In this blog, let’s address marine insurance for your sea freight. 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.
If you’d rather watch a video, Alan Bracken explains in the video below what you must know about marine cargo insurance:
Ocean cargo insurance specifically addresses the risks associated with shipping goods by sea, making it a key consideration for your import/export venture.
Arranging cargo insurance is crucial for both private individuals during relocations and businesses in international trade, as it protects against potential losses during transit.
Take the following news story for example, 277 containers washed overboard from this container ship:
What is Marine Cargo Insurance?
Marine cargo insurance protects your freight not only when it’s on the water but for the entire journey of the goods in transit as per the specified “INCOTERM“. This could be from the warehouse where the goods are collected, and/or the destination warehouse. It’s dependant on the INCOTERM so you must make sure you’re up to speed with Incoterms 2020.
Incoterms aren’t something we are going to cover here but they’re an important part of an insurance policy so take the time to check out our INCOTERMS blog too. Incoterms are published by the International Chamber of Commerce and are internationally recognized trade terms that define the responsibilities of buyers and sellers, including insurance obligations.
A cargo policy is designed to cover goods against loss or damage during all phases of transit, not just when the goods are on the sea, including from warehouse-to-warehouse. Cargo insurance is a specialized type of insurance designed to safeguard goods against loss, damage, or theft during transit by sea, land, or air.
This is a must have in the world of global trade and logistics, it provides financial protection against all the risks that goods face while in transit. Whether you are a small one-man band or a big corporation, marine cargo insurance can be tailored for your company’s needs.
By purchasing cargo insurance companies can safeguard their shipments and be covered against unexpected events that could otherwise cost them a lot of money and stress.
Some shipments may be covered automatically under certain cargo policies while others require specific arrangements to be in place for coverage. Insuring goods is a responsibility for both buyer and seller depending on the terms of sale.
Marine Cargo Insurance
This footage clearly illustrates that accidents do happen and cargo ships lose 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.
Cargo insurance can mitigate risks and minimise disruptions to business operations, allowing them to focus on their core activities. However, it’s obviously not as simple as the usual post or parcel insurance that we can buy at the post office.
Carriers typically have limited liability for loss or damage during transit, and are only responsible for loss if negligence can be proven. In most cases, buyers are responsible for loss unless they have adequate insurance coverage. It doesn’t take much to understand if your goods were to go overboard and you have to cover the financial value of the goods yourself, it will likely lead to a serious dent in your cash flow and in some cases can be fatal.
International Shipping Insurance
Two simple but very important questions come to mind when seeing this report of shipping consignments being lost overboard:
- Were the containers insured?
- If so, was there adequate insurance to cover all the 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 goods 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 shipper should very carefully read the terms and conditions 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’re taking a massive risk should there be any unforeseen circumstances. Additionally, your sales contract may specify cargo insurance requirements, and failing to comply with these obligations can result in legal problems and financial loss.
A marine cargo insurance policy provides comprehensive coverage against various risks associated with shipping goods by sea. This includes potential dangers such as harsh weather, accidents, and incidents that could lead to significant loss for buyers if not insured.
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 goods, except under certain circumstances, such as a General Average clause.
The limits provided by the contract of carriage may not fully cover the value of your goods. In cases like General Average, the ship owner, along with the buyer, may share costs in maritime emergencies, and the bank’s interest in the cargo may be safeguarded by insurance.
If insurance is not in place, a cash deposit may be required to release your goods. Liability insurance is crucial for covering policyholders’ liabilities towards third parties in various scenarios, such as collisions and wreck removal.
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.
Indemnity insurance, specifically marine protection and indemnity (P&I) insurance, provides coverage for vessel owners against third-party risks, including loss of life, injury, and damage to cargo. Marine liability insurance also covers third-party risks, such as damage to other vessels, wreck removal, and cargo damage, helping to limit legal and financial exposure in maritime incidents.
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.
A property policy can provide broader protection for goods in transit, especially under global trade terms like CIP and CIF. Insuring goods at their market value ensures you receive adequate compensation in the event of loss, as it reflects the current resale price rather than a fixed or agreed value.
Types of Marine Cargo Insurance Policies
Cargo insurance policies come in various forms, each catering to different shipping needs and volumes. Here are the main types:
- Single Shipment Policies: Ideal for anyone that do not ship cargo regularly, these policies cover individual shipments. These policies cover the goods carried during each shipment, regardless of the transportation mode. This type of policy is perfect for occasional shippers who need coverage for specific consignments.
- Annual Policies: For those that frequently ship goods, annual policies provide coverage for all shipments made within a year. Annual policies also cover the goods carried in each shipment, offering consistent protection. This option is convenient and often more cost-effective for regular shippers.
- Open Cover Policies: These policies offer ongoing coverage for all shipments made by a company, making them suitable for companies with a high volume of shipments. Open cover policies provide continuous protection without the need to arrange insurance for each individual shipment.
- Project Cargo Policies: Specifically designed for goods involved in project construction phases, these policies offer added protection against loss of revenue due to delays or non-delivery of goods. Coverage extends to goods transported on an overseas vessel, ensuring protection during international shipping. They are particularly beneficial for developers or project owners who need to ensure that their materials arrive on time and in good condition.
Coverage and Exclusions
Marine cargo insurance policies typically provide coverage for goods against loss, damage, or theft during transit. Policies may also cover damage arising from external factors during transit, such as accidents or natural hazards. However, it’s important to be aware of certain exclusions or limitations that may apply:
- Geographical Exclusions: Some policies may exclude coverage for shipments to or from certain countries or regions deemed high-risk.
- Goods Exclusions: Certain types of goods, such as hazardous materials or high-value items, might be excluded from coverage. It’s important to check the specific exclusions in your policy to ensure your goods are covered.
- Exclusions by Region: Coverage exclusions can vary depending on the country or region of transit. Understanding these nuances is essential to avoid unexpected gaps in coverage.
Marine cargo insurance is a complex area, and coverage for other mishaps or losses involving an other party should be discussed with a broker to ensure all potential risks are addressed.
To help with these complexities, businesses should rely on experts, who can help clarify the exclusions and limitations of their marine cargo insurance policies, and make sure there’s comprehensive protection for their shipments.
Your ABC’s
Container shipping insurance rates obviously vary but your insured shipping will either be Clause A, B or C.
Marine insurance policies help buyers, as insureds, mitigate liabilities associated with loss or damage to goods during maritime transport.
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 agent and ask them for a claim pack and start the claim. Insureds must ensure that all premiums are paid in full, as claims can be rejected due to non payment.
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 broker!
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.
International Commercial Terms
As mentioned previously, in addition to your shipping insurance, you must understand Incoterms and their roll in in global trade.
International commercial terms, or Incoterms, outline the responsibilities, costs, and risks associated with the global transport of goods, and they play a crucial role in shaping insurance policies. 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.
Liability Insurance Is Your Responsibility
Hopefully this story illustrated that ocean cargo insurance whilst it may not be all that interesting to talk about, is really very important to fully understand what is and what isn’t covered by their 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 just ”Insure my Cargo”.
Businesses involved in importing or exporting goods require reliable transportation and tailored coverage that caters to their specific cargo needs.
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!
Freight Forwarders
Freight forwarders are your partners when navigating the complexities of global trade. They act as intermediaries between you and the carriers, coordinating the entire logistics process, from transportation and documentation to packaging and labeling of the goods. When it comes to marine cargo insurance, forwarders can be super helpful in helping you choose and buy the right insurance policy to cover your shipment against physical loss or damage during transit.
By leveraging their expertise, insurance policies and global shipping practices, freight forwarders help you understand the risks involved and ensure your cargo is insured from origin to destination. This not only safeguards you from financial loss due to loss or damage but also streamlines the process of getting the right insurance policy for your shipment. Working with a knowledgeable freight forwarder means you can focus on your business, knowing your freight is safeguarded and your interests are looked after throughout the entire shipping process.
Benefits of Policy
Purchasing marine cargo insurance policy gives you peace of mind and protection throughout the journey of your goods. Marine cargo insurance covers a wide range of risks, physical loss or damage due to rough handling, extreme weather conditions and natural disasters. Plus, these policies often include general average, so you’re not left with unexpected financial liability if part of the cargo or vessel has to be sacrificed to save the entire shipment.
By having a tailored marine cargo insurance policy in place, you can save money by avoiding costly repairs, replacements or additional expenses like temporary storage or transshipment. This comprehensive coverage protects your business from disruption due to lost or damaged goods, so you can keep your supply chain and finances smooth. Ultimately, marine cargo insurance policies are a smart investment for any business involved in international trade – essential coverage and risk management for many shipping scenarios.
Working with an Agent
Navigating marine cargo insurance can be complicated, that’s why I highly recommend working with an experienced agent or broker. Agents have in-depth knowledge of marine cargo insurance policies and can guide you through the process of choosing the right coverage for your needs.
They help you identify the risks, recommend the right insurance policy and provide expert advice on risk management to minimise financial loss. An agent’s expertise in international trade and maritime law ensures buyers are properly insured and protected against the unique risks of shipping goods overseas.
By working with an agent, you can be confident your policy is comprehensive, up-to-date and tailored for your business needs. This professional support simplifies the insurance process and ensures that you’re fully protected and prepared for any challenges that may arise during transit.
General Average
General average is a fundamental concept in maritime law, internationally recognized which requires all parties involved in a sea voyage – buyers, ship owners and carriers – to share the cost of any sacrifices made to save the entire vessel and its cargo.
If for example, cargo has to be jettisoned (this is when cargo has to be deliberately thrown overboard) or expenses incurred to protect the ship and remaining goods, all cargo interests may be called upon to contribute financially to cover these losses.
Marine cargo insurance policies usually cover general average, so buyers are protected from significant financial loss in such situations. By buying a marine cargo insurance policy, cargo owners ensure they’re not left to bear these shared costs which could otherwise impact their business operations and bottom line.
It’s crucial for cargo owners to understand how general average works and work closely with their agent to ensure their policy includes this important cover, to safeguard their interests and business continuity in the face of maritime emergencies.
Marine Cargo Insurance Claims Information
In the event of loss or damage, prompt action is key to a smooth claims process. Here’s what you need to do:
- Notify the Insurer: Contact your insurer as soon as possible to report the claim. Taking quick action is essential for a successful claim.
- Provide Detailed Information: Include a detailed description of the loss or damage along with supporting documents such as receipts and invoices. This information is vital for the insurer to assess the claim accurately.
- Adhere to Timeframes: Different modes of transport have specific timeframes for reporting claims:
- Shipping Line: Within 3 days from the time of delivery
- Airline: Within 14 days from the time of delivery
- Road: Within 7 days from the time of delivery
By understanding marine cargo insurance and taking proactive steps to get adequate cover, businesses can protect their shipments and mitigate the financial risks of international trade.
The ABTS® International Trade Mastery Programme
Understanding what ocean cargo insurance covers is just one part of importing and exporting. Before you dive in and find suppliers and setup your new import export business, it’s very important to understand how to navigate the world of international trade.
The ABTS® International Trade Mastery Programme teaches you the practical knowledge you need to import export from the ground up, how to move your goods from A to B in a simple, clear and easy to understand way.
You’ll learn how to maximise your profits while reducing your risk.
To lean more, check out the ABTS® International Trade Mastery Programme.