Have you heard about the recent Red Sea crisis? The Red Sea Crisis is a political issue where the Houthi rebels have been targeting commercial ships that pass through the Red Sea. The canal handled about 12% of global trade, which all international companies now avoid (taking the longer way around).
Avoiding the Red Sea route has shaken up many industries, including the product and logistics industry. It has made exporting products complicated and may cause global inflation. The crisis has brought more attention to the risks of exporting products internationally. More product and logistics companies are concerned about the risks of exporting goods internationally.
Any company exporting products should be aware of the risks involved and have a protection plan. An adequate export risk management strategy can save a company from large amounts of financial loss and challenging issues.
The article will highlight the risks of exporting products internationally and the ideal risk management strategy to deal with specific export risks.
Risk Of Exporting Products
Loss Or Damage of Goods
Products (goods) are packed, put in containers, and loaded onto cargo transportation ready to export. The carrier could be a plane, ship or truck. No matter what transportation companies choose, there is always a chance of damage, loss or theft of products due to uncontrollable issues.
Damage or loss is one of the top risks of exporting products internationally. The exporting risk could occur at any point of the journey or even during loading/offloading. The unfortunate situation could be due to negligence or a freak accident.
Common reasons for cargo damage and loss include unpredictable weather, theft, poor packaging, freight forwarder negligence and incorrect instructions. Damage or loss of goods can disturb the process for companies and result in severe financial loss.
Cargo insurance is one of the best ways to deal with this risk of exporting products. The insurance will cover the costs of repair or replacement of the damaged, lost or stolen goods during the transit. The insurance needs to be purchased by product owners.
In addition, there is a chance the exporting or importing company may sue the freight forwarder if the damage or loss was due to negligence. Hence, freight forwarders need freight forwarder insurance to cover their legal liability.
Both insurance are crucial for the respected party when dealing with such unfortunate situations.
Companies export their products to international buyers in exchange for monetary funds. The payment is profit and is usually used to run the business. Most international trade is done on a trade credit basis, which means the full payment is made after the product arrives at the location or an agreed date.
However, there is always a chance a buyer may not pay due to commercial or political reasons. Commercial reasons include insolvency and bankruptcy; political reasons include war, government issues and trade restrictions.
The non-payment or late payment can financially disturb the selling company and their future. Especially when the exported products and logistics expenditure is significant. There is a point the selling company has to understand they may not get the payment and stop any relation with the client.
Non-payment is a severe risk of exporting products internationally; however, insurance can reimburse a portion. Trade credit insurance will cover non-payment or late payments. The insurance will reimburse a portion of the financial loss if the reasons are due to commercial or political risks—an essential insurance for international trade to protect the exporter’s financial future.
Exporting products is a great way to reach new markets and increase business success. However, with a large number of customers/ clients, there comes a rise in responsibility. Exporting businesses must ensure the product is safe and will not harm customers or their property.
The risks of exporting products include international product defects and liability lawsuits. There is a higher chance of defects when producing and transporting large amounts of products. If a product defect harms customers, they can take legal action against the business or supplier.
Businesses must ensure they have effective quality checks and use high-quality packaging when exporting internationally. However, most defects are unpredictable and can result in substantial financial losses.
Product liability insurance is vital for businesses exporting products internationally. The insurance will financially cover injury or property damage claims due to product defects. Product liability insurance will cover legal, compensation and settlement expenses. It is a must for any company that exports full product or parts to a new market.
Every country has trade laws and regulations that control what and how goods can be imported. It is the sender and freight forwarder’s duty to communicate about the specific laws and make sure all forms are complete.
Legal risks of exporting products internationally include laws, regulations, customs and contracts. Understanding international laws and regulations is crucial to avoid fines and disruption in exporting.
The duty mainly falls on the freight forwarder, who is liable to get all the papers and signatures when agreeing to transport products. Even if one form is missing, the products will not be able to be offloaded to the final destination, and the freight forwarder will be accountable.
Such risks can result in lawsuits against the freight forwarder due to their error or negligence. As mentioned, freight forwarder liability insuranceis vital to deal with such threats. The insurance will cover the logistic company’s liability to help them recover from the lawsuit and adequately compensate the exporting company.
The Red Sea crisis has shown us that political issues can be a considerable risk to exporting products. There have been many instances where sea or air paths have been dangerous and avoided due to political issues. When faced with such threats, the ship or plane must re-route, which can take much longer and be more expensive.
Unfortunately, political situations cannot be predicted or avoided. The political risk puts more pressure on the export and import industry, forcing companies to pay more and plan better.
The risk can also pause trade to some countries because the route is too expensive and unprofitable. Therefore, political risks can indirectly affect countries that are not involved and result in financial loss.
Trade credit insurance will only cover non-payments due to political risks. Regrettably, most insurance cannot cover the price increase or the financial loss of removing specific country clients or change in shipping route.
Political issues affecting exporting products have become more challenging to cover due to the complexity and unpredictable scenarios. Exporting companies must be mindful of the current political situations around the countries they send their products.
Why Insurance Is a Great Way to Deal with Risks of Exporting and Importing?
The world would be very different if products did not move from one country to another. However, as you can tell, the risks are high, and many factors make the process tougher than many believe.
Companies involved in the process must recognise every risk and have the right protection. Therefore, all the insurance mentioned is crucial for exporters, freight forwarders, and importers.
Insurance can help deal with the risk of exporting products internationally by providing effective financial coverage and peace of mind. Businesses can rely on insurance to help them get through troubles without huge financial losses or liability damage.
Another reason insurance is crucial is due to the increase in trust that follows. Clients will be more inclined to do business with companies with the right coverage and are professionally prepared if things go wrong.
Dealing with international trade threats is expensive, unpredictable, and confusing, but the various insurances are the perfect protection against the risks of exporting.