Cargo insurance and it’s importance in the supply chain

Cargo insurance protects the shipper and buyer and without it you put at risk the cost of your cargo. In May 2019 a container vessel catches fire, this time the KMTC Hong Kong. This wasn’t the only vessel this year to catch fire. There have been several incidents worldwide and it is on the increase. Fire is not the only threat to your cargo but it does highlight the need to insure.

Estimates claim half of all sea freight shipped each year have inadequate insurance cover. Meaning thousands of cargo owners take a huge risk with their cargo. Repeated industry warnings do not seem to have an effect on the volume insured. Shippers and buyers continued insistence to cut cost puts them at risk. Cargo insurance is an easy cost to cut but comes at a serious risk.

It’s Simply Not Worth the Risk

Unfortunately, there seem to be reports of fires on container ships every few months. As vessels continue to increase in size the potential impact of a vessel fire only increases.

Damage to cargo or caught out by a General Average claim cargo insurance is there to protect you. Quality cargo insurance clause A cover will protect you against all risks of physical loss or damage.

Most marine cargo insurance policies protect you from carrier exclusions of which there can be many :

  • Acts of God
  • Terrorism
  • Strikes
  • Riots
  • Civil Commotion Risk

General average could be the biggest risk to shippers and is often not discussed until a claim is made. Ask your freight forwarder about general average and see if they know or understand the implications.

General Average

A cargo ship’s master chooses to sacrifice part of the cargo or equipment from the vessel to save the voyage. General average then declares by the vessel insurers which affects all shipments on the vessel. All parties with cargo on the vessel make a proportional contribution to cover the costs. The term for this is “General Average”. The vessel owner can declare this legal principle under maritime law under specific circumstances.

Here is an example of how it works :

  • If a vessel has 200 containers on board and twenty catch fire. The captain of the vessel discharges overboard the 20 containers into the sea.
  • By throwing the twenty containers overboard, saving the crew, vessel and remaining cargo.
  • All companies share the loss. Not just those who had their containers thrown overboard.

General average declares. The ships insurance company look at the damage to the vessel and the lost containers. The shipping line hold the cargo and request payment of general average. If insurance is in place it is straight-forward. The shipper should receive a General Average Guarantee from their insurer.

if cargo is uninsured it will be held awaiting payment. The cash deposit required will depend on the assessed amount. This could run into tens of thousands of pounds. The value of your goods has little effect on the claim made by the shipping line’s insurers.

The most important thing to note is the general average claim could be more than the value of your goods.

All modes of transport, air, sea and road should have adequate cargo insurance. An incident at sea can have significant financial implications. Cargo insurance is a sensible investment for all shipments. General average can make sea freight especially vulnerable.

Container ship on fire, General average is declared and cargo insurance is needed

Connaught Global always recommends cargo insurance

We strongly recommends cargo insurance on imports and exports. Connaught Global can organise to insure your goods if requested. Like all instructions it does need to be specified. We operate an open general marine insurance policy which covers all modes of transport.

if cargo insurance is arranged on your behalf you insure directly with our insurers. Our insurers are listed at Lloyds of London and they are best placed to handle any claim. All certificates raised list an insurance surveyor for speed and ease of use.

We hope you never have to use cargo insurance. But we recommend not cutting this cost out of your supply chain.


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