Cargo Insurance
Cargo Insurance
What is Cargo Insurance?
Every working day, millions of freight shipments are completed without incident. But this still means there are hundreds or even thousands of freight shipments that do not go as planned. Some are damaged. Some are stolen. Some are lost entirely as a result of a catastrophic event (sinking, piracy, storm).
Learn about the consequences of a lost shipment for two shippers – one with cargo insurance, one without.
With cargo insurance:
able to make an insurance claim, quick processing of claim, little or no financial loss
Without cargo insurance:
claim needs to be made against the carrier, whose liability in the event of a loss or damage is very limited – either by Bill of Lading or by law. Worse still, the carrier can declare General Average, which means that every shipper is responsible for a share of the total loss – an amount that could add up to five or six figures.
What about relying on the buyer’s or seller’s insurance? That is very risky, as you can never be sure what is covered and making a claim can be very difficult for two reasons:
- The policy is normally settled through a non-resident insurance company, often in a foreign language
- The claim may have to go through a foreign country’s court system
Bottom line: The cost of cargo insurance is a small price to pay for the peace of mind that comes with knowing you have coverage if your freight is damaged, lost or stolen.
Guess who pays for the freight shipments lost or damaged in this marine accident? It is not the carrier.
Choosing the right cargo insurance policy for your business
The right cargo insurance for one company can be entirely wrong for another. It all depends on what is being shipped, where it is going and how much risk the shipper is prepared to accept.
Learn about the policies and options available for buyers of cargo insurance.
"All Risks" Policy
("A" Clauses)
You pick the risks you want covered. The list of risks includes loss of market, loss or damage caused by delay, improper packaging, inherent vice of goods, infestations, war, strikes, riots or civil commotions. The cost of the premium goes up as you add more risks.
"With Average" Policy
("B" Clauses)
Covers losses when they reach a certain percentage of the insured shipment value.
"Free of Particular Average" (FPA) Policy
("C" Clauses)
Provides coverage for a total loss, nothing else.
Additional Coverage Options:
War Risks
Can be added at an additional premium, as standard policies exclude losses as a result of wars, strikes, riots, civil commotions and other similar risks. The rate for this coverage is frequently changed, based on the political and social climate of a given country.
Non-Standard Consignments
Special coverage is required for “Non-Standard Consignments”, such as high valued shipments, frozen and perishable goods, bulk and project cargo, plus shipments to countries deemed to be high risk.
You also have the option of buying cargo insurance for freight transported by trucks and other small utility vehicles. Known formally as “Land Cargo Insurance”, it provides coverage for damages, theft and other related risks for domestic and transborder shipments.
Learn more about all forms of cargo insurance by requesting a consultation with a Universal Logistics freight forwarding expert who can help you find the best match between your needs and the available coverage options.
Five reasons why cargo insurance is a smart choice
Think you don’t need cargo insurance? Think again. Investing in cargo insurance is a small price to pay for the peace of mind that comes with knowing you are entitled to compensation if your freight is lost, damaged or stolen.
Learn about the policies and options available for buyers of cargo insurance.
1
Reduced exposure to major financial loss
Buying cargo insurance means you have the peace of mind that comes with knowing you have coverage if your freight is lost, damaged or stolen. Many people overlook theft, however, cargo theft is on the increase. Thieves are especially interested in high value commodities and target high volume shipping times, when the supply chain is flooded with valuable goods.
2
The carrier has limited liability
Carriers, by law, are not responsible for many common causes of loss that occur in transit (acts of God). Even when carriers are liable, the liability is limited – either by contract in the Bill of Lading or by law. In most cases, shippers will only recover cents on the dollar from the carrier. Cargo insurance gives you total coverage, and ensures you receive full compensation.
3
Quick processing of settlements
Shippers with cargo insurance can expect prompt and efficient settlements of claims. This is in sharp contrast to what happens when a shipper does not have cargo insurance and is forced to obtain reimbursement from multitude parties, a lengthy and time consuming process that is rarely completely successful.
4
Protection against General Average claims
The increasing use of megaships, carrying huge stacks of shipping containers, has led to a corresponding increase in the loss of containers that are deliberately thrown overboard after an accident or bad weather destabilizes the vessel. You might be surprised by the number of catastrophic losses (50 or more containers lost in a single incident) that happen annually around the world. The average for the last three years with available data (2011, 2012, and 2013) was 2,683. When a vessel is significantly damaged or lost, the vessel operator can declare “General Average”. Common reasons for declaring General Average include:
- Jettison of cargo
- Hull and engine damage, caused by efforts to refloat the vessel
- Vessel needs assistance from tugs or other vessels
- Discharge and reloading of cargo at a port of refuge
- Damages to a vessel or cargo caused by firefighting
The losses covered by a General Average declaration are passed on to the vessel operators and every shipper that has a partial or full container on the vessel. The cost per uninsured shipper can be catastrophic, even if the value of a cargo shipment is low. Moreover, uninsured shippers are unable to receive any surviving cargo until they have posted an Average Bond.
In contrast, shippers with cargo insurance suffer little or no loss and on that basis alone, buying cargo insurance is a wise business expenditure.
5
Buy your own coverage
It is in your best interest to arrange your own cargo insurance. Giving this responsibility to a third party is risky because the coverage purchased may not be exactly what you want and need – and any gaps will only be revealed when you make a claim. Moreover, dealing with a local insurance provider is always easier than trying to work through an overseas insurer operating under another country’s court system.
How to make a claim for freight damage
Your shipment has arrived at your facility in damaged condition… does your warehouse know what your responsibilities are in regards to an insurance claim? To protect your interests, it is important to document and report any freight damage.
When damaged freight arrives at your delivery point, complete the steps shown below and pass on the information gathered to your insurer, your freight forwarder (if you have purchased coverage through them) or your own insurer (if you have your own policy):
- Identify any damage or holes in your cargo
- Do whatever you can to minimize the possibility of additional damage
- If shipment is a full container load, document on the delivery receipt whether the container seal has been changed, broken or is missing
- Do not sign a clean delivery receipt for damaged or short shipments. If the carrier refuses to deliver goods unless a clean receipt is issued, immediately contact your freight forwarder or agent acting on your behalf
- Take pictures of the damage, do not open or unpack your cargo as this may make it more difficult to prove your loss, especially when a surveyor, appointed by the insurer, is asked to examine the cargo
- Complete an intent to claim letter from your company outlining the list of damages and the value of damage
- Ensure you have copies of all bills of lading (ocean or air carrier's, trucking company, etc.) as well as a copy of the commercial invoice detailing the damages and your financial loss
- If your shipment is lost, ask the carrier in writing to confirm that your shipment is missing and every effort has been made to find your cargo
Filing a cargo insurance claim
The timing and compensation for a cargo insurance claim depend on the mode of transportation. It is important that you file your claim within the prescribed time limit for each mode.
Time limits for a cargo insurance claim
Ocean
1 year from date of delivery
International Air
Visible damage: 7 days from time of delivery
Concealed/hidden damage: 14 days from time of delivery
Non-delivery
120 days from the date the cargo should have been delivered
Domestic Carriers
7 days from date of delivery
Compensation based on the liability of the carrier
Air shipments
US$9.07 per pound / US $20.00 per kilo for international shipments and $0.50 per pound for domestic shipments
Ocean Shipments
2.00 SDR (special drawing rights) per kilo (quoted in USD & exchange rate set by International Monetary Fund (IMF)
Truck Shipments
Typically $4.41/kg based on the total (actual) weight of the shipment unless otherwise declared and a declared value charge is applied
Note: Limitations may vary, depending on carrier’s bills of lading conditions.
Frequently Asked Questions
Insurance purchased to protect the buyer when cargo is lost or damaged, including any amounts paid in freight or any blame to a third party occurring during a sea voyage or air transit. A marine insurance contract may be extended to cover losses on inland transport (inland water, rail, road).
Insurance purchased to protect the buyer when cargo is lost or damaged, including any amounts paid in freight or any blame to a third party occurring during a sea voyage or air transit. A marine insurance contract may be extended to cover losses on inland transport (inland water, rail, road).
No, the coverage is limited and, in many cases, provides insufficient coverage. You also need to know that:
- carriers are not obligated to pay for losses beyond their control
- international law limits the liability of ocean carriers
- air carriers limit their liability
- truckers, rail carriers, and warehouse owners limit their liability for loss according to their tariff
It is in your best interest to buy cargo insurance with sufficient limits of liability, known coverage conditions and consolidated claims handling. Additionally, your own policy will be less expensive than insurance provided by a transit carrier.
- Perils of the Sea: Total loss of shipment, entry of sea water, jettison or dumping of goods, vessel being stranded, grounded, sunk or capsized
- Fire/explosion on a vessel
- Collision of two vessels
- War, terrorism, strike, civil commotion
- Piracy
- Natural perils: earthquake, volcanic eruption and/or lightning
- Human errors: incorrect packing, loading and unloading, stowage, cheap labour, master and crew error
There are three basic forms:
Institute Cargo Clause (A) – The widest form of marine cargo insurance, covering all insurable risks unless otherwise excluded (All Risks) e.g. wilful misconduct of the insured, ordinary leakage, unseaworthiness, inherent vice.
Institute Cargo Clause (B) – Coverage for the following risks:
- Fire or explosion
- Stranding, grounding, sinking, capsizing
- Overturning/derailment of land conveyance
- Collision or contact of vessels
- Discharge of cargo at port of distress
- Earthquake, volcanic eruption or lightening
- Loss or damage caused by:
- General average sacrifice
- Jettison/Dumping of goods
- Washing overboard
- Entry of sea water
- Total loss of package overboard during loading/unloading
- General Average
Institute Cargo Clause (C) – Limited coverage for loss or damage of insured cargo reasonably attributable to:
- 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 or damage caused by General Average sacrifice, jettison, dumping of goods
- Willful misconduct of the insured
- Ordinary leakage, loss in weight or volume
- Loss or damage caused by insufficient packaging
- Unseaworthiness of vessel or craft
- Inherent vice of the subject matter
- War and strikes (coverage available with payment of an additional premium)
- Description of goods, number and nature of packages
- Value of the goods, i.e. sum insured
- Carrying vessel
- Description of voyage
- Bill of Lading
- Commercial Invoice
The total value of the goods, including freight, taxes and any other port handling charges. Represents the maximum amount payable when there is a total loss of the insured cargo. The sum insured includes:
- Cost of the goods, either on CIF/FOB/C&F
- Clearing charges and internal freight
- Customs Duty/Taxes
These clauses cover war risks from the time the insured cargo is loaded on the vessel until the cargo is unloaded at the final port of discharge.
The insurance continues for another 15 days while the cargo is at port, but ceases when the cargo is transported over land.
Covers losses to cargo and air cargo, caused by strikers, locked-out workers and people taking part in labour disturbances, riots and commotions, as well as acts by terrorists or any person acting for a political motive.
Most cargo policies contain Warehouse to Warehouse and Extended Cover clauses that insure goods from the time they leave the warehouse at the point of shipment, through the carriage of goods by sea or air and ordinary transportation by rail, or until the cargo is delivered to the warehouse at the final destination.
The document issued by a carrier (ship/vessel) or its agent to the shipper as a contract of carriage of goods; as a receipt for cargo accepted for transportation; and as a document of title which must be presented for taking delivery at the destination.
A loss arising through a voluntary sacrifice of any part of the ship or cargo, or an expenditure to safeguard the ship and the rest of the cargo. General Average can be declared in any of the following situations:
- Jettison of cargo
- Hull and engine damage caused by efforts to refloat
- Situations where the vessel needs assistance from tugs or other vessels
- Discharge and reloading of cargo at a port of refuge
- Damages to vessel or cargo due to firefighting
When the vessel owner declares a general average, the owner and all the cargo shippers are obliged by law to share, on a pro-rata basis, the expenses associated with the general average. These expenses are covered by a Marine Cargo Policy.
- A peril to the common venture. For example, a storm at sea could threaten the vessel, the cargo carried on board (some of which may be yours) and the lives of the passengers and crew. Together, these constitute the common venture.
- An extraordinary sacrifice or expenditure to avert a peril. This could involve jettisoning cargo to lighten the vessel, or engagement of a salvage tug to tow the damaged vessel.
- The successful preservation of the venture. If the vessel is not preserved, you may be presented with a conventional marine claim.
Throwing cargo off a vessel to lighten the ship when it is in extreme peril. The resulting loss is called General Average.
To minimize further loss, complete the steps shown below and pass on the information gathered to your insurer, your freight forwarder (if you have purchased coverage through them) or your own insurer (if you have your own policy):
- Identify any damage or holes in your cargo.
- If shipment is a full container load, document on the delivery receipt whether the container seal has been changed, broken or is missing.
- Do not sign a clean delivery receipt for damaged or short shipments. If the carrier refuses to deliver goods unless a clean receipt is issued, immediately contact your freight forwarder or agent acting on your behalf.
- Take pictures of the damage, do not open or unpack your cargo as this may make it more difficult to prove your loss, especially when a surveyor, appointed by the insurer, is asked to examine the cargo.
- Complete an intent to claim letter from your company outlining the list of damages and the value of damage.
- Ensure you have copies of all bills of lading (ocean or air carrier’s, trucking company, etc.) as well as a copy of the commercial invoice detailing the damages and your financial loss.
- If your shipment is lost, ask the carrier in writing to confirm that your shipment is missing and every effort has been made to find your cargo.
It depends on the mode of transport:
Ocean:
- 1 year from date of delivery
International Air:
- Visible damage: 7 days from time of delivery
- Concealed/hidden damage: 14 days from time of delivery
Non-delivery:
- 120 days from the date the cargo should have been delivered
Domestic Carriers:
- 7 days from date of delivery
The above limitations are an estimate. Exact limitations can vary, depending on the carrier’s bill of lading conditions.
- The policy or marine certificate
- Bill of Lading
- Commercial Invoice
- Packing list
- Customs entry
- Additional documents depending on the nature of the claim
Proceed as if you did have cargo insurance, but keep in mind that your compensation will be based on the limited liability of the carrier, which varies by mode of transport:
- Air shipments – US$9.07 per pound / US $20.00 per kilo for international shipments and $0.50 per pound for domestic shipments
- Ocean Shipments – 2.00 SDR (special drawing rights) per kilo (quoted in USD & exchange rate set by International Monetary Fund (IMF)
- Truck Shipments – Typically $4.41/kg based on the total (actual) weight of the shipment unless otherwise declared and a declared value charge is applied
A policy with no expiry date. There is an anniversary date, which is used as a reference point for billing, rate changes, etc..
For coverage of war perils (stray mines and torpedoes, terrorist acts at sea, etc.) not covered in the typical cargo insurance policy. Coverage can also be purchased for strikes, riots and other civil commotions.
The obligations, costs and risks for the buyer and seller when goods are moved from one location to another. Recognized worldwide by Customs authorities and courts in the main trading nations. There are 13 Incoterms, each denoted by a 3-letter code. The terms are grouped in four categories, based on the first letter in the three-letter abbreviation.
- “E” terms (EXW) – the seller makes the goods available to the buyer at the seller’s own premises.
- “F” terms (FCA, FAS & FOB) – the seller delivers the goods to a carrier appointed by the buyer.
- “C” terms (CFR, CIF, CPT & CIP) – the seller has to contract for carriage, but without assuming the risk of loss or damage to the goods or additional costs due to events occurring after shipment or dispatch.
- “D” terms (DAP, DAT, DES, DEQ, DDU & DDP) – the seller bears all costs and risks needed to bring the goods to the place of destination.
