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ACCA Applied Skills · Corporate and Business Law (Global) · Transportation documents and means of payment

Orlo Ltd sells goods to Pravin Co on CIF Rotterdam terms (Incoterms 2020). The goods are loaded on board at the port of shipment on 3 May and are lost in a storm at sea on 10 May. Who bears the risk of the loss, and what is Orlo's insurance obligation?

Pravin bears the risk because under CIF risk passes when the goods are loaded on board at the port of shipment, even though Orlo pays freight to Rotterdam. Orlo must still arrange minimum insurance cover for Pravin's benefit, so Pravin can claim on the policy.

  1. APravin bears the risk from loading; Orlo must obtain insurance with minimum cover for Pravin's benefitCorrect
  2. BOrlo bears the risk until arrival at Rotterdam; no insurance is required
  3. CPravin bears the risk from loading; neither party has any insurance duty
  4. DOrlo bears the risk until arrival at Rotterdam, and must insure for its own benefit

Explanation

Under CIF risk passes on loading on board at the port of shipment, even though the seller pays carriage and insurance to the destination. The seller must procure minimum cover (Institute Cargo Clauses (C) under the 2020 rules) for the buyer's benefit. Option B and D wrongly link risk to arrival, which is a feature of delivered terms.

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