Everything you need to know about cargo insurance
From the time your shipment leaves your storage facility till the time it reaches the destination, it is prone to several risks that can often result in cargo damage or loss.
For sea shipments, if the carrier was to sink or your goods were to get damaged carrier liability is not enough to cover the losses. And for land freight, if your vehicle is to get in an accident, you would lose your goods and the vehicle.
These are just two instances highlighting the importance of getting cargo insurance for all your domestic and international shipments. Investing in the right cargo insurance policy will ensure that you endure a minimum loss if your cargo is damaged or lost.
In this article, let’s look at what cargo insurance means, its importance, types, and more.
What is Cargo Insurance?
Cargo insurance is meant to protect your organisation from any possible financial losses due to damaged or lost cargo. It’s a provision to get the amount you’re insured for in the wake of an event that affects your freight.
Events covered in insurance are generally natural disasters, customs rejection, piracy, wars, vehicle accidents, and cargo abandonment. It’s vital to note that insurance is different from carrier liability.
Why do you need cargo insurance, and what are its benefits?
The most fundamental benefit of insuring cargo is that it’s the best way to minimise loss even if your shipment gets damaged or lost. The premium (small regular payments) you pay for your insurance, give you a sense of security each time your shipment leaves for its destination.
Other advantages of cargo insurance include:
- Professional service ensures efficient claim procedure.
- Unforeseen disruptions don’t adversely affect your cash flow.
- Reporting of losses is more streamlined.
The next important question is, when do you need cargo insurance?
Even if not required by law, the best practice generally is to get cargo insurance for your shipment. The primary reason behind this is that your shipment’s journey exposes it to several risks. As it moves through several hands and modes of transport, it’s advisable to prioritise safety.
Besides, other factors such as harsh weather and traffic conditions also affect the cargo. Longer the period your shipment is exposed to the risk, more your freight’s chances to get affected.
Another critical aspect is that although your carrier may be legally liable, in most likelihood their limit is less than the value of commonly shipped goods.
You also need to consider your shipment’s incoterms as specific terms shift the burden of insurance from you to your consignee at a specified point in the shipping process. So, by being mindful of the incoterm, you can insure goods only for the part you are liable for.
Types of Cargo Insurance
Cargo insurance is categorised into two main types, namely land and marine cargo insurance. Marine cargo insurance also covers air cargo.
Let’s look at different types of cargo insurances:
Land cargo insurance
As the name suggests, land cargo insurance is for the goods moved by land transportation inside trucks and other vehicles. The insurance covers risks such as collision damages and theft. Usually, its scope is limited to domestic cargo as land transportation mainly happens within a country.
Marine cargo insurance
Ocean and air freight are covered in marine cargo insurance. It’s used for international shipments and covers damages due to unfavourable weather conditions, piracies, and other ocean and air freight risks.
Following are the different kinds of marine cargo insurance policies:
Open coverage policies insure freight for a particular period, and several shipments can be included in that one policy. If you ship goods regularly, this is a convenient way to manage risks. It’s further divided into two types:
A more suitable option for single trips and voyages, the policy can be renewed after a shipment is delivered.
The policy is in place for a specific period and covers unlimited shipments within that stipulated time frame.
As the name implies, the policy covers cargo on a per shipment basis. It’s also known as specific coverage policy.
In some cases, the consignee is responsible for the insurance and not the shipper. If the consignee receives damaged goods and tends to avoid the liability by not accepting the goods, the shipper needs a backup.
While the shipper can rely on the legal system, taking that route can prove costly and time-consuming. An efficient way to minimise the loss in such cases is to have the contingency policy.
It is useful when the customer fails to insure the goods and is cost-efficient for the shipper too.
As far as the goods are not prone to loss or damage, an All Risk policy covers most causes of damaged or lost freight shipments. Crucially though, it doesn’t include the following grounds:
- Damage or loss due to civil unrest, wars, strikes and riots.
- Negligence on the part of the shipper/consignee
- Delays and rejections in customs
- Damage or loss due to natural disasters (acts of God)
- Unpaid goods, i.e. if the consignee fails to pay or the shipper fails to collect the payment.
Free from particular average
This policy type covers only significant damage or loss to the goods unless partial damage or loss has resulted from the collision, sinking, burning or stranding. The policy covers risks excluded in an All Risks policy such as acts of God, harsh weather conditions, collision, sinking, piracy, derailment and non-delivery of goods.
The general average policy is one of the primary requirements for ocean cargo and only covers partial losses of your shipment.
Under this policy, if some cargo is lost or destroyed due to a problem at sea, then owners of all freight onboard that ship must contribute to all the losses incurred. By principle, the policy requires you to pay for other shippers’ coverage too even if your shipment isn’t affected.
Warehouse to warehouse
The policy type covers cargo from the point it’s unloaded from a carrier to the point it reaches the consignee’s warehouse.
What does cargo insurance not cover?
Generally, cargo policies exclude the following:
- Damage due to improper packaging
- Damage due to faults in the products
- Specific kinds of goods such as hazardous cargo, extraordinarily fragile or precious goods, certain electronic products, etc.
- Some policies may only cover your cargo only when it’s onboard a specific mode of transport.
If your cargo is damaged or lost, how will you make a claim?
Until proven otherwise, carriers are not held liable for any damage or loss of cargo. Besides, the shipping line ensures that their responsibility is as low as possible.
The onus falls on you to prove that the goods were affected in their custody. The insurance company pays you only when you prove that your claim is justified.
Here’s a list of some crucial details that you need to know when you make a claim:
- Inventory number
It’s a number stated in the inventory list provided by your insurance provider.
- Item description
You need to have all the details regarding your shipment right from its dimensions, weight, and visual indicators.
- Item’s room
This refers to the location details of your item before it was packed.
- Original and replacement cost
State the original cost as accurately as possible. Enquire about the price of an item that’s similar to yours. Use it to determine the replacement cost.
- Description of the damage
You need to clearly state where, when and to what extent the damage was caused.
- Claim amount
When your claim is for damage, only indicate the cost of repair for your item. On the other hand, if it’s for loss, then show your item’s price or the amount mentioned in the inventory.
Resilience through insurance
At a time when supply chain’s resilience is being tested across industries, getting your cargo covered by the right insurance plan is the least you can do to avoid unnecessary, unpleasant surprises and losses.
Remember, a step towards building resilience will allow your supply chain to thrive irrespective of the circumstances.
For more information on how we can help you build a resilient and cost-effective supply chain with our innovative Freight Management System, reach us here.