# Cost and Freight PORAM

Document Sample

```					Marine Cargo Insurance
Course content
• Definition of Risk
•Type of Marine Insurance
•Incoterms
•Documentary Credit (L/C)
•Clauses Analysis (A), (B), (C) & Etc
• Double tax Relief
DEFINITION OF RISK
Something Which May Happen Not Something Which is Bound to Happen
Risk                                     Absence of Risk
Change                                   Inevitability
Fortuity                                 Certainty
Hazard
Peril
Contingency
Accident
Possibility?
Probability?
Insurable Value
So far as cargo insurance is concerned, the following are insurable:
The prime cost of the good
1.   The freight
2.   Insurance cost
3.   Commission is any
4.   Other incidental costs
Generally the value is described as CIF plus 10% which should apply both for
import and export.
Formula for calculating the sum insured
Say the following have been decided
C&F value           = RM1,000,000.00
Marine Rate         = 0.45%
Uplift              = 1.1
Thus,
Insurance= C&F value X Uplift X Rate
100-(Uplift X Rate)
= RM1,000,000 X 1.1 X 0.45
100-(1.1 X 0.45)
= 495,000           = RM4,974.62
99.505
CIF                 = RM1,000,000 + RM 4,974.62 = RM1,004,974.62
S.I.                = RM1,004,974.62 X 110%
= RM1,105,472.08
TYPES OF MARINE INSURANCE
Marine Insurance generally can be
divided into three categories :
 Marine Cargo Insurance
 Marine Hull Insurance
 Marine Liability Insurance
Incoterms / Terms of Sale
A set of international rules and standard trade
definitions that are accepted by governments,
legal authorities and practitioners worldwide.
Separates and distinguishes the responsibility of
the buyer and seller in respect of :

Who should arrange Cargo Insurance as a
protection against the risks during the transit?
Incoterms / Terms of Sale
11 Incoterms (2010) i.e.
EXW,FCA,CPT,CIP,DAT,DAP,DDP,FAS,FOB,CFR,CIF.

4 most commonly used Terms of Sale are:
1.Ex Works(EXW)
2.Free on Board(FOB)
3.Cost and Freight(CFR or C&F)
4.Cost, Insurance and Freight(CIF)
1. EXW (Ex Works)

Seller
Making the goods available to the buyer at his
warehouse or works.
1. EXW (Ex Works)

Responsibility of the buyer to arrange insurance for the goods as
well as transportation for the entire transit from the seller’s
warehouse to the final destination.
2. FOB (Free On Board)

Seller
-responsible for delivery of the goods to the docks and pay the cost
-responsible for insurance from his warehouse until the goods are
2. FOB (Free On Board)

Once the goods had been delivered on board
the vessel, risk of loss or damage to the goods
3. CFR / C&F (Cost and Freight)

Seller
-This is different to FOB in that the seller is responsible for the cost of
transporting the goods to the destination port.
- Responsible for insurance from his warehouse until loaded on board the
ship
3. CFR / C&F (Cost and Freight)

Buyer -responsible for insurance when the goods is
loaded on board the vessel at the port of shipment.
4. CIF (Cost, Insurance and Freight)

It is common practice nowadays for the insurance cover to
continue beyond the port of discharge to the final
destination i.e. warehouse to warehouse.
Documentary Credit (Letter of Credit)

4. GOODS

1. APPLY LC

5. DOCUMENTS
9. DOCUMENTS

2. ISSUE LC
8. PAYMENT

7. DOCUMENTS
INSTITUTE CARGO CLAUSES COVERAGE
INSTITUTE CARGO CLAUSES (A) - ICC(A)
RISK COVERED

 ALL RISKS

 GENERAL AVERAGE

 BOTH TO BLAME
COLLISION
INSTITUTE CARGO CLAUSES COVERAGE
EXAMPLE OF GENERAL AVERAGE

 Goods damaged by water used to extinguish fire

 Goods jettisoned to prevent ship sinking

 Goods jettisoned to lighter stranded vessel

 Goods lost or damaged during G.A operation
INSTITUTE CARGO CLAUSES COVERAGE
EXAMPLE OF GENERAL AVERAGE

W   F         F   W

1      2       3         4       5           6

7      8       9        10       11      12

General Average -              3,9 & 12
Particular Average -           4,5,6,10 & 11
Contribution                   -         1,2,7 & 8
A Comparison of Risks Covered by
ICC(A), ICC(B) & ICC(C)
RISKS COVERED                  ICC(A) ICC(B) ICC(C}
Fire or Explosion                         X      X      X

Stranding/grounding/sinking/capsizing     X      X      X
of vessel
Overturning or derailment of land         X      X      X
conveyance with external object other
than water
Collision or contract of vessel with      X      X      X
external object other than water
Discharge of cargo at the port of         X      X      X
distress
A Comparison of Risks Covered by
ICC(A), ICC(B) & ICC(C)
RISKS COVERED                  ICC (A) ICC (B) ICC(C)
Jettison                                 X       X       X
General Average Sacrifice                X       X       X
General Average & Salvage Charges        X       X       X
Entry of sea/lake/river water into
vessel/container/liftvan or place of     X       X       O
storage
Total loss of any package whilst         X       X       O
Earthquake/volcanic eruption or          X       X       O
lightning
Washing overboard                        X       X       O
A Comparison of Risks Covered by
ICC(A), ICC(B) & ICC(C)
RISKS COVERED                 ICC (A) ICC (B) ICC (C)
Piracy/theft/pilferage/non delivery     X        O       O
Rough handling / Impact                 X        O       O
Contamination                           X        O       O
Unnamed perils                          X        O       O

X – COVERED
O - NOT COVERED
INSTITUTE CARGO CLAUSES COVERAGE
EXCLUSIONS
Willful misconduct of the assured
Ordinary leakage , ordinary loss in weight or volume
Insufficient or unsuitability of packing
Inherent vice
Delay
Insolvency or financial default of the
owners,managers,charters or operators of the vessel
Use of atomic or nuclear weapon
Unseaworthiness and unfitness of vessel
War
Strikes
DURATION
Start …. End

•Warehouse to warehouse
•Warehouse to place of storage
•Warehouse to point of allocation or distribution
•60 days after discharge of cargo over side the vessel
ATTACHMENT OF RISK
8.1 This insurance attaches from the time the goods leave the warehouse or
place of storage at the placed name herein for the commencement of the
transit.

GOODS STORED IN W/H COMPOUND
Diagram No. 1
Attachment at commencement
of transit         Custom W/H    Port of Shipment

Destination Port
Period of cover from the warehouse inland to discharge at the destination port
.
Diagram No. 2

Custom W/H                                 Final W/H

Destination Port                     Overland Transit

No Cover whilst in
60 Days Time Limit    store at Final W/H

Period of cover after the goods have been discharged at the destination port
to the time they are delivered to final w/h . It does not apply where the goods
are sent to a place for intermediate storage or for distribution or allocation .
Diagram No. 3

Period of cover after the goods have been discharged at final destination port in
circumstances where the assured has arranged for the goods to be placed in store
short of the final destination w/h or where the goods will be sent to a place for
allocation or distribution to the final destination w/h.
CLAIMS
• Insurable interest
• Forwarding Charges
• CTL
• Increased Value
• Change of voyage – Held covered
• Termination of contract of Carriage
automatically terminate the policy
Double Tax Relief
-   Before 1995   - Import only
-   After 1995    - Export and Import

SECTION 154- Income Tax Act 1967
For the purpose of ascertaining adjusted income of a person
from a business under the act, there shall be allowed as
deductions any premium of a kind allowable under section 33
of the act payable in respect of insurance cargo imported by
that person provided the risk are insured with any insurance
company incorporated in Malaysia.
Double Tax Relief
Example of the Application of Tax Incentive (Double taxation benefit).

CASE A CASE B
RM               RM

Profit before Tax (Before Insurance              1,000,000       1,000,000
Less:
Double Deduction                                   -             200,000
Total Deduction                                  200,000         400,000
Revised Profit                                   800,000         600,000
Tax Payable (say) @ 30%                          240,500         180,000
After Tax Profit                                 760,000         820,000