2 December 2024

Cargo insurance

By James Nicholas New Business Marine Account Executive
Illustration of a cargo ship carrying multicolored containers, navigating through teal water with a white background.

What does cargo insurance cover?

Cargo insurance is a policy that will cover loss, damage or theft of goods whilst they are in transit by sea, air, road or a combination of all. It can also include cover for goods which are stored in the ordinary course of transit. It will protect the cargo for agreed perils with insurers, including fire, theft, storm, vandalism and flood. Depending on the location of the stock some perils may be excluded. For example, flood is excluded if the storage location is in a flood risk area.

Types of cover

There are three main types of policies that can be purchased, which are:

  • Facultative policies for one-time shipments.
  • Annual policies for businesses sending multiple shipments per year with pre agreed limits.
  • Open policy allowing the policy holder to cover specific shipments within a pre agreed specification on a case-by-case basis – these are usually billed quarterly.

So, depending on what your business circumstances are, protection can be given. Annual policies would be suitable for import and exporters, manufacturers, wholesale and distributors. Whereas, freight forwarders and logistics providers may prefer an open policy.

Should I consider buying cargo cover?

If you are responsible for any goods being sent or received then you should consider reviewing what would happen if the cargo was damaged, lost or stolen.  To make shipments cost effective they normally contain a large quantity of goods, and a loss of this size could negatively impact a business where no cover is in force and the shipment is lost.

Another thing to consider is the ‘General Average Clause’ which is a principle or Maritime Law requiring ship and cargo owners to proportionally share the costs associated with the rescue of the cargo and the ship following a major incident. This could mean discarding containers that have caught fire to protect the remaining cargo. Even if your owned cargo was not discarded, you would be required to contribute to the loss. Your cargo policy should cover this scenario.

Illustration of three stacked orange shipping containers.

If I buy cargo insurance, what do I need to be aware of?

Carriage conditions provide a framework of where each party’s (sender and receiver) responsibility for the cargo begins and ends. It is important to get this correct as this will affect the premium paid. To make sure you are insured correctly, understand where your responsibility lies in contract for the cargo, whether you are a buyer or seller.

Below I have highlighted the most common cover requests.

  • Ex-works (EXW) / Free Carrier (FCA) covers cargo from port to port only.
  • Covering goods from seller’s factory to the port, across waters to destination port is referred to as Carriage Paid To (CPT) / Cost Insurance and Freight Paid To (CIF).
  • The most comprehensive cover is under Delivery Duty Paid – (DDP) / Delivered at Place (DAP) conditions which covers from point of leaving a seller factory to the buyer’s business premises.

 If you think you have an exposure in your business, then feel free to reach out so we can assess your requirements and make sure you are correctly protected.

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