Cargo Insurance for UK Buyers Under FOB and EXW Incoterms

Why FOB and EXW Create a Buyer's Insurance Obligation

Incoterms allocate risk, not insurance obligation. Your seller under FOB is not required to maintain cargo insurance beyond the point of loading, and under EXW they carry no obligation at all. If your goods are damaged in a warehouse fire before collection, lost overboard during a storm, or short-landed at Felixstowe, you bear the financial loss unless you have arranged your own cover.

Many UK buyers assume their freight forwarder's liability policy fills this gap. It does not. A freight forwarder's liability policy covers the forwarder's legal liability for errors and omissions — it is not a cargo policy, and it will not respond to physical loss caused by a peril of the sea, theft, or inherent vice. The limit is also typically far lower than the commercial value of your shipment.

The correct instrument is a marine cargo policy written on Institute Cargo Clauses (A), (B), or (C), placed in your name as buyer and beneficiary. The clause set you choose determines the breadth of perils covered, and that choice should be driven by the nature of your goods, the trade lane, and the terms of any letter of credit or sale contract your bank or counterparty requires.

Institute Cargo Clauses: Choosing the Right Clause Set

Institute Cargo Clauses (A) provide the widest cover — all risks of physical loss or damage, subject to the standard exclusions. For most general cargo moving on FOB or EXW terms, ICC (A) is the appropriate starting point. It covers perils of the sea, theft, pilferage, hook damage, contamination from other cargo, and accidental damage during loading and discharge. Critically, it also triggers your right to sue and labour — meaning you can take reasonable steps to minimise a loss and recover those costs from underwriters.

Institute Cargo Clauses (B) and (C) are named-perils policies. ICC (B) covers fire, explosion, stranding, sinking, collision, earthquake, washing overboard, and entry of sea water into a container or hold. ICC (C) is narrower still, covering only major casualties. Both are cheaper, but for a buyer who has no visibility over how their goods are handled at origin — which is the reality under EXW — the gaps in (B) and (C) are significant. Theft and pilferage, for example, are not covered under either.

Commodity-specific extensions matter. Refrigerated cargo needs a temperature deviation clause. Bulk liquids may need a contamination extension. Electronics and machinery often require an Institute Strikes Clauses attachment. If your goods are moving through a port or region listed under the Joint War Committee Listed Areas — which currently includes parts of the Red Sea, Gulf of Aden, and Strait of Hormuz approaches — you will need a separate Institute War Clauses (Cargo) endorsement. These are not automatically included in any ICC clause set.

• ICC (A): all-risks basis, widest cover, appropriate for most general cargo on FOB/EXW
• ICC (B): named perils including sea water ingress and washing overboard, excludes theft
• ICC (C): major casualties only — fire, sinking, collision — not suitable for EXW origin risk
• War and strikes: always separate endorsements, not bundled into any ICC clause set
• Refrigeration, contamination, and machinery extensions: request explicitly at placement

The EXW Origin Gap and How to Close It

EXW is the most demanding Incoterm for a buyer's insurance programme. Your risk begins at the seller's factory gate or warehouse, which may be an inland location in China, Turkey, or Vietnam — well before any port, any bill of lading, or any conventional 'transit' begins. A standard marine cargo policy written on a port-to-port basis will not cover that inland leg unless you specifically extend it.

What you need is a warehouse-to-warehouse policy, sometimes called a door-to-door extension, written to attach from the moment the goods leave the seller's named premises. The Institute Cargo Clauses (A) already contain a transit clause that extends cover through ordinary course of transit, but the attachment point must be correctly specified in your policy schedule. If your schedule says 'from port of loading', you have an uninsured gap from factory to port.

You should also consider whether your policy needs to cover pre-shipment inspection failures, seller's packing defects (which are excluded as inherent vice under all ICC clauses), and the cost of re-inspection or re-packing if goods arrive damaged. These are separate commercial decisions, but your broker should be raising them with underwriters at placement rather than leaving you to discover the exclusion at claim time.

General Average, Sue and Labour, and Your Obligations as Cargo Owner

General average is one of the oldest principles in maritime law. If the master of a vessel makes a sacrifice — jettisoning cargo, engaging salvors, diverting to a port of refuge — to save the common adventure, all cargo interests contribute to the loss in proportion to their salved value. This applies to your cargo whether or not it was physically damaged. Under York-Antwerp Rules (the version incorporated into your bill of lading will be specified — typically YAR 1994 or YAR 2016), you may be required to provide a general average bond and a cash deposit or guarantee before your goods are released.

If you do not have a cargo policy in place when a general average is declared, you will need to fund that deposit from your own cash flow. General average contributions on large container vessels can be substantial. A cargo policy written on ICC (A) will cover your general average contribution and will also provide the guarantee that the average adjuster requires, allowing your goods to be released without a cash payment.

Sue and labour is the obligation — and the right — to take reasonable steps to avert or minimise a loss. Your ICC (A) policy requires you to act, and it reimburses you for reasonable costs incurred. If your container is damaged at a transhipment hub such as Singapore PSA or Jebel Ali and you need to arrange emergency re-packing or onward forwarding, those costs are recoverable. Failing to act — leaving damaged goods to deteriorate — can reduce or void your claim.

Open Covers and Declarations: Managing a Regular Import Programme

If you are importing regularly on FOB or EXW terms, placing individual voyage policies for each shipment is inefficient and creates gaps between placements. An open cover — sometimes called a floating policy — is the standard solution. You agree a maximum sum insured per conveyance, a commodity description, a trading area, and a clause set with underwriters. Each shipment is then declared against the open cover, either individually or in monthly bordereaux.

Open covers also give you automatic cover from the moment a shipment attaches, even if you have not yet submitted the declaration. This is important under EXW, where goods may be moving before you have received the commercial invoice or packing list. The duty to declare is absolute — failing to declare a shipment does not void the cover, but it does create a premium debt and can affect your claims position if you are found to have systematically under-declared.

When we place an open cover on your behalf, underwriters will want to understand your annual import volume, your top five commodity types, your principal trade lanes, and your claims history over the past three to five years. A clean claims record and a well-documented risk management process — including supplier audits, packing standards, and surveyor appointments at origin — will support competitive terms at renewal.

• Annual import volume by commodity and trade lane
• Maximum sum insured per conveyance and per location
• Packing and inspection standards at origin (especially relevant under EXW)
• Claims history for the past three to five years
• Any letters of credit or bank requirements specifying minimum clause sets

Placing Cover: What to Bring to Your Broker

To obtain terms from specialist underwriters in the London market or company market, we will need a clear picture of your trade. The more detail you provide upfront, the more accurately underwriters can price the risk — and the less likely you are to face a coverage dispute at claim time because the policy schedule does not match your actual trading pattern.

If you are placing for the first time or moving from a forwarder's policy to a standalone cargo programme, allow at least five working days for underwriters to review your submission and return terms. Complex risks — refrigerated cargo, high-value electronics, EXW origin in higher-risk manufacturing regions — may take longer. Binding can typically be confirmed within 24 hours of agreeing terms, and a certificate of insurance can be issued the same day for letter of credit purposes.

At renewal, your broker should be reviewing the JWC Listed Areas schedule against your trade lanes, checking whether your commodity descriptions still match what you are actually shipping, and stress-testing your maximum sum insured per conveyance against your current order sizes. Supply chain changes — new suppliers, new ports of loading, new transhipment hubs — should trigger a mid-term review rather than waiting for renewal.

• Completed cargo proposal form with commodity, packaging, and trade lane detail
• Annual turnover of goods to be insured (by commodity if mixed)
• Copy of standard purchase contract showing Incoterm and risk transfer point
• Claims history — three to five years, with cause and settlement detail
• Any bank or letter of credit requirements specifying ICC clause set or minimum insured value
• Details of any high-value single shipments or seasonal peaks above your normal per-conveyance limit

Frequently asked questions

Do I need my own cargo policy if my freight forwarder says they have insurance?

Yes. Your freight forwarder's liability policy covers their legal liability for their own errors — it is not a cargo policy and will not pay out for physical loss caused by a peril of the sea, theft, or an accident that is nobody's fault. Under FOB or EXW terms, you are the party bearing the risk of loss, and you need a policy in your own name that responds to that risk. Ask your forwarder to show you the policy wording and the limit per shipment — in most cases it will not cover the full commercial value of your goods.

What happens if a general average is declared and I don't have cargo insurance?

You will be required to provide a general average bond and, in most cases, a cash deposit or bank guarantee before the carrier releases your cargo. The amount is calculated by the average adjuster based on your cargo's proportion of the salved value of the entire adventure. Without a cargo policy, you fund this from your own resources and wait — sometimes for years — for the average adjustment to be finalised before you recover anything. A cargo policy written on ICC (A) provides the guarantee the adjuster requires and covers your contribution to the general average.

My goods move from a factory in China under EXW terms. Does a standard marine cargo policy cover the inland leg to the port?

Not automatically. A policy written port-to-port will not attach until the goods reach the named port of loading. To cover the inland leg from the seller's factory, your policy schedule must specify the attachment point as the seller's premises and include a warehouse-to-warehouse or door-to-door extension. This is straightforward to arrange at placement but must be explicitly agreed — do not assume it is included because you are on ICC (A).

How long does it take to bind a cargo open cover?

For a straightforward general cargo programme on established trade lanes, underwriters can typically return indicative terms within three to five working days of receiving a complete submission. Binding follows within 24 hours of agreeing terms. More complex risks — refrigerated cargo, high-value electronics, EXW origin in higher-risk regions, or programmes with a significant claims history — may require additional information and a longer review period. We will tell you at the outset if your risk is likely to need more time.

What do you need from me to get terms?

A completed cargo proposal form covering your commodity types, packaging, annual import volume, principal trade lanes, Incoterm, and maximum sum insured per conveyance. We will also need three to five years of claims history with cause and settlement detail, a copy of your standard purchase contract showing the risk transfer point, and any bank or letter of credit requirements specifying a minimum clause set. If you have seasonal peaks or single high-value shipments above your normal per-conveyance limit, flag those upfront so we can build adequate capacity into the open cover.

Does my cargo policy automatically cover war and piracy risks on routes through the Red Sea or Strait of Hormuz?

No. War, strikes, and piracy cover is always written as a separate endorsement — the Institute War Clauses (Cargo) and Institute Strikes Clauses (Cargo) — and is never bundled into the base ICC clause set. If your trade lanes pass through any area on the Joint War Committee Listed Areas schedule, including current designations covering parts of the Red Sea, Gulf of Aden, and Hormuz approaches, you must arrange these endorsements separately. We review the JWC schedule at placement and at renewal, and we will flag any mid-term changes that affect your routes.