Fall 2023 – SCLT 6316 Global Supply Chain Logistics

Assignment 3

Note:
This assignment consists of 6 questions all from Lectures 5-6.
It is expected that you read the textbooks and then attempt the assignment questions.
To gain full credit, respond to the question completely and concisely in your own words.

Q1. What is credit insurance? Why is it associated with open-account transactions?

Credit insurance is an insurance policy where the risks are covered by a premium. This premium
ensures the risk of the default payment us on the importer by deducting minimal percentage. This
insurance policy is best for transactions where the exporter is high risk and may fail to pay.

Open account transactions are associated with credit insurance because those transaction are high
risk. Open account transactions are used without guarantee of payments and built off trust that
the invoice will be paid.

One example of a high-risk open transaction could be dealing with new or unestablished buyers.
An exporter can engage in an open-account transaction with a buyer who is newly established or
lacks a proven track record of successful transactions. The lack of a payment history makes it
challenging to assess the buyer's reliability, increasing the risk of non-payment.

Another is exporting to economically unstable areas. An exporter can conduct open-account

transactions with buyers located in countries experiencing economic instability, political unrest,
or currency fluctuations. The risk here are that the economic uncertainties in these countries can
lead to payment delays or non-payment due to bad financial conditions.

Q2. What are three of the possible choices that an exporter can make (in terms of currency) for a
specific transaction? Explain them in 1-2 sentences.

The three possible choices for an exporter include the exporters country currency, the importers
country currency or a third countries currency or common currency.

Exporter’s Currency: In this option, the exporter can choose to invoice the transaction in their
own local currency, transferring the exchange rate risk to the importer. This simplifies
accounting for the exporter but may make the transaction less attractive to the importer. This
would be the easiest.
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Importer's Currency: The exporter can invoice the transaction in the importer's local currency,
making it convenient for the buyer. This reduces exchange rate risk for the importer, but the
exporter takes on the risk of unfavorable fluctuations.
Use a Stable or Common Currency: Both parties can agree to use a stable or widely accepted
currency, such as the US dollar or the euro, for the transaction. This minimizes exchange rate
risk for both the exporter and importer and simplifies international trade, but it can involve
higher transaction costs.

Q3. The ocean bill of lading has three general functions. Explain each function in detail and
identify the alternative “types” of ocean bills of lading.

The ocean bill of lading serves three essential purposes in international trade and shipping:

Contractual Agreement: The ocean bill of lading acts as a contractual agreement between the
shipper (either the importer or exporter) and the carrier. This agreement outlines the terms of
trade, often using standardized terms known as Incoterms, which specify the responsibilities and
costs associated with transporting goods from the port of origin to the intended destination. This
document effectively forms a contract of carriage.
Receipt of Goods: Upon the shipping firm's acknowledgment and signing of the bill of lading, it
serves as a receipt for the merchandise. This signifies that the goods have been received by the
carrier in a satisfactory condition and in accordance with the contractual terms, known as a
"clean bill of lading." This receipt becomes the responsibility of the importer. In cases where the
goods are not in good condition upon arrival, it may result in a "soiled bill of lading," also
referred to as a "foul bill of lading."
Certificate of Title: The ocean bill of lading also acts as a certificate of title, granting permission
for the release of the goods at the port of destination. There are two primary types of ocean bills
under the certificate of title: the "straight bill of lading," which names the consignee (the party
that becomes the owner of the goods upon arrival at the destination), and the "to order bill of
lading," which does not specify the consignee. The "to order" bill of lading is negotiable, making
it a "negotiable bill of lading."
Apart from the standard ocean bill of lading, there are alternative forms tailored to different
modes of transportation and trade:

Uniform Bill of Lading: Normally issued by the carrier or agent and used for transport by trucks
or trains. This document is versatile and suitable for domestic and international shipments. It’s
like an ocean bill of landing but changed for over land transportation. The terms and conditions
can be customized by the supplier and carrier.

Intermodal Bill of Lading: Specifically designed for intermodal transportation, which involves
using multiple modes of transport (e.g., trucks, trains, ships) in a single journey. Accounts for a
seamless transition of goods between different modes. It includes details relevant for each part of
the journey for clarity.
 Fall 2023 – SCLT 6316 Global Supply Chain Logistics

Air Waybill: Used for airfreight shipments, this document is appropriate for the transportation of
goods by air and is essential for both domestic and international cargo transport. It is issued by
the air carrier, agent, or freight forwarder.
These various forms of bills of lading serve to facilitate and regulate the complex process of
shipping goods across borders and modes of transportation, ensuring transparency,
accountability, and legal compliance in international trade. It contains information about the
shipper, consignee, nature of goods and other important details. An AWB is normally what we
use for FedEx Freight.

Q4. What insurance coverage is required under CIF or CIP Incoterms® rules? Explain which
risks are not covered, and how an importer can still protect itself against them.

Under CIF and CIP rules, marine cargo insurance is a must to protect goods during
transportation. Key points include:

Coverage: It's specifically for marine cargo, guarding against various risks during sea voyages,
such as damage, theft, and accidents.
Options: Minimum coverage is required, but shippers can choose maximum coverage for greater
protection.
Minimum Coverage: ICC guidelines specify it under Coverage C, offering basic protection, but
shippers can opt for more.
Insurance Amount: It should be at least 110% of goods' value, ensuring comprehensive coverage.
CIF vs. CIP: CIF applies to sea transport, while CIP covers all modes.

Risks of Inadequate Coverage include.

Financial loss, disputes and legal issues, supply chain disruptions and an increase in financial
liabilities. An importer can protect themselves by the following:

 Buying additional insurance:

o Importers can purchase additional insurance coverage to address risks not covered
by the standard CIF or CIP insurance. This might include coverage for inland
transport or specific risks excluded.
 Doing your due diligence:
o Importers should thoroughly review the terms of the insurance policy obtained by
the seller to identify any gaps in coverage. If necessary, they can negotiate with
the seller for additional coverage.
 Contractual agreements:
o Importers can negotiate specific terms in the sales contract to ensure that
additional risks are covered or addressed.
 Use of Incoterms with More Inclusive Coverage:
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o Choosing an Incoterm that places more responsibility on the seller for

transportation and insurance, such as DDP (Delivered Duty Paid), can provide
broader coverage.

Q5. In the case study “Marine Hull Insurance Using Private Blockchain”, which three
technologies were used to switch the process of manual handling documents to a digitized
platform. Explain each technology’s function briefly.

In the context of the Marine Hull Insurance case study, the three technologies used were private
blockchains, smart contracts, and File coin.
Private Blockchains:
 Role: Private blockchains create a controlled network environment for the Marine
Insurance process.
 Implementation: The insured acts as the network administrator, and other parties
(Insurers, Brokers, Owners) act as nodes.
 Functionality: Private blockchains provide centralized control, security, and
accountability. Access, data viewing, and transaction validation are subject to approval
by the administrator.
 Benefit: Enhanced privacy and security are achieved through centralized control, making
private blockchains suitable for business organizations that need to share data with
limited access.
Smart Contracts:
 Role: Smart contracts replace traditional insurance contracts, automating the insurance
process on the private blockchain.
 Implementation: Smart contracts are created and agreed upon between the insured and
multiple insurers.
 Functionality: Immutable and self-executing, smart contracts trigger predefined
responses based on conditions They eliminate the need for intermediaries and ensure
automatic execution without third-party validation.
 Benefit: Smart contracts streamline the insurance process, reduce costs associated with
intermediaries like brokers, and enhance the exchange of services by automating
processes.
File coin:
 Role: File coin is used for decentralized storage of documents related to Marine Hull
Insurance.
 Implementation: Documents are stored on Filecoin's decentralized storage network
using the free disk space provided by miners
 Functionality: Filecoin operates on the InterPlanetary File System (IPFS) and utilizes
Proof-of-Replication and Proof-of-Spacetime algorithms for data verification and
retrieval. It ensures secure, replicated, and retrievable storage of data.
 Benefit: Filecoin's decentralized storage provides security, availability, and cost-
effectiveness compared to centralized cloud services. It facilitates easy replication and
retrieval of documents in the insurance process.
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Q6. In the case study “Risk analysis of marine cargoes and major port disruptions”, what were
the past events in terms of cargo loss and their impact on marine cargoes and ports.
(20 points)

1. Hurricane Katrina: This hurricane affected the Gulf Coast of the United States,
including major ports such as New Orleans. The storm surge and flooding caused
extensive damage to port infrastructure and resulted in disruptions to cargo operations.
2. Tohoku Earthquake and Tsunami The earthquake and tsunami in Japan had a
significant impact on several ports along the eastern coast. Ports were damaged, and the
disruption affected the global supply chain due to Japan's role in manufacturing and
exporting.
3. Typhoon Haiyan: The Philippines, a major hub for shipping, experienced disruptions
due to Typhoon Haiyan. Ports were damaged, and the movement of goods was hurt,
impacting both imports and exports.
4. Hurricane Sandy: Sandy affected the U.S. East Coast, including major ports like those
in New York and New Jersey. Flooding and power outages disrupted port activities,
causing delays and losses in cargo movement.
5. Thailand Floods: While the floods primarily affected inland areas, they had implications
for the Laem Chabang port in Thailand. The floods disrupted transportation routes and
logistics, impacting the movement of goods.
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Due Date: Monday, October 16, 2023 11:59 PM