Blog. Marine Cargo Insurance

March 18, 2019

Marine Cargo Insurance

“Insurance: a thing providing protection against a possible eventuality.”

 

Do I really need to Insure my cargo?

YES, and here is why:

"A common misconception of most shippers is that the carrier, trucker, warehouse whether here in the USA or abroad will be financially responsible if the freight gets damaged or lost. Most carriers and warehousemen are not responsible for losses that are unforeseeable and beyond their control. Freight handlers limit their liability to $50-$500 per shipment. Always refer to a carrier’s Bill of Lading, tariff or other Terms and Conditions for specific limits of liability."

Why do people buy insurance for their home, auto, life or health? Essentially, it is peace of mind. We all know that stuff happens, it’s rare but it does; weather, accidents, human error… just to name a few. No one has the attachment to your cargo that you do, especially when shipping your “life” (Household Goods).

Marine Cargo Insurance pricing is based on the commodity you are shipping and the value of the shipment.  General Merchandise is on the low end of the rate and Antiques & Artwork are at the high end.  The higher the risk, the higher the rate; that makes complete sense, right? With Marine Cargo Insurance the ultimate destination is also a factor. i.e. insuring shipments to Europe is cheaper than shipments to Africa.

What does a policy cover?  What doesn’t it cover?

There are 2 main types of Marine Insurance:

”All Risk” and As the name implies, “All Risk” has the broadest insuring conditions and covers the greatest number of perils. held to cover all physical loss or damage from an external cause except for named exclusions.

Some of the most common exclusions include:

·         Improper or inadequate packing

·         Abandonment of cargo

·         Rejection by Customs or other governmental authorities

·         Failure to pay or collect

·         Inherent vice   Inherent vice is the tendency in physical objects to deteriorate because of the fundamental instability of the components of which they are made, as opposed to deterioration caused by external forces. All objects have some kind of inherent vice as a result of the baseline law of entropy.” 

 

“Free of Particular Average (FPA) ” is generally only used when “All Risk” coverage cannot be obtained due to the elevated risk associated with the product or shipping conditions. 

For Example: Used Goods, Scrap Goods, Household Goods

FPA is a named perils coverage meaning that the policy will only cover losses resulting from specifically named causes (like the below).  It is the cheapest policy. Your claim is for the total loss of the shipment; you cannot claim partial loss.

·         Fire

·         Theft

·         War

·         Lost or Missing Cargo

The difference is best explained as Full Coverage and Liability Only.

You cannot make a claim because your cargo is late!  Transit times are not guaranteed. If you have a deadline -> ship your cargo via Airfreight.

How much coverage do you need?

I recommend that you get a policy that covers the value of your cargo + the cost of the freight (this includes all packing materials) + 10%.  This is an industry standard. You will have to show all supporting paperwork for your claim; this means that you will have to show all receipts and the customs entry (from the customs broker) with the value. I say this because you may want to insure your pallet for $30000, but you are declaring to Customs the value is $1500. The insurance company will only pay out on the value that is claimed with Customs (plus the freight costs).

There is a reason to insure that is rarely discussed…. until it’s too late.  This is the Law of General Average.

 “The law of general average is a principle of maritime law whereby all stakeholders in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency.” Wikipedia

In layman’s terms, if something happens to the ship that your cargo is on, you are financially responsible to pay your part (based per container or per cubic meter/kilogram or value of your cargo) to fix it.  It’s written out in the terms of the bill of lading (you should always ask for terms when you are getting rates) This is so rare, but it does happen.  In my 27-year career I have had it happen twice; one client was insured, the other was not. If your cargo is insured the insurance company negotiates and pays the shipping line to get your cargo moving again; If not, then you get notified by your shipping agent (like Dove Shipping) and are given the monetary amount you need to wire to XYZ bank. Your cargo will not move until the amount is paid. 

Deductibles

Do you have a deductible? If yes, this will have to be paid prior to settlement. Some "All Risk" policies (again, it depends on the commodity and value) waive the deductible or have no deductible others are 3% or $500 whichever is greater. Make sure of the terms before you purchase a policy.

Inspect your cargo!

If you sign for your goods “In Good order” and later find damage it will make your claim much harder.  Inspect your cargo when you first see it.  I am not saying to open every box but walk around the shipment taking pictures. Do you notice any apparent damage? If you do, then inspect further before you take possession of the cargo and note it on whatever dock receipt or pick up order the driver/warehouseperson gives you to sign – then ask for a copy of the document or take a picture of it (make sure it is not blurry)

So how do you get your money if you have a claim? 

You will have to initiate the claim by contacting the company that sold you the policy.  They will send you some forms and “a list” of paperwork and pictures that you need to provide. When you are purchasing insurance, you need to ask how long a claim takes to settle and if there will be a deductible. It can take 3-9 months for a complete investigation for a settlement. This depends on the amount of clear and concise details you get back to the insurance company. They will ask for details and if you take your time in responding this will further delay your settlement.

Once all information has been reviewed and agreed to by the adjusters; they will send the settlement to the party named on the policy.

No company is going to guarantee your cargo will arrive, much less arrive undamaged. If there is damage, there is a ton of finger pointing – this is where the insurance investigators come in and it takes time to unravel the mystery while collecting supporting documentation. Be patient. I would be remiss to explain the risk of shipping internationally – things that “can” happen, however, the truth is that they rarely happen the number of claims versus policies is less than 1%.

Where to buy Marine Cargo Insurance

You can buy it from your shipping agent, carrier or you can find your own policy online. You must insure it before it starts moving to be covered. Insuring AFTER an incident never works out. You may also ask your personal insurance agency: as they may offer Marine Cargo Insurance.

Experience talks

We had a client ship an outdoor tent to the Europe for a party rental company. The goods were received in good order, however, upon unpacking the pallet the importer noticed what appeared to be holes from a forklift. We made a claim on the shipper’s behalf and the value insured was $20 thousand over what they declared with Customs. Even though the goods were damaged, the importer was still using them for their events and made it impossible for the adjuster to go inspect the damage as it moved around the country. The importer wanted a brand-new tent, the insurance company noted they were using it so the tent was not considered a total loss. A settlement was reached based on the value declared with Customs.

Another client shipped Household goods to Trinidad. They packed a 20' container themselves and wanted to claim damage for a coffee table that had a broken leg. There was no visible external damage to the container and it was determined the table was damaged due to inadequate packing. Since the shipper packed it themselves the claim was denied.

There is so much information on insuring cargo.  If you have any questions, please let me know by commenting below. I hope this information helps you make the best decision on insuring your cargo.

Our next BLOG article will be on Tracking Your Cargo.

Dove Shipping International Inc. proudly sells Marine Cargo Insurance as part of our services shipping international cargo. We strive to provide the best Customer Service. Please click the QUOTE tab to request rates for your next international shipment. 

Sue Fitzgerald, GM, Dove Shipping International Inc. Houston, TX

EMAIL ME, Tel: 281-328-4100