Insurance Under FAS: Who Should Insure the Cargo and for How Much?

FAS, Free Alongside Ship, leaves insurance out of the delivery rule. Neither the seller nor the buyer must arrange cover under FAS, and no minimum level of cover applies. Insurance under FAS is therefore a voluntary decision, and the party who bears the risk at each stage is the party with the reason to insure it.

This guide is for buyers importing from Bangladesh on FAS terms. It explains whose interest needs cover before and after the alongside-vessel handover, how to set an insured value when no rule sets one, and which Institute Cargo Clause fits the cargo.

Does FAS require insurance from the seller or the buyer?

No. Under FAS, neither party has an obligation to arrange a contract of insurance for the other party. The Incoterms 2020 rules allocate cost, risk and obligations across 11 rules, and insurance is an obligation only where a rule says so.¹ The insurer If summarises the FAS position as both parties insuring their own legs of the transport if they so desire, with the buyer at risk once the goods have been delivered alongside the ship at the port of shipment.²

The contrast with CIF and CIP is sharp. Under CIF, insurance must be covered by the seller in favour of the buyer, complying with at least Institute Cargo Clauses (C), and under CIP the seller must provide cover complying with at least Institute Cargo Clauses (A).² FAS sits with the other rules, where cover is a choice, not a term of the delivery rule.

Under FAS the buyer bears the risk from the alongside point onward, including loading and the sea voyage, so an uninsured loss after that point sits with the buyer. The seller faces the mirror image before delivery, while the goods move from the factory to the port and wait alongside the vessel.

A letter of credit or bank facility can still require a named level of cover. Treat any such term as a contract requirement on top of the Incoterm, not as part of it.

Whose interest needs cover, and when does it start?

The seller has an interest in the goods until delivery alongside the vessel, and the buyer has an interest from that point onward. Cover should follow the interest, and each party should check that its own policy is in force for its own period.

The seller's interest runs from production and packing through inland transport, export clearance and placement alongside the vessel nominated by the buyer. If goods are damaged on the road to Chattogram, or while waiting on the quay, the seller carries the loss unless the seller arranged cover for that leg, including the port leg and the waiting period at the quay.

The buyer's interest starts when the goods sit alongside the vessel. From that moment the buyer bears all costs from that point onward, and the risk of loss or damage passes when the goods are alongside the ship.² The buyer's policy therefore needs to be in force before the goods reach the quay, not after loading. A policy that attaches only when the goods are on board leaves the alongside period, the loading operation and any wait for a berth outside cover, unless the wording says otherwise. Ask the insurer to confirm in writing that the policy covers the goods while they are alongside the vessel and during loading.

The handover is where a transit gap most often appears: a buyer policy bought for a period beginning at loading, a seller policy ending at the port gate, or a gap between discharge and delivery to the buyer's warehouse. The Institute Cargo Clauses (C) transit clause shows how wording decides this: cover attaches when the goods are first moved in the warehouse or place of storage for immediate loading for the commencement of transit, continues during the ordinary course of transit, and terminates on completion of unloading at the final warehouse or place of storage, or on expiry of 60 days after discharge overside at the final port of discharge, whichever occurs first.³ Read the equivalent clause in the actual policy on offer, because the policy wording decides when cover starts and ends. Under the same clauses, the assured must have an insurable interest in the goods at the time of the loss to recover.³

How much cover should the buyer arrange?

FAS sets no sum insured, so the buyer sets the figure. The method below gives a defensible starting point. It is not a rule, and no insurer is bound by it. The insured value should reflect what the buyer would lose if the goods never arrived, not only what the buyer paid the seller.

Start with the invoice value. Add the freight the buyer pays under FAS, the loading and port charges the buyer bears from the alongside point, and the import duty and taxes the buyer expects to pay at destination where the policy permits duty to be included. Then add a margin for anticipated profit or on-costs, commonly 10 percent in CIF practice, where the insurer accepts that basis. Under CIF the seller must purchase insurance with minimum coverage under Clause (C) at 110 percent of invoice value.⁴ That 110 percent figure is a CIF obligation, not an FAS one, and borrowing it as a working method for a voluntary FAS policy does not turn it into a requirement. State the basis in the policy schedule.

Example figures: knitwear invoiced at USD 40,000, plus USD 4,500 of freight, loading and destination port charges and USD 3,000 of expected duty, plus a 10 percent margin on the invoice value, gives an insured value of USD 51,500. The example shows the arithmetic only, and the duty element must be confirmed with the insurer.

Under-insurance is the error to avoid: at invoice value alone, a total loss may leave freight, duty and margin unrecovered. Agree the valuation basis with the insurer before shipment, in writing.

Which Institute Cargo Clause fits an FAS shipment?

Most marine cargo policies for sea shipments use one of three standard sets of terms, the Institute Cargo Clauses (A), (B) and (C), issued by the Lloyd's Market Association and the International Underwriting Association.⁵ Under CIF the seller's minimum is Clause (C), while under FAS the buyer chooses the floor.

Clause (A) is the broadest. It covers all risks of loss or damage during transit, except for specific exclusions listed in the policy, such as wilful misconduct, ordinary leakage, inherent vice, delay, war, strikes or nuclear incidents.⁵ Clause (B) is a named-perils policy covering only listed risks, including fire, explosion, vessel grounding or capsizing, collision, discharge at a port of distress, earthquake, volcanic eruption, lightning, general average sacrifice, jettison, washing overboard, and entry of sea, lake or river water into the vessel.⁵ Clause (C) is the narrowest standard cover, covering even fewer risks than Clause (B), while certain natural disasters and water damage are not covered.⁵

The Clause (C) wording covers loss reasonably attributable to fire or explosion, the vessel being stranded, grounded, sunk or capsized, overturning or derailment of a land conveyance, collision or contact with an external object other than water, and discharge at a port of distress, plus loss caused by general average sacrifice and jettison.³ It excludes loss caused by delay, inherent vice, insufficiency of packing, ordinary leakage and wear and tear, and loss caused by war, strikes and terrorism.³ A buyer who accepts Clause (C) has accepted that theft, pilferage, water damage from entry of seawater and accidental handling damage may sit outside the policy. That can be fair for low-value, durable bulk cargo, and poor for high-value, fragile or theft-prone goods, where Clause (A) is usually the safer starting point.

Clause (A) is the broadest, Clause (B) sits in the middle, and Clause (C) is the narrowest: Clause (A) covers all risks except listed exclusions, Clause (B) covers only listed named perils, and Clause (C) covers fewer named perils still. Clause (A) suits high-value, fragile or theft-prone cargo; Clause (C) suits low-value, durable bulk cargo.

War, strikes and terrorism cover is separate: the standard clauses exclude war and strikes risks, so ask for the separate clauses and confirm the premium. Name the cargo, the stow and any special condition, such as deck carriage or refrigeration, in the proposal, and keep the insurer's written reply.

Step-by-step: arranging voluntary cover for an FAS shipment

Arrange cover before the vessel is nominated, not after the goods leave the factory. The diagram below sets out the sequence from the buyer's first enquiry to a claim-ready file.

1. Confirm the delivery term. State FAS, the named port of shipment and Incoterms 2020 in the contract, quotation and invoice, so the alongside point is the same on every document.

2. Decide who insures each leg. Record that the seller insures, or accepts the risk of, the factory-to-quay leg, and that the buyer insures from the alongside point onward, unless a different split is agreed in writing.

3. Ask for quotations on a stated clause and value. Give each insurer or broker the cargo, packing, route, vessel type, clause letter, insured value basis and the alongside and loading periods, and ask for the premium and wording in writing.

4. Check the start, end and exclusions. Confirm cover for the alongside period, loading, voyage, discharge and onward transit, and read the war, strikes, delay and packing exclusions.

5. Arrange cover and hold the documents. Keep the policy or certificate, the schedule and the insurer's contact details in the shipment file before the goods move.

6. Share the nomination details. Give the seller the vessel nomination, loading point and timing, and ask the seller to confirm when the goods are alongside.

7. Keep the claim file ready. On arrival, note damage or shortage on the delivery documents, photograph the goods and packing, preserve the carrier's receipt, and notify the insurer within the time the policy allows.

Where the seller agrees to arrange cover for the buyer as an extra service, record it as a separate agreement stating the clause, the sum insured, who pays the premium and who holds the policy.

Costs, documents and claims: what to have ready

The premium for voluntary FAS cover is a quotation, not a tariff. No figure in this guide states what a premium should cost, because it follows the clause, the cargo, the packing, the route, the vessel and the insurer's view of the risk. Get quotations on the same clause, value and route, and do not compare a Clause (C) price with a Clause (A) price as if they bought the same protection.

Hold these documents before shipment: the policy or certificate, the schedule with the clause letter, sum insured and valuation basis, the commercial invoice, the packing list, the freight booking, and the written confirmation that the policy covers the alongside and loading periods. The documents required for FAS shipments guide sets out the wider shipment set.

At claim time, the Institute Cargo Clauses (C) place a duty on the assured to take reasonable measures to avert or minimise a recoverable loss and to ensure that all rights against carriers, bailees and other third parties are properly preserved and exercised.³ Do not sign a clean receipt for damaged goods, discard damaged packing, or wait until the goods are unpacked and sold before telling the insurer. Delay, poor packing and inherent vice are excluded under the standard wording.³

Bangladesh-specific points for FAS shipments

FAS shipments from Bangladesh usually load at Chattogram or Mongla, and the alongside point is inside the port. Confirm with the freight forwarder where, in practice, goods are placed alongside the vessel, and whether that point is a quay, a barge or a jetty. Write the loading point into the contract with the same precision as the port name.

Confirm the insurer's position on the port leg in writing, including any time limit for the wait alongside the vessel at Chattogram or Mongla and any storage condition. If the insurer imposes a condition, the seller needs to know it before the goods leave the factory.

Check any bank requirement early: a financing bank may require a named clause, a minimum sum insured and an assignment of the policy. Agree those terms before booking, and keep one set of names across the papers.

Mistakes that leave FAS cargo uninsured

Assuming the seller insured the sea leg. Under FAS the seller has no obligation to insure beyond delivery, and no duty to the buyer to arrange cover.² A buyer who discovers at claim time that no sea policy exists has no FAS term to fall back on.

Buying cover that starts at loading. A policy that attaches on board leaves the alongside wait and loading outside cover unless the wording extends to them. Confirm the alongside period in writing.

Accepting Clause (C) without reading the exclusions. Clause (C) is the narrowest standard cover and excludes theft, water entry and handling damage buyers often assume are covered.⁵ Choose the clause for the cargo, not for the premium alone.

Setting the sum insured at the invoice value only. Freight, duty and margin are real losses on a total loss. Agree the valuation basis with the insurer and show it on the schedule.

Relying on the carrier to pay. Carrier liability is limited and follows the contract of carriage, not the value of the goods. It does not replace cargo insurance.

Not telling the insurer about a change. A changed destination, transhipment, longer port wait or different vessel can affect cover. The Clause (C) wording requires prompt notice where the destination is changed after cover attaches.³ Notify the insurer promptly and keep the reply.

Checklist before the vessel is nominated

• FAS, the named port of shipment and Incoterms 2020 are stated in the contract, quotation and invoice.

• The alongside loading point inside the port is named in the contract.

• Each leg has a named insurer: the seller's leg to the quay, and the buyer's leg from alongside onward.

• The clause letter, sum insured and valuation basis are agreed with the insurer in writing.

• The policy covers the alongside wait, loading, voyage, discharge and onward transit to the final warehouse.

• War, strikes, deck cargo and temperature conditions are asked about and answered in writing.

• The policy or certificate, schedule, invoice, packing list and freight booking are in the shipment file.

• The seller has the vessel nomination, loading point and timing, and will confirm when the goods are alongside.

How Exportain helps

On Exportain, browse suppliers and post a request for quotation on the RFQ board stating FAS, the named port of shipment and Incoterms 2020, so suppliers quote on the same delivery term. Ask each reply to confirm the alongside loading point and to state whether the seller will arrange any cover as a separate, priced service, or whether the buyer arranges all cover from the alongside point. Compare quotations on the same term and loading point, using the FAS quotation comparison guide, and record the insurance split in the sales contract rather than in messages alone.

Read the badges for what they record. Exportain verification is a document review by staff, not a factory inspection, and a badge is not a guarantee of production capacity, product quality or delivery.⁶ Verification is free and never purchased, and membership plans never grant a trust badge.⁶ See the Incoterms guide for shipments from Bangladesh and the CIF guide where the seller does carry an insurance obligation.

FAQs

What should I know first about insurance under FAS?

FAS imposes no insurance obligation on either party. The seller bears the risk until the goods are alongside the vessel, and the buyer bears it from that point onward, so each party should insure its own leg voluntarily. The buyer's cover should be in force before the goods reach the quay.

What does voluntary FAS insurance cost, and how long does it take to arrange?

The premium is a quotation that follows the clause, the cargo, the packing, the route and the vessel, so no single figure applies. Allow time to give the insurer the cargo, route and alongside details, receive the wording, and confirm the alongside and loading periods before the vessel is nominated. A Clause (A) quotation and a Clause (C) quotation are not comparable prices, because they buy different cover.

Which insurance documents should I hold for an FAS shipment?

Hold the insurance policy or certificate, the schedule showing the clause letter, sum insured and valuation basis, and the insurer's written confirmation that the policy covers the alongside and loading periods. Keep the commercial invoice, packing list and freight booking with them, and match the assured and consignee names across the policy and the transport document.

What is the most common insurance mistake under FAS?

The most common mistake is assuming the other party insured the sea leg. Under FAS the seller has no duty to arrange cover for the buyer, and the buyer has no duty to insure for the seller, so an uninsured loss after the alongside point falls on the buyer.² Record the insurance split in the contract, arrange the buyer's cover before the goods reach the quay, and read the clause exclusions before shipment.

Next steps on Exportain

Browse suppliers, then post your FAS requirement, named port of shipment and loading point on the RFQ board so suppliers confirm the alongside point and the insurance split in their quotations. Before you confirm, read when risk transfers under FAS and the FAS customs clearance guide, and check how to buy on Exportain for the ordering steps that follow a quotation.