Furniture Importer - Your Company's Assets Are At Risk

Furniture World Magazine

As industry professionals, we work hard to ensure the success of our import transactions; that is, product is ordered and shipped on time, goods arrive on time we pay our vendor factory and our customers pay us on time, without offset or deduction. It is our duty and responsibility to predict those events that may interfere with the successful delivery of shipment to the buyer. Modernization of container shipping over the last thirty years has almost eliminated the routine damage cargo suffered from port handling. Furniture is now loaded into containers by the vendor factory and unloaded by the buyer with minimal handling between origin and destination. Occasional damage is incurred by poor packing, but the absolute loss of a container is rarely considered. Damage to the container or its contents is always possible, but experience shows that the majority of furniture importers do not insure containers against loss or damage due to any external cause. They choose to gamble with company assets. Unless the importer has not paid for the product before delivery, or if the importer does not carry adequate protection against loss or damage of cargo while in transit.....your company's assets are at risk. Protection against loss or damage to container contents is not the only reason an importer would insure his product. Consider the cost of litigation with a vessel operator or a forwarder/NVOCC intermediary. Both conduct their business with the importer using a bill of lading, which is legally considered the contract for carriage. Fine print written into the ocean bill of lading limits the carrier's liability under the Carriage of Goods by Sea Act (COGSA) to a maximum of $500.00 per box.....and the ocean container is the "box". Should you lose an ocean container of 100 boxes of ready to assemble furniture the $500.00, the carrier limit of liability is not extended to 100 boxes. The carrier pays this claim for $500.00. Engage this carrier in a court of law and the importer will lose. Always. There is indeed case history supporting the $500.00 carrier limit of liability. Also, when an importer has title to containers on board any voyage, the importer becomes a "party to the voyage". If the ship's captain must voluntarily or involuntarily sacrifice cargo, equipment or his ship to save the voyage, all cargo owners are required to make a proportional contribution to cover the loss. This is called general average. There is no mitigation for general or partial average. This bit of arcane maritime law has bankrupted many an importer. So, we insure for loss or damage to our cargo, to avoid litigation against limited carrier liability and to protect against general or partial average. IFPSA directors agree with the majority opinion, "ships do not sink". Tell that to Mediterranean Shipping Company when in 2001 the captain and crew of the MSC CARLA watched as their ship broke up in heavy seas off the coast of Venezuela. All containers were lost. January of 2000, the container vessel OOCL AMERICA lost power during heavy seas, rolled 45 degrees and lost 300 containers. Typhoon Babs hit the APL CHINA in 1998 resulting in the loss of 406 containers. Ships are more likely to collide with each other, or lose containers during inclement weather. Vessel operators are known to declare "average" as a result of collision, heavy wind or seas. The primary loss of cargo shipped in containers is due to containers jettisoned overboard as result of accident. For instance, hazardous chemicals packaged improperly tend to react with surrounding elements such as water or air. Should the crew encounter a container that is smoking or burning, the cellularized stowage of containers on board modern container ships demands that rows of five or ten containers be removed to reach the hazardous container. There is only one place for containers to go. Overboard. This occurred last year to the HANJIN PENNSYLVANIA, when a container load of fireworks exploded - setting dozens of containers ablaze. A common risk is water damage to the contents of the container. A container load of expensive dining room furniture was recently loaded in China for Mr. Bill Eads, III, of Eads Brothers Furniture Company in Fort Smith, Arkansas. Upon delivery, Bill found his furniture soaked with water to the point of molding. We suggested Bill unload the container, then have an employee go inside and close the doors. What we found was lots of sunlight from a three foot gash in the top of the container, invisible from the ground. A surveyor was sent and Bill will soon receive his check from the insurance company. As the importer, the question now becomes: When should we insure our containers? In our world, always. Let us examine the factors that determine if the importer, or the seller/vendor factory carries the risk of loss or damage to containers while in transit. 1) Incoterms: The International Commerce Terms were originally written to aid attorneys who write international sales contracts. Incoterms have evolved to become the guide to where responsibilities of the seller end - and those of the buyer begin. INCOTERMS are to be used to establish the price of a product at a geographical location, somewhere in the world. The risk of loss or damage to contents of the container are implied to the importer under the following INCOTERMS: EXW - Ex works, FOB factory, FOB port, FCA – Free carrier, port or airport and CPT - Carriage paid to port or airport. FOB factory is not an INCOTERM, but since the INCOTERMS do not carry the force of law, there is no need to try explaining to your vendor factory in China. 2) Payment terms: Importers who are able to view container contents after delivery, but before payment to the vendor factory are likely to take a risk relative to cargo marine insurance. Why risk the relationship with a valuable vendor factory due to the argument now generated over who will suffer the loss. Assets are still at risk, the risk is now higher. 3) Seller insures: The seller or vendor factory insures under INCOTERMS CIF - Cost, insurance & freight named place of delivery and CIP - Carriage and insurance paid to named place of delivery. Seller also insures under rarely used DDU and DDP INCOTERMS. Seller/vendor factory insurance also pays the seller and rarely covers all risks. Assets are still at risk. Until recently, the high cost of insuring containers has been a drawback to the importer taking control of his risk. Legal fine print in the multi-page policy is another reason importers continue to "roll the dice". The cost has been twenty five cents per one hundred dollars to forty five cents per one hundred dollars valuation. The cost of cargo marine insurance added over one hundred dollars per container to the bottom line. Even with the events of September 11, 2001, the cost of insuring merchandise from any legal place in the world to any legal place in the world, all risk - door to door, is no longer a reason to risk company assets. Using the IFPSA cargo marine policy as an example, the cost of cargo insurance is as low as $750 flat rate for $1 million in yearly import valuation. $1,100 flat premium for a $2 million importer. One to seven cents per one hundred dollars in valuation is a good reason the eliminate this risk. A character flaw of international trade is that....if you are about to to suffer risk of loss or partial loss to your merchandise or receivable, it has already occurred before you are made aware. As an industry professional, it is our duty and responsibility to identify those ticking time bombs that surround our desk - then eliminate them. In our experience, there is little risk in international operations that lacks a sound an inexpensive defense. Gain control, eliminate your risk. Jim garst is executive director of the international furniture products shippers association, the furniture industry's shipper association. He is a licensed Customs broker and former president and founder of American Overseas Transport Corporation, a North Carolina based supplier of global logistics specializing in air - ocean transportation and Customs service. IFPSA is an association of fifty four furniture manufacturers, retailers, wholesalers and suppliers primarily engaged in importing furniture in ocean containers. Importers pool their container traffic and logistics requirements with IFPSA, who then obtains preferred container rates from vessel operators via service contracts. JIm may be reached at 336 854 0708, or jim@ifpsa.net.