Cargo Insurance: The Shocking Truth for Importers & Exporters

4-minute read

As an importer or exporter, you’re no doubt always on the lookout for ways to save your money. But there’s one place you shouldn’t be skimping on, and that’s cargo insurance.

Sure, you might never have had any problems with your shipments in the past. Or you might feel it’s worth the risk on a small or low-value shipment.

But there are many misconceptions about who is responsible for your goods in transit, and who is liable for the cost when things go wrong…

But isn’t the carrier responsible for covering my losses?

To a certain extent, your carrier does have some liability for your goods in transit. However, the extent of that liability can vary, and is often nowhere near enough to cover many business’s costs.

Ocean carriers are usually only responsible for up to USD 500 per package. Air carriers can have a minimum liability of as little as USD 20 per kilo.

So while you may think your carrier will cover you if they lose or damage your goods, that’s not always the case. Any prudent importer or exporter will have cargo insurance in place to protect the true value or their goods.

And it’s not just the cost of your own cargo you’re insuring either.

You might not be aware of it, but much of today’s shipping law is still based on ancient maritime law. One of these laws relates to the concept of “general average”.

Under this clause, if a ship transporting your goods is damaged at sea or goods must be thrown overboard to save the ship, all the ship’s customers share in covering the losses. This principle is still used today.

General average was perfectly illustrated in New Zealand by the grounding of the Rena vessel off the Tauranga coast.

The loss of this vessel and her cargo was one of NZ’s worst maritime disasters. In this case, cargo owners encountered the “general average” rule, which states that all of the ship’s customers share in covering the ship’s losses – including the loss of the ship itself.

So you think you’re only taking a risk on a few thousand dollars worth of your own goods? Think again.

If a vessel transporting your goods is lost or damaged at sea, or goods must be thrown overboard to save the ship, you’ll be partially responsible for the cost – whether your goods have been lost or not. And that cost could potentially run to millions of dollars.

My supplier is insuring the shipment – isn’t that good enough?

In many cases, your overseas supplier may insure your goods during transit. But how sure can you be that you’re adequately covered? And if you do need to make a claim, how easy is it going to be when your insurance company is overseas?

Five critical things to consider:

1. Who is the insurer?

Are they a reputable company? Are they based in New Zealand, or overseas? How easy is it going to be to file a claim when you need to?

If there was a claim, you would be required to lodge and coordinate the claim with an overseas insurance agency and most likely will not have reliable representation in the New Zealand. It can be very frustrating to communicate across time zones.

2. How much is insured?

Make sure you accurately quantify the value of the shipment to be insured, so you know that you’re adequately covered in the event of any loss or damage. Supplier (under CIF Terms) may only provide minimal coverage without regard to your need.

3. When and where are you covered?

Some policies only cover certain types of transport, while others may exclude any time the goods are stored in a warehouse. Make sure your policy covers your cargo from the moment it leaves until the moment it arrives.

4. What are you covered for?

Your policy may exclude events such as piracy and war, which could leave you severely out of pocket. To avoid this, take out an “all risks” policy that covers you whatever happens.

5. What are the costs?

Your cargo insurance price will be based on a combination of the commercial value of the goods, commodity name, method of transport, origin and destination. Cargo insurance premium starts from as little as 0.25% of the insured value.

Of course the more shipments you import or export, the higher your chances of suffering loss or damage to your goods at some stage. Therefore any importer or exporter who wants to avoid losing a lot of money should invest in cargo insurance.

If you want to be sure you’re adequately covered, at a fair price, Easy Freight can help. Just use our online enquiry form.

Have you ever had to make a claim on your cargo insurance? What was the outcome? Please share your experience in the comments box below.

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