Effective Risk Management Strategies for Maritime Export Success

Risk Management in Maritime Export

Maritime export is not just about loading goods onto a ship. The process, which extends from the sales contract to the delivery method, from the payment method to insurance, and from loading to unloading transport documents, consists of interconnected links forming a chain. A deficiency in one of these links can lead to payment delays, additional costs, delivery disruptions, or legal disputes in subsequent stages.

The risks in maritime export are integrated with their legal, commercial, and operational dimensions. A disruption that initially appears to be merely a 'document issue' can escalate into a larger problem, ranging from the rejection of payment under a letter of credit to disputes over freight and demurrage.

In practice, five problematic areas generally stand out: inconsistencies between the order and the bill of lading, the time gap between loading and the issuance of the bill of lading in FOB sales, the non-acceptance of letter of credit documents due to a qualified bill of lading, inadequate electronic document infrastructure, and the overlap of currency obligations related to export proceeds with document discrepancies. To prevent these risks, it is crucial for exporters to take necessary precautions by considering the following points from the outset.

First Step: Establishing a Solid Sales Contract

The first link in the export chain is the sales contract. The identities of the parties, the description of the goods and HS code, price and currency, delivery and payment methods, maturity, and shipping dates must be clearly stated in the contract. Additionally, provisions for force majeure, applicable law, competent court or arbitration, and penalty clauses should also be included in the contract.

It should be explicitly stated whether the CISG (United Nations Convention on Contracts for the International Sale of Goods) will apply to international sales; the arrangement should be made in a way that does not conflict with the choice of law and other provisions in the contract. Clearly stating this intention in transactions where the application of the CISG is intended can be beneficial in terms of reflecting the parties' will.

The contract is not merely about price and delivery date. Conditions for transport, insurance, payment, and documentation are also parts of the same contractual structure. An open provision may be interpreted differently in the future and lead to disputes.

Incoterms and Insurance: Delivery Point, Risk, and Cost

Incoterms® 2020 is not a law. It consists of commercial rules that the parties include in their contracts. Therefore, the applicable Incoterms® rule should be explicitly stated in the contract, along with the version of the rule and the designated port or place. Incoterms® rules do not replace the sales contract or the applicable law.

In maritime exports, FOB delivery is widely used. In FOB, the seller delivers the goods by loading them onto the vessel designated by the buyer; the risk passes to the buyer when the goods are loaded onto the ship. However, in container transport, since the goods are often delivered to the carrier or terminal before being loaded onto the ship, the ICC recommends using FCA instead of FOB for such transactions. FCA can regulate the delivery and risk transfer in a manner more suitable for the actual transport structure, especially in container and multimodal transport.

In CIF delivery, the seller bears the freight and insurance costs. However, the risk passes to the buyer when the goods are loaded onto the ship. Regarding insurance, Incoterms® 2020 stipulates that CIF should at least cover the Institute Cargo Clauses (C) or similar coverage, while CIP should cover the more comprehensive Institute Cargo Clauses (A) or similar coverage. The parties may agree on broader coverage separately.

The FOB and FCA rules do not impose an obligation on the seller to obtain insurance. However, the seller must assess appropriate insurance coverage for periods that remain within their risk area under these delivery methods. Turkish Eximbank's export credit insurance can also provide additional protection against commercial and political risks in suitable transactions. Insurance premiums vary according to the risk of the exporting country, maturity, coverage amount, and policy scope.

Payment Method and Documents Should Be Considered Together

The choice of payment method requires balancing collection security with market competitiveness. Generally, advance payment carries a lower collection risk from the exporter’s perspective. While a letter of credit provides a strong document and payment mechanism under certain conditions, there is no payment commitment from the bank in document against payment and goods against payment methods. Therefore, the exporter needs to take the counterparty and country risk into greater consideration.

In a letter of credit (UCP 600), banks examine not the goods themselves but the presented documents and their compliance with the letter of credit conditions. Therefore, the information in the documents required under the letter of credit must be as consistent as possible with the information in the sales contract, transport instructions, and bill of lading.

According to UCP 600, Article 20, the sea bill of lading must indicate that the goods have been loaded onto a specific vessel at the loading port specified in the letter of credit. This condition can be fulfilled with a 'Shipped on Board' notation or a compliant on-board notation. The 'Received for Shipment' notation alone does not demonstrate that the goods have been loaded onto the ship and may not meet the letter of credit's loading bill of lading requirement. However, the situation may change if a compliant on-board notation is added to the document.

According to UCP 600, Article 27, banks look for a clean transport document (Clean Bill of Lading). A clean transport document is one that does not carry a notation or remark explicitly stating that the goods or packaging are visibly defective. Therefore, a remark indicating a visible defect in the cargo or packaging can lead to document non-compliance concerning the letter of credit conditions and consequently to the rejection of payment.

In document against payment, banks facilitate the collection of documents within the framework of URC 522. However, they do not provide a payment commitment as they do in letters of credit. This difference is particularly significant in cases where the buyer and country risk is high.

Collection security alone is not sufficient; currency and customs timelines must also be monitored. The general rule for bringing export proceeds into the country is that they must be brought in no later than 180 days from the actual export date. However, special regulations and additional time provisions must also be taken into account. Since the ratios for selling a certain portion of the export proceeds to the Central Bank of the Republic of Turkey (TCMB) can change with periodic regulations, the TCMB Export General Communiqué and the relevant implementation instructions in force on the transaction date must be checked. Overlapping document discrepancies with these timelines can exacerbate commercial and administrative issues.

Freight and Charter: Costs Hidden in Clauses

The freight contract can be established as a voyage charter or a time charter. In voyage transport, a specific part of the ship is not allocated to a single carrier. The arrangement of the cargo on the ship is carried out according to the transport contract and the conditions in practice. This transport structure is common in container and Ro-Ro lines. In a time charter, the ship is allocated to the charterer for a specific voyage; standard forms such as GENCON for dry cargo and SHELLVOY for liquid cargo can be used. In a time charter, commercial use and voyage decisions primarily fall within the charterer's domain, while in a bareboat charter, the possession and operation of the ship are left to the charterer.

The actual cost is often hidden in the clauses. FIO refers to the allocation of loading and unloading costs and operations to the carrier; FIOS adds stowage and lashing operations to these; and FIOST includes trim operations as well. However, these clauses do not completely relieve the carrier of responsibility. Even if stowage and lashing operations are performed by the carrier's personnel, the captain's and carrier's legal and contractual responsibilities regarding the safety and seaworthiness of the ship continue.

The Notice of Readiness (NOR) must be given in accordance with the relevant charter party conditions, and the commencement of laytime, meaning the lay days, is important if these conditions are met. If this period is exceeded, the carrier may have to pay demurrage. Clauses such as WIPON, WIBON, WIFPON, and WCCON regulate the effect of conditions such as the ship having entered the port, berthed, received free pratique, or completed customs procedures on the validity of the notice of readiness. If these matters are not clearly specified in the freight contract, there may be a risk of disputes regarding the determination of loading time and demurrage issues.

The Himalaya clause also provides benefits to third parties such as agents, subcontractors, and employees under certain conditions regarding the liability limitations provided for the carrier.

Loading, Stowage, and Special Cargoes

In container transport, the distinction between FCL (Full Container Load) and LCL (Less than Container Load) is important for determining who filled the container and in what order. However, responsibility should be determined not only based on the FCL or LCL designation but also by evaluating the transport contract, bill of lading, and actual loading arrangement together. Improper stowage and inadequate lashing during loading can lead to serious damages and accidents.

The transport of dangerous goods in maritime transport is subject to special regulations. The transport of packaged dangerous goods is governed by the IMDG Code under SOLAS Chapter VII. The IMDG Code, which came into effect in 2004, is one of the fundamental international regulations. The IMDG Code Amendment 42-24, prepared to enhance safety in the maritime transport of packaged dangerous goods, will come into force on January 1, 2026. The sender must act in accordance with the relevant rules regarding the classification, packaging, and labeling of dangerous goods, as well as the necessary notifications and declarations. Additionally, relevant national and international compliance requirements must be observed for ships and shore facilities.

The filling of containers and other cargo transport units, the stowage of goods, and securing them are important practical guidelines provided by the IMO/ILO/UNECE CTU Code. However, the CTU Code is generally not a binding code, except for the mandatory provisions regarding the transport of dangerous goods regulated under the IMDG Code. It is defined by the IMO as a 'non-mandatory global code of practice.' Therefore, especially for cargoes not subject to the IMDG Code, the binding nature of obligations related to the CTU Code should be evaluated based on the relevant contract, national legislation, transport conditions, or other specific regulations.

In maritime export, there are occasionally uncollected cargoes, even if they are exceptional. The buyer's refusal to accept the cargo or the non-completion of delivery may not eliminate the carrier's responsibility for freight, preservation, storage, and other expenses, depending on the specifics of the case and the provisions of the contract. Therefore, the transport contract should clearly regulate the costs arising from uncollected cargo and to whom they can be recourse.

Bill of Lading, Order, and LOI: Details That May Seem Minor

The bill of lading serves three fundamental functions. It proves that the transport contract has been made, shows that the goods have been received by the carrier or loaded onto the ship. As a rule, it ensures that the carrier delivers the goods in exchange for the presentation of the document. Particularly, order bills of lading are among the most common types in practice. They have the nature of valuable documents and can be transferred by endorsement. The transfer of straight bills of lading is evaluated within its own legal regime (such as the transfer of possession). Therefore, it should not be said that both types have the same transfer mechanism.

The compatibility of the information in the bill of lading and the order reduces the risk of unnecessary delays and costs in delivery transactions. Especially in transactions involving letters of credit, it is an important control point to confirm the loading information and document conditions with the carrier or their representative before the bill of lading is issued.

In cases where the original bill of lading cannot be presented or where delivery without documents is requested for other reasons, carriers may request an LOI (Letter of Indemnity) in practice. However, an LOI is not a document that automatically replaces the legal functions of the bill of lading. It can also create additional legal and commercial risks for the carrier. Therefore, the scope of the LOI, who will issue it, under what circumstances it will be used, and the parties' obligations should be carefully evaluated concerning the specific transaction.

Digital Documents: Law as Necessary as Technology

Electronic bills of lading (e-B/L) have the potential to reduce issues such as the loss of paper documents, fraud, and time loss due to physical circulation. Systems such as Bolero, essDOCS, WAVE, and CargoX are among those used in this area. BIMCO has developed standard contractual provisions regarding electronic bills of lading.

However, the legal recognition of electronic transport documents, their transfer, and the regimes for ensuring exclusive control vary from country to country. Although the Rotterdam Rules foresee a comprehensive international framework for electronic transport records, they are not yet in force. Therefore, in e-B/L applications, attention must be paid not only to the technical infrastructure but also to the applicable law, the rules of the system used, and the contracts of the parties.

Conclusion and Recommendations

It is important to manage risks in maritime export in a chain-like manner. The roadmap for the exporter should be determined before starting the export.

In terms of operational documentation:

In the sales contract: The intention regarding the application of the CISG, choice of law, competent court or arbitration, and force majeure provisions should be explicitly written.

In the delivery method: Incoterms® 2020 should be explicitly stated in the contract, and the use of FCA instead of FOB should be considered in container transport.

In payment: In risky transactions, the preference for letters of credit over document against payment should be evaluated, but it should be remembered that receiving payment under a letter of credit is contingent upon the compliance of the document conditions. The compatibility of the bill of lading conditions with the letter of credit should be checked in advance for FOB or FCA transactions; supporting documents such as independent expert or survey reports should be added if necessary.

Insurance: Although there is no insurance obligation for the seller under FOB and FCA, appropriate insurance coverage should be assessed for risks prior to loading and before delivery to the carrier. In CIF and CIP transactions, the minimum coverage level stipulated by Incoterms® 2020 should be considered.

Charter clauses: The effects of notice of readiness clauses (WIPON, WIBON, WIFPON, WCCON), loading-unloading clauses (FIO, FIOS, FIOST), the Himalaya clause, and the LOI on time, cost, and liability should be clarified before signing the contract.

Special cargoes: For cargoes subject to the IMDG Code, compliance with current IMDG provisions and relevant national legislation should be ensured; the guiding nature of the CTU Code should be considered in the transport of mandatory container loads subject to this code.

Bill of lading and delivery: Agreement should be reached with the carrier's representative before issuing the bill of lading; the compatibility of the order-bill of lading should be verified, the scope of the LOI should be defined in writing, and the responsibilities and recourse provisions regarding freight, storage, and other costs for uncollected cargo should be clearly regulated.

Currency and customs: Attention should be paid to the time frame for bringing the export proceeds into the country and the declaration closure period. In the event of force majeure or collection issues, timely communication should be made with the relevant bank and institutions.

Some important issues to be addressed from a systems perspective:

Digital documents and legislation: e-B/L systems should be promoted, and a clear and predictable framework should be established regarding the legal status and evidential power of electronic transport documents, electronic order applications, and blockchain-based systems. The Rotterdam Rules and international developments in electronic commerce should be taken into account in these studies.

Support: The accessibility of existing additional time and facilitation measures regarding obligations for bringing export proceeds into the country should be increased in practice, and it should be made easier for SMEs to benefit from Turkish Eximbank's export credit insurance.

Training and guidance: Training on bill of lading law, UCP 600, CISG, and Incoterms® should be widespread, and the Ministry of Trade and the Turkish Exporters Assembly (TİM) should develop sample contracts and guides to support implementation. Small and medium-sized enterprises (SMEs) that charter ships should be encouraged to seek consultancy on maritime trade law and contract management from their affiliated organizations.

Legal regulation: Practical issues arising from electronic transport documents, the responsibilities of terminal operators, and special types of transport should be regularly reviewed, and legislation should be updated in areas where needed.

Fleet: Structural revision options in TUGS should be evaluated in terms of competition, taxation, financing, and maritime policy, along with open registry and flag of convenience (FOC) models.

Ports: Feasibility studies should be conducted regarding smart port and digitalization investments, port-centric logistics (PCL), and free port applications; pilot applications should be developed in suitable export ports.

Uncertainties in the choice of Incoterms®, a remark on the bill of lading, document inconsistencies in letters of credit, or a gap in insurance coverage can trigger a chain of issues related to payment, delivery, freight, and demurrage. The goal is not only to load a cargo onto a ship on time but to establish the entire process from contract to delivery in a legally secure, commercially predictable, and operationally feasible manner.

Source: SeaNews Türkiye