In today’s fast-evolving international trade landscape, understanding Incoterms—short for International Commercial Terms—has become more critical than ever, especially following the recent directive by Kenya’s Insurance Regulatory Authority (IRA) requiring importers to purchase marine cargo insurance (MCI) exclusively from local underwriters.
This move by the IRA is part of a broader effort to retain insurance premiums within the country, ensure better oversight, and strengthen Kenya’s domestic insurance industry. For importers, exporters, and supply chain professionals, it signals a shift in how contracts must be structured, particularly in shipping terms that govern insurance responsibilities.
What Are Incoterms and Why Do They Matter Now?
Published by the International Chamber of Commerce (ICC), Incoterms define the roles and responsibilities of buyers and sellers in the global movement of goods, covering who pays for shipping, who bears the risk at each stage, and who handles customs clearance and insurance.
With the enforcement of local MCI requirements, Kenyan importers must now pay closer attention to Incoterms involving insurance, such as CIF (Cost, Insurance, and Freight) and CIP (Carriage and Insurance Paid To), which traditionally allow foreign suppliers to arrange and charge for insurance. Under the IRA directive, such arrangements are no longer acceptable unless the insurance is placed locally.
This underscores the importance of negotiating Incoterms that give buyers control over insurance arrangements, such as FOB (Free on Board) or EXW (Ex Works).
Key Incoterms in the Context of Kenya’s Insurance Rules
FOB (Free on Board)
Under FOB terms, the seller is responsible up to the point the goods are loaded onto the ship. From there, the buyer assumes control, including arranging for marine insurance. This makes FOB one of the most compliant options for Kenyan importers under the new directive, as it gives them the freedom to select local insurance providers.
EXW (Ex Works)
EXW gives the buyer maximum responsibility. The seller simply makes the goods available at their premises, and the buyer takes over every aspect, including inland transport, export documentation, freight, and insurance. While it places a heavy burden on the buyer, it ensures total control over MCI placement.
CIF (Cost, Insurance, and Freight)
Here, the seller covers shipping and marine insurance costs up to the port of discharge. However, CIF is now problematic under IRAs’ enforcement unless the seller is insuring the cargo with a Kenyan underwriter, which is rarely the case in international deals. Importers relying on CIF terms risk non-compliance and may face penalties or delays during clearance.
CIP (Carriage and Insurance Paid To)
Similar to CIF but applicable across all modes of transport. It includes seller-arranged insurance, making it incompatible with the local insurance directive unless expressly structured to use a Kenyan insurer.
Other Common Incoterms and Their Relevance
CFR (Cost and Freight): Seller pays shipping; buyer arranges insurance. Generally safe under IRA rules.
FAS (Free Alongside Ship): Buyer is responsible from the point goods are delivered at the port, including insurance, thus compliant.
FCA (Free Carrier): Seller delivers to the buyer’s nominated carrier; insurance must be handled by the buyer if not explicitly included.
DAP/DDP/DAT: These terms offer maximum convenience to the buyer but often include seller-arranged freight and sometimes insurance, making them risky unless insurance compliance is verified.
A Strategic Choice with Legal Implications
Kenya’s MCI directive is not merely a guideline; it is a legal obligation aimed at building a stronger domestic insurance sector and protecting local interests. Non-compliance may lead to customs clearance delays, penalties, or even shipment detentions.
As a result, the role of Incoterms in contract negotiation is no longer just about logistics; it’s a compliance issue. Buyers must now negotiate for terms that allow them to control insurance, or revise their purchasing contracts accordingly.
The Way Forward for Kenyan Traders
In the wake of the IRA’s directive, Kenyan importers and logistics professionals must adopt a more informed approach to trade terms. Mastering Incoterms is now a critical business skill, helping companies avoid legal risks, reduce costs, and ensure compliance.
Whether you’re importing raw materials, machinery, or consumer goods, selecting Incoterms like FOB or EXW can empower you to meet regulatory requirements while optimizing operational control.
For more guidance, stay updated through Freight Logistics Magazine and consult with accredited logistics and insurance professionals to ensure your contracts and shipments are fully compliant with the new rules.
This article was published by Githua Kihara, an editorial consultant for FEAFFA’s Freight Logistics Magazine. For any inquiries, please contact us via email at editorial@feaffa.com or freightlogistics@feaffa.com, or reach out to Andrew Onionga directly at onionga@feaffa.com / +254733780240.
