Cargo Insurance 101: The basics

If you need to import a machine for your company or export one of your products abroad, then you need cargo transportation.

Cargo transport, also known as freight transport, is one of the main commercial activities in the world. With a massive activity, comes a huge amount of risks during all the shipping process that can lead to partial or even total loss of your merchandise.

Then, you’d be wondering: how can I protect my cargo and my investment, for all the risks that come with the shipping process? The answer is simple: you need to get cargo insurance, that’s the smarter and safety decision that you can make.

In this blog, we want to explain to you the basics of cargo insurance, and why it’s so important for you to acquire one.

What is cargo insurance?

Cargo insurance is a type of insurance that covers your cargo for damages or losses while it is in transit between the point of origin and final destination of your cargo.

Typically, Cargo Insurance is compared with car insurance: You need a minimal amount of coverage to get on track to protect your car for collision or theft, so cargo insurance is the same. You need to insure an amount of money equivalent to the cost of your cargo, in case something happens (a theft, a crash or another accident) you do not need to take money out of your pocket.

Some carriers, brokers and freight forwarders, offers you a minimal amount of insurance required for carrier liability. It’s not enought, it does not protect your cargo for all the risks, and the refunds are usually less than the total value of your cargo. Investing in cargo insurance that covers your goods, guarantees you protection against all the economic risks derived from damage or loss of product and other accidents.

Is Cargo insurance a requirement?

the-basic-is-a-requirement
It's highly suggested to invest in a good cargo insurance. | Photo taken from Freepik

There is no requirement nor obligation to acquire cargo insurance when you’re shipping your goods. However, it’s highly suggested to all the importers and exporters, to get one if they don’t want to assume the economic losses if something happens.

Life is unexpected, you cannot control or even assure that your cargo will always be safe and sound. For example, during the shipping, the vessel can sink, explode or be attacked by pirates (do you think we are overreacting? Maybe a little). As we said before, the carrier’s liabilities don’t cover all of the risks, so you’ll have to pay for all the losses if something unexpected happens.

Furthermore, most of the time your cargo is shipped together with other shipments, and if something happens to the other shipments, the maritime principle (or concept) of General Average stipulates that the losses are divided by all the owners of the surviving merchandise. So, your cargo will not be released until you pay.

To avoid all this risk, it’s better to invest  in good cargo insurance, to add an extra layer of protection to your goods and your investment.

Types of Cargo Insurance

As with life or car insurance, there is a variety of cargo insurance as well. Each variety protects your cargo in different scenarios and their scope of protection may vary. This is why you need to carefully analyze the cargo insurance options to choose the one that suits your needs.

Land Cargo Insurance

As its name suggests, this insurance protects your cargo while is in transport on land by trucks or utility vehicles. This insurance is for domestic shipping only, so it applies within the confines of the United States. The coverage of this insurance is against theft, damages for collision and similar risks.

Marine and air Cargo Insurance

This insurance protects your cargo during shipping by sea but also protects you by air shipping. The coverage of this type of insurance applies to international export and imports, against bad weather, piracy, damage from loading or unloading, and similar risks.

Different Types of Cargo Insurance

cargo-insurance-the-basics-different-types
There are different types of cargo insurance, so choose the one that offers you the most coverage. | Photo taken from Freepik

Whether your shipping is by land, by sea or by air, the insurance coverage (or scope) depends on your contract policy details.

All risk Coverage

This insurance is the best known and preferred choice among importers and exporters. All risk insurance protects your cargo for physical damage and losses, a result of external causes that may occur during the shipping process.

Even if is all-risk insurance, there are few exceptions:

  • Damage because of negligence, for example, bad packaging and crating.
  • Inherent Vice, it means the deterioration of cargo due to its inherent nature instead of external factors. For example, a wine cargo, due to variation of temperature, movement or other conditions affect its composition.
  • Cargo Abandonment
  • War, riot, strike and civil commotions.
  • Customs rejection
  • Loss of use or market
  • Failure payment

Named Perils Coverage

This insurance only protects your cargo for the risks list on the policy. It’s a slightly more limited type of insurance. So, if you want to get a Named Perils coverage, you need to make sure that the risks listed in the policy are necessary enough for your cargo.

Total Loss Coverage

This insurance protects your cargo when it occurs damage on it and the cost of repair is more expensive than the own value of the cargo. Many insurers companies consider the possibility of a total loss coverage when the loss of the cargo’s value is equal to or greater than 50% or 60%.

But also, the total loss coverage insurance can be claimed if the ship is abandoned, due to heavy damage, but the cargo is safe, however, the cost of bringing it to a safe place is more than the total value of the cargo.

Cargo Clauses – C for used merchandise

These, are the clauses that are embedded on the cargo insurance and specify which items in the cargo, are cover in cases of damage or losses.  The C clauses are the more restrictive one, so your payment would be lower, this means the coverage would be lower.

In Cargo Care Services, the major perils covered  by our C clauses are:

  • Fire or explosion.
  • Vessel or craft being stranded grounded sunk or capsized.
  • Overturning or derailment of land conveyance.
  • Collision or contact of vessel craft or conveyance with any external object other than water.
  • Discharge of cargo at a port of distress.
  • Loss of or damage to the subject-matter insured caused by general average sacrifice.
  • Jettison

As you can see, acquire cargo insurance is highly suggested if you want to secure your goods against a potential loss due to physical damage. In Cargo Care Services, we can help you protect your cargo and your money with the best insurance and policies. Ready to insure your cargo? Get a quote today. Do you have any thoughts about Cargo insurance? Let us know in our comment section.

Related posts

Bonded Warehouse: does your business need one?

Bonded Warehouse: does your business need one?

As a freight forwarder, you may be heard about bonded warehouse. The textbook definition is…
Carrier Liability vs All Risk Cargo Insurance

Carrier Liability vs All Risk Cargo Insurance

As we mentioned before, cargo transportation is one of the main commercial activities in the…
The impact of COVID-19 in the cargo industry

The impact of COVID-19 in the cargo industry

The recently COVID-19 outbreak has impacted our lifestyle in several ways. Most industries were not…