Covering Your Assets
Cargo insurance can be a life preserver for shippers
By Bill Armbruster
There’s a big hurricane, and you learn that some containers have been blown off a ship.
Suddenly you have a sinking feeling. Your container was on that ship!
You share your woes with another shipper, who asks whether you had cargo insurance. You didn’t. Now you’re kicking yourself. Your freight forwarder had recommended it, but you figured you didn’t need it. Besides, with freight rates soaring, you were under pressure to keep your costs down.
You could have protected yourself if you had cargo insurance, just as it can cover other risks, such as theft or damage from improper handling. It probably will not help if your cargo is not shipped on the scheduled sailing. But that’s when cargo insurance may be most valuable. The more your cargo gets moved around a terminal, the greater the risk of damage.
Cargo insurance is unregulated, so you can customize your policy to meet your needs. But there are lots of issues for you to consider. For example, what risks you should cover, whether you should cover just the value of the goods themselves, and if you’re an importer, whether you should cover the retail value of the goods.
Many freight forwarders sell cargo insurance because it’s an important value-added service they can offer their customers. But you may want to try a general insurance broker, especially if you’re a big shipper.
Based on my conversations with industry experts, I recommend that shippers buy insurance that covers the cost of the goods themselves and the freight costs, plus an additional 10 percent. That will cover additional costs you may incur if, for example, the goods are lost or damaged very close to the point of delivery. In such cases, the shipper would still be obliged to pay the trucker.
As for the cost, that depends on such factors as volume, the type and value of the goods, the loss experience of the parties in the transaction, deductibles and the type of coverage, but it’s generally very cheap. One broker told me it’s generally about 0.5 percent of the value of the goods. One forwarder told me her company charges 55 to 60 cents per $1,000 of the value, with a minimum premium of $50.
Shippers of low-value goods may be particularly disinclined to buy cargo insurance. That could be a big mistake. Under the principle of general average, everyone with cargo on the ship, along with the ship owner, must share the burden, even if there are no cargo losses. If, for example, a ship loses power and has to be towed, or if it runs aground and a salvor is required to save the ship, you have to kick in. Until you come up with your share, either in cash or a bond guarantee from your cargo insurer, you won’t be able to get your cargo released. Some general-average cases take years before they are settled.
So the bottom line is that you can cover your assets – and your backside – with cargo insurance.
About Bill Armbruster
Bill Armbruster, the anchor for the Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. “I’ll be blogging on headline news and current issues in oceangoing commerce, trying to shed some light on the backstories and, wherever I can, supply some sound advice for shippers.” Write to [email protected]
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.
Date posted: July 8, 2010