Warehouse to warehouse clause

Warehouse to warehouse clause  — Why now? Is it not known to everyone dealing with Marine insurance? Many believe (and this includes seasoned marine practitioners, intermediaries, bankers and of course, logistics teams at corporate houses ) that once the ‘ warehouse to warehouse clause’ is added to their marine cargo policies,they have nothing to worry …. the cargo is covered from the supplier’s warehouse to the receiver/buyer’s warehouse anywhere in the world. They believe that the insurer will pay up in case of claims without reference to insurable interest, Incoterms, or the legal requirements of insurance in each country. Nothing can be further from the truth. In reality, insurance attaches from the time the assured becomes responsible for loss or damage to the cargo and ceases when the assured’s responsibility towards loss or damage to the cargo ceases.

Try explaining this to them and they respond saying ‘ we insist on warehouse to warehouse  clause ‘ in our policies. Some insurers too add the manuscript phrase ‘warehouse to warehouse’ as if it provides unrestricted coverage from end to end. Now we change tracks and say, okay, can you share the wordings of the Warehouse to warehouse clause? Some of them go blank while others point to the Duration clause  8.1 under ICC where the word ‘ warehouse ‘ is used to describe when the cover under the policy starts ( when the subject-matter is first moved in the warehouse or place of storage) and when it ends ( the earliest, among others,–on completion of unloading from the carrying conveyance at the final warehouse at the named destination). Ha, so this is the ‘warehouse to warehouse’ clause being referred. It may be noted that 8.1 begins thus ‘ Subject to Clause 11…’ and Clause 11 states that the assured must have insurable interest in the subject-matter insured at the time of loss. So, it is not a ‘carte blanche’.

During any transit, the seller or buyer bears the risk of loss or damage ( whether insured or not) to the subject-matter up to or beyond particular points. These points are called the Risk Transfer points as defined clearly in the Incoterms particularly under Incoterms 2020

Other than CIP & CIF, the Incoterms do not place any obligation on the seller or buyer to provide insurance. They only specify the points of Risk transfer in the subject-matter. It is clear that the seller or buyer in case of Incoterms other than CIP or CIF , arrange for insurance for their respective legs or not transfer the risk at all and bear the risk themselves. At times, the seller may take an insurance cover to protect his contingent interest as in the case of Seller’s interest clause. Buyers too may buy an insurance even if terms of sale are CIF/CIP to meet regulatory requirements in their country. However, in  a number of cases, insurance policies under ICC are purchased having scant regard to the terms of sale and without realising that in the event of a loss, the claim may not be admissible as the test of insurable interest would fail.

Inappropriate Incoterms usage is rampant and hence the ‘ warehouse to warehouse’ issue gets amplified. It is well laid down in Incoterms 2020 that where containerised cargo is moved through multiple modes of conveyance, the typical incoterms to be used are FCA, CPT, CIP or the delivery-based ones like DDP, DPU or DAT. Unfortunately,  a large number of exporters continue to use the FOB,CFR & CIF Incoterms for containerized cargo too. These Incoterms are to be used strictly where only ocean voyage is involved. For e.g. if the wrongly used incoterm is FOB and the container is handed over to the carrier at an ICD which is say 500 miles from the port. Seller’s responsibility is to load the subject-matter on board the vessel when the risk transfer takes place to the buyer. All expenses incurred till this point too are borne by the seller. If the cargo handed over at the ICD meets with an accident on the way to the port, since the terms of sale are FOB, loss will be to the seller. Had the right Incoterm FCA been used, the loss will be that of the buyer.

The ‘warehouse to warehouse’ confusion arises primarily in cases where erroneous Incoterms viz. FOB or CIF are used for containerised cargo. In case of both FOB & CIF , risk transfer to the buyer happens when the subject-matter is placed on board the overseas vessel at the load-port. Only difference being in case of CIF, even though the risk transfer to buyer has taken place, seller has to arrange insurance (minimum cover of ICC-C, no war, no strikes) cover till the NAMED PORT OF DESTINATION. Insurance cover is not automatic till the warehouse of the buyer which may be at an inland location. Explanatory notes under Incoterms 2020 state as under:

‘The seller must also contract for insurance cover against the buyer’s risk of loss of or damage to the goods from the port of shipment to at least the port of destination. This may cause difficulty where the country requires insurance cover to be purchased locally: in this case the parties should consider selling and buying under CFR.’

‘The parties are well advised to identify as precisely as possible the point at the named port of destination, as the costs to that point are for the account of the
seller. The seller must make a contract or contracts of carriage that cover the transit of the goods from delivery to the named port or to the agreed point within that port where such a point has been agreed in the contract of sale.’

It is clear that CIF Incoterm, seller has to arrange insurance only till the port of destination. As a clarification, it is further stated that it would be prudent to highlight the exact point within the port up to which the insurance should extend. This place will be the final destination as per the Duration clause of ICC.

The wording used in earlier paragraphs say insurance should be arranged by seller till ‘at least the port of destination’. Does this mean insurance cover can be extended till any interior destination even if the CIF Incoterm limits the requirement till the destination port? Answer is YES, PROVIDED, it is clearly stated as the seller’s responsibility to arrange insurance till named final inland destination in the Purchase Order, Letter of Credit or underlying sale contract. This should be brought to the notice of the insurer too and the policy/certificate of insurance should state the address of the named final destination as the ‘To’ location and the destination port as ‘via’. Merely adding ‘ warehouse to warehouse’ and assuming insurance cover will be available till buyer’s final warehouse is incorrect.

Similarly, sometimes in case of FOB shipments too, buyers ask the seller to arrange insurance for the overseas transit, even though it is not required as per the Incoterms. The unofficial term used is C & I. Can this be done? Yes, there could be reasons why the sale terms have to be FOB, maybe because the buyer may be in a better negotiating position with a particular shipping line , but he would like the seller to arrange insurance. This can be done provided it can be established by way of documentary evidence that insurance was seller’s responsibility and the money for the same was remitted in foreign currency by the buyer.

Can a marine cargo policy be issued on ‘door-to-door’ basis or ‘ warehouse to warehouse’ basis’ irrespective of Incoterms? Not impossible but it should be clearly documented how the cover would operate, whether it will have the bind of both seller & buyer, who will be responsible for what at each stage, has the insurer’s consent in advance and ABOVE ALL, how it would meet the legal, regulatory and banking requirements in each of the countries involved. Typically, just for getting a ‘ warehouse to warehouse’ cover of the nature described above, no seller will be willing to take on onerous responsibilities including requirements of compliance. Ignorance is bliss and some continue to believe that if they have the words ‘ warehouse to warehouse’ in their cargo policies, God is with them.