When it comes to shipping goods internationally, there’s a lot that can go wrong. And as waves of disruption continue to crash down on global supply chains, one of the most important things to consider is whether you need ocean cargo insurance coverage.
There are several types of ocean or marine cargo insurance that offer protection against various risks like theft, piracy, natural disasters, accidents and other unforeseeable incidents.
So how do you know if you need coverage, and which kind is right for you? The answer depends on a few factors – including the value of your goods, the shipping route, the likelihood of damage or loss, and what measure of risk you’re willing to take on.
Risk Factors to Consider
First and foremost, it's important to consider the value of your goods. If you're shipping high-value items, such as electronics or luxury goods, then ocean cargo insurance coverage is likely a wise investment. The cost of the insurance premium is typically much lower than the potential cost of replacing or repairing lost or damaged goods.
Similarly, if you're shipping goods that are particularly fragile or susceptible to damage, such as heavy machinery or oversized freight, then insurance coverage is a good idea. Without the help of a specialized freight forwarder, these types of shipments are more prone to damage in transit, and the cost of replacing or repairing them can be significant.
Another factor to consider is the shipping route, especially if you're shipping goods across a long or risky route – such as through areas known for piracy or extreme weather events – and whether or not your goods are particularly susceptible to damage or theft.
Types of Ocean Cargo Insurance Policies
So, what does ocean cargo insurance coverage typically cover? The specific coverage can vary depending on the policy, but typically includes protection for loss or damage due to a variety of factors like theft, accidents and weather events. Some policies also include coverage for delay or detention of goods, as well as damage to the shipping vessel itself.
The policy that’s right for you depends on the value of your cargo, the destination and the risks involved. Here’s a brief overview of three main types:
All-risk coverage: This coverage provides the broadest protection for your cargo, covering any loss or damage, except for specific exclusions listed in the policy. If you have high-value cargo or are shipping to an area with higher risks, this type of coverage is your best option.
Named perils coverage: This provides protection against specific risks that are listed in the policy, such as theft, fire or sinking of the vessel. If you have lower-value cargo or are shipping to an area with lower risks, this type of coverage may be a more cost-effective option.
Total loss coverage: This will protect against total loss of your cargo due to a covered event, such as the sinking of the vessel. It may be the best option if you have cargo with a high value and want protection against total loss due to a specific risk.
It's important to note that not all ocean cargo insurance coverage is created equal. You’ll want to carefully review the terms and conditions of any policy you're considering, and make sure that it provides the specific coverage you need. You should also consider the reputation of the insurance provider, as well as their track record when it comes to paying out claims.
Even though it’s called “ocean” or “marine” cargo insurance, your policy can also cover the entire journey, door to door. For instance, if I.C.E. Transport issues a door-to-door bill of lading, then that would result in door-to-door insurance coverage. If damage occurs on a truck moving to or from the port, the trucking company’s policy would reimburse a portion of the cargo value (based on coverage limitations) and the all-risk policy would cover the balance.
What Do Ocean Carriers Cover?
Ocean carriers may offer some limited liability for cargo loss or damage during transit, but it likely won’t be enough to cover the full value of your goods. Carrier liability is usually limited by international maritime law, which sets a maximum limit based on the weight of the cargo.
There’s also a maritime law called “General Average” that makes you liable for losses suffered by other shippers on the vessel. For instance, if the vessel needs to jettison cargo to save lives or the vessel, the expense of this lost cargo is shared by all shippers on the vessel, even if their cargo is fine. Carrier liability does not cover General Average, but all-risk cargo insurance does.
Review your shipping contract and understand the limitations of the carrier's liability before shipping your goods. If you have any concerns about the level of coverage offered by the carrier, consider upgrading to ocean cargo insurance to ensure adequate protection.
How Much Does Ocean Cargo Insurance Coverage Cost?
In most cases, the insurance cost is around 0.5% of the total value of your cargo – but can range to 2% or more. This cost will vary based on the type of goods, the origin and destination, and whether you’re using closed or open containers.
Like protecting against a house fire with homeowner’s insurance, the downside economic risk of cargo loss to your business typically outweighs the cost of insurance. It comes down to how much risk you’re comfortable tolerating. Let’s say the value of your average multi-container shipment is $500,000. If that is a loss you can easily recover from, the risk may be palatable. But for most companies, such a loss would be devastating.
Think about what an average loss would be for your company. The only way to fully protect the company is all-risk marine cargo insurance. To discuss this and any other freight forwarding requirements, contact the international shipping experts at I.C.E. Transport.