Companies that ship a lot of ocean freight do a pretty good job of insuring themselves against workman’s comp claims and office building fires. But most of them fail to protect the full value of their import or export cargo with marine cargo insurance, despite potential losses of hundreds of thousands of dollars per shipment.

If you are wondering if marine cargo insurance is a smart investment for your company, this Q&A could help. We sat down recently with Andrew Rozek, president of I.C.E. Transport, and Andrea Sterling, vice president of claims and risk management at Eagle Underwriting, to review cargo insurance basics and the advantages of all risk marine cargo insurance.

Q: Why don’t more ocean shippers purchase marine cargo insurance?

Mostly, it’s because they don’t want to spend the money. They’re willing to take the chance that all their cargo will arrive damage free, all the time. Insurance industry losses from weather-related and man-made disasters are actually rising. But, like house fires, car accidents and other mishaps, you never think it’s going to happen to you.

Q: What are some of the top misperceptions about marine cargo insurance?

Many companies mistakenly believe the shipping line will reimburse them for the full value of their cargo in the event of damage. That’s incorrect on a couple of levels. For one, carrier liability only kicks in if it’s proven that the steamship line’s negligence caused the damage. Second, even if negligence can be proven the carrier’s liability is limited to $500 per package or Customary Freight Unit (CFU) under the Carriage of Goods By Sea Act (COGSA). So, if your CFU is a pallet worth $5,000 and it gets destroyed, the $500 liability limit means you’ll receive only 10% of that value. For an FCL shipment of 20 pallets worth $100,000, you’ll recoup $10,000 from the carrier. If the value of the goods is higher, you would obviously receive an even smaller percent of the true value.

Carrier liability also excludes acts of God, like weather-related disasters. If you purchase all risk marine cargo insurance, it covers acts of God and will reimburse you for the full declared value of your cargo.

Q: Do importers need to worry about insuring cargo if they purchase under CIF terms, where the seller covers shipping, insurance and freight costs?

In these instances, the seller is responsible for purchasing insurance, but only a minimum amount. That may leave holes in the coverage. For instance, the seller may insure only the ocean voyage and not door to door, or the coverage purchased by the seller may be for a total loss only. The other downside of relying on seller-sourced insurance is that any claim would be managed through the seller. That means dealing with overseas agents who may not speak English and for whom your claim may not be a priority. (NOTE: If you’re a smaller business that struggles to manage global shipping details, read our small business guide to international shipping.)

Q: Is marine cargo insurance applicable only for cargo that is lost or damaged?

Actually, there is 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.

One I.C.E. Transport customer had cargo aboard the Ever Given, which got stuck in the Suez Canal in 2021. The company did not have its own insurance and had to pay to reclaim its containers under a General Average claim by the vessel operator.

Q: What’s the prime motivation for companies that do purchase marine cargo insurance?

They want to protect their balance sheets from a major loss. When CFOs are involved in the discussion, they tend to be major advocates of having adequate cargo insurance coverage. Freight transportation professionals tend to view the cost of insurance in the context of their own discreet budgets. CFOs, in contrast, are seeing the bigger picture and the overall economic benefits of managing risk.

Q: Are there particular triggers that prompt companies to buy marine cargo insurance?

Ironically, companies become strong advocates for all risk cargo insurance after they’ve had a claim and recognize the limitations of carrier coverage. It only takes one incident for them to see the value.

Q: How much does marine cargo insurance cost?

In most cases, the insurance cost is around 0.5% of the total value of the cargo. This cost will vary based on the type of goods, the origin and destination, and whether it’s being shipped in a closed or open container.

Q: What’s covered?

Generally, you’re covered for any physical loss or damage that occurs during transport. Even though it’s called “marine” cargo insurance, it can 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 for a portion of the cargo value (based on coverage limitations) and the all risk policy would cover the balance.

Q: Are there exceptions to what is covered under all risk marine cargo insurance?

There are exclusions, which are spelled out in the policy document. For instance, if sensitive cargo is inadequately blocked and braced for the ocean voyage and this is validated by an independent survey, then any damage would not be covered. That’s why shippers must pay careful attention to how products are packaged for shipment.

Q: What is the process for reporting a claim?

First you would alert your insurer with the details on the loss or damage. The insurer would then appoint an independent surveyor to assess the claim and may invite the vessel operator or carrier to participate in the survey. If it’s found to be a valid claim, the insurer would reimburse you for the value of the cargo plus the cost of freight shipping. Typically, after the claim is paid the insurer will seek compensation from the vessel operator or carrier (subrogation) for damage resulting from its negligence. But any legal wrangling that may occur during the subrogation process happens after you are paid.

Q: Do you have any closing advice for ocean shippers not currently purchasing marine cargo insurance?

Like protecting against a house fire with homeowner’s insurance, the downside economic risk of cargo loss to your company typically outweighs the cost of insurance. It comes down to how much risk you are 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.