As an exporter of goods or services you will need to be aware of and consider insuring against the risks of:
- loss of or damage to goods in transit
- non-payment for your goods or services
- the cost of returning to your premises any goods that a buyer abroad refuses to accept
- political or economic instability in the buyer's country
- a new customer's credit worthiness
- currency fluctuations
- a fault that causes an end-customer to sue
If you are an importer, you may need to take into account:
- possible loss of or damage to goods in transit
- supplier problems, including failure to supply
- transport delays and potential hold-ups at ports
- the risk of performance or health and safety problems
- import duties
- storage of goods in bonded warehouses
- currency fluctuations
The responsibility for organising insurance can be shared between the importer and exporter, or be taken on by just one of them. When you agree the terms of a contract, it is advisable to useInternational Commercial Terms - see International Commercial Contracts - Incoterms.
Foreign currency and exchange risks
When you trade internationally, you should also take steps to protect your business against changes in the exchange rate. You will also need to consider when and how best to make or receive payments in currencies other than sterling - seeforeign currency and exchange rate risks.
Loss or damage of goods
The goods you export or import must have insurance cover from the beginning of their journey until their arrival with either yourself or the buyer. In some cases you will absorb the cost of cover, in others the cost is passed on to the buyer.
Product faults
In exceptional circ*mstances, a fault with the product supplied may result in an end user taking legal action against your business. Depending on the nature of your product or service, you may need to take out insurance to cover this risk. Search for an insurance broker with the British Insurance Brokers Association (BIBA).
Non-payment
You might not be paid in full for the goods or services that you export because:
- your customer can't or won't pay
- war or a natural disaster prevents your goods from reaching the customer, or you from completing your contract
- political reasons prevent you from completing your contract, such as an export licence ban in the UK, or import restrictions or a change in the law in the buyer's country
- currency problems prevent your buyer from getting the cash they need to pay you
FAQs
Political Complications due to political developments that may impact the transaction, including war, riots, terrorism and embargoes. Transportation Loss, theft, or damage to goods while in transit from exporter to importer.
What are the risks in importing and exporting? ›
Political Complications due to political developments that may impact the transaction, including war, riots, terrorism and embargoes. Transportation Loss, theft, or damage to goods while in transit from exporter to importer.
Which risk is insured in export? ›
ECI generally covers commercial risks (such as insolvency of the buyer, bankruptcy, or protracted defaults/slow payment) and certain political risks (such as war, terrorism, riots, and revolution) that could result in non-payment.
What are the disadvantages of import and export? ›
Limitations of Import and Export
- It includes extra packaging, transportation and protection and insurance costs which build up the total cost of items.
- Exporting isn't doable in the event that the foreign nation prohibits imports.
What Are the Types of Export Risks?
- Political Risks. Exporters can face significant political risks when doing business in various countries. ...
- Legal Risks. Laws and regulations vary around the world. ...
- Credit & Financial Risk. ...
- Quality Risk. ...
- Transportation and Logistics Risk. ...
- Language and Cultural Risk.
Legal and regulatory risks can be significant for import and export businesses. Compliance with laws and regulations in different countries can be complex and difficult to navigate. Failure to comply with these laws can lead to fines, penalties, and even legal action.
What options do exporters and importers have to manage risk? ›
For example, you can hedge against currency fluctuations by using forward contracts or options, you can insure your goods against damage or theft by purchasing cargo insurance, you can protect your legal rights and obligations by using clear and enforceable contracts, you can diversify your suppliers and customers by ...
What are the three 3 main types of risk associated with insurance? ›
Most pure risks can be divided into three categories: personal risks that affect the income-earning power of the insured person, property risks, and liability risks that cover losses resulting from social interactions. Not all pure risks are covered by private insurers.
What insurance cover for export? ›
The Export Insurance Policy provides cover for up to 95% of potential losses due to particular events – including buyer insolvency or failure to pay you for goods or services delivered. There is no minimum or maximum value for an Export Insurance Policy.
What is the most common risk insurance? ›
The biggest insurance risks that follow fall into one or more of the main categories: operational, strategy, compliance and reputational.
- Data breaches. ...
- Property damage. ...
- Human capital costs. ...
- Professional service mistakes. ...
- International manufacturing and export/transit issues. ...
- Building projects.
Exports can increase a firm's sales and profits, and they may even present an opportunity to capture significant global market share. Companies that export heavily are typically exposed to a higher degree of financial risk.
How imports and exports affect you? ›
Key Takeaways. A country's importing and exporting activity can influence its GDP, its exchange rate, and its level of inflation and interest rates. A rising level of imports and a growing trade deficit can have a negative effect on a country's exchange rate.
Who bears the risk in export? ›
The exporter clears the goods for export and bears the risks of getting the goods to the agreed terminal and unloading them. However, the buyer is required to clear the goods for import, pay import duty and carry out import customs formalities.
Is exporting the least risky? ›
"Exporting is the least risky alternative for a company to enter the global market." Why is this the case? Exporting allows for easy withdrawal from the market. Exporting requires minimal investment.
What are the pitfalls of exporting? ›
Disadvantages of exporting
- Supply chain disruptions. ...
- High up-front costs. ...
- Export licenses and documentation. ...
- Product adaptation. ...
- Political disruptions. ...
- Cultural hurdles. ...
- Exchange rate fluctuations. ...
- Multi-currency payments.
Trade deficits occur when a country imports more goods and services than it exports, resulting in a negative balance of trade. They can affect domestic industries, employment, and economic growth, and are influenced by factors such as exchange rates, trade policies, and global economic conditions.
What is risk in international trade? ›
Trade risk refers to the potential for financial loss or negative consequences arising from fluctuations in the value of goods or services traded between different countries.
