Marine Cargo Insurance - determination of Exchange rate - barter trade !

Marine Cargo Insurance offers protection to goods in transit from one place to another.  A Marine contract agrees to indemnify the insured in the manner and to the extent agreed, against marine losses i.e., losses incidental to marine adventure.  Marine Cargo insurance is unique and has many peculiarities – it allows a commercial indemnity, being an ‘Agreed value’ policy. 

When the coverage is for goods across Countries’ borders – the sale could be executed in a currency other that of those participating Nations.  In commodity deemed for exports from India, the Invoice is raised on the currency of buyer or on a common currency like Euro, dollar, Pound Sterling …. [theoretically it could be in Indian Rupees too].  The Policy Sum Insured should also be in the currency of Invoice for clarity when covering exports.

Often in Marine Seminars, the Q posed would be what determines the rate of exchange and how the Sum Insured would be represented.  In Indian parlance [read with FEMA regulations and GIM of RBI] – the sum Insured would be represented in Foreign currency [the currency of Invoice] – it would be Invoice value + agreed % uplift.  The SI would be shown in Indian currency too, but only when settlement is contemplated to be made to the Indian Consignor or his bankers.

To the Q on ‘what will happen when the currency fluctuates’ and the difference is pretty high – a settlement with the consignee [subject of course to the claim otherwise becoming indemnifiable] – the settlement will be in the foreign currency designated as SI.  A total would render full payment of SI [+ survey fees + settling fees].  The actual outgo might be exceeding the SI in Indian Rupees, for which premium was paid. !!

To another hypothetical Q on ‘how to determine the value when goods are purchased by barter in a foreign port’ – a reference to a book by Arnould provides that – when there is no means of calculating the rate of exchange between the two currencies, the French code provides that the insurable interest shall be measured by the cost and charges of the goods given in barter;  here ‘charges’ being intended to mean the expense of bringing them to the place of shkipment and shipping them. 

I said hypothetical Q for I thought that ‘in modern time – all transactions happen in currency  and that no goods move without an Invoice and sale term’ …….. here is an interesting newsitem in Deccan Chronicle, without entering into discussion on such things are not insurable and so forth.

boat in Thailand selling vegetables - photo credit Ajit Devotta

The report from Jamnagar states that ten fishermen on two boats were caught while allegedly exchanging food articles with Pakistani fishermen off Okha coast near International Maritime Boundary with the neighbouring country by the Indian Coast Guard. During joint interrogation by local police and Coast Guard, it was found that 10 fishermen on two boats, registered in Porbandar, took chocolates, milk pouch and a packet of cigarettes from Pakistani fishermen in exchange of some ice and fish.

They were caught by Coast Guard on November 22 in the Indian waters off Okha coast. Coast Guard learned that two of our boats went inside the Pakistani waters. To find out their motive, these boats were intercepted in the Indian waters near Okha by a patrolling vessel of Coast Guard. Upon searching, officials found these articles which reportedly had been taken on barter in their boats.

Marine confounds and is interesting all the time.

With regards – S. Sampathkumar

25^th Nov. 2014.