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If the ship transporting your sea freight gets caught up in a storm and sinks, or the truck with your goods on board is involved in an accident, what happens next?

You’ve just lost your goods. Some might be salvageable, but likely not.

To satisfy your buyer you’ll likely need a whole repeat shipment. Tot up the cost of packaging, labelling and loading the goods, plus the value of the goods themselves, the freight rates and duties… That’s a lot of money down the drain. Not to mention the time spent executing the process.

Insuring your freight is not a legal necessity. And, depending on the value of your consignment, it might not be worth doing. But there are definite benefits to covering your cargo.

Don’t Incoterms Cover Who Is Liable?

Incoterms are international shipping rules that detail the tasks, risks and costs for the buyers and sellers of a shipping transaction. If your shipment gets lost or damaged, Incoterms define who is responsible for it.

Only two out of the fourteen Incoterms rules, CIF and CIP, mention freight insurance at all. Both of these Incoterms state that insurance is the seller’s responsibility. 

Across the 12 other Incoterm rules, it’s up to each party involved whether they insure the goods for the section of transit where they are liable.

So yes, Incoterms do tell us who is responsible for what, but carrier liability is pretty limited. Many sellers find it’s not usually enough to cover the cost of their cargo.

Carriers Vs Freight Forwarders

The terms tend to get bundled together but no, they’re not the same.

A carrier is a company that physically moves your goods. A freight forwarder is a middleman who arranges such transport for the customer. 

Less manual involvement with the goods themselves means that freight forwarders are only partially liable if anything happens to your cargo.

Why Should I Consider Insuring My Cargo?

Many shipments worldwide end up at their destination with no issue. But no matter which way you look at it, goods in transit are at risk. 

Cargo insurance minimises the financial loss that comes with your consignment getting lost, stolen or damaged. 

Depending on the coverage offered by the insurer, you are paid the amount you’re insured for if something happens to your freight. This compensation is usually determined by the value stated on the commercial invoice. 

Being insured also means that transport costs are reimbursed.

What Else Could Happen To My Cargo?

Anything from a minor vehicle accident to a complete maritime disaster could happen when your goods are in transit.

As well as loss, damage and theft, some cargo insurance policies cover:

  • Vehicle accidents
  • Cargo abandonment
  • Acts of war
  • Natural disasters
  • Customs rejection
  • Piracy

There are different types of cargo insurance. Remember to always check the terms and conditions of an insurance policy with your insurer before paying the premium to make sure it’s suitable for your needs.

Common Risks

Damaged Goods

If a carrier deems a consignment damaged or not protected well by its packaging, it is their responsibility to record their observations. For goods that reach the buyer in a damaged state, meaning dented, scratched or even wet, the carrier is considered liable.

Lost Or Stolen Goods

Because transport documents should specify the contents and quantities of a shipment, lost goods are determined by the consignee, or buyer, realising a loss when they receive the goods and making a note of it on the transport documents. In all cases, theft must be reported to the police. Without evidence, for example from CCTV footage, theft is treated as a loss. 

Like damaged goods, the carrier is deemed fully liable for the loss or theft of goods in transit.

Delayed Goods

Though delays can lead to sellers losing money, it is near impossible to insure against them because working out the level of risk isn’t a reliable method of calculating those losses. 

How To Get Your Money Back

To hold a carrier liable for any of the above a claim must be filed within a certain period and you must be able to prove that the damage or loss happened under their custody. 

Uninsured cargo transported via air or sea? You’ve got two years to file a claim. If your goods were driven to their destination using road transport you’ve only got a year. And, as mentioned above, carrier liability is very unlikely to cover the full cost of your cargo but you may be able to get partial reimbursement.

If, however, cargo insurance was covering the consignment at the time of the loss or damage, splashing out on the premium is about to pay off. 

Filing a claim with the insurance company and providing sufficient proof should mean your claim is approved. At this point, you will receive full reimbursement, the value of which depends on whether there’s a commercial invoice or not.

Cargo Insurance Is Not A Legal Requirement

But it is almost always wise to have it anyway.

Why?

It’s rare for the value of your cargo to be lower than the amount the carrier is liable for. 

What that means is that in most cases, if something goes wrong, your goods are not covered and you’ll lose a significant amount of money.

For that reason, having peace of mind is well worth paying what is a relatively low premium to insure your cargo.

Wondering about the different types of cargo insurance? Not sure what you need to cover? Get in touch with us today. 

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