Sourcing & Product Marketing
Procurement & Logistics
Cargo Insurance
Why should I insure my cargo?
When shipping to or from a foreign market, cargo insurance is strongly recommended.
The cost of cargo insurance is nominal in most cases, amounting to about 1% to 2% of the value of the shipment and the freight bill, usually with a percentage mark-up to cover additional costs such as customs duties.
With the proper insurance policy, exporters/importers can recover losses if their shipments are accidentally lost, stolen, damaged or delayed, although the extent of recovery will depend on the type of insurance purchased. Without insurance, an exporter/importer could have no recourse.
When buying insurance, the exporter/importer should consider several things, such as:
Insurance should be looked at as part of the total rate and service package that the carrier (or forwarder) offers, so do not look at insurance in isolation. Even though a carrier may have an impeccable record, there is always an element of risk and exporters/importers should protect themselves against this risk.
Before exporting/importing, make sure that the terms of sale (INCOTERM) specify who is responsible for arranging insurance. For example, an exporter selling "C.I.F." will be responsible for arranging and paying for freight insurance.
The insurance that the exporter/importer should buy depends on the mode of transport selected, as legal requirements establish certain levels.
Exporters/importers should be aware that there are certain exceptions, which override the carrier's liability, such as "Acts of God" or a defect in the goods.
Obviously, for highway/ocean shipments or intermodal shipments moving partly by an ocean carrier, full coverage may require the purchase of separate insurance from each carrier. For shipments that involve ocean carriage, it is recommended that exporters/importers include an "all risks" clause.
Insurance can be arranged directly with a carrier, an insurer, an insurance broker or agent or through a freight forwarder or customs broker. Whether you purchase from a carrier or a third party, make sure that the insurance purchased covers the entire journey, that is from the time it leaves the exporters plant or warehouse until it is in the importer's warehouse. In some instances, a carrier will provide coverage only while it is handling the shipment.
It should be noted that this discussion is meant for shipments of general freight and for lost or damaged cargo. Insurance for products such as dangerous goods and hazardous wastes is covered by separate insurance regimes.
Responsibility for issues such as cleanup costs in the event of an accident involving your goods is not always covered. (e.g. Look for the "General Average" clause.)
Amount of liability - Valuation of cargo. (Carriage of Goods by Sea Act)
Neither the carrier nor the ship shall in any event be, or become liable, for any loss or damage to, or in connection with the transportation of goods in an amount exceeding $500 per package lawful money of the United States, or in case of goods not shipped in packages, per customary freight unit, or the equivalent of that sum in other currency, unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on the carrier.
By agreement between the carrier, master, or agent of the carrier, and the shipper, another maximum amount than that mentioned in this paragraph may be fixed, provided that such maximum shall not be less than the figure above named. In no event shall the carrier be liable for more than the amount of damage actually sustained.
Neither the carrier nor the ship shall be responsible in any event for loss or damage to, or in connection with the transportation of the goods, if the shipper in the bill of lading has knowingly and fraudulently misstated the nature or value thereof.
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