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Marine Cargo Insurance Explained

In order to try and steer away from Brexitmania, we thought we would take a break and address marine insurance.  Whilst any form of insurance is never the most riveting subject of discussion, we all know it’s still very important.

Take the following news story for example, 277 containers washed overboard this container ship:

Containers Overboard

This footage clearly illustrates that accidents do happen and cargo ships loose containers perhaps more often than we may think. The seas that these vessels sail can get extremely treacherous so understanding how marine insurance works really is vital to any import export business.  It doesn’t take much to understand if your goods were to go overboard and you have to cover the financial loss yourself, it will likely lead to a serious dent in your cash flow and in some cases can be fatal to your business itself.

Are Your Containers Insured?

Two simple but very important questions come to mind when seeing this report of shipping containers being lost overboard:

  1. Were the containers insured?
  2. If so, was there adequate insurance cover to cover all the financial losses involved and would the shipper be able to make a successful claim with their insurance company?

So, the first question, “were the containers insured?”, might sound like a silly question to ask but many shippers falsely believe that their cargo is automatically insured  by the shipping line against loss or damage once the goods or containers are onboard.

It’s important to note that this is not always the case! You as the shippers should very carefully read the terms and conditions contained in the shipping line contract of carriage.  As much as we all hate to read the small print, it really is vital, as if you neglect this, you are taking a massive risk should there be any unforeseen circumstances.

The Contract Of Carriage

The Contract of Carriage is printed in plain speak, on page one of the Bill of Lading and is there for all to read, including you.  Make absolutely sure you read this and pay attention to all parts.

The contract of carriage will clearly set out the shipping lines liabilities under many different circumstances. Without going into the full detail of the many clauses that there can be, it’s very important to understand, you as the shipper WILL NOT receive full compensation for loss or damage of your UNINSURED cargo, except under certain circumstances, such as a General Average clause.  The scope of this clause and others is a little too much to delve into with this article but we do cover this in our online import export training course.

Adequate Insurance

Having “insurance” alone, as you may have guessed, may not be enough.  If you’ve taken the key step to have your cargo insured, you must go the extra mile and make sure that your containers have adequate insurance.

As with car insurance, you would not want to insure your lovely, brand new Ferrari with just third party, fire or theft, you would need to make sure you have adequate insurance, fully comprehensive to cover any damage in an accident or any other circumstances.

As Simple As Your ABC’s

Marine Insurance cover is either Clause A, B or C.

If you as the shipper have Clause A insurance cover, you are insured under “ALL RISK” insurance.  Therefore, were they your containers washed overboard in the above news story, your goods would be covered and you would be able to breathe a sigh of relief!

If you had Clause B cover, you would also be covered as containers being washing overboard is covered.  Again, take that sigh of relief, go and make a cup of tea and then call your insurance company!

However, if you as the shipper had Clause C Insurance cover, you would not be covered and you would have to suffer the financial loss of those containers being lost.

Hopefully this story illustrated that cargo insurance whilst it may not be all that interesting to talk about, it’s really very  important that traders fully understand what is and what isn’t  covered by their marine insurance policy.  Never leave it to in the lap of the gods and certainly never ask a third party to ”Insure my Cargo”.

You must take the responsibility for your own goods and be specific, making sure you have the correct insurance cover for your cargo, otherwise you may well be throwing the cost of your insurance premium overboard to the bottom of the sea with those lost containers!