Like other types of insurance, cargo insurance, commonly referred to as “cargo marine insurance”, is a risk-management tool required for manufacturers, importers and exporters, commodity traders, logistics companies to reduce their exposure to financial losses if cargo is damaged or goes missing. It typically covers goods and merchandise on board shipping vessels while in transit either domestically or internationally, whether by land, sea or air, until they reach the buyer’s destination.

Where can you buy cargo insurance?

Cargo insurance can be directly purchased through freight transportation companies or through damage insurance brokerage firms like LMBF. While both sources are backed by reputable insurers, each have distinct coverage options that may or may not suit your appetite for risk. Most importantly, both offer vastly different levels of service ranging from fully self-serve web interfaces or one-on-one consultations.

What does cargo insurance cover?

Because of the many dangers inherent to shipping, most businesses choose to insure their goods while they are in transit, providing them with the funds to help them recover from the losses of missing, sunk, or damaged cargo. The coverage indemnity may however vary drastically depending on where you choose to purchase your cargo insurance.

Here are some important questions to ask your insurance provider about:

• What types of damages are covered?
• How do you establish the value of the cargo for claims purposes?
• What is the cost of insurance?
• Do you have access to multiple insurers to shop the best rates?
• Is the minimum deductible requirement adequate for the value of my shipment?
• Who is responsible for negotiating the claim settlement with the insurer?
• Am I covered if the vessel invokes a General Average rule?

What is the General Average rule?

In the event of a sudden grave situation (ex: sink risk, cargo hijack, container fire, etc.), the vessel owner may invoke the law of “General Average” to voluntarily “sacrifice” or “jettison” cargo for the common safety of the ship, crew or cargo.

Once the ship has landed, the law of General Average requires each party whose cargo landed safely to contribute an amount, proportional to their share of the cargo, to compensate for the lost or damaged goods and/or damage to the ship.

How does the General Average Rule affect you as a cargo owner?

While the law of General Average may seem farfetched, it is not as uncommon as you might think. In fact, there have been 16 serious containership fires in the past five years, – the most being the Zim Kingston ship moored off the coast of Victoria, BC in late October – which resulted in millions of dollars in general average claims, and, tragic loss of life in some cases.

In addition, studies show that over 10 percent of cargo on a ship is still uninsured on average. While a significant improvement from 2007, more than 40 percent of the cargo on board the MSC Napoli went down with the ship, getting marine cargo insurance against General Average losses is by far the best way of protecting your ship or aircraft against these occurrences.

Without proper insurance, you could be on the hook for a significant charge if a General Average is declared. Here are some examples of what you may experience in a similar event:

• You could go without goods or be left with damaged goods
• Even if your cargo is safe, you’ll have to cope with very long delays.
• Delays may result in fines or penalties from your customers.
• If you fail to post the required average bond, your cargo won’t be released.
• If the average bond is calculated as a percentage of the CIF (cost, insurance, and freight) value of the cargo, then the deposit required for a large consignment can be significant.
• In a LCL (less than container load) consignment, if just one cargo owner refuses to pay their share of the average bond and security, the entire shipment is held back.

‍‍Sound complicated? The good news is that, with the right insurance policy, your portion of the claim will be covered, so you won’t be out of pocket.

Why choose LMBF for your Cargo insurance needs?

If you ship by sea, cargo insurance is a must. Even if your shipment seems indestructible, isn’t travelling far or isn’t very valuable, insuring oceangoing goods is always recommended. A carefully crafted cargo insurance policy can help you recover thousands if your shipment goes missing or if it becomes damaged, hence, the importance of making an educated decision when it comes to choosing your cargo insurance provider. Don’t settle for a cookie-cutter policy for your business – trust the experts at LMBF.