Cargo Insurance: Why Your Goods Might Not Be Covered

Nelson CabreraShipping Guide2 Comments

Cargo ship tipping over in ocean.

Marine cargo insurance is the oldest type of insurance in the world and was designed to offer financial protection for importers and exporters delivering goods overseas. It is generally separate from the insurance covering the vessel and even the hull of the ship can have its own policy.

Cargo insurance is generally purchased by the person or company shipping the goods overseas (as opposed to the supplier). Policies can cover cargo while it is being shipped, after it reaches the port and is being unloaded or warehoused, and can even cover the importer and exporter (covering taxes that are incurred even if a shipment is damaged or lost). There is also a policy for ships sailing into war zones or areas, which may not be covered by a normal policy.

We urge you to work closely with your freight forwarder to determine the risks involved with your specific import so they can advise on the best coverage type.

What does marine cargo insurance cover?

  • Sunken ships (like this one)
  • Natural disasters
  • Cargo thrown overboard to lighten a ship in danger
  • Piracy
  • Damaged freight
  • Mishandling
  • Shrinkage
  • Collision
  • Fire
  • Pilferage
  • Damaged containers

Do you need ocean cargo insurance?

However, the question of whether or not to insure your cargo isn’t just a matter of your business’ ability to handle the loss. It’s actually a matter of whether or not you want your company to be liable for the entire ship.

In the event of a disaster, not only will you lose your goods and the associated cost, but your company will also be liable to replace the entire million dollar vessel (even if you only shipped a small load). Under maritime law, this is known as the general average rule. This rule also covers cargo deliberately thrown overboard to save the vessel as a whole from hazards at sea to avoid imminent peril.  The vessel will then proportionately bill those whose cargo arrived safely at destination to cover the loss of the tossed shipments.

Are your goods actually covered?

Scenario 1: Door-to-Door Coverage
You have insurance, but much to your surprise when you go to file a claim, you only have port-to-port/airport-to-airport insurance, versus insurance covering the cargo from origin door to destination door. It is important to understand what you are covered for before shipping to make sure your cargo is covered for the duration of the shipment.

Scenario 2: Finger-Pointing
Some shippers, even after confirming that separate insurances are covering the freight on each mode of transportation, still face liability when filing a claim. Many carriers will finger point saying the damage happened on a separate mode of transportation and not theirs. This can be solved by using one comprehensive insurance covering the cargo for the duration of the shipment.

Scenario 3: Foreign Insurance
Sure, your supplier might have insurance they organize at origin. Have you thought about filing a claim with that insurance when the time comes? If you are not aware of the best practices, language or the regional requirements of your insurance, it may be worth purchasing additional insurance domestically.

Scenario 4: Old Containers
To increase revenue, ocean carriers are holding off on replacing or repairing faulty shipping containers. If they are not well-maintained on a consistent basis, your goods have a good chance of being damaged by water. Since often times it is very difficult to determine where and when the water damage occurred, the carriers rarely pay these claims. A comprehensive policy will go above and beyond the carrier policy to cover your freight in this situation.

SOLUTION: Due to the high risk nature of transportation and logistics, we strongly recommend purchasing cargo insurance from door-to-door on every shipment. It is vital to protect your goods for the duration of the supply chain.

Nelson Cabrera
Nelson leads global business development efforts within ShipLilly and has been featured as a logistics expert in numerous publications, including SupplyChainBrain, The Bulletin Panama, Logistics Management, and the Miami Herald.

2 Comments on “Cargo Insurance: Why Your Goods Might Not Be Covered”

  1. Shabbir

    For door to door coverage for goods packed in a container individual packages in the packing list must denote a price/ cost of contents . Is this true and if so will any individual loss or breakage be covered at the point of delivery to the destination house.

    1. LILLY + Associates

      Hi Shabbir – insurance coverage is based on the commercial value of the cargo and cargo must be professionally packed. Most insurance is door to door coverage.

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