Every day, cargo valued in billions of dollars moves in and out of ports around the world. Anything could cause the damage or the loss of theses goods in unexpected ways, so it is understandable that you protect your cargo; therefore it will need cargo insurance.
Cargo insurance is a coverage that carriers give to their goods to protect them from loss, damage or theft. The protection could apply to natural disasters, vehicle accidents or even acts of war while the cargo is in transit.
Consignees have liability as per their bill of lading (BL), but they can´t rely on the carrier to reimburse for the loss or damages any cargo could suffer. This is the main reason a consignee needs a cargo insurance.
Cargo insurance is also important because the BL covers damages or losses under their responsibilities while the goods are in their custody, which means carrier liability does not cover door to door.
Also, carriers’ liability has a monetary limitation. It is stipulated on the backside of the BL that carriers’ coverage is limited up to $500 per container. These monetary limitations make it necessary for consignees to get a cargo insurance.
What affects cargo insurance?
The cargo insurance that will be purchased by an importer or exporter is affected and determined by several factors, like:
- Agreed shipping terms (Incoterms).
- Risks of the cargo’s departure and destination places.
- Type of packaging.
- Value of the cargo.
- Insurance company’s valuation and limits.
- Insurers’ past experience.
The cost is usually calculated on the value of the cargo plus the freight cost and an additional percentage (10%-20% usually) of the total.
Incoterms might be one of the most relevant components that affect the insurance cost. For instance, the seller must provide insurance for a sale made under Cost, Insurance and Freight (CIF) or Carriage and Insurance Paid to (CIP) terms.
Another example would be if someone is buying on Free on Board (FOB) terms and the supplier did not insure the cargo from his door to the port of final destination. The insurance won’t cover any damage the cargo could suffer between the warehouse and the port.
This is why it’s always recommended for each part to clearly state the terms they would want and agree on, and arrange the cargo insurance accordingly. If you would like to know more about Incoterms, click here.
Cargo insurance limitations
Even though it is crucial for carriers to have cargo insurance, it is also important to note that it has its limitations.
For example, cargo insurance does not provide protection against all losses a motor carrier may be liable for under the Carmack Amendment or common law, like the shipping done via truck.
In some cases, policies could give specific coverage in many ways. Excluding certain types of cargo or protecting some specified equipment and terminals, for example.
The insurance could also not cover losses caused by certain events, or it could stipulate that coverage only applies if a service is provided.
International Container Insurance (ICI) offers specialized services with a wide range of options and flexible coverage to meet your cargo insurance needs. Contact an ICI agent to create your custom policy today.
With information from: