Updated on March 23, 2023
The ocean waters can often be rough and full of ups and downs. The same can be true for the experience shippers face when moving their products by ocean. The number of containers lost at sea increased by 18% in 2022, and, while it is still a relatively low percentage of total shipments, there is always some risk. Additionally, rough weather, onboard fires, labor shortages, and inadequate packing can cause damage to freight in transit. Importers and exporters have to be aware that when it comes to damage claims, international cargo law favors the carriers. To be prepared for possible troubles, shippers should always opt for adequate ocean cargo insurance for their freight.
This blog will include the definition of ocean cargo insurance, whether it is required or necessary, how to get the right ocean cargo insurance, and what ocean freight marketplaces can do to help simplify cargo insurance processes.
Considering the rising costs of nearly everything in the shipping industry, having ocean cargo insurance, also called marine cargo insurance, is a logical way to protect valuable freight. Ocean cargo insurance covers goods against loss or damage while being transported on the ocean. It can protect a company from being hit with substantial revenue losses in the case of an incident, which can be particularly important for small- or medium-sized shippers who may have a significant amount of capital tied up in cost of goods.
Ocean cargo insurance is not required but is certainly advisable considering how much money a company has invested in goods and freight costs. When contemplating ocean cargo insurance, it is important to weigh the cost of the insurance against potential losses or damage.
It is important to note that most damage does not fall under the carrier’s liability, including: strikes, onboard fires, acts of God, accidents of the sea, and insufficient packing. Even if legal liability can be proven, which can be difficult, a carrier’s limit of liability is $500 per customary shipping unit or the value of the goods, whichever is less. Most freight has a much higher value, so without the right insurance, you could lose a significant portion of the value of your cargo.
Another concern is that multiple parties handle freight and it can be difficult to trace where the damage occurred or prove who is liable. An ocean cargo insurance policy provides protection by insuring goods throughout the shipment’s lifecycles, eliminating the need to prove a single party’s liability.
The simple answer is “yes,” and here are some reasons why companies should always protect their freight with cargo insurance.
While shipping overseas is safer and more efficient than ever, there are many events that can damage a shipment. Ocean cargo insurance protects you financially if such an event causes damage or loss. Let’s take a look at some of those events:
Theft: It is not uncommon for ocean cargo to be stolen and thieves are becoming more enterprising. They are even using identity theft as a way to pick up goods. Theft can be crippling to a company’s financial health if there is no ocean cargo insurance.
Lost cargo: If rough weather hits, bigger ships with tall stacks of containers can run the risk of them going overboard. Over the last 10 years, lost cargo rates have risen, which makes the possibility of them being lost a costly blow and worth the outlay on insurance.
Unexpected conditions: Unforeseen incidents — storms, wrecks, and explosions — can cause damage, delays, or loss of cargo. Insurance protects you from taking a financial fall if those incidents strike.
In a bid to promote trade between nations, the laws of international shipping favor the carrier rather than the shipper. Insurance covers costs if that limited responsibility doesn’t. Either way, you should always ensure goods are packaged, loaded, and secured in the most efficient way possible to limit any chances of products being damaged in transit.
Ocean cargo insurance policies are not subject to strict underwriting procedures. The requirements for a policy to be paid out are much less rigid and most policies are offered as all-risk or can be custom-made with specific concerns in mind.
Some policies will not necessarily cover any accident that involves your goods. Most all-risk policies contain a certain series of situations they do not cover. Instances that are not on the list are assumed to be covered under that all-risk policy.
When you decide ocean cargo insurance is the way to go, it’s important to get the right insurance. Here are some things to keep in mind when choosing a policy:
To have the ideal policy, it is important to be accurate and upfront when disclosing the content of your shipment. You must disclose to the underwriter the following information: the type of item, the dollar amount of the shipment, the mode, and any other facts that could alter the assessment of risk. With all of this info on the table, the insurance company can choose whether or not to issue the policy and, in some cases, offer the policy but with a higher rate because of greater risk concerns.
It might seem obvious that your ocean cargo insurance policy would cover 100% of the commercial invoice value of your shipment plus duties. Rates vary, but the suggested coverage is 110% because you need to take into account what will likely be a hit to your net profit margin if the product is not there to be sold at a time when selling it is ripe. By the time a replacement is made, the demand could have dropped and your company will lose money. It is also worth noting that you are likely to get even better insurance rates with an annual policy than purchasing per-shipment policies.
Cargo insurance policies can get convoluted. So it is imperative that all the concerns you have are included in the policy and that you understand the other stipulations written into the policy. Here are some questions to keep in mind when buying a policy:
If you are subject to the other party’s insurance coverage in an international shipment, what has been procured on your behalf?
If there was a claim, would it be filed overseas or in your location?
Will a claim be paid in your currency or that of another country?
Are you needlessly paying duty on insurance because it is included in the price of the goods you are buying?
There are two ways to go about finding a company to insure your ocean cargo. Let’s take a look at them:
Traditional procurement: This includes contacting each provider individually and making sure they can handle insurance before working out a deal. One of the difficulties of going this route is that coverage often varies among carriers and navigating the terms can be difficult. A hole in the policy could put your shipment’s coverage at risk unknowingly.
Freight marketplace procurement: Among the many services that a freight marketplace can offer is the ability to simplify cargo insurance. In an ocean freight marketplace, insurance options are presented at booking. That allows you the chance to compare options and feel confident that your freight is fully covered.
Shipping ocean cargo has its share of risks, so it is in your best interest to acquire ocean cargo insurance. Having adequate insurance can save you from an extremely costly problem at a later date. Understanding the ins and out of cargo insurance can be overwhelming, but with the experts at FreightMango, the first-ever full-service freight marketplace that can offer solutions for capacity procurement and integrated cargo insurance, you can navigate this world like a pro.
To take a look at all of the services FreightMango has to offer and get a free quote, visit our website today.