TERMINOLOGY In Depth

CARGO INSURANCE

Five reasons why cargo insurance is a smart choice

Purchasing cargo insurance provides protection against losses related to theft, an increasing problem for shippers everywhere.

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.
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.
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.
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.
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.

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In Depth Topics

Cargo Insurance

Quick Tips

Tip #58 – Be prepared for customs penalties and fines under AMPS

Never assume that the absence of an audit means you will never be audited. Penalties under AMPS (Administrative Monetary Penalty System) can be applied at the border at time of import (or export) and also post audit.