Marine Insurance and Trade
The buying and selling of goods and services across national borders is known as international trade.
Advancement and rapid expansion in transportation, globalization, multinational corporations and outsourcing have combined to have a major impact on the international trade., increasingly, international trade is becoming a critical to the continuance of globalization, without it, nations will be limited to goods and services produced within their own borders and the standard of living would be much lower.
Marine insurance plays a small but critical role in facilitating international trade. It provides protection against fortuitous losses which enable those engaged in international commerce to venture – their usually enormous capital – more freely than it would be the case. This expands the scope of operation of the overseas trade. In countries like UK which attracts marine insurance business from other states, marine insurance is an important earner of foreign exchange which helps the country’s’ balance of payments
Banks are to a very great extent, responsible for financing the overseas trade of the world. The buyer forwards to the seller of goods a letter of credit drawn on a banking house. The letter of credit is not negotiable for it is an authority from the banker who signs it to the banker or other person to whom it is addressed to honor the draft of the person named in it on production of whatever documents may be required. Hence the banker merely acts as a collecting agent and not financing the transaction.
In most cases, the seller may wish to obtain assistance of their bank in the credit that the banker is extending to the buyer. The seller will ask the bank to buy the Bill of Lading against the value of each shipment. (The Bill of Lading is the evidence of affreightment between ship owner and the shipper of goods and is a receipt of goods given by the carrier to the shipper.)
This means that the seller of goods is put in funds immediately instead of waiting until of remittance from the customer abroad for goods shipped as this will only happen when the goods are received.
The Bill of Lading must be accompanied by other documents of title which include;
- The invoice – this is the sellers’ bill of the goods sold and specifies details of goods, their prices and various charges
- The Bill of Exchange – this is the draft or order drawn by seller on the buyer requesting the latter to pay the stated sum, on slight or in a specified number of days after the sight or presentation of the draft and necessary documents to the party named in the order
- Export Invoice – this shows the quantity, quality and price of goods
- The Marine Insurance Policy – this indicates that the goods are insured against loss or damage by marine perils with approved insurers.
The bank will not discount the bill of exchange unless the goods are insured against marine risks and the policy lodged with the bank as collateral security.
If the goods are damaged or lost, a claim will be forwarded to the insurer and is recoverable under the marine policy.