Robert Redford's new movie “All is Lost” serves a subtlereminder to the overseas shipping industry of the perils theirbusiness may face. After Redford's sailboat collides with a giantshipping container floating in the ocean, he finds himself in anintense man-against-the-sea drama.

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While the shipping container may only play a minor role in thefilm for the average moviegoer, for those who export their goodsoverseas it is a stark reminder that shipping products is a riskybusiness that requires taking prudent precautions up front. This isparticularly true for small businesses that have fewer resources towithstand a catastrophic loss, whether from the dangers of oceantravel or the uncertainties of dealing with foreign partners intrade.

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The risks are no surprise to veteran ocean marine insuranceagents, brokers and underwriters. What may catch them unaware,however, is the fast-growing number of small businesses that areentering the export world. Providing expert guidance to theseshipping novices is an opportunity to provide valuable service andstrengthen relationships with small business customers.

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By the Numbers

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Shipping products to other countries was once a commercialopportunity tackled only by large conglomerates and big businesseswith plenty of staffing resources and legal counsel available tohandle the complexities. Thanks to new technology, today anycompany that has a website can end up with overseas customers.

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A 2013 survey by the National Small Business Association puts aspotlight on the growth of exporting by small businesses. Based onresponses from more than 500 companies (95% with fewer than 100employees and less than $25 million in annual revenue), the resultsshow both the economic importance of exporting activity by smallbusinesses and the challenges they face. Among other things, thesurvey showed:

  • Small businesses account for 98% of all U.S. exporters and 33%of the value of all U.S. exports.

  • Today, two-thirds of small businesses have sold goods outsidethe U.S., compared to just over half when the survey was last takenin 2010.

  • When asked about barriers to entering the export market, 46% ofthose who are not current exporters say they “don't know much aboutit and not sure where to start,” and 26% worry about whether theywill get paid. Even among those who are currently exporting goods,29% find it “confusing and difficult.”

Despite the challenges, small businesses are expected tocontinue to embrace exporting as a means of revenue growth. Thesurvey found that from 2005 to 2009, those who exported goods saw a37% increase in their revenues, while those who did not enter theoverseas market saw a 7% decline in sales. The lucrative potentialof overseas sales undoubtedly will continue to draw smallbusinesses into a world of globalized trade and shipping.

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A Key Pain Point for Small Shippers

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Once small businesses make an overseas sale, there are plenty ofdetails to work out. But one of the biggest stumbling blocks thatmay not be on their radar is the need to have complete clarityaround the terms of sale. The misunderstandings that can arise overthese terms, particularly when companies are not used to the“foreign language” of overseas shipping, are responsible for manyof the claim disputes that involve exports.

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The terms of sale are vitally important because they articulatewho is responsible for what and at which time; specifically, whowill insure the goods, and when title changes hands from the sellerto the buyer. Many small businesses that are used to domestic trademay think these issues are routine. When a company orderscomponents from a supplier within the U.S., the delivery of thecomponents completes the transaction—and up until that point, thesupplier is responsible for their condition.

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However, that is not necessarily the case for overseastransactions, where these responsibilities must be clearly spelledout so all parties are in agreement with the deal that has beenstruck. The International Chamber of Commerce has standardizedinternational commercial terms through a set of trade definitionscalled Incoterms. Among the most common terms that small businessesmay run into are:

  • EXW – Ex Works. Title and risk of loss pass from theseller to the buyer at the place of shipment. This puts the buyerin charge early in the process, so the buyer providesinsurance.

  • FOB – Free on Board. The seller must load and clear goodsfor export as instructed by the buyer. Title and risk of loss passfrom the seller to the buyer when the shipment passes the ship'srail. Here also the buyer provides insurance, but only after thegoods are loaded.

  • CIF – Cost, Insurance and Freight. The seller isresponsible for the arrangements, export clearance and cost ofshipping to the port of destination. However, the seller's risk andresponsibility for the cargo end when the goods are placed onboard. Despite risk passing to the buyer, under these terms theseller provides insurance. Since sellers sometimes keep thecoverage to a minimum, buyers may wish to purchase additionalcoverage.

Small businesses would be wise to check with their insuranceagents to determine the strategy that makes the most sense forthem. While it may sound attractive to have the buyer beresponsible for insurance costs and damages from the moment aproduct leaves the seller's hands, the end result may be a strainon customer relations if something happens and the buyer is unableto resolve a claim quickly. By keeping control, the seller can makesure there is adequate insurance and that coverage is with aninsurance company that will work swiftly to resolve claims.

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The Right Fit for Small Businesses

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When it comes to getting insurance, it is not only the questionof the right coverage but also the best way to arrange it. Smallbusinesses can require their buyers to purchase insurance (EXW andFOB), or they can choose one of two other methods: 1) work withtheir local insurance agent, or 2) use a freight forwarder.

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A freight forwarder allows small businesses to take advantage ofexternal expertise they may not possess. Much like using a travelagent to plan overseas vacations, a competent freight forwarderknows all of the ins and outs of packaging and shipping goods, andexporting to countries with different legal requirements. As anadded service, many freight forwarders can also arrange ocean cargoinsurance coverage for individual shipments.

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Using a freight forwarder to provide the ocean cargo insuranceespecially makes sense if a small business is just entering theexport world, or ships overseas so infrequently that the added costof tapping into their expertise makes economic sense. But once acompany grows its export business into a regular occurrence, it isoften more economical to work with a local agent to arrangecoverage year-round rather than on a shipment-by-shipmentbasis.

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In addition, choosing an insurer with a strong background inocean marine coverage provides the best safety net for smallbusinesses. Insurance companies have different levels of experienceand provide different levels of service. A large, sophisticatedexporter may have its own resources to rely on for shippingexpertise, but a small business can benefit greatly by selecting aninsurer that offers dedicated claims handling, specialized riskcontrol services and other consulting resources.

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Globalization has offered a world of opportunity to businessesof all sizes, but it has also introduced complexity at a level thatmany small companies are not accustomed to managing. Insuranceexperts can ease the path for small businesses and earn theirloyalty by delivering superior service when it comes to managingthe risks of exporting goods.

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