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Seller's Interest

The Gulf of Aden and Indian Ocean, two of the world's busiest shipping lanes, are also notorious for pirate attacks. A Chinese bulk carrier, De Xin Hai, carrying about 76,000 tonnes of coal from South Africa to India, was hijacked in the Indian Ocean by pirates from Somalia.

Unlike past pirate attacks, the pirates did not ask for ransom immediately after the attack. In a case like this, if the buyer of the cargo is unwilling to receive the goods as a result of delay, what can the shipper do to minimise his loss if he was selling goods on FOB term and had not yet received payment?

Under FOB trade term, the shipper's insurance coverage ceases once the cargo is loaded on board the vessel. Also, as cargo delay is not covered by marine cargo insurance, if the consignee refuses to collect the cargo and refuses to pay the balance, the shipper not only suffers loss of money, but also loss of the cargo as the return date of the hijacked cargo is unknown. In the worst case, he may also need to contribute to the general average expenses.

If shippers ship their cargoes on FOB term, they are advised to consider taking out secret "seller's interest" insurance for their cargoes with their insurance company. Once their buyers violate their contract by refusing to collect the cargo, or if the buyers go bankrupt, the "seller's interest" insurance will provide coverage for the sellers. However, to be fair to both parties, this insurance should not be disclosed to the buyer because this type of cover usually ceases when the vessel arrives at the discharge port.

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