Stock Throughput Cover for Indian Importers Using Free Trade Warehousing Zones in 2026

A Free Trade Warehousing Zone (FTWZ) is a category of Special Economic Zone set up under the SEZ Act 2005 and the SEZ Rules 2006, designed to hold imported goods in a customs-bonded, duty-deferred state until the importer clears them into the domestic tariff area or re-exports them. For an importer, the appeal is cash-flow: customs duty and IGST are deferred until the goods actually move into India, goods can be stored, consolidated, repackaged and labelled inside the zone, and unsold or re-export stock never attracts the duty at all. Operators such as Arshiya, DHL and Pristine run large FTWZ facilities near Mumbai (JNPT), Delhi NCR and Chennai, and the volume of high-value imports (electronics, pharmaceuticals, auto components, wine and spirits, industrial equipment) sitting in these zones at any moment is substantial.

The insurance consequence is that the importer's exposure stops being a simple point-to-point shipment and becomes a chain with three distinct legs: the ocean and air transit from origin to the Indian gateway, the storage and handling inside the bonded FTWZ, and the final domestic transit from the zone to the buyer or the importer's own premises after clearance. Each leg has a different risk profile, a different party in physical control, and, critically, a different answer to the question of who carries the risk of loss at any given moment.

The instinctive way to insure this is to buy a marine cargo policy for the transit legs and a separate fire policy with a burglary extension for the goods while they sit in the warehouse. That arrangement looks complete but leaves seams at exactly the points where goods change hands and change legal status. The transit policy typically attaches and terminates on warehouse-to-warehouse terms keyed to an ordinary course of transit, while the FTWZ storage can run for weeks or months in a duty-deferred limbo that does not fit the marine wording's idea of a transit interruption. The fire-and-burglary cover, written on a property basis, has its own attachment conditions, its own valuation basis and its own exclusions, and it was never designed to dovetail with the marine policy at the handover. The result is a coverage gap, or a coverage overlap with a dispute about which insurer responds, precisely when a loss occurs at the join.

This post argues that an importer running stock through an FTWZ is usually better served by a single stock throughput policy that covers the whole chain (transit plus storage plus transit) on one marine-based wording, and it works through how the FTWZ changes insurable interest and risk of loss, how customs-bonded goods are valued for the sum insured, the accumulation limit problem at the zone, and the wording and IRDAI considerations that decide whether the cover actually responds.

The starting point for any cargo cover is insurable interest: the insured must stand to suffer a financial loss if the goods are damaged, and the cover responds only while that interest subsists. On a cross-border purchase, the moment at which risk of loss passes from seller to buyer is fixed by the agreed Incoterm, and the FTWZ sits awkwardly across that line.

Where the Incoterm leaves the importer

Under a CIF or CIP sale, the seller arranges and pays for carriage and insurance to the named destination, but risk passes to the buyer much earlier, when the goods are loaded or handed to the first carrier. So an Indian importer buying CIF Nhava Sheva already bears the risk of loss across the ocean leg even though the seller bought the marine cover, and the importer's interest in that seller's policy is contingent. Under FOB or FCA, risk passes to the importer at the origin port or the seller's premises, and the importer must arrange its own marine cover from that point. Either way, by the time the goods reach the Indian gateway and move into the FTWZ, the importer carries the risk of loss and holds the clear insurable interest.

Inside the zone, the importer's interest continues, but physical control sits with the FTWZ unit operator, who holds the goods in bond. The operator's own liability for the goods is limited and is governed by the storage contract and the SEZ rules, not by the value of the goods, so an importer that relies on the operator's liability cover to protect high-value stock is badly under-protected. The importer needs cover in its own name on the full value, because the importer is the party that loses if the stock burns or is stolen, and the operator's liability cover responds, if at all, only up to its contractual cap.

The seam a split programme creates

The handover problem is most acute where a separate marine policy ends and a separate storage policy begins. A marine cargo policy on Institute Cargo Clauses terminates cover, under the transit clause, on delivery to the final warehouse, or on the expiry of a fixed number of days after discharge at the destination port, whichever comes first. An FTWZ is not obviously the final warehouse, the goods are not in ordinary transit while bonded, and the storage can easily exceed the marine policy's post-discharge time limit. If the storage policy has not attached on the same terms at the same instant, a loss in that window can fall between the two covers. A single stock throughput wording removes the seam by covering the goods continuously from the moment the importer's interest attaches, through the ocean leg, into and through the bonded storage, and out again on the domestic leg, with no handover for a loss to fall through.

A stock throughput policy is a marine-based cover that follows the goods continuously through transit and storage, from the supplier's premises (or the point at which the importer's interest attaches) to the final delivery point, including any intermediate storage such as an FTWZ, an inland container depot or the importer's own warehouse. Instead of a marine policy for the moving legs and a property policy for the static leg, the importer holds one wording, one insurer, one sum insured basis and one claims point of contact for the whole journey.

The case for consolidating is practical, not theoretical.

1. No handover gaps. The single wording attaches once and stays attached, so there is no instant at which the goods are between two policies. The transit-to-storage-to-transit transitions that a split programme treats as policy attachment and termination events are simply continuations of the same cover.
2. No coverage-trigger disputes. With one insurer on the whole risk, a loss does not produce an argument between a marine insurer and a property insurer about which policy responds. The cause of loss is examined against one set of perils and one set of exclusions.
3. Consistent valuation. A stock throughput policy values the goods on a single agreed basis across the whole chain, usually the commercial invoice value plus freight, insurance and an agreed markup, so the importer is not exposed to the mismatch where the marine policy pays on a landed-cost-plus basis and the property policy pays on a different stock-value basis.
4. One declaration and adjustment mechanism. The cover can run on a declaration or adjustable basis tied to actual throughput and storage values, so the premium follows the real flow of goods rather than a static estimate, which suits an importer whose stock levels swing with the import cycle.
5. Cleaner placement and renewal. A single programme is simpler to broke, simpler to renew, and easier to benchmark, and it avoids the situation where the marine and the property covers renew at different dates with different insurers and drift apart on terms.

The trade-off is that a stock throughput policy is a more involved placement that requires the importer to disclose its storage locations, its peak accumulation values and its handling exposures honestly, because the storage leg is where the insurer carries its largest single-location exposure. An importer that buys stock throughput but understates the value of stock concentrated at the FTWZ has not bought protection; it has bought an under-insured policy that will pay out subject to the average clause. The honest disclosure of accumulation, covered next, is the price of the cleaner cover.

Setting the sum insured for goods inside an FTWZ is harder than for ordinary stock, because the goods are in a duty-deferred state and their insured value, their customs value and their commercial value are three different numbers.

The duty question

Goods in an FTWZ have not yet been cleared into the domestic tariff area, so the customs duty and IGST have not been paid. The question is whether the sum insured should include the duty that would become payable on clearance. The answer depends on what the importer actually loses if the goods are destroyed in the zone. If the goods are destroyed while still bonded and the importer never clears them, the duty is generally not incurred, because duty attaches on clearance into the domestic area, and a re-export or an in-bond loss does not trigger it. On that reasoning the insured value is the landed cost before duty: invoice value plus ocean freight plus insurance, the assessable value on which duty would have been computed, without the duty itself. Insuring the duty-inclusive value would over-insure goods that are lost before the duty ever crystallises.

There is a counter-case. Where the importer has already committed to clearing the goods, or where the loss occurs after clearance has begun, or where the commercial substitute for the lost goods will itself bear duty, the importer's true economic loss includes the duty and the cost of replacing the stock on a duty-paid basis. The prudent course is to fix the valuation basis explicitly in the wording (assessable value, or assessable value plus an agreed markup, or duty-paid landed cost) rather than leave it to a post-loss argument, and to set it according to whether the stock at risk is most likely to be re-exported, held in bond or cleared.

The markup and the basis of valuation

Most stock throughput wordings value cargo at the commercial invoice value plus freight, plus insurance, plus an agreed percentage markup (commonly 10 percent) to cover incidental costs and a margin. For an importer holding stock for onward sale, the relevant value may be the selling price rather than the cost, because a total loss of finished goods held for sale deprives the importer of the gross sale value, not merely the purchase cost. The wording should state whether the basis is cost-plus or selling price, and for which categories of stock, because the difference can be large for goods carrying a high trade margin. Pharmaceuticals, electronics and branded consumer goods held in an FTWZ for distribution often warrant a selling-price basis on the storage leg.

Foreign-currency exposure

Imported goods are usually invoiced in US dollars or euros, while the policy is written in rupees. A weakening rupee between placement and loss can leave the sum insured short of the rupee cost of replacing the goods. The wording should fix the basis of currency conversion (the rate at the date of loss, or at the date of import) and the importer should set the sum insured with enough headroom that ordinary currency movement does not push the cover below the replacement cost and trigger the average clause.

The single largest underwriting concern on a stock throughput placement is accumulation: the total value of goods concentrated at one location at one time. The ocean and domestic transit legs spread the risk across many shipments in motion, but the FTWZ concentrates it, because the whole point of the zone is to hold and consolidate stock. A fire, a flood or a major theft at the zone can hit the entire accumulated value at once, and that single-location maximum loss is what the underwriter is really pricing on the storage leg.

The location limit

A stock throughput policy carries a location limit (sometimes called an accumulation limit or any-one-location limit) that caps the insurer's liability for goods at a single storage site, regardless of the overall sum insured. If the importer's peak stock at the FTWZ exceeds the location limit, the excess is uninsured even though the policy's aggregate limit is higher. An importer that runs INR 80 crore of stock through the year but lets it peak at INR 35 crore at the FTWZ in the festive build-up, against a location limit set at INR 25 crore, carries INR 10 crore uninsured at the peak. Getting the location limit right means knowing the genuine peak accumulation at the zone, not the average.

How the underwriter assesses the zone

The underwriter prices the storage leg the way a property underwriter prices a warehouse: on the construction, the fire protection, the housekeeping and the maximum probable loss. The relevant questions are whether the FTWZ is fire-compartmented, whether it has automatic sprinklers and detection conforming to the Tariff Advisory Committee and National Building Code standards, how the high-value and hazardous stock is segregated, how the racking and storage heights are managed, and what the security and access controls are. A modern, sprinklered, well-managed FTWZ run by an established operator earns a far better rate on the storage leg than a basic shed, and the distinction between the maximum foreseeable loss and the probable maximum loss at the site drives both the rate and the location limit the insurer is willing to write. An importer placing stock throughput should obtain the operator's risk-survey and protection details and present them, because the storage leg is where the rate is won or lost.

Sharing the risk

Where the peak accumulation at a single FTWZ is large enough that no single insurer wants the whole exposure, the placement moves to co-insurance across several insurers, or the lead insurer cedes the excess to reinsurance. The importer experiences this as a single policy with a single claims point, but the underwriting reality is that the accumulation at the zone is being syndicated, and the importer's honest disclosure of the peak value is what makes that placement hold together. Understating accumulation to secure a cheaper rate is the surest way to find the cover inadequate at the moment of a major loss.

A stock throughput policy is written on a marine basis, so the wording is built from the familiar Institute Cargo Clauses for the transit legs, extended to cover the static storage leg, and the importer needs to read the join carefully because that is where covers fail.

The clauses and the storage extension

The transit legs are usually written on Institute Cargo Clauses (A), the widest all-risks form, subject to the standard exclusions for inherent vice, insufficiency of packing, delay and the war and strikes carve-outs that are added back by the separate war and strikes clauses. The storage leg is added by a storage extension or a warehouse clause that lists the perils covered while the goods are at the FTWZ. The importer should confirm that the storage extension covers fire, flood, theft and burglary, and water damage, that it has no time limit that expires while the goods are still in bond, and that it does not silently revert to a narrower set of named perils than the transit cover. A common failing is a storage extension that covers fire and burglary but not accidental damage during handling inside the zone, which is exactly when consolidation, repacking and re-labelling activity raises the handling exposure.

Exclusions that bite in an FTWZ

Several standard exclusions matter more in a bonded-storage context. Delay is excluded, so loss of market or deterioration caused purely by the goods sitting in bond longer than planned is not covered by the cargo wording. Inherent vice and ordinary deterioration are excluded, which matters for temperature-sensitive pharmaceuticals and food held in the zone, where the importer should confirm that refrigeration breakdown and temperature excursion are specifically covered if needed. The war and terrorism position should be settled, and where the FTWZ is at a port or in a sensitive location the importer should check that storage-while-bonded is included in the war and strikes cover and not left to the transit-only war clause.

The IRDAI frame

Marine cargo and stock throughput are written under the general insurance framework supervised by IRDAI, and the policy must be a filed product issued by a registered Indian insurer. The placement is documented through the policy schedule, the wording and any open cover or declaration arrangement, and the broker should ensure the policy wording is read in full rather than relying on the schedule, because the schedule states the sum insured and the limits while the wording decides whether a loss is covered. Where the importer runs continuous import volume, the stock throughput cover is often placed under an open cover or open policy with periodic declarations of shipments and stock values, which suits the rolling nature of FTWZ operations and lets the premium adjust to actual throughput. Claims on the storage leg involve a licensed surveyor appointed to assess the loss, and the importer's documentation (the commercial invoices, the bond records, the stock registers maintained inside the zone, the operator's records) is what supports the claim, so the importer should keep the FTWZ stock records in a state that will stand up to a survey.

Getting all of this right depends on reading the marine and storage wordings closely enough to see where the transit cover ends, where the storage extension begins, which perils each grants, and which exclusions bite while the goods are bonded. Sarvada gives commercial insurance brokers structured, searchable access to insurer policy wordings, so the cargo clauses, the storage extensions, the accumulation and location-limit conditions and the exclusions can be compared across insurers before a stock throughput programme is placed for an FTWZ importer. Request Access to ground your FTWZ stock throughput placements in the actual wording detail rather than the schedule.