Risk Conditions in which the decision maker has to estimate the likelihood of certain outcomes. of Loss or Damage in Transit

Transit insurance covers the total or partial loss to a seller's goods while in ordinary course of transit from one location to another assuming the loss was caused by an insured peril. More specifically, transit insurance covers all risks of loss or damage to qualified goods that are properly packaged resulting from external causes, subject to certain exclusions. Policies often specify the means of transport coverage that the policy covers. For example, goods shipped solely by sea are not covered by a standard transit insurance policy but would be covered by a marine insurance policy.

Credit The privilege of buying goods, services or borrowing money in return for a promise of future payment. managers should be aware that transit or cargo insurance policies generally exclude coverage for:

• Loss or damage resulting from war, civil unrest, confiscation, or expropriation.
• Loss or damage resulting from fraud A deception used to induce a supplier to sell. In a fraud, the debtor has no intention of repaying debt. debtor or business entity that owes money. has no intention of repaying debt. debto or business entity that owes money A medium of exchange; coined or stamped currency. . r has no intention of repaying debt. or misconduct of or by the insured.
• Loss caused by a reduction in value of the product in transit caused by market conditions, such as the change in value of the goods while in transit.
• Loss or damage caused by dampness, heat or cold, insect, or vermin
• Loss cause by inherent vice. Inherent vice is damage to goods that will occur during any normal transit which arises solely because of the nature of the goods being shipped. (Inherent vice can be thought of as loss or damage resulting from an internal rather than an external cause.)
• Loss or damage caused from delay, or loss of market
• Loss or damage caused from inadequate packing or improper preparation for shipment
• A loss that results when a shipment is released without obtaining a signature.
• A loss resulting from strike, riot or civil commotion.
• Insolvency Under the Balance Sheet definition of insolvent in the U.S. Bankruptcy Code, a debtor is insolvent when the value of a debtor's assets is exceeded by the debtor's liabilities. Balance Sheet A financial statement listing the assets, liabilities and owner’s equity of a business entity as of a specific date. definition of insolvent in the U.S. Bankruptcy (See Insolvency.) Code, a debtor is insolvent when the value of a debtor's assets is exceeded by the debtor's liabilities. Bankruptc (See Insolvency.) y Code, a debtor is insolvent when the value of a debtor's assets is exceeded by the debtor's liabilities. or financial default of the carrier Any company that may transport goods for payment, such as an ocean vessel, aircraft, truck, train, or courier service.

Credit professionals should have a working knowledge of transit insurance because many disputes and deductions arise as a result of alleged loss or damage of goods in transit. Some important terms include:

• Cargo insurance: A general term for a marine insurance policy that covers goods being transported by ship, truck, railroad, or airplane.
• Domestic goods in transit: This involves domestic shipments exposed to loss while in transit by rail, motor truck, aircraft, or while in the custody of the U.S. Postal Service
• Inland marine: This covers domestic transportation of goods over land via land conveyances and/or air shipments. Inland marine coverage normally includes any goods in transit anywhere except on the high seas.
• Marine insurance: This is a broad term including ocean and inland marine insurance. Marine insurance involves coverage against specified causes of loss or damage that might be encountered at sea.
• Ocean cargo insurance: This provides coverage for international ocean and/or air shipments on a warehouse to warehouse An export/import policy clause that provides protection from the shipper's warehouse to the consignee's warehouse. import To bring goods into a country whose origin is in another country. The importer is usually the buyer or their agent. policy clause that provides protection from the shipper's warehouse to the consignee's warehouse. /impor To bring goods into a country whose origin is in another country. The importer is usually the buyer or their agent. t policy clause that provides protection from the shipper's warehouse to the consignee's warehouse. basis (including the land connecting conveyance transits)
• War risks insurance: This is a separate endorsement Writing one's name upon paper for the purpose of transferring the titl The exclusive rights, powers, privileges and immunities to property, real and personal, tangible and intangible. e. that offers protection against war perils (such as mines and torpedoes, or terrorist acts (etc.) while the cargo is at sea.
• Warehouse to warehouse coverage: is a clause that can be added to inland and ocean marine policies extending the policy to cover property in transit from the shipper Indemnity given by the beneficiary of a letter of credit to the negotiating bank to induce payment despite any discrepancies that may exist in the documents. Compensation paid for damage or loss sustained or anticipated. given by the beneficiary The person or company due payment in the letter of credit. Usually the exporter (seller). of a letter of credit to the negotiating bank After the seller presents the required documents to this bank for review, it will notify the issuing bank that terms of letter of credit have been met. to induce payment despite any discrepancies that may exist in the documents. beneficiar The person or company due payment in the letter of credit A financing instrument issued by a bank in favor of an exporter that substitutes the bank's creditworthiness for that of the importer. . Usually the exporter The person or company that sells or arranges to transport goods out of a country. (seller). y of a letter of credi A financing instrument A right to the payment of money such as agency notes, commercial pape The unsecured promissory notes of large, financially sound corporations. r, T-Bills, certificates of deposit (CD's), banker's acceptances and repurchase agreements. issued by a bank in favor of an exporter that substitutes the bank's creditworthiness for that of the importer. t to the negotiating ban After the seller presents the required documents to this bank for review, it will notify the issuing bank Also known as the opening bank. It issues its commitment to the seller in the form of a letter of credit. opening ban The account party's bank that issues or opens the credit. k. It issues its commitment to the seller in the form of a letter of credit. that terms of letter of credit have been met. k to induce payment despite any discrepancies that may exist in the documents. 's warehouse to the consignee An individual or company to whom cargo is shipped or consigned. 's warehouse

Key Point. A transit insurance policy purchased by the seller covering all shipments generally will be far less expensive than purchasing insurance from or through the carrier on a shipment-by-shipment basis.

Source: Credit and Collection Manager's Manual. Edited by Michael Dennis and Steven Kozack. Web site reference: www.aspenpublishers.com