Manufacturers may have an understanding of product risk when they are on-site, but what about when this is not the case? Manufacturing involves constant moving of inventory, equipment, and finished products from job sites, distribution centers, and retailers. This process brings about a host of risks that require attention.
Despite its misleading name, Inland Marine insurance has nothing to do with water. It is only a term for a type of coverage that protects movable property that is in transit or stored offsite. The name originates from the 17th century, but today, it refers to land-based risks
Most manufacturing businesses are a lot less stationary than one would assume. Property is on the move in the form of finished products, raw materials, tools, all under the umbrella known as supply chain logistics. With all of these moving pieces comes different exposures, including:
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Theft: Common when shipments are parked overnight, left unattended, and include high-value items like electronics, metals, or machinery
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Vehicle Accidents: Even drivers who haven undergone proper training are subject to the mistakes of other drivers, severe weather conditions, and road hazards
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Weather-Related Damage: Flooding, snow, or temperature extremes can ruin products or equipment during transit or storage
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Mishandling and Loss: Property can be dropped, mislabeled, or lost during transfers between sites
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Temporary Offsite Storage: Damage to your property that occurs at a third-party storage location are generally not covered under most commercial property policies
Bearing these risks in mind, it is easy to see why Inland Marine insurance is essential for manufacturers. Many manufacturers assume that their business owner’s policy (BOP) or commercial property insurance will cover these situations, but in most cases, this is not true. This can leave a major gap in coverage and lead to serious financial loss. An Inland Marine policy is meant to fill that gap by covering:
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Goods in transit
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Materials or tools being moved between sites
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Inventory or equipment temporarily stored on-site at third-party locations
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Installation projects or mobile machinery used offsite
As manufacturing involves goods and supplies that are constantly changing hands, it is important to understand at which point each party assumes responsibility, and how this affects coverage under an Inland Marine policy. This transfer of liability is governed by the “Free-On-Board” (FOB) terms outlined in the purchasing agreement. For a manufacturer shipping finished product, FOB Origin means the buyer (likely a wholesaler or retailer) bears the shipping responsibility for the goods upon leaving the manufacturer’s facility. Here, the buyer’s, not the manufacturer’s, Inland Marine policy would provide coverage.
Conversely, FOB Destination means the manufacturer retains shipping responsibility until the goods are delivered to the buyer, which would require coverage from the manufacturer’s policy during transit. The same logic applies when manufactures are the buyers and receive inbound raw materials. Understanding the FOB terms of a contract is critical as it determines whose Inland Marine policy responds in the event of a claim. If you do not have ownership of goods as determined by the FOB terms of a contract, your Inland Marine policy would not apply.
There is another term that also has a unique application in shipping. CIP stands for Carriage and Insurance Paid To. Under CIP terms, the seller of the goods is responsible for shipping and insurance to the desitination. However, under CIP terms, the risk for loss or damage to the goods transfers from the seller to the buyer when the goods are handed over to the first carrier in the shipping chain, even though the seller continues to pay for transport and insurance.
The Carriage and Insurance Paid To (CIP) term is a crucial component that defines the responsibilities of both the seller and the buyer during the transportation of goods. When it comes to inland transport, the seller typically secures an Inland Marine policy or incorporates it into a comprehensive cargo insurance policy. This ensures that the goods are covered from the point of origin until they reach the named destination, even though the risk shifts to the buyer earlier in the journey.
Manufacturing is already a complex industry. With so many moving parts, it is important to leave nothing exposed. Inland Marine Insurance offers protection for the property that is essential to the health of your business. At Rue Insurance we are here to help with your insurance needs. Give us a call at 609-586-7474 for a consultation.
Image by Tima Miroshnichenko on Pexels.
About the Authors:
Robert Hemsing is a Sales Intern with Rue Insurance this summer. He is a rising senior at Providence College, pursuing a degree in Finance and Data Science. During his internship, Robert will be focusing on the Property & Casualty market and the manufacturing industry for Rue Insurance.
Melissa Cooke joined Rue in 2022 as the Director of Sales, bringing over 20 years of management and sales experience. As Director of Sales, Melissa is responsible for the strategic direction, vision, growth and performance of the sales team. As the leader of the sales team, Melissa helps the department define and navigate the sales cycle. Melissa is also responsible for the training and developing our sales internship program at Rue Insurance.
