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Transport risk

Transport (logistical) risk is a risk that reflects the potential for loss or deterioration of the quality of a product during transportation from the seller to the buyer.

Given the importance and specificity of transport risk in commercial composition, it is distinguished from commercial risk.

The transport risk classification was first given by the International Chamber of Commerce in Paris in 1919 and unified in 1936. Currently, different transport risks are classified by degree and liability in four groups: E, F, C, D.

Group E includes one situation where the vendor keeps the item in its own warehouses (ExWorks). The supplier assumes the risk until the buyer accepts the goods. The risk of transportation from the seller 's premises to the end point is already accepted by the buyer.

Group F contains three specific transfer situations and, accordingly, risks:

  • FSA means that the seller 's risk and liability are transferred to the buyer at the time the goods are transferred in the agreed place;
  • FAS means that the liability and risk for the item is transferred from the supplier to the buyer at the port specified by the contract;
  • FOB means that the seller waives liability after unloading the goods from the ship.

Group C includes situations where the exporter, seller, enters into a transportation contract with the buyer but assumes no risk. These are specific situations:

  • CFK means that the seller pays the cost of transportation to the port of arrival, but the risk and responsibility for the safety of the goods and the additional costs are borne by the buyer;
  • CIF means that in addition to duties as in CFR, the seller provides and pays for risk insurance during transportation;
  • CPT means that the seller and buyer share risks and responsibilities. At a certain point (usually some intermediate transportation point), the risks completely pass from the seller to the buyer;
  • CIP means that risks are transferred from the seller to the buyer at a certain intermediate point of transportation, but in addition, the seller provides and pays the cost of insurance for the goods.

The latter group D means that all transport risks fall on the seller. This group includes the following specific situations:

  • DAF means that the seller assumes risks up to a certain national border. Further risks are assumed by the buyer;
  • DES means that the transfer of risks by the seller to the buyer takes place on board the vessel;,
  • DEQ means that the transfer of risks occurs at the time the item arrives at the port of download;
  • DDU means that the seller assumes transport risks up to a contractual location (most often a warehouse) in the buyer 's territory;
  • DDP means that the seller is responsible for transport risks up to a certain place in the buyer 's territory, but the buyer pays for them.

There are several main factors that characterize transport risk:

Factor Characteristic
Freight A load is a risk depending on the type and characteristics of the load. Not all types of cargo are equally easily damaged, so the premium is established depending on how much risk a particular type of goods carries. For example, glass is at greater risk of damage than massive goods made from iron.
Packing of freight Most of the risks presented by the cargo in itself can be eliminated with reliable packaging, such as a box instead of a cardboard box
Vehicle How the vehicle is adapted to a product of this type and quality. When carried on a vessel, "deck" cargo, for example, would be at far higher risk than cargo in holds. The cargo is usually carried along with other cargoes, the smell, taste and other features of which pose a certain risk.
Route There is also the question of the length of the route, the loads and offloads in transit (this is usually an additional risk); On the quality of the roads on which the vehicle is travelling, whether the cargo is passing through high-risk areas, etc.
Climatic conditions Transportation of goods in winter and summer usually implies different degrees of risk. In any case, consideration should be given to whether the load is affected by temperature fluctuations.
Purchase and sale terms The terms of purchase and sale provide an opportunity to determine when the risk comes and ends.