16 SEPTEMBER, 2019 | 6 MIN READ.

Do you need cargo insurance? Why shipping insurance matters

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Do you export goods outside your home country, the country where your business is based? If so you'll need to buy cargo insurance to protect your business's finances against the risk of loss or damage on the high seas, and in other situations where goods are in transit.

As a manufacturer, importer, exporter or even a freight forwarder it makes a lot of sense to cover the potential business-killers that threaten your financial stability. Here's what you need to know about cargo insurance, and why it's important.

THE HISTORY OF CARGO INSURANCE

Cargo cover was originally created to protect goods transported by sea. These days because cargoes travel in so many different ways, from ship to air, rail to road, the cover tends to operate from warehouse to warehouse, with protection in place from the moment the goods leave the warehouse to the time they reach their final destination.

WHAT CAN HAPPEN IF YOU DON'T INSURE YOUR CARGO

If you decide not to insure your cargo, you leave yourself open to all sorts of risks. Cargo theft is common, as is piracy. Climate change means the seas and oceans are steadily getting less predictable, adding extra danger to the random 'rogue' monster waves that have threatened ships and boats for thousands of years.

There has been a dramatic rise in the number of containers lost overboard since 2013and every year sees a fresh collection of catastrophic losses at sea, many uninsured. At the same time cargo damage is a regular occurrence thanks to everything from poor export packaging to inadequate ventilation, ineffective cleaning, overloading, poor weight distribution and excessive stack weights. Unless you can guarantee that none of these things will affect your cargo, you need cover.

TWO TYPES OF CARGO INSURANCE

There are two kinds of cargo policy. A voyage Policy, designed for businesses that don't ship goods often, provides cover for a single voyage. An Open Policy covers all the items you ship and every voyage during the term of the policy, perfect when your business regularly ships goods.

KNOW THE LINGO

It's important to know the terminology used to describe the insurance products you buy. In the case of shipping cover:

• The shipper is the business that handles the shipment of the goods, but that doesn't necessarily mean they're the seller
• The consignee is the business that receives the goods at the other end of the journey, but they're not always the buyer
• The transporter is called the carrier – they can be the owner of a ship, a railway, an airline or a road haulage company
• The bill of lading is simply the contract between the shipper and the carrier, acting as a receipt and describing the goods being shipped as well as proving the ownership, the 'title'
• Goods Insured are the property being covered
• Assured Parties are those covered by the policy
• Your business is 'the assured'
• Covered Conveyances cover the cargo so it's protected from elements
• All-risk policies cover losses caused by anything that isn't specifically excluded
• Named perils policies cover losses caused by the perils listed in the policy
• Exclusions are the things a cargo policy doesn't cover – often war, improper packing, cargo abandonment, rejection by customs, delay, and 'inherent vice', which means any hidden defects that lead the goods to destroy themselves – for example flammable paint
• The Sum Insured. Is the amount of insurance, expressed in money, that the policy covers, made up of things like the invoice price, freight charges, and profit
• Geographical Limits means the physical places where you're covered
• Warranties are exclusions
• In this context Average describes partial losses. If you see the phrase free of particular average it simply means that partial losses are excluded unless they happen because of a named insured peril
• General average is about loss-sharing. If the vessel, crew, and cargo have faced a 'common' danger, for example a fire, and cargo has been thrown overboard to save lives or save the ship, the ship's owner can declare general average. If they do, all the cargo owners share the loss. A good cargo policy will cover general average losses as long as the loss was down to an insured peril
• The Terms of Sale are very important. Your sales contract should specify who is responsible for insuring the goods while being transported, as well as the exact point when ownership legally transfers from the buyer to the seller

WHY IT'S GOOD TO BUY YOUR OWN COVER

Ocean cargo insurance premiums depend on the kind of goods being shipped, their value, the route taken, and the scope of cover required. As a buyer or seller of exported goods it's wise to buy cargo cover yourself rather than trust someone else to do it for you. It means you can choose the best cover for your circumstances, you don't end up spending more than you need to, and you'll make claims via your own insurer, which makes things so much simpler. If you need to claim you won't have to struggle to deal with an insurer you're not familiar with, even an overseas insurer.