Cargo Insurance: Why Should You Insure Your Cargo?
International trade inevitably involves international shipping, which features a protracted journey. Your goods will pass from hand to hand and port to port. Every further mile traveled adds a layer of uncertainty. So cargo insurance is introduced to give you peace of mind.
Unforeseen events such as natural disasters and accidents are likely to occur while goods are in transit. Particularly during sea transportation, vessels may be battered by storms and waves or be subjected to fires and stranding, incurring enormous losses. Besides, in the process of loading, unloading, packing, piling, and storing, the value of the cargo is possible to be damaged. In a bid to curtail shipping risks and minimize financial losses, it is quite necessary to insure your goods. And in this article, we will explain some key information about cargo insurance.
- 1. What is Cargo Insurance?
- 2. When and How to Buy Cargo Insurance?
- 3. How to Make a Claim?
- 4. How to Deal with Uninsured Loss?
- 5. Cases: Uninsured VS Insured
- 6. Conclusions
1. What is Cargo Insurance?
Insurance is a means to manage risks. Purchasing insurance can give you protection against unexpected financial losses. When it comes to international trade, cargo insurance plays a big role.
Literally, cargo insurance is a protection plan for cargo. It covers goods carried by land, sea, and air. The cargo insurance policy promises to reimburse the designated value of the goods if accidents, natural disasters, and theft happen during the transit.
Types of cargo insurance policies vary. Based on different transportation modes, they can be mainly divided into four kinds: marine/road/rail/air cargo insurance.
2. When and How to Buy Cargo Insurance?
Generally speaking, cargo insurance should be purchased prior to the actual transportation, or to be more specific, before your cargo leaves the dock. For example, if you ship your goods by vessel, you need to obtain marine cargo insurance right after loading and before departure in most cases. However, cargo insurance can be bought as long as your cargo does not arrive at its destination.
Currently, it falls upon freight forwarders to arrange for cargo insurance, from taking it out to making a claim. But still, you can handle it yourself by turning to an insurance company or a qualified agent.
3. How to Make a Claim?
When there is cargo damage or loss of cargo, it means your insurance coverage can be enforced. What should you do by then? Here we will show you how to file a freight claim.
The following documents should be submitted to the insurance company for financial reimbursement:
- ● Insurance policy
- ● Contract for carriage (Bill of lading)
- ● Commercial invoice
- ● Packing list
- ● Damage report
- ● Statement of claim
- ● Pictures of pre-shipped cargo and damaged one
Force majeure, also known as "an act of God", refers to an extraordinary event outside one's control. For example, hurricanes, storms, earthquakes, and volcanic eruptions. By the way, the outbreak of a pandemic also falls into this category.
It is worth noting that cargo losses or damages resulting from force majeure factors will not be covered by the insurance company.
However, the insurance company is duty-bound to pay out claims when accidents are weather-induced. Carriers do not have to assume responsibility in this scenario.
If damage or loss does happen, do not delay the submission. Take a look at your insurance certificate and gather all the information required. After going through the claim process, you should wait for the insurance company to decide whether and how to provide compensation for the insured goods.
When the amount of financial losses is considered heavy, the insurance company will send a local agent to do an on-site check. Contact information of the consignee is required in this case. The agent will settle an arrangement with the consignee.
When the financial loss stays below 2000 USD, pictures of the damaged cargo and item descriptions are needed. Make sure you fill in the inventory number, the original cost, and the amount claimed as accurately as possible.
4. How to Deal with Uninsured Loss?
Cargo insurance gives you the certainty that you will get compensation of the value of your cargo loss or damage based on the commercial invoice. But what if you do not insure your goods?
You should not count on the carrier to be fully liable for damage or loss of your shipments. They only have limited liability. Any loss or damage caused by the following factors will be outside of the carrier's liability:
- ● Inadequate packing
- ● Faulty or flawed cargo
- ● Acts of God
Even though you have the carrier proved to be accountable, they only have to offer coverage in proportion to the total expenditure.
Whereas the reason is man-made, for example, negligence during transport or improper handling of the goods, the freight forwarder can make a claim on your behalf so you can get compensation.
5. Cases: Uninsured VS Insured
5.1 The Uninsured Scenario
In April 2021, a client booked a shipment with Seabay, the professional logistics service provider based in Shenzhen, transporting 400 40-HQ containers of paper decorations to a warehouse in the US, with 125 USD worth of goods in each container.
Because of an unexpected typhoon, water had seeped in and corroded a quarter of the shipments. The damaged parts became good-for-nothing, leading to financial losses.
The value of the damaged cargo amounted to 12,500 USD. The proportionate freight rates cost 3,000 USD. So the total loss was 15,500 USD.
Since this client did not follow our advice to insure his cargo, he had to pay for most of the losses by himself.
5.2 The Insured Scenario
In July 2021, a Spanish client commissioned Seabay to transport ten containers of 5 self-service terminal machine components to his own warehouse, with a total value of 7,930 USD. The shipped goods endured damage and deformation in transit, causing financial losses of 6,344 USD. Fortunately, this client had obtained cargo insurance in advance. Seabay made a claim with the insurance company and submitted pictures of damaged cargo. The insurance company wound up paying up to 5,075.2 USD, with 80% of the losses covered.
6. Conclusions
Cargo insurance is an intangible benefit, which will only take effect when unanticipated events happen. As with any kind of insurance, cargo insurance is not a mandatory requirement. You can weigh the cost of insurance premium against the potential losses and the collateral damage, and then make your own decision. Moving your cargo internationally and domestically comes with all kinds of risks, so choose wisely to safeguard your own interests.
