Insurance for Cargo
Shipping goods long distances is an expensive enough enterprise, even when everything goes smoothly. When it doesn’t, the additional costs incurred can be positively ruinous—unless, of course, your cargo is insured.
That’s why it’s so important to consider purchasing cargo insurance if you’re planning on sending or receiving anything too big to ship via an ordinary ground carrier, especially if it’s going to be passing through international air or waters.
What is Cargo Insurance?
The term “cargo insurance” (also known as “freight insurance”) is fairly self-explanatory. In its most basic application, it refers to the insuring of commercial cargo against unforeseen accidents or mishaps that have the potential to occur in transit.
Shipping is an inherently risky business. Though advances in transportation technology and international trade regulations have made the mass conveyance of goods more secure than ever, it’s still a common occurrence for items to turn up missing or damaged. By some estimates, the cumulative global cost of cargo loss totals more than $50 billion every year.
If you’re a business owner or independent seller, cargo loss is more than just a logistical inconvenience. It means time wasted, customers and clients scorned, and money down the drain.
But you need not resign your shipping ventures to fate.
A solid cargo insurance policy will protect both your goods and your related financial interests, whether your freight is traveling by land, sea, or air. Just as responsible drivers know that car insurance is a non-negotiable necessity, responsible shippers view cargo insurance as an acceptable cost of doing business—a cost that pales in comparison to the one you could find yourself facing if your valuable cargo were to be lost or damaged.
Who Is Liable for Lost or Damaged Goods?
You may be wondering why the burden of insuring a consignment of goods doesn’t automatically lie with the freight carrier or forwarder. After all, aren’t they the ones who are actually handling the shipment?
Technically, it does—to a degree. There are laws in place that limit the amount of money a carrier is obligated to pay back if it’s found to be liable for losing a piece of cargo, and these limits are often surprisingly low. These laws determine what’s known as “limited liability.”
For instance, Marine carriers have a limited liability of only USD 500 for every customary shipping unit (that is, each item or group of items packed individually). For air carriers, the cap is even lower: a mere 19 SDR (Special Drawing Rights, a type of hypothetical asset that can be cashed in for various currencies in IMF-member nations) per kilogram of weight, or around $27 USD.
That’s not a lot of compensation, especially considering how much your cargo itself might be worth.
You can easily see why it’s so crucial for consignors to have their bases covered.
Who Can Buy Cargo Insurance?
In most cases, it’s up to the seller or shipper to secure coverage for their freight. Since they’re the party to the transaction that’s tasked with making sure the item reaches its destination safely, they’re also the one that’s on the hook in the event that it doesn’t.
That said, cargo insurance can work both ways.
Under certain circumstances, the customer may have the option of covering their cargo when finalizing their purchase or making their preferred shipping arrangements. Such offers are usually made by the carrier or freight forwarder to avoid or mitigate their own liability for the loss, damage, or theft of the goods in their care.
In situations where a recipient who is expected to insure their own freight declines to do so and their cargo ends up lost or damaged, they forfeit any legal recourse and walk away with nothing, aside from the little they stand to receive under limited liability law.
As you can see, cargo insurance is a flexible safeguard that can offer the promise of financial protection for both the sender and the recipient.
What Kinds of Situations Does Cargo Insurance Cover?
A lot can happen to a piece of cargo during a lengthy shipping journey—far too much to lump under a single heading.
For this reason, insurance companies are careful to enumerate and define the risks involved in various modes of transport and draft policies that guard against specific conditions. Broadly speaking, such conditions may include:
Damage
Cargo is considered damaged when it is destroyed, broken, dented, scratched, rendered unusable, or otherwise devalued before it reaches its recipient.
Let’s say, for instance, that you’ve paid to insure a shipment of calculators, and that your shipment is assigned to a marine vessel that, unbeknownst to the carrier, has a leaky cargo hold. If the calculators get wet and stop working properly, your policy will pay for the damage and prevent you from taking a financial hit.
Any good cargo insurance policy will cover damage resulting from different precedent circumstances, as it’s one of the most common causes of cargo loss.
Loss
There are many ways that cargo can become “lost.” For example, an item may be overlooked during a rushed loading job, misplaced at an intermediate port, or simply left undelivered for unknown reasons.
Negligence isn’t the only cause for concern. Both loss and damage can also occur due to accidents or natural disasters like sinking, crashing, collisions, derailment, fire, or earthquake. Any cargo that’s been deemed unrecoverable may also be written up as lost.
As such, loss is one of the key conditions to look for when shopping around for a cargo insurance policy.
Theft
Sadly, not everyone who comes into contact with commercial cargo is equally trustworthy. Theft is an especially frustrating form of loss. When the deliberate greed or maliciousness of one or more human agents is to blame, be it pirates or unscrupulous freight handlers, everyone loses.
If you have reason to suspect that your cargo may have been stolen, you must provide evidence of criminal activity. For example, surveillance footage or eyewitness testimony can help investigators uncover the facts so that you can benefit from your policy’s theft clause.
Assuming that you can’t prove that theft occurred, beyond a reasonable doubt, it will be reported as a loss instead. Payouts and subsequent actions may differ depending on the terms of your specific policy.
Delays
Shipping delays might not seem like they belong in the same category as more calamitous conditions like damage, loss, disaster, and theft, but they can nonetheless result in serious financial setbacks.
Imagine that a customer buys some time-sensitive goods from you on the guarantee that the items will be delivered by a certain date, then the agreed-upon date arrives and the customer’s goods are still tied up in transit through no fault of your own.
Not only is that customer unlikely to ever want to do business with you again, but they may also be entitled to a refund. Even worse, they could spread the word to other prospective customers that your company is unreliable or fails to honor its word.
Freight carriers aren’t typically willing to accept liability for delays owing to the nature of what they do, so it can be tough to find a policy that covers them. With some plans, you may be entitled to full or partial reimbursement of your original shipping expenses if you can show that a delay was the fault of a handler, but this isn’t always easy to do.
Even so, insurance against delays can be a good thing to have if you want to sidestep the compound danger of lost profits and a tarnished professional reputation.
General Average
The law of general average is an internationally-recognized maritime law that applies exclusively to shipments made by sea. It states that if a carrier is forced to sacrifice part of its cargo in the event of an emergency, the value of that cargo is to be made up by both the carrier and the other cargo owners whose freight survived the voyage.
This may sound like a good thing if you’re the one who suffered the loss. However, if you’re among those whose cargo made it (which is statistically the more likely outcome), you could get saddled with major delays and sizable out-of-pocket expenses. When the carrier calculates the resulting costs, you won’t win. In the worst-case scenario, you could even end up paying nearly as much as your shipment was worth in the first place.
Finding a policy that provides coverage against general average costs can therefore spare you the unpleasant surprise of being hit with steep compensatory fees just when you feel like you’ve dodged a disaster-related bullet.
What Type of Policy Should I Look For?
Because the risks associated with shipping are so unpredictable and can take so many forms, it’s often wise to seek out a policy that offers coverage across a broad spectrum of potential situations. That way, you’ll be able to proactively guard against as many contingencies as possible.
This type of coverage is known as “all risk” coverage. Policies that fall under the “all risk” banner usually protect against all the most common causes of cargo loss, including damage, disaster, and theft, unless otherwise explicitly stated. For the average shipper or seller, all risk insurance is the way to go.
Along with coverage for situations and events that have been outlined in advance, you also have the option of insuring your cargo for various lengths of time by choosing a renewable or permanent policy.
Renewable policies (also known as “specific cargo” or “voyage” policies) are one-time plans that apply to individual shipments. They’ll be your best bet if you don’t ordinarily deal in large freight orders and only need to do so every now and then.
Permanent policies are better suited for companies and sellers for whom moving freight is a part of regular day-to-day business operations. With a permanent policy, your cargo is guaranteed coverage for the duration specified in your contractual agreement, no matter how many shipments you make.
It’s safe to say that cargo insurance is not a one-size-fits-all proposition. At Gilbert International, our top priority is to accommodate our clients’ unique shipping needs by offering a wide range of policy structures, the prudence and security of which we proudly stand by.
How Much Does Cargo Insurance Cost?
The premiums associated with different cargo insurance policies can vary widely depending on the type and scope of the plan you select. Other factors can also influence a policy’s price tag, such as the kind of cargo you’re covering, where it’s headed, how it’s transported, and any additional services it requires along the way.
This makes it hard to say how much you might pay for a particular policy. The best way to proceed is to get a general idea of policy pricing, then make an educated decision based on your individual needs and budget.
For example, annual premiums are higher than monthly ones, but they could save you money (not to mention time and energy) in the long term if you need to ship items more than once every few months. Similarly, rates tend to be lower for domestic land-based transport than for voyages by sea or air, which could affect how you choose to ship your goods.
To request a recommendation for comparing specific policies, contact Gilbert International and talk to one of our expert representatives today.
Do I Need Cargo Insurance?
Insurance is always something of a gamble. You may end up having to use it, or you may not. In the meantime, you’re dropping hard-earned money on monthly or yearly premiums.
Making the decision to do without insurance on an appliance or piece of consumer electronics is one thing. It’s another thing entirely to forgo cargo insurance if your business’s success is riding on the value of the goods you’re moving and their ability to get where they need to be in one piece.
You’re not just paying for peace of mind—you’re paying for the concrete certainty of knowing that any misfortune you happen to run into will only result in a loss of replaceable materials and not total monetary devastation.
The bottom line is that if you think you have more to lose by not insuring your freight than you do by spending a little extra to make sure it's safely backed, then cargo insurance is a must.