Insurance and liability for exported food

A shipment of food carries three kinds of risk that people tend to lump together: the goods getting lost or damaged on the way, the question of which party bears that loss on which leg, and the responsibility if the product itself causes a problem for someone who eats it. Cargo insurance handles the first. Incoterms answer the second. The third cannot be transferred by any delivery term. It stays with the brand owner, and the way to prepare for it is traceability and a recall plan that already exists. This piece is for buyers and for the people on our team preparing Color of Vietnam's export documentation.

What cargo insurance actually pays for

Cargo insurance is a contract that pays when goods are lost or damaged in transit: a container lost overboard, a vessel casualty, water damage, theft, fire. Most policies are written on the Institute Cargo Clauses, usually shortened to ICC:

• ICC (A) covers all risks except the listed exclusions. Widest cover, highest premium.
• ICC (B) covers a named list of perils, including some cases such as sea water entering the hold.
• ICC (C) is the narrowest list, mainly major accidents to the vessel or vehicle.

For snacks and nutrition bars, the likely problems are not sinking ships. They are wet cartons, crushed boxes and heat that softens a cacao coating. Several of those fall outside ICC (C). So when someone says the goods are insured, the next question is under which clauses and for what value. The common convention is to insure at 110 percent of the CIF value, the extra tenth covering margin and incidental costs, but that is custom rather than law and can be negotiated.

One more point: cargo insurance never pays for a defect in the product itself. A nut bar that softens because the recipe is not stable is not the insurer's problem.

Who carries the risk on which leg

That question is answered by the Incoterms delivery term, and it helps to separate two things: where risk passes and who buys the insurance.

• Under FOB or FCA, risk passes to the buyer when the goods are on board or handed to the carrier. From there, damage is the buyer's problem, and the buyer normally insures the sea leg.
• Under CIF and CIP, the seller must buy insurance for the buyer. Under Incoterms 2020, CIF requires only the minimum ICC (C) cover, while CIP requires ICC (A). But risk still passes at the port of loading. The seller pays for insurance without carrying the risk.
• Under DAP, the seller carries risk all the way to the named place in the destination country and should insure the whole route.

The most common confusion is assuming that whoever pays the freight carries the risk. Not so. Under CIF the seller pays freight and insurance, but if the goods get wet mid-ocean, the buyer is the party making the claim. When two sides understand this point differently, the argument breaks out at the worst possible moment.

Product liability does not travel with the container

The third layer is product liability: what happens when a consumer has a problem because of the product, or when a regulator in the importing country orders a recall. No Incoterms rule moves this layer. A product carrying the PLAY Nutrition or Let's PLAY name is Color of Vietnam's responsibility, even though it was made at our partner facilities and sold through three tiers of distribution.

In some markets, importers or retail chains require the seller to hold product liability insurance with a minimum level of cover. That is a completely different policy from cargo insurance, bought per year rather than per shipment. When asked, we answer with what we have and what we are putting in place, rather than nodding and sorting it out later.

What every market needs, insured or not, is the ability to recall: knowing which ingredients went into a lot, when it ran, where it went, and whom to call within hours.

What recall readiness means

We treat recall readiness as a set of records that is always current, plus a drill. The records are:

• Lot codes on every pack and every carton, matching the partner facility's production record.
• Ingredient records for the lot: the COA (certificate of analysis) and supplier for each ingredient.
• A register of which lot went to which customer, in what quantity, on which date.
• A contact list: partner facility, importer, forwarder, the relevant authorities.
• A one-page procedure: who decides to recall, who notifies, who holds stock, who writes the report.

The drill is called a mock recall. Recently we picked a lot code at random from PLAY Nutrition cacao bars in stock and traced it backwards with the partner facility: which lots of cacao, oats and cashew went into that batch, their COAs, the production date, where the retained samples were. Then forwards: which customers received the lot. We timed it. The backward trace was quick, because the facility keeps good records per lot. The forward trace was slower than expected, because our delivery register was kept by order, not by lot code. The fix was simple: a lot code column on the delivery note. Without the drill, we would have found that gap on the day of a real recall.

What we put on the table with partners

When we talk to an importer, we try to raise all three layers at the start, rather than leaving them in the small print:

• Which delivery term, where risk passes, who insures and under which ICC clauses.
• The lot records and traceability that we and our partner facilities keep.
• How the two sides reach each other if something goes wrong, including outside office hours.

We are preparing for export and have not announced a market, so everything above describes what we have rehearsed and are still completing, not a track record. Being honest at this stage is far cheaper than being honest after an incident.

If you are an importer or distributor and would like to see how we trace a lot, get in touch and we will run a mock recall with you. If you would like to work somewhere lot records are treated as carefully as recipes, have a look at our Careers page.