Question 1 Describe some of the risks that an ocean shipmen

Question 1 - Describe some of the risks that an ocean shipment faces.

Question 2 - Describe some of the risks that an air shipment faces.

Question 3 - What possible risk management strategies can an exporter/ importer follow? Explain each strategy\'s advantages and disadvantages from the perspective of a small exporter.

Question 4 - Explain the concept of international credit insurance and explain how it is possible to contract a policy covering commercial and political risks.

Solution

1. Ocean shipment or ocean freight means that the goods will be transported using waterways (oceans and seas) as a mode of transport. The key risks are: (1) risk of getting damaged by water in case of typhoons or cyclones while in transit (2) risk of damage to the vessel carrying goods is realtively higher than air transport or land transport

2. Air shipments means that the goods are being transported using air as a mode of transport. There is always the risk of damage or destruction while in transit. The airplane may crash, resulting in total loss.

3. An importer or an exporter can follow these risk management strategies - (a) use insurance to protect their goods while in transit. The advantage is that in case of damage, the value of the goods can be reclaimed. The disadvantage is that it will increase the operating costs. Exporter can reduce his risk by putting a condition that his responsibility for the safety of the goods ceases once the goods leaves his premises. The advantage is that it creates a favorable situation for exporter and the disadvntage is that it creates an unfavorable position for the importer.

4. International credit insurance means credit insurance for international trade. This insurance covers the risk of the buyer not paying up at all or paying very late. It is possible to contract a policy covering commercial and political risks by customizing the policy as per your needs. This of course will entail a higher amount of premium payment on the policy.