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, you can visualise goods that are not packed and secured properly, moving inside the container from side to side and hitting the side walls with force.

Good packaging can help to prevent damage, and packaging can also help in cases of loss. Ever lose luggage while flying? It’s rare but the same thing can happen with air freight. Clearly marked packages are readily identifiable.

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

Merchants have been taking out marine insurance for over 4,000 years, ever since the ancient Babylonians first came up with the idea.

Ideally, you should compare several cargo insurance rates from freight forwarders and from specialist cargo insurance companies. That said, freight forwarders’ rates are usually favourable, this combined with the convenience of keeping your supply chain logistics with one account manager from start to finish throughout the shipping process, should ensure the seamless delivery of your goods.

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

You can also discuss 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. These items are high-risk due to the potential for loss and theft. However, if you’re shipping plastic furniture or inexpensive toys, the theft risk is low, which drives down insurance premiums.

The way in which goods are packed also affects pricing. For example, items that are packed in crates or containers may be priced more reasonably than goods that are shrink-wrapped and thus more vulnerable to both damage and theft.

There are many different terms for cargo insurance, sometimes called shipping insurance, freight insurance, cargo insurance, moving insurance, transit insurance, and transport insurance. All of these terms are names for insurance that covers goods or merchandise against damage or loss while in transit from one location to another.

We refer to it as Cargo Insurance Cover
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.

To do this you must understand the risks and responsibilities the buyer and seller will take on before agreeing to an incoterm. Incoterms determine which universal standardised freight shipment terms and conditions will be added to the sales contract.

What are Incoterms
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 so is to use an internationally recognised term of sale, also known as 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.

Therefore, 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.

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

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. Freight Forwarders liability is limited by laws in international trade, so it is very common for the compensation to be lower than the loss.

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

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.

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.

The Bottom Line: Freight Insurance Basics
In summary, 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 the incoterm in your sales contract.
4. Select packaging that helps prevent damage.
5. Get copies of the insurance policy and copies of notes.

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

Leave a comment