Shipping Insurance Explained

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

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

Freight Insurance

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 direct export business.

It’s obviously not as simple as the usual post or parcel insurance that we can buy down at the post office. It doesn’t take much to understand if your goods were to go overboard and you have to cover the financial value of the cargo shipment yourself, it will likely lead to a serious dent in your cash flow and in some cases can be fatal to your business itself.

International Shipping Insurance

Two simple but very important questions come to mind when seeing this report of shipping consignments 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 successful freight claims 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 and contained in the shipping line contract of carriage and make sure you understand the services offered. 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 Shipping 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.

Your ABC’s

Container shipping insurance rates obviously vary but your insured shipping with either be 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! All you would need to do is contact your insurance company and ask them for a claim pack and start the claim.

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 international 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.


In addition to you shipping insurance, it’s also worth mentioning that you must understand Incoterms and their roll in in international trade. You must take the time to understand these so we’ve written quite an in depth blog on what Incoterms are to get you started.

Shipper Insurance Is Your Responsibility

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 shipment insurance policy. Even if you’re using a freight forwarder, 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 shipping 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!