Understanding Liability in International Shipping: FOB, CIF, DDP Explained

Who Pays If the Goods Are Lost During Transport? Heres What You Need to Know About Insurance and Risk Transfer

In international logistics, one of the most frequently asked questions by clients is:

''If my cargo is lost during transportation, who is responsible for compensation?''

At first glance, this sounds like a question about liability. But in reality, it revolves around two critical factors:

1. Did You Purchase Cargo Insurance?

Insurance is often overlooked, yet it plays a vital role in risk management.

Whether its by sea, air, or land, there are always uncontrollable risks in transit such as loss, damage, fire, collision, water exposure, theft, or mishandling at ports.

If proper cargo insurance is in place, any losses or damages incurred during transportation can be claimed through the insurance provider, significantly reducing the financial impact.

Our recommendation: Always insure high-value, fragile, or customized goods. The cost is low, but the protection is substantial.

2. Which Incoterm Is Being Used?

In international trade, Incoterms determine when risk transfers from seller to buyer, and who pays for what.

Here are three commonly used Incoterms:

1) FOB (Free on Board)

• Risk transfer: Once goods are loaded onto the vessel, the risk passes to the buyer.
• Implication: Any loss or damage during transit is the buyers responsibility unless otherwise agreed.

2) CIF (Cost, Insurance & Freight)

• Risk transfer: The seller pays for freight and insurance, but risk still transfers at the port of shipment.
• Note: Buyers must file claims with the insurance company, while sellers may assist with documents.

3) DDP (Delivered Duty Paid)

• Risk transfer: The seller is responsible for the goods all the way to the buyers doorstep.
• Implication: Maximum responsibility and cost on the seller, but the safest for the buyer.

 What If Theres No Insurance and Something Goes Wrong?

In that case, there are generally two outcomes:

1. A claim may be filed against the logistics company but compensation is often limited (e.g., based on weight) and may take time.
2. If the cargo is of high value and uninsured, the shipper may need to absorb most of the loss.

Our Advice:

• Assess whether insurance is needed based on the value and route of the goods
• Always confirm the Incoterm before shipment to avoid risk misunderstanding
• Work with experienced and responsive logistics providers to ease claims and communication

In Conclusion: Logistics Involves Risk Professional Support Matters

Whether youre a cross-border e-commerce seller or an experienced exporter, understanding the logic behind transport risk is key to protecting your business.

Only by planning ahead, choosing the right Incoterm, and securing proper insurance can you truly ship with peace of mind.