Why Freight Insurance Matters
Many shippers assume their cargo is fully protected during transit. The reality? Carrier liability is extremely limited, and without proper insurance, you could face significant losses.
The Carrier Liability Gap
Carriers are not insurers. Their liability is governed by international conventions and typically limited to:
- Ocean freight: Approximately $500 per shipping unit under the Carriage of Goods by Sea Act
- Air freight: About $20 per kilogram under the Montreal Convention
- Trucking: Varies, but often $10-25 per pound
For a container of electronics worth $200,000, ocean carrier liability might cover just $500. The gap is enormous.
Types of Cargo Insurance
All-Risk Coverage
The most comprehensive option, covering physical loss or damage from external causes. Despite the name, exclusions still apply (war, inherent vice, delay).
Named Perils Coverage
Covers only specifically listed risks like fire, collision, or sinking. Less expensive but leaves gaps.
General Average Coverage
Protects you when carriers sacrifice cargo or incur costs to save the vessel. Without insurance, you must contribute to shared losses even if your cargo is untouched.
What Cargo Insurance Covers
Typical covered events include:
- Vessel sinking or capsizing
- Fire or explosion
- Collision or derailment
- Theft or pilferage
- Weather damage
- Handling damage
- Container falling overboard
Common Exclusions
Most policies exclude:
- Inherent vice (natural deterioration)
- Inadequate packaging
- Delay-related losses
- War and strikes (often available as add-on)
- Nuclear events
- Willful misconduct
How to Calculate Coverage Amounts
Standard formula: CIF value + 10%
- Cost of goods
- Insurance premium
- Freight charges
- Plus 10% for anticipated profit margin
Choosing an Insurance Provider
Consider these factors:
- Claims reputation: How easy is the claims process?
- Financial strength: Can they pay large claims?
- Coverage breadth: Do they cover your trade lanes and cargo types?
- Premium cost: Typically 0.2-0.5% of cargo value for standard shipments
Filing a Claim
If damage occurs:
- Document everything with photos and written notes
- Note damage on delivery receipts
- Preserve damaged goods for inspection
- Report promptly (most policies require notice within days)
- Gather all shipping documents
Don't let a single incident devastate your business. Cargo insurance is a small cost compared to the potential loss of an entire shipment.
