An introduction to cargo insurance and why it is needed.
Shipping generally constitutes a large proportion of the total commercial costs. It is understandable that the additional expense of cargo insurance can seem like a costly option that is rarely worth it. But it is not as expensive as you might think.
However, if the cargo is lost, damaged or even delayed, it can have a big impact on your company and/or counterparties. In addition, these incidents occur in international shipping with more frequency than you think
Ultimately, the decision to insure your cargo is up to you. We suggest that you do it because one day, when you need it, you will be protected.
What is Cargo Insurance?
International cargo insurance is not different from the insurance you can take out for your home, your car or your business. However, it can be a little more difficult to understand. Fortunately, you do not need to become an expert to benefit from our insurance offering for international shipments.
Some basic knowledge will help you to determine needs and to analyze them with the freight forwarder when organizing the shipment of products.
Cargo insurance will cover the cost of damages in the event of unforeseen events during air or sea transport. Likewise, it will protect you against economic damages deriving from the theft or loss of cargo in transit.
The responsibility of the transport operator is limited... and rarely enough.
It is a common mistake to confuse cargo insurance with civil liability insurance provided by carriers and freight forwarders. They are not the same. The standard liability of the transport operator is limited and the coverage contains many exclusions.
If the shipping value exceeds the carrier's liability coverage level, it is advisable to take out specific cargo insurance.
This will provide a more complete level of protection and will allow you to recover the total value of lost, damaged or stolen items. It is even possible that you can insure other expenses, such as those derived from late shipments.
When do you need cargo insurance?
In general terms, you should consider cargo insurance if you are responsible for Incoterm-agreed upon shipping responsibility for purchase or sale.
Each incoterm used in global sales specifies which of the buyer or the seller will be responsible for the shipping risks. Some Incoterms transfer the risk from the seller to the buyer at specific points of transport. Whatever the applicable term, you must know when the responsibility falls on you and when that happens you must make your decision on cargo insurance.
As an example of why it is important, consider this scenario:
You are an exporter and you are sending goods to your customer abroad, under an Incoterm that imposes responsibility on you during transport. Your customer has not paid for the purchase. Your container falls from the boat, directly at sea.
Once your products are lost, the buyer will certainly not be willing to pay and it is possible that you will decide to not send a replacement shipment. Your transport operator will only reimburse you according to the legal obligations of responsibility and only if you accept the responsibility for the loss of the container. In the best case scenario, you will get cents on the dollar for the items that you lost.
Types of Cargo Insurance
When analyzing the most common types of insurance, we will focus on maritime transport insurance, which generally also covers air transport. Bear in mind that it is also possible to take out specialized insurance coverage for air transport.
Marine cargo insurance is available with different levels of coverage. You will have to decide which type of insurance is the most appropriate for your business, the goods and the severity of the risk involved in the transport. Once more, it will be an easier decision to make if you know a little about each option.
The first decision will be to buy a single or open coverage.
Cobertura única: ste tipo de seguro é adquirido por embarque. Ele cobre apenas um único embarque e geralmente é a melhor escolha para empresas que fazem embarques internacionais, pouco frequentes. No entanto, se sua empresa envia embarques com frequência, pode não ser econômico fazer planos de seguro para cada embarque.
Single coverage: This type of insurance is contracted by delivery. It only covers a specific shipment and is generally the best option for companies that carry out infrequent international shipments. However, if your company makes shipments frequently, it may not be economical to have insurance plans for each shipment.
Open coverage: This type of insurance covers your shipments for a specific period, usually a year. It can cover all the movements of your goods with one single policy, which makes it a more efficient (and economical) way of managing the risk if you send products frequently.
Having determined whether you will contract insurance policies for single or open coverage, you will then have to consider the level of coverage you need. A complete policy guide would require more details than we can cover here, so we will focus on the most common types of cargo insurance coverage.
All-Risk Cover: Applicable to air and maritime cargo insurance, full risk coverage, as the name implies, provides financial protection for most events that lead to damage or loss of cargo. You should be able to buy full risk coverage for most types of goods, so long as they are new and not inherently vulnerable to breakage, deterioration or loss.
However, even all risk coverage is normally subject to some exclusions, such as:
- Negligence on the part of the importer/exporter;
- Customs rejections or delays;
- Losses or damages derived from wars, wars, disturbances or civil disturbances (WSRCC);
- Damage or loss as a result of natural disasters and earthquakes, for example;
- Default of the customer in payment or the seller in payment for payment.
Named Perils Cover: Unlike insurance against all risks, specific risk coverage is limited to risks that are explicitly established in the policy. Therefore, this type of insurance is less complete (and less expensive). Your main benefit is that you can cover risks not covered by an all-risk insurance.
The identified dangers may include:
- Cargo theft;
- Natural disasters;
- Collisions at sea or the sinking of the vessel;
- Failure to deliver the cargo.
Overall Average and Its Significance: If you normally ship via ocean freight, the principle of the general average in ocean transport is an issue to keep in mind. As counterintuitive as it may seem, you should consider covering it as part of your cargo insurance strategy.
The principle stipulates that if any cargo is lost, dropped, destroyed or damaged, due to a problem at sea, the owners of all cargo on board must share the costs of recovering the losses. Therefore, even if your goods survive the incident, you are responsible for contributing to indemnify those whose cargo was lost.
Why ask for General Average Insurance Cover?
As you might imagine, the application of general average can generate liabilities of hundreds of thousands of dollars. Furthermore, the carrier is entitled to retain custody of your cargo until it receives your share of the payment. If you do not pay, the carrier can legally take ownership of your shipment.
It’s entirely possible to purchase insurance against general average, but the cover is not included as standard in cargo insurance policies. Therefore, you will need to request the cover as an additional inclusion.
The cost of this insurance is not exceptionally high. Besides, it’s well worth purchasing when you consider that a general average liability can amount to a sum far higher than the value of your cargo.
Cargo Insurance: A Cost Worth Carrying?
Except when you have a contractual obligation to insure, you are free to accept transport risks and the limited coverage offered by carriers or to protect your interests with cargo insurance.
B2B Freight recommends that you take out a level of insurance coverage that suits your circumstances. After all, cargo theft is not uncommon all over the world, and incidents on the sea or in the flight, while rare, do occur -- and when they occur, can result in significant financial losses.
Even if your business is not the risk-owner in an international sales transaction, keep in mind that the liable party may not buy insurance, or could under-insure the goods. Taking out additional cover yourself, as a contingency, can, therefore, make good business sense.
B2B Freight is an online freight freight platform that helps ship goods across the world. We will be happy to advise you on the appropriate types and levels of insurance for your shipments. For answers to your questions, please contact us by phone, email or via our 24/7 customer service chat.