Types of Cargo Insurance & What They Cover (2024)

Each year, maritime vessels lose an average of 1,390 containers. This is a shocking figure when you learn that this figure is 48% lower than years prior, according to the World Shipping Council. Most of these losses are caused by weather events- approximately 1,100 each year. In 2017, Typhoon Damrey alone caused six losses.

With this information, it should come as no surprise that all shipping lines are legally required to provide shipping insurance to protect the cargo they carry. While this is a major benefit for most shippers and importers, it shouldn’t be your sole reliance.

With most carriers, cargo insurance is minimal and riddled with exceptions of their liability. Due to this, it is always advised that you seek out other means of shipping insurance to protect against loss from weather events, fires, sinking, and so much more.

Types of Shipping Insurance

Like all types of insurance, there are several different providers, options, and coverages. Land, sea, air: No matter how you ship, there are plenty of insurers who specialize in protecting your cargo during shipment. However, the extent to which you are covered will depend on your policy.

Before choosing cargo insurance, always consider the type of coverage you need, how you will be shipping, and the policy details.

Land Cargo Insurance

Land Cargo Insurance is coverage for your goods while being shipped via utility truck, semi, or train. It will protect you from theft, collision damage, fires, and more. One drawback of this coverage is that it is only applicable when it is in-country. Moves over foreign land are often exempt.

Marine Cargo Insurance

Ocean cargo insurance, also known as ocean freight insurance or maritime cargo insurance, covers your cargo as it is shipped across waters, generally over international borders. In some instances, it may even cover air shipments.

It will cover damage from loading or unloading, weather events, piracy, container ship sinking, containers falling off ships, shipping collisions, and more.

Marine freight insurance policies are either permanent or renewable. We suggest that you choose renewable if you aren’t a regular shipper, and permanent if you ship frequently.

A Deeper Look At Maritime Shipping Insurance

While both land and sea are common shipping modes, the majority of incidents and losses occur at sea from “acts of God,” which makes insurance and filing a claim rather tricky. Most carriers offer only limited coverage and are regularly exempt from liability for losses due to weather events. Due to this, maritime insurance requires a more in-depth inspection.

For those shipping or importing by sea, there are two types of maritime insurance- All-Risk and Named Perils.

All-Risk Insurance Policies & Exclusions

All-Risk insurance is also known as Institute Cargo Clause A- the broadest type of maritime insurance. Generally, these policies will cover absolutely anything unless identified explicitly in the policy.

The most common exclusions you’ll see in this type of coverage include:

• Inherent Vice- objects deteriorated due to the product itself; its fundamental composition is naturally unstable.
• Negligence- packing negligence or deterioration of time-sensitive goods.
• WSRCC- “war, strikes, riots, and civil commotions.”
• Loss of Use/ Market- loss of profits will not be covered, though the cost of goods will
• Loss Over Policy Limit- there is a maximum conveyance limit, and losses over that will not be covered.
• Abandonment- cargo is abandoned at ports of entry.
• Customs Rejections- rejections of cargo at ports of entry
• Failure to Pay/ Collect- loss due to nonpayment.

In some cases, external factors such as weather events are also excluded. Always check your policy to ensure that you have coverage, since weather events are the most common cause of loss during ocean shipments.

Named Perils Insurance Policy

A Named Perils Policy (also known as Institute Cargo Clause B and C; formerly known as “With Average” and “Free of Particular Average”) offers more restrictive coverage. Contradictory to All-Risk Policies, Named Perils Policies only cover what is listed explicitly within the contract.

This type of policy most commonly covers:

• Burning
• Cargo ship sinking
• Stranding
• Shipping collisions
• Derailment
• Weather events
• Theft

In most cases, either of these insurance policies will protect you from loss during shipment. However, there is a crucial piece of legislation that you should be aware of. This is the law of General Average.

The Law of General Average

The law of General Average deems cargo owners to be just as responsible for losses and associated costs of the loss in the protection of the ship's entire cargo. In other words, if a cargo ship’s master sacrifices freight or equipment during an emergency in order to save the entire voyage, then all parties must make contributions to cover the costs of the loss.

So, if you have not lost your cargo during a General Average event, you must compensate other cargo owners for their losses and/or for damages to the vessel.

This can have several effects on importers. Firstly, it poses potential delays or total losses. Secondly, if you don’t have marine cargo insurance, you must post an Average Bond, or you will be unable to receive your cargo after the General Average event.

It is essential to pay attention to this law, because it is generally not covered by cargo insurance policies unless it is specifically included.

Where to Get Cargo Insurance Coverage

There are a lot of perils in shipping, especially over rough seas. It’s always better to be safe than sorry.

Cabrella insures your valuable cargo to 182 countries and offers extended protection for events and causes typically excluded from policies.

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