Marine Insurance and why your Shipments need it
Updated 2/19/2020, originally posted November 2018
For homeowners and drivers alike, insurance is necessary to protect you and others. But when it comes to international trade, not all importers realize the importance of marine insurance (otherwise known as cargo insurance). It protects you from damage, theft, or loss while in transit. In case you’ve never considered this before, here’s what you need to know.
The Importance of Insuring Ocean Freight
Shipping freight overseas almost always goes smoothly, with cargo being safely delivered on-time in the vast majority of cases. There is an inherent risk to every shipment. In a small number of instances, cargo can be damaged or lost due to theft, fire, or natural disasters and this could be detrimental to your business. Importers mistakenly believe that loss or damage to their shipment will be covered by the freight carrier, forwarder, or supplier, but this simply isn’t the case.
Marine cargo insurance safeguards you from financial liability.
Billions of dollars’ worth of cargo is damaged or stolen every year, and insurance will mitigate your loss in the event of an incident. U.S. and international laws require shipping companies to carry a certain minimum amount of cargo insurance. However, this insurance covers a meager dollar amount, making it insufficient for most shippers.
Purchasing additional cargo insurance is the best way to protect shipments
Sudden loss of cargo can immediately and dramatically cut into profits and cause a domino effect on the shipper’s business operations for months to come. Purchasing additional cargo insurance is the best way to protect shipments, as it can cover the full cost of the cargo regardless of carrier liability.
What Is All Risk Insurance, Common Exclusions and General Average?
All Risk insurance is preferred because it offers broad coverage of damages and losses but it’s not always an option for high-risk shipments. All-risk insurance covers a wide variety of damages, including theft and weather-related accidents. There are also special forms of coverage that include loss or damage due to strikes, riots, or other civil unrest. Some types of insurance, including all-risk, cover the risk of general average, which is when all cargo owners must chip in to cover damages resulting from a fire on a cargo ship.
Here are common exclusions:
- Damage caused by poor packaging
- Fees incurred because customs rejected the shipment
- Payment or collection failure
- Abandoned cargo
- Hidden defects in goods
There are other occurrences that could arise which would require you to pay whether your cargo is affected or not. In the event that a ship suffers a major catastrophe, such as a fire, there is the principal of maritime law known as General Average. General Average takes the total loss and averages it out so all parties pay a proportional amount based on the total value of the cargo. Essentially, everyone shares the loss.
Your freight forwarder can further explain the benefits of cargo insurance, the dangers of forgoing it, common exclusions, and other measures you can take to protect yourself from loss. It could save you thousands in the long run if one of your shipments suffer loss or damage.
Cargo insurance can give coverage for almost any possibility. While the specifics of each insurance policy vary, some forms of cargo insurance cover marine, air, and rail shipping, so that goods are covered no matter what part of their route they are on.
Highly vulnerable goods, especially frozen goods, can significantly benefit from insurance. Any damage and loss can severely impact the shipper’s bottom line, so forgoing insurance now could cut into future profits and alter the course of the company’s growth.
Cargo Ship Fire
Certain types of cargo insurance will pay your share of general average in case of a fire.
Onboard fires are rare, but when they do happen, they can be devastating. In some recent cases, the MSC Flaminia, MSC Daniela, and Maersk Honam had serious onboard fires that resulted in the loss of life and cargo.
Cargo Insurance Eligible Goods & Merchandise
Both pre-paid freight and freight payable on delivery can be insured. All types of goods and merchandise can be insured. The risk associated with certain types of goods may result in higher insurance fees.
Frozen goods, for example, are typically eligible for insurance but may require separate insurance from other goods. Naturally, goods with a higher monetary value cost more to insure as well, but the typical insurance cost is affordable, averaging around $0.35 per $100 value. Some goods have a deductible that must be met before insurance can be collected.
Goods on trucks, airplanes, and ships are typically eligible for various forms of insurance. However, the laws that apply to each mode of transport can vary. Consulting with your shipping company is the best way to determine the appropriate coverage for a particular route.
Areas Prone Civil Unrest or Extreme Weather Can Affect Cargo Insurance Dramatically
While insurance is available for all regions, the cost of insurance can vary dramatically. Most major shipping routes are easy to insure. Areas prone to civil unrest or extreme weather may have higher costs, but these are also the areas where shippers need insurance the most.
Dedola Offers Cargo Insurance at an Affordable Rate
Well-rounded insurance policies can help protect large and small companies from the dozens of potential hazards possible in shipping. While accidents and damage are rare, the potential loss of profit shouldn’t be overlooked. Extreme weather, fires, maritime accidents, and other incidents can never be completely avoided, even by the most experienced ship crews.
At Dedola, we use the safest shipping providers possible and also provide reliable insurance to give you full peace of mind. Our insurance options include all-risk options and specialty coverage for various risks and events, including:
- Weather-related incidents
- Malicious damage and theft
- Explosion and fire
- Sinking and stranding
- Strikes, riots, and civil commotions
Cargo insurance is an incredibly good value that protects your business from catastrophic losses. We strongly recommend cargo insurance, even when it’s optional, no matter how near or far your destination is. Our experts can help you pick the right cargo insurance plan for you.
Contact us today at 888-922-7628 to talk about insurance options for your next shipment. Have you read our Guide to Reducing Duty Rates with Tariff Engineering? If you haven’t, you’re doing a disservice to yourself and your company because you could be potentially saving thousands of tariffs and fees.