University Assignment: International Trade Logistics Risk Analysis

This assignment delves into the complexities of international trade logistics. It begins by examining risk management strategies that exporters and importers can employ, analyzing the advantages and disadvantages of each approach, particularly from the perspective of a small exporter. The assignment then explores marine insurance, detailing the usefulness of specific clauses such as sue and labor, Inchmaree, and warehouse-to-warehouse coverage. The concept of the country of origin is defined, with an explanation of its determination process, its challenges, and its significance in global trade. Finally, the assignment addresses non-tariff barriers, outlining their purpose and providing examples of their application in international trade. This document offers valuable insights into the multifaceted nature of international trade, providing a comprehensive overview of essential concepts and practices.

RUNNING HEAD: International Trade Logistics
International Trade Logistics

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Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................3
Question 3........................................................................................................................................4
Question 4........................................................................................................................................5
References........................................................................................................................................6

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Question 1. What possible risk management strategies can an exporter/importer follow? Explain
each strategy’s advantages and disadvantages from the perspective of a small exporter.
Answer- The adoption of risk management strategy provides organized and rational approach to
recognize, evaluate and manage risk (DIY Committee Guide, 2018). The companies that
participate in the international trade can effectively manage risk through the adoption of
appropriate risk management strategy. The risk management strategies followed by
importer/exporter are in three forms-
 Retention of risks
 Transferring the risk altogether to the insurance company
 Adoption of mixed approach that combines retention and transfer of risks
Risk Retention- It is a strategy for risk management in which decision is made regarding the
retention of risk and not insuring against it. Risk retention is often chosen by the small exporter
as they have very little exposure. Their shipments involve goods of lower value which, if results
in loss, will have only few financial consequences. Moreover, the international transactions
constitute only a minor percentage of their business. Therefore, the adoption of risk retention is
beneficial from the perspective of a small exporter. On the other hand, it contains the relative
disadvantages for a small exporter too. For small exporters, risk retention can often result in huge
losses due to underestimation of risk which may ultimately result in ending up of their
businesses.
Risk Transfer- Risk transfer is a risk management strategy which is adopted by various firms in
order to transfer the risks associated with international transportation to an insurance company.
The protection against the losses is provided by the insurance companies in exchange of a
premium. Risk transfer proof to be advantageous for a small exporter as small exporters are
uncomfortable with the risks associated with the international trade. The proper assessment for
the exposure of such risks is a difficult task for small exporters since they lack understanding in
international trade. The transfer of risks to the insurance company therefore protects their goods
against different kinds of losses. On the other hand, risk transfer requires the payment of
premium which may become a heavy burden for the small exporters for whom the premium may
exceed the value of goods being exported. The risk cover may not result in beneficial project.

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Mixed Approach- Mixed approach is a risk management strategy in which some part of the risk
is retained while the remaining is transferred. There are two different ways for the achievement
of the strategy-
 The maximum amount of risk is decided which a firm is willing to take
 Decision is made regarding types of risks that a firm is willing to bear and the other risks
that would be transferred to the insurance company.
For small exporters, mixed approach provides the benefit of evaluating the exposure of risks that
they are willing to bear themselves and provides them a chance to spit the risk between the
insurance company and the firm. However, the incorrect identification and evaluation of risks on
part of the small exporter may lead to negative consequences for them as the risk taken by them
may not have proper cover and result in huge losses.
Question 2. Choose three possible marine insurance clauses and describe their usefulness.
Answer - Marine insurance shields the damage or loss of cargo, ships, or any terminal with the
help of which the property is acquired or transported or detained between the points of origin and
the destination. It provides assurance to the ship owners and transporters that they can claim the
damages in a case where any loss occurs as a result of circumstances stated in the policy. The
clauses in the marine insurance include sue and labor, inchmaree clause, warehouse to
warehouse coverage etc.
Sue and Labor- Sue and labor clause requires the insured to protect the cargo from resulting in
further damage in cases a loss occurs, as it is not insured such that the loss can be minimized.
The costs incurred in the protection of cargo will be paid by the insurer. The cost is paid even in
cases where the attempts made to save the ship altogether fails. This clause is useful in protecting
the subject matter from all the kinds of losses and allows the insured for the recovery of all the
justifiable expenses incurred by him for the purpose of minimizing the loss to the property
insured (Greene, 2018).
Inchmaree Clause- Inchamaree clause is useful as it ensures that the goods are protected in the
event of a broken propeller shaft, burst boiler along with errors in seamanship and navigation. In
other words, this clause covers the loss that occurs as a result of any negligence on part of the

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crew member or master. Any damage caused to the cargo as a result of the operations related to
loading and unloading is also recoverable.
Warehouse to Warehouse Coverage- Warehouse to warehouse coverage clause in the policy
provides full coverage for goods starting from the moment the goods leave the warehouse of the
exporter till the time they reach the importer’s warehouse or 15 days after their arrival at the port
of destination, whichever is earlier. This clause is useful as it saves the shipper from troubles and
ensures the arrival of subject matter at the warehouse.
Question 3. Explain the concept of country of origin. How is it currently determined? Why is it
such a difficult concept? Why is it important?
Answer - Country of origin (COO) can be defined as the country where a product or article is
produced, manufactured or grown i.e. the country where a product comes from. The rules of
origin differ in accordance with the international treaties and national laws. Country of origin
labelling can often be regarded as the place- based branding.
Country of location is currently determined by the place (country) where the finished product is
manufactured or closest to be finished. It is also determined by the country where the HS
Classification took its last change.
Determination of the country of origin is a simple process in cases where the production of the
product is done in the country from where the raw materials are obtained. But the global trade
environment has resulted in the production of goods using components from more than one
country and performing the assembling of goods in another country which has made the process
of determining the country of origin a complex process. Moreover, specific rules from various
trade agreements further increase the complexity of the process. The determination is necessary
so that the different duty rates applicable on different countries can be applied. Also, the
existence of numerical quotas is for some countries and not for other countries. An importer is
liable to be fined in cases where the country of origin is hidden.
The concept of origin is important as it helps in the regulation of preferential trade agreements,
import quotas, duty rates and trade sanctions. Country of Origin gains enough attention of the
Customs due to the involvement of revenue and admissibility issues. Also, it is important for the

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purpose of marking. The imported articles are required to bear the country of origin in order to
inform the end user as required by the import regulations.
Question 4. What are non-tariff barriers? Why are they used? Give a few examples.
Answer- Non- tariff barriers can be regarded as trade barriers which result in the restriction of
the importation of goods and services with the help of mechanisms rather than simply imposing
tariffs. The number of imported items are restricted in a specific country with the help of non-
tariff barriers. Non- tariff barriers arise from various steps taken by the authorities and
governments in the form of restrictions, prohibitions for the protection of domestic industries
from foreign competition, conditions, laws and regulations, private sector business practices.
These barriers are in the form of subsidies, import quotas, technical barriers or custom delays.
The use of non- tariff barriers is made due to a variety of reasons. Some of them are as follows.
 Protecting Domestic Employment- Domestic industries suffer from serious competition
from the imported goods as a result of which they are unable to sell their produce. This
further leads towards unemployment in the domestic industries. Therefore, in order to
protect employment in domestic industries, non- tariff barriers are imposed.
 Protecting Consumers- Non- tariff barriers are often imposed on the import and export of
the goods which could endanger its population.
 Infant Industries- Non- tariff barriers are imposed by the developing countries for
fostering growth such that the prices of the imported goods are increased and therefore
the infant industries get a chance to flourish in the market.
Other reasons for the use of non- tariff barriers include retaliation, national security and
protection from cheap labor. For example- a country may impose high duties on the imported
goods in order to discourage importation with the aim to promote the consumption of domestic
goods over the imported goods. Also, government of a country can manage the exchange rate by
intervening in the currency market for affecting the relative prices of exports and imports.

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References
DIY Committee Guide. (2018). What is a Risk Management Strategy. Retrieved January 11,
2018 from http://www.diycommitteeguide.org/resource/what-a-risk-management-strategy
Greene, M. R. (2018). Insurance. Retrieved January 11, 2018 from
https://www.britannica.com/topic/insurance#ref86281