Pre-Shipment Risk in Export Transactions — Manufacturing/WIP Losses and Insurance Response
Interlink編集部Pre-shipment Risk
Pre-shipment Risk is the risk that, after an export contract has been concluded but before shipment occurs under the applicable insurance, the exporter becomes unable to export the goods because of buyer insolvency, inability to pay, war, import prohibition, governmental action, sanctions, or another insured event.
It may also be referred to as Pre-shipment Credit Risk.
Pre-shipment Risk is not merely an order-cancellation issue or a stage at which no loss exists because the goods have not yet been shipped.
Where the exporter has begun design, procurement, manufacture, processing, packing, inspection, or export preparation, it may already have incurred substantial costs before shipment.
Export Credit Insurance generally focuses on non-recovery of export receivables after shipment. Pre-shipment loss may instead require a specific endorsement or separate insurance condition.
This article concentrates on pre-shipment cost loss, custom-made and difficult-to-resell goods, the distinction from a buyer’s voluntary cancellation, sales-contract protection, advance and milestone payments, and mitigation measures specific to the pre-shipment stage.
Scope of This Article
| Item | Covered in This Article | Covered Elsewhere |
|---|---|---|
| Pre-shipment Risk | Failure to export and cost loss after contract but before insured shipment | The overall Export Credit Insurance structure is addressed in Export Credit Insurance. |
| Boundary with Post-shipment Risk | Brief distinction between pre-shipment cost loss and post-shipment receivable loss | The detailed shipment point is addressed in Post-shipment Risk. |
| Pre-shipment endorsement | Cases where Pre-shipment Risk is insured separately from the main cover | Actual policy wording, percentages, and limits depend on the contract. |
| Relevant goods | Custom machinery, dedicated products, branded goods, and difficult-to-resell goods | General credit control for standard goods is addressed separately. |
| Loss amount | Manufacturing, procurement, processing, work in progress, residual value, and recoveries | The overall claim-calculation structure is addressed in Export Credit Insurance. |
| Voluntary cancellation | Difference between an insured event and a buyer’s commercial cancellation | Contract termination and damages require separate legal review. |
| Sales contract | Advance payment, milestone payment, cancellation charge, force majeure, and sanctions clauses | The overall international sales contract is addressed separately. |
| Third-country risk | Pre-shipment exposure where the buyer country and destination country differ | Political Risk categories are addressed in Political Risk / Extraordinary Risk. |
| L/C | Manufacture before L/C issuance and failure to ship | L/C terms, discrepancies, and issuing-bank risk are addressed separately. |
| Cargo insurance | Difference between failure to export and physical damage to the goods | Physical loss during storage or transit is addressed in cargo-insurance articles. |
Purpose and Position of This Article
Between conclusion of the export contract and actual shipment, the exporter may need to complete design, material procurement, manufacture, processing, inspection, packing, and export-licence procedures.
The exporter incurs costs while those stages are being completed.
If buyer insolvency, inability to pay, import prohibition, war, sanctions, or governmental action occurs during that period, the exporter may be left with finished goods, work in progress, or dedicated components.
Pre-shipment insurance is intended to compensate qualifying cost loss resulting from failure to export within the defined events and policy conditions.
This article therefore concentrates on the costs and commercial structure unique to the pre-shipment stage rather than repeating the general rules on Credit Risk, Political Risk, or claim calculation.
Allocation among the Three Articles
| Article | Main Period | Main Loss | Main Scope |
|---|---|---|---|
| Export Credit Insurance | The insurance contract as a whole | Covered Credit and Political Risk loss | Credit limits, Reduction Percentage, Maximum Aggregate Liability, and claim calculation |
| Pre-shipment Risk | After contract and before insured shipment | Manufacturing, procurement, processing, work in progress, and resale loss | Failure to export, relevant goods, contract design, and cost loss |
| Post-shipment Risk | After insured shipment until payment | Unpaid export receivable | Shipment point, evidence of shipment, and post-shipment receivable loss |
Boundary between Pre-shipment and Post-shipment Risk
| Item | Pre-shipment Risk | Post-shipment Risk | Decision Point |
|---|---|---|---|
| Period | After contract and before insured shipment | After insured shipment and before payment | Determine whether shipment occurred under the policy. |
| Main loss | Manufacturing, procurement, processing, and work-in-progress costs | Unpaid export receivable | Separate cost loss from receivable loss. |
| Main issue | The goods cannot be exported. | The goods were shipped but payment cannot be collected. | Compare the loss event with the shipment point. |
| Main evidence | Production records, purchase invoices, work-in-progress, and inventory records | B/L, AWB, terminal records, Invoice, and due date | Review actual cargo status and dates. |
| Detailed article | Pre-shipment Risk | Post-shipment Risk | Use both articles for borderline cases. |
Why Pre-shipment Risk Matters
An exporter may incur substantial costs before the goods are shipped.
Standard inventory may sometimes be resold to another buyer or returned to normal stock.
Goods designed for a particular buyer, brand, dimension, installation site, destination country, or technical standard may be difficult to sell elsewhere.
A failed transaction may therefore leave the exporter with:
- Finished goods remaining in inventory
- Work in progress and dedicated components
- Cancellation costs for further production or procurement
- Modification, reconfiguration, or brand-removal costs
- Storage, maintenance, dismantling, or disposal costs
- Loss from discounted resale
- Unrecoverable inspection, certification, and packing costs
Pre-shipment Endorsement
Pre-shipment Risk may be insured through a specific endorsement or separate condition rather than the ordinary post-shipment receivable cover.
The endorsement may apply where an insured event occurs between conclusion of the export contract and insured shipment and causes failure to export and a qualifying cost loss.
Not every cost incurred in manufacture or procurement is automatically insured.
| Review Item | Question | Possible Effect |
|---|---|---|
| Covered contract | Was the export contract declared and accepted? | The transaction may fall outside cover. |
| Buyer and countries | Are the buyer and relevant countries within the policy? | Credit or Political Risk may not be insured. |
| Attachment | Does cover begin at contract, order, or production commencement? | Earlier costs may remain uninsured. |
| Eligible costs | Which manufacturing, procurement, and processing costs qualify? | Overheads or anticipated profit may be excluded. |
| Insured event | Was the loss caused by insolvency, prohibition, war, or another covered event? | Voluntary cancellation may fall outside cover. |
| Notice | When must deterioration or governmental action be reported? | Late notice may affect payment. |
| Mitigation | Were production stoppage, resale, and reuse considered? | Increased loss may be disallowed. |
The applicable insurance should be confirmed before contract or before production and procurement begin.
Goods with High Pre-shipment Exposure
| Type of Goods | Reason for High Exposure | Possible Loss | Advance Measure |
|---|---|---|---|
| Buyer-specific machinery or equipment | Performance, dimensions, and installation conditions are unique. | Modification, storage, and discounted resale | Use advance and milestone payments. |
| Custom components and dedicated products | Material, dimension, design, or use is limited. | Work in progress, special tooling, and dedicated materials | Require cancellation charges and component purchase obligations. |
| Buyer-branded goods | Marks and packaging restrict resale. | Brand removal, repacking, disposal, and discount | Provide contractual rights to remove branding and resell. |
| Country-specific or standard-specific goods | Certification, voltage, labelling, or safety standards are destination-specific. | Recertification, retesting, modification, and repacking | Review third-country resale and conversion cost. |
| Large equipment or special cargo | Use, site, and transport conditions are limited. | Storage, dismantling, retransport, maintenance, and disposal | Use stage payments and cancellation-cost clauses. |
| Raw materials and work in progress | Materials may not be usable in another product. | Work-in-progress loss and reduced residual value | Identify cancellation points and alternative uses. |
| Seasonal goods | Value falls sharply after the sales season. | Discount, storage, and disposal | Use short payment stages and strict cancellation dates. |
| Licensed or sanctions-sensitive goods | Export or import approval may prevent shipment. | Finished goods, testing, and licence costs | Link production commencement to regulatory approval. |
Main Pre-shipment Cost Categories
| Cost or Loss | Description | Evidence | Calculation Caution |
|---|---|---|---|
| Materials and components | Items procured specifically for the export goods | Purchase orders, supplier invoices, and payment records | Separate items usable in other products. |
| Manufacturing and processing | Production completed before the insured event | Cost records, process records, and labour records | Separate unnecessary work performed after the event. |
| Design and development | Buyer-specific engineering, drawings, and development | Design records, subcontract invoices, and hours | Assess value usable in other projects. |
| Inspection and certification | Testing and certification for the buyer or destination | Reports and certification invoices | Review reusable certification value. |
| Packing and labelling | Special packing, branding, and labelling | Packing records and supplier invoices | Review value after repacking or brand removal. |
| Storage and preservation | Reasonable post-event storage and maintenance | Warehouse and preservation records | Avoid excessive long-term storage. |
| Modification and resale | Costs required to sell to another buyer | Modification quotations and resale records | Calculate together with resale recovery. |
| Disposal and dismantling | Reasonable disposal of unusable goods | Disposal certificate and invoices | Deduct scrap proceeds. |
Possible Deductions from the Loss
| Adjustment | Description | Evidence |
|---|---|---|
| Advance or milestone payment | Amounts already collected from the buyer | Payment records, Invoice, and contract |
| Resale recovery | Amounts collected by sale to another buyer | Resale contract and payment record |
| Residual value | Value remaining in goods, materials, or equipment | Inventory valuation and appraisal |
| Reuse value | Materials or components usable in another product | Reuse record and cost data |
| Scrap or disposal proceeds | Amounts recovered through sale or disposal | Sale and disposal settlement |
| Buyer compensation | Cancellation charges, damages, or settlement | Settlement agreement and payment record |
The exporter must preserve evidence of costs, recoveries, residual value, and potential reuse.
Causes of Pre-shipment Loss
| Cause | Typical Event | Review in This Article | Detailed Article |
|---|---|---|---|
| Credit Risk | Buyer insolvency, bankruptcy, inability to pay, or legal restructuring | Production stoppage, buyer evidence, and connection to failure to export | Export Credit Insurance |
| Political Risk | War, import prohibition, governmental action, sanctions, or port closure | Buyer, destination, transit, and governmental measures | Political Risk / Extraordinary Risk |
| Commercial cancellation | Demand reduction, price renegotiation, loss of resale customer, or specification change | Distinguish the insured event from breach or commercial decision. | Sales contract and cancellation provisions |
Third-country Pre-shipment Risk
The buyer country and cargo destination may be different.
A buyer in Country A may order goods for a factory or project in Country B.
War, import prohibition, sanctions, port closure, licensing suspension, or governmental action in Country B may prevent shipment even though the buyer in Country A remains solvent.
| Country or Location | Main Review | Effect on Pre-shipment Risk |
|---|---|---|
| Buyer country | Buyer credit and performance capacity | Relevant to Credit Risk |
| Destination country | Import licence, sanctions, war, and government action | Determines whether goods may be exported and imported. |
| Payment country | Transfer rules, banking restrictions, and FX availability | Affects collection of advance and milestone payments. |
| Transit country or port | Sanctions, transit controls, and port closure | May prevent use of the planned route. |
| Installation or use site | Project cancellation, approval, and local condition | May eliminate the intended use of major equipment. |
Voluntary Cancellation
| Item | Potentially Insured Pre-shipment Risk | Buyer’s Voluntary Cancellation | Review |
|---|---|---|---|
| Main cause | Insolvency, inability to pay, war, prohibition, or governmental action | Demand reduction, price request, loss of market, or specification change | Identify the insured event. |
| Nature | Failure to export caused by Credit or Political Risk | Commercial decision or contractual breach | Obtain the buyer’s written reason. |
| Insurance treatment | May be covered under the endorsement. | Does not automatically qualify. | Explain the cause to the insurer. |
| Main evidence | Insolvency records, governmental action, sanctions, and prohibition | Cancellation notice, negotiations, specification changes, and contract | Preserve the full chronology. |
| Main response | Stop production, notify, resell, reuse, and claim | Cancellation charge, damages, and settlement negotiation | Separate the insurance and contractual remedies. |
Sales-contract Provisions
| Provision | Purpose | Possible Design | Caution |
|---|---|---|---|
| Cancellation-cost allocation | Recover costs incurred after production begins | Buyer bears incurred costs and committed procurement. | Define the calculation method. |
| Restriction after production start | Prevent free cancellation of custom goods | No cancellation or stage-based charges after commencement | Define when production starts. |
| Advance and milestone payments | Recover costs before shipment | Payments at contract, material procurement, and completion | Make payment a condition for the next stage. |
| Specification-change cost | Address redesign, retesting, and repacking | Buyer bears buyer-requested change costs. | Document every change instruction. |
| Force-majeure clause | Address war, government action, and port closure | Suspension, termination, notice, and cost allocation | Distinguish force majeure from ordinary price increases. |
| Licence responsibility | Allocate export and import approval duties | State the responsible party and deadline. | Review production before approval. |
| Sanctions and legal-compliance clause | Avoid unlawful continuation | Suspension and termination rights upon sanctions | Also address costs and refund of advances. |
| Resale and reuse rights | Permit mitigation through alternative sale | Allow resale after removal of branding. | Coordinate with intellectual-property and confidentiality terms. |
Advance and Milestone Payments
| Payment Stage | Main Purpose | Example | Caution |
|---|---|---|---|
| Contract signing | Finance design and initial procurement | Receive an advance percentage. | Define refund conditions. |
| Design approval | Recover engineering and development cost | Receive payment upon drawing approval. | Preserve the approval record. |
| Material procurement | Recover dedicated material cost | Receive payment before major purchase orders. | Avoid committed purchase before payment. |
| Production milestone | Recover work-in-progress and processing cost | Invoice according to completion stages. | Define progress verification. |
| Before shipment | Reduce remaining credit exposure | Collect a further percentage before release. | Link final inspection and payment. |
Advance and milestone payments may be deducted from the insured loss, but they remain one of the most direct means of reducing the exporter’s actual exposure.
Relationship to an L/C
| Stage | Pre-shipment Risk | Review |
|---|---|---|
| Production before L/C issuance | The L/C may not be issued or may be delayed. | Set an L/C issuance deadline and production condition. |
| L/C inconsistent with contract | Complying documents may not be possible. | Review amount, deadlines, documents, and goods description. |
| Short shipment deadline | Manufacture or approval may not be completed. | Compare the Latest Shipment Date with the production plan. |
| Sanctions or import prohibition | Shipment may be unlawful despite the L/C. | Review trade controls and bank treatment. |
| Issuing-bank or country concern | The exporter may reconsider performance before shipment. | Consider confirmation or other protection. |
An L/C supports payment after a complying shipment but does not automatically cover costs incurred before L/C issuance or before shipment.
Pre-shipment Mitigation Measures
| Measure | Main Action | Evidence | Caution |
|---|---|---|---|
| Stop production | Stop unstarted or unnecessary stages. | Decision date, progress, and stop instruction | Insurer consultation may be required. |
| Stop procurement | Cancel uncommitted materials and components. | Committed and uncommitted order schedule | Review supplier cancellation cost. |
| Seek resale | Approach alternative buyers and markets. | Inquiries, offers, and responses | Consider reasonable discounted sale. |
| Modify or reuse | Adapt goods or components for another project. | Modification cost and reuse value | Compare cost with recovery. |
| Remove branding and repack | Prepare goods for alternative sale. | Removal, repacking, and permissions | Review intellectual-property restrictions. |
| Store and preserve | Protect goods pending a decision. | Storage period, cost, and condition records | Avoid unnecessary long-term storage. |
| Claim against buyer | Seek advance payment, cancellation charge, or damages. | Demand, negotiation, and recovery | No double recovery with insurance. |
Application Decision Flow
- Review the export contract: Confirm buyer, goods, amount, destination, payment terms, and production period.
- Review resale potential: Identify standard, custom, branded, or country-specific goods.
- Estimate pre-shipment exposure: Calculate material, manufacture, engineering, inspection, and packing costs.
- Design contractual recovery: Set advance payments, milestone payments, cancellation charges, and restrictions.
- Review insurance: Confirm the endorsement, contract, event, eligible costs, and attachment.
- Review countries: Identify buyer, destination, payment, and transit countries.
- Set production conditions: Link production to advance payment, L/C issuance, or approval.
- Monitor warning events: Review buyer credit, sanctions, governmental action, and licences.
- Stop work when a warning arises: Review further production and procurement immediately.
- Seek resale and reuse: Determine residual value and potential recovery.
- Notify the insurer: Report the event, costs, cargo status, and mitigation.
- Calculate the loss: Adjust eligible costs for advances, recoveries, and residual value.
Cases Frequently Causing Practical Problems
| Case | Main Cause | Evidence | Decision Point | Initial Response |
|---|---|---|---|---|
| Buyer becomes insolvent during production. | Credit Risk | Insolvency, contract, cost, and progress records | Review endorsement and attachment. | Stop production and notify the insurer. |
| Buyer cancels because of reduced demand. | Voluntary cancellation | Cancellation notice, contract, and negotiations | Insured event or commercial cancellation? | Review cancellation charges and damages. |
| Destination country prohibits import. | Political Risk | Government notice, licence, contract, and costs | Review third-country exposure and cover. | Stop shipment and seek alternative markets. |
| Large quantity of branded goods remains. | Difficult resale | Inventory, brand contract, and repacking estimate | Can branding be removed? | Obtain permission and consider repacking. |
| Production begins before L/C issuance. | Payment terms not final | Contract, L/C schedule, and production record | Review production condition and insurance. | Stop further work until L/C is confirmed. |
| Advance payment was received before insolvency. | Credit Risk | Payment, production cost, and inventory valuation | Calculate the net loss after the advance. | Review remaining cost and resale value. |
| Sanctions require transaction suspension. | Sanctions and law | Sanctions information, bank response, and costs | Review legal prohibition and insured event. | Stop the transaction and notify relevant parties. |
| Production continues after the warning event. | Insufficient mitigation | Warning date, production, and approvals | Separate post-event increased cost. | Review and stop unnecessary work. |
| Country-specific goods cannot be resold. | Certification and specification limits | Certification, specification, and resale inquiry | Compare conversion cost and resale price. | Select the least-loss alternative. |
Example 1: Buyer Insolvency during Custom-machinery Production
Facts: Exporter A accepted an order for machinery designed specifically for Buyer B and completed engineering and major-component procurement. B became insolvent before completion.
Analysis: A reviewed whether the contract was covered, whether insolvency occurred after attachment, and which engineering, material, and processing costs were eligible.
Response: A stopped production, cancelled further component orders, reviewed modification for another buyer, and calculated the advance payment and residual value.
Conclusion: Pre-shipment loss depends not only on incurred cost but also on the possibility of stopping, recovering, and reusing the goods.
Example 2: Buyer’s Voluntary Cancellation
Facts: Buyer C cancelled because market prices had declined. C was not insolvent and no import prohibition or governmental measure existed.
Analysis: The parties reviewed whether the cancellation resulted from an insured Credit or Political Risk or merely a commercial decision.
Response: Exporter D pursued the contractual cancellation charge and damages rather than treating the event automatically as an insured loss.
Conclusion: Cancellation alone does not establish an insured Pre-shipment Risk.
Example 3: Import Prohibition in a Third Country
Facts: Buyer E was located in Country A, but the goods were intended for a project in Country B. Country B prohibited import of the goods shortly before completion.
Analysis: The exporter reviewed whether the destination-country governmental action was an insured Political Risk.
Response: Exporter F stopped shipment and reviewed alternative destination, modification, storage cost, and advance payment.
Conclusion: Pre-shipment analysis must include the destination and project country, not only the buyer country.
Example 4: Production before L/C Issuance
Facts: Exporter G began manufacturing dedicated goods before receiving the expected L/C from Buyer H. H later failed to issue an acceptable L/C.
Analysis: The parties reviewed whether failure to issue the L/C resulted from an insured event or from incomplete commercial negotiation.
Response: G changed its procedure so that L/C issuance or advance payment became a condition for production commencement.
Conclusion: An L/C transaction does not protect pre-shipment costs incurred before the L/C and its terms are confirmed.
When to Consult the Insurer or a Specialist
| Situation | Main Contact | Review | Reason for Urgency |
|---|---|---|---|
| Eligible costs are unclear. | Insurer and insurance agent | Materials, processing, engineering, storage, and other costs | The scope should be settled before production. |
| Voluntary cancellation and Credit Risk overlap. | Insurer and international-sales lawyer | Buyer credit, cancellation reason, breach, and evidence | Insurance and contractual remedies differ. |
| Governmental action or sanctions prevent shipment. | Insurer, bank, and sanctions adviser | Legal prohibition, countries, parties, and transaction suspension | Unlawful continuation must be avoided. |
| Goods cannot be resold or reused. | Insurer, sales, and technical personnel | Residual value, modification, alternative buyers, and disposal | Directly affects mitigation. |
| Cancellation charges are pursued. | International-sales lawyer | Contract, governing law, loss, and recovery | Double recovery with insurance must be avoided. |
| Production must continue after the event. | Insurer, management, and production personnel | Stop loss, resale after completion, and additional cost | Continued cost may be treated as increased loss. |
Common Misunderstandings
| Misunderstanding | Actual Position | Practical Caution |
|---|---|---|
| No loss exists before shipment. | Manufacturing, procurement, and processing costs may already exist. | Track exposure from production commencement. |
| Every cancelled order is insured. | A voluntary commercial cancellation may not be an insured event. | Identify the actual cause. |
| The endorsement can be added after production starts. | Costs incurred before attachment may remain uninsured. | Confirm cover before contract or production. |
| Custom goods can always be resold. | Specifications, branding, standards, and use may prevent resale. | Estimate modification and resale before contract. |
| An advance payment removes all risk. | Costs may exceed the amount received. | Compare the advance with maximum pre-shipment exposure. |
| An advance payment prevents an insurance claim. | The advance may reduce the loss, but remaining loss may still be reviewed. | Separate recovery from actual loss. |
| An L/C eliminates Pre-shipment Risk. | Production may begin before L/C issuance or shipment may become prohibited. | Make L/C issuance a production condition. |
| Only the buyer country matters. | Destination, payment, and transit countries may also affect shipment. | Review third-country exposure. |
| Completing production after the event increases the insurance payment. | Unnecessary continued production may be treated as increased loss. | Consult the insurer before continuing. |
| Cargo insurance covers failure to export. | Cargo insurance principally covers physical cargo loss. | Separate pre-shipment credit cover from property insurance. |
| Every incurred cost becomes insured loss. | Advances, resale, residual value, and recoveries may be adjusted. | Record both costs and recoveries. |
Decision Checklist
| Stage | Party to Consult | Items to Confirm | Action if a Problem Exists |
|---|---|---|---|
| Transaction review | Sales, credit, and insurance personnel | Buyer credit, countries, amount, and production period | Consider insurance, advance payment, or guarantee. |
| Product design | Sales, technical, and production personnel | Custom specification, resale, residual value, and conversion cost | Consider standardisation or reusable design. |
| Contract formation | Sales, legal personnel, and buyer | Cancellation charge, advance payment, force majeure, and licences | Allocate pre-shipment costs by contract. |
| Insurance placement | Insurer and insurance agent | Endorsement, events, eligible costs, and attachment | Obtain approval before production. |
| Production start | Production, procurement, sales, and insurance personnel | Advance, L/C, licences, and covered contract | Hold production or purchase until conditions are met. |
| Material procurement | Procurement, production, and accounting personnel | Dedicated material, cancellation, and reuse | Use staged or cancellable purchasing. |
| Export preparation | Trade, logistics, and insurance personnel | Sanctions, permits, destination, and third countries | Stop additional cost before approvals. |
| Warning event | Sales, management, insurance, and legal personnel | Insolvency, cancellation reason, governmental action, and cause | Pause work and consult the insurer. |
| Mitigation | Sales, production, technical, and insurance personnel | Resale, reuse, modification, storage, and disposal | Record comparisons and decisions. |
| Loss calculation | Accounting, production, and insurance personnel | Costs, advances, recoveries, and residual value | Separate eligible costs and deductions. |
| Insurance claim | Insurer and insurance agent | Cause, contract, costs, inventory, and mitigation | Submit the chronology and evidence together. |
| Contract review | Management, sales, legal, and insurance personnel | Maximum exposure, advance percentage, and loss experience | Reflect the findings in later contracts. |
Summary
Pre-shipment Risk is the risk that, after conclusion of an export contract but before insured shipment, buyer insolvency, inability to pay, war, import prohibition, governmental action, sanctions, or another event prevents export and causes cost loss.
It differs from Post-shipment Risk, which concerns non-recovery of the export receivable after insured shipment.
The principal pre-shipment losses are manufacturing, materials, processing, engineering, inspection, packing, work-in-progress, and difficult-to-resell inventory.
Custom goods, dedicated products, buyer-branded goods, country-specific goods, and major equipment often create the greatest exposure.
Pre-shipment loss may require a specific endorsement. The covered contract, event, costs, and attachment should be confirmed before contract or production begins.
A buyer’s voluntary cancellation does not automatically become an insured loss. The exporter must distinguish Credit or Political Risk from a commercial decision or contractual breach.
Insurance should be combined with advance payments, milestone payments, cancellation charges, restrictions after production start, licensing clauses, force-majeure provisions, sanctions clauses, and resale rights.
After a warning event, the exporter should not continue production automatically. It should consider production stoppage, procurement cancellation, resale, reuse, modification, storage, or disposal.
The loss calculation may adjust incurred costs for advances, resale recoveries, residual value, reuse value, and disposal proceeds.
The detailed rules on Credit Risk, Political Risk, credit limits, Reduction Percentage, Maximum Aggregate Liability, and claim calculation are addressed in Export Credit Insurance.
The detailed shipment point and the boundary between Pre-shipment and Post-shipment Risk are addressed in Post-shipment Risk.
