it is not the most important. The most important thing is to have a sense of risk. Do your homework, seek the support of surrounding experts and make wise decisions.

Regardless of the reason, the seller needs to take action to avoid exposure in DAP. If you do buy buyer insurance, please note that the land on the ground may not be insurance; the claim may not be repatriated, and the buyer may have no choice in this matter.

Source: Freight Training