FORCE MAJEURE? HOW AN ACT OF GOD CAN COST YOU YOUR ENTIRE SHIPMENT.
Updated: Jun 10, 2022
Can you afford to lose an entire shipment due to an Act of God? Not many buyers can. In shipping contracts force majeure means “an act of God” and is typically overlooked as standard boilerplate language. However, as a buyer, it’s important to understand that it basically allows a party (in this case, the seller) to suspend or terminate the performance of its obligations without being liable for breach of contract in the event of a force majeure.
Typical force majeure events include floods, hurricanes, fire, earthquakes, typhoons, explosions, war, strikes, or acts of government that may prevent the seller from fulfilling its obligation. So if, for example, the steamship carrying your cargo is negatively impacted by bad weather and is destroyed, neither the seller nor the steamship line would be liable, because it’s covered in the contract’s force majeure clause.
“But I’m covered by my seller’s insurance policy,” you might say. Chances are, your supplier does not have adequate coverage, and you should always make a specific request to cover you from potential losses. (Unless you have specifically requested insurance for your shipment, the chances are that your supplier does not have adequate coverage for your potential loss.)
A real-world example: We had a customer who recently claimed a total loss on a shipment worth $7,000 due to damages incurred during transit. The limited liability insurance (which is standard in most shipping contracts) only covered $236 and took months to receive. That’s less than 4% of the shipment’s total worth! For between $35-$45, the buyer could have purchased cargo insurance through IFF and been reimbursed the full $7,000 value within a few weeks. As it stood, the buyer lost $6,764 worth of goods and the potential profits they would have made selling those goods, plus had to expend an additional $7,000 to replace the lost shipment. A sad, but true example.
No one wants to lose their shipment due to force majeure, but when this does happen, the cost of the shipment’s loss falls on you, the buyer, and the results could be catastrophic to your business. While you can’t prevent a force majeure from happening, you can protect yourself with cargo insurance. For pennies on the dollar, IFF can ensure that your cargo is protected 100%—including cost of goods, freight and duties—from force majeure and any other type of catastrophe.
How do I get cargo insurance? The next time you need a shipment quote, simply ask IFF to also include a quote for cargo insurance. You’ll be glad you did!