Question

In: Operations Management

Is buying insurance enough to deal with delivery risk? If not, what additional steps should a...

Is buying insurance enough to deal with delivery risk? If not, what additional steps should a seller take when contracting to sale goods internationally?

Solutions

Expert Solution

Insurance protects against the damages,losses, theft, delays and other eventualities that may come across in an international delivery. However, an international sales contract is must in an overseas business transaction.

International sales fall under United Nation Conventions on Contract for the International Sale of Goods (CISG) and are governed by the laws of two or more different countries involved in transaction. The benefits of a sales contract are listed below.

(a) Clear cut delivery terms as agreed to by both ( or more) parties involved in the trade, thereby avoiding unpleasant surprises later.

(b) Currency of payment. This factor may cause losses due to exchange cost or other costs which may apply.

(c) Through International sales contract, company can be assured to comply to the US export regulations.

(d) Through contract, the company can identify all the parties involved in the transaction and determine the responsibilities of complying to regulations on part of each party.

(e) Clarity on other issues like payment terms,warranty and documentation formalities.


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