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Empowering Confidence with Cargo Insurance
02/05/2024
Everyone knows the sea is unpredictable, with anything from extreme weather to piracy, to accidents at sea can have an impact on cargo transportation. Equally, however, being able to ship internationally is vital for businesses looking to transport goods to a global market place. Therefore, to mitigate financial loss in the face of disaster it’s becoming increasingly important for businesses to safeguard their supply chains by investing in cargo insurance with experts like MSC.
Defining Cargo Insurance
Cargo Insurance protects your shipments from loss, damage, or theft while your cargo is in transit. Cargo insurance policies can cover cargo carried by land, air, or sea and are usually proposed on a door-to-door basis. Coverage offered to the policyholder can vary, but events covered by policies often include natural disasters, vehicle accidents, cargo abandonment, customs rejection, acts of war, and piracy.
There are three types of cargo insurance, with different levels of coverage. Type A covers all risks, and Type B includes total loss events and partial loss below deck, so each is comprehensive in its cover. Type C is the only level of cover where, as a customer you may be exposed to substantial risk. This is because this is a ‘named perils policy’, a specialised marine insurance policy that does not cover partial loss events.
Cargo owners are not covered in marine insurance policies or a carrier’s limited liability by issues that are your responsibility as the cargo owner. These are instances that could manifest during shipment but be caused by an instance the cargo owner is responsible for before shipment or the cargo’s natural constituents reacting to the conditions of shipment. These issues are often referenced in marine insurance as ‘inherent vice’ exclusions and could include things like poor packaging, stuffing issues, and the cargo’s own degradation.
It’s important to note that some types of cargo might not be covered by cargo insurance. This will depend on your Third-Party Logistics policy. Service guarantee failures are also usually not covered so you should ensure you read the fine print on your agreements first.
Often referred to as ‘marine liability insurance’, liability insurance in shipping is a type of insurance that protects the ship owner, cargo owner, or operator against liabilities that arise during maritime operations. It can cover everything from injury to cargo damage, or cargo loss and is a great way to ensure added peace of mind and financial protection during the transportation of goods by sea.
Carrier liability is generally included in the quote the carrier provides for your shipment. The value of this coverage is often much less than the value of your cargo. However, this can depend on what you’re shipping and the carrier’s rate for that type of commodity. It is also worth noting that carrier liability does not cover concealed damage, weather, acts of God, or damage that results from improper packaging or loading.
Cargo insurance is elective coverage (meaning you can purchase it or not) based on the actual value of the cargo. Cargo insurance fees are in addition to the carrier’s liability. The advantage of cargo insurance is that you’ll have coverage for the total value of your goods.
Is Cargo Insurance a Requirement?
Cargo insurance is optional, but not taking it can expose you to significant risks. A shipping carrier’s liability is limited to areas where they have control but does not extend to such issues as extreme weather, piracy, and accidents at sea. Carrier liability also does not cover the total value of your cargo.
Cargo insurance can be categorised based on the method of transportation, including the following three types:
- Road or surface transportation insurance
- Air transport insurance
- Marine cargo insurance
It’s important to note that cargo insurance coverage is inclusive of multiple methods of transportation used by a single transportation provider. While the cost of insurance is dependent on several factors, including cargo value, origin, destination, and mode of transport, policy holders are typically insured for the entire journey.
Cargo insurance is typically categorised according to coverage details. There are three types of cargo insurance according to the Institute Cargo Clauses (ICC):
- Type A, or all-risk insurance
- Type B, or average insurance
- Type C, or free of particular average insurance
Each type provides a different level of coverage during transportation, loading, and unloading, including bad weather, piracy, and many other relevant risk factors.
Type A - ‘All-risks’
This type of insurance is intended for approved or general goods, and it offers coverage for most common perils. To take out an all-risk policy, your merchandise needs to be new, export packed, and not unusually susceptible to losses. It’s also important to note that at MSC the cost our customer pays to insure their goods (the premium) is generally a fraction (based on a rate or flat fee) of the actual value of the good.
The following exclusions for all-risk cargo insurance policies include:
- Cargo abandonment or disposition
- Improper non-export packaging
- Rejection of goods by customers
- Rejection of goods by Customs or other Government agencies
- Failure to make payments or collect accounts
- Loss due to nature of cargo — spoilage, infestation, failure
- The change, transfer, or dishonesty of employees
- Loss caused by delay — deadline coverage can be arranged separately
- Loss of use and/or market — deadline coverage can be arranged separately
- Used goods
- Barge shipments
- Losses that exceed coverage limits
- Losses at port city more than 15 days after discharge — can be modified ahead of time
- Losses inland more than 30 days after discharge — can be modified ahead of time
- Losses in South America after 60 days — can be modified ahead of time
- Oceangoing barge movements — unless specifically endorsed
- Goods subject to on-deck billing
- Loss caused by fluctuating air temperature — air freight only
- Failure to notify air carrier of initial losses on time — 7 days for damage, 14 days for hidden damage, and 120 days for non-delivery
Type B - ‘With Average’
With Average (WA) is a cargo insurance policy provision that covers total loss events along with the partial loss of below deck cargo. With WA coverage, the partial loss of below deck cargo is treated as a total loss scenario, regardless of how much is damaged or lost. WA coverage is often taken out to extend Type C policies, as it provides additional protection from extreme weather events. WA coverage can also be extended to include theft, pilferage, and non-delivery.
Type C - ‘Free of particular average’
Also known as a named perils policy, Free of particular average (FPA) is a specialized cargo insurance policy provision that does not cover partial loss events. This is a type of ‘free from partial loss’ coverage. FPA coverage is often called ‘total loss only’ because the insurance holder is only protected in the case of total loss events.
FPA covers perils of the sea, including sinking, stranding, fire, or collision. These policies also cover land perils that are beyond human control, including earthquakes and bad weather events. FPA policies are often taken out for used merchandise, waste materials, and bulk cargo.
What Does ‘General Average’ or ‘General Average Sacrifice’ Mean?
This is a phrase you will find in marine insurance policy documents. It is something of a standard clause and relates to the extent to which cargo owners have a general responsibility to share any losses in the event of an accident at sea. For example, if cargo has to be abandoned into the sea to save a ship in distress, the general average is the sum each stakeholder will be asked to contribute by the loss adjusters.
While both cargo and ship insurance are types of marine insurance, they cover different aspects of shipping operations.
Ship insurance is designed to protect the ship itself, and covers the vessel in instances of physical damage, loss, or destruction caused by collisions, sinking, storms, or fires. Ship insurance is generally purchased by the ship owner, and ensures they can cover the cost of repairing or replacing the vessel if required.
Cargo insurance on the other hand protects the goods being transported by sea, and covers against damage, loss, or theft during transit. As previously mentioned, it is typically purchased by the cargo owner to provide financial compensation in instances where these issues arise.
Ultimately ‘cargo insurance’ and ‘freight insurance’ mean the same thing. ‘Freight insurance’ is a term used in the US and Canada. Freight insurance protects the freight forwarder or carrier who has a legal responsibility for the goods. In the event of a claim, the value is often calculated based on weight. Cargo insurance is designed to protect the sender of the goods – the manufacturers, wholesalers, and retailers.
Ask MSC for Advice on Cargo Insurance
As well as providing cargo insurance, we provide consultation and advice on all aspects of international container shipping and can help customers with our range of shipping and logistics services. Contact us today to find out more.
*Please note that MSC doesn’t offer cargo insurance in North America, however, our extended protection offering is available in this region. Discover more and the differences between the two here.
