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Should I have Freight/Cargo Insurance?

Shipping container fire

This is a question we are often asked, and we highly recommend that cargo insurance is taken out on every shipment.

Shipping goods overseas comes with an element of risk. Most of us don’t think twice about insuring our businesses, homes or cars. Therefore shouldn’t think twice about insuring international shipments, which can be far more accident-prone.

Cargo goes through various motions while it is in transit – whether it is by road, rail, air or sea.

Ships have been recorded with rolling movements of up to 40 degrees, so goods that are not packed and secured properly, will move inside the container hitting the side walls with force.

Good packaging is important to help to prevent damage, and also help in cases of loss. In the same way luggage can be lost on flights. It’s rare but the same thing can happen with air freight. So clearly marked packages are easily identifiable.

Packaging can also help prevent theft. If you are shipping something attractive to thieves, you don’t want any brand identification on the boxes to attract their attention.

Cargo insurance is not a new thing – Merchants have been taking out marine insurance for over 4,000 years, ever since the ancient Babylonians first came up with the idea.

In the same way you compare domestic insurance, you can compare cargo insurance rates from freight forwarders as well as specialist cargo insurance companies. That said, freight forwarders’ rates are usually favourable, combined with the convenience of keeping your supply chain logistics with one account manager from start to finish throughout the shipping process, makes the admin easier and should ensure the seamless end to end delivery of your goods.

What type of insurance do you need?
In this industry, insurance cover clauses are pretty much standardised, which helps narrow the choice. But the difference between options is where it gets technical (e.g. would you like war cover with that “A” clause?). Comprehensive cargo insurance saves you going through the various options.

But as with all insurance, even comprehensive cargo insurance has limits. Make sure that your sales  contract is well-drafted and covers property rights, possible force majeure situations and breach of contract. Ensure these are also covered in your shipping Incoterms.

What are Incoterms?
Incoterms clarify to what extent a party must take responsibility for particular risks during transportation. They define the responsibilities of the buyer and the seller and are recognised as the international standard by customs authorities and courts in all the main trading nations. Incoterms reduce the risk of misunderstandings and legal disputes and also specify the loading and unloading responsibilities of the buyer and seller.

The responsibility for organising insurance can be shared between the importer or buyer and exporter or seller, or it can be undertaken by just one of them. Make sure that the contract confirms the party responsible for the insurance policy. A clear way to do this is to cover this in your Incoterms, which are internationally recognised terms of sale.

We recommend discussing insurance requirements with your freight forwarder, who will be familiar with the risks associated with your particular shipment.

What are the costs?
Freight insurance cost takes into account a variety of factors, including the value of goods, origin and destination points, and even the carrier’s loss history. The mode of transportation is also a factor. For example, insurance on sea shipments may be more expensive than on air shipments, since goods are exposed to various risks for an extended length of time.

Items that are considered “high risk for theft” are more expensive to insure. For example, perfume or electronics — mobile phones or laptops. However, if you’re shipping plastic furniture or inexpensive toys, the theft risk is low, which drives down insurance premiums.

The way in which the goods are packed can also affect the cost. For example, items that are packed in crates or containers may be priced more reasonably, whilst goods that are shrink-wrapped, are more vulnerable to both damage and theft.

The freight industry uses different names for cargo insurance, it is sometimes called shipping insurance, freight insurance, moving insurance, transit insurance, and transport insurance. But all of these are names for the same insurance that covers goods against damage or loss while in transit from one location to another.

Note. It is not the carriers responsibility to insure the goods being shipped.

Freight Forwarders liability is limited by laws in international trade, so it is very common for the compensation to be lower than the loss. So if the value of your cargo is higher than the maximum amount your freight forwarder is liable for then you need to take out insurance.

It is a common misconception that your carrier will compensate you for the full value of your goods or belongings in the event of damage. Shipping companies are only liable to pay you a sum up to the amount specified in their trading conditions – a figure that may be as low as £1,300 per tonne.

Which is not great news if your goods are damaged, delayed or lost and your customers are waiting or your shelves are standing empty.

What’s more, without cargo insurance you may be liable for the damage or loss of other people’s goods thanks to General Average – which requires customers whose cargo survives a voyage to compensate anyone whose cargo was abandoned to protect the cargo vessel.

So unless you’re happy to risk paying thousands of pounds for the damage or loss of your own (or someone else’s!) shipments, with the prospect of only a few pounds per kilo in compensation, you need cargo insurance.

The types of cargo damage are shown in the below chart of common ocean claims.

Make sure you inspect your goods upon receipt so you can remedy any problems promptly. If you discover damage or loss to your shipment follow the instructions outlined in your insurance policy or certificate to submit a claim.

Know Before You Go
In keeping with the Customs motto of “Know before you go”, “Know before you ship” when it comes to insurance coverage for your goods. Do not count on your freight broker’s insurance policies to fully cover your shipment.

So the answer to the question “Do I need cargo insurance for my shipment” is YES, MOST CERTAINLY. In your own interest and the interest of your business, you need to ensure that your cargo is sufficiently covered by cargo insurance.

In summary, before shipping goods make sure you:

1. Arrange comprehensive cargo insurance.
2. Verify clauses exist in your sales contract for property rights, etc.
3. Understand the responsibilities and liabilities of your Incoterms
4. Select packaging that helps prevent damage.

For help and advice on cargo insurance please contact one of the team on +44(0) 1622 237979 or email

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