New Buckle up! Cargo insurance protects your goods if they’re damaged, stolen, or lost while in transit.


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As supply chains grow lengthier and encompass more players, shippers face a greater chance that their materials or components are going to be damaged, stolen, or lost along the way. “Shippers today are taking over tons more risk,” says Mark Bernas, assistant vice chairman , ocean marine, with insurer CNA.

In 2015, losses thanks to cargo theft hit $22.6 billion, consistent with BSI Group’s Global Supply Chain Intelligence report. And, in November 2016 alone, the Transportation Asset Protection Association recorded 231 freight thefts within the EMEA (Europe, Middle East and Africa) region. the typical loss topped 60,000 euros, or about $64,000.

Cargo insurance, which covers products in transit, can protect against these risks. Although it’s sometimes mentioned as “marine insurance,” cargo insurance can cover shipments moving via ship, truck, rail, and/or air, counting on the policy.

“Any time you’re shipping something where you’ve got an interest , you ought to check out protecing the products ,” says Karen Griswold, senior vice chairman of ocean marine for insurance provider Chubb Ocean Marine, North America.

Many instances of cargo theft go unreported, as companies want to avoid the publicity. half cargo premium dollars attend cover theft, estimates David Lee, director, inland marine with insurer Tokio Marine America. Lee also chairs the transportation committee of the Inland Marine Underwriters Association (IMUA).

Theft, of course, is merely one sort of loss. About 2,700 containers were lost stumped annually between 2011 and 2013, consistent with the planet Shipping Council. Weather, temperature changes, breakage, and other events also can damage cargo.

While the danger of cargo loss is real, the choice to get insurance usually rests with the shippers. They typically haven’t any legal obligation to hold this coverage, although some financial institutions may require it before they’ll lend money.


Companies with strong balance sheets may decide they will withstand a cargo loss and essentially self-insure. Businesses that take this approach got to regularly assess their exposure and loss data, and use their analyses to see the adequacy of their reserves, recommends Mark Robinson, vice chairman , global operations, with UPS Capital.

Ensign-Bickford Industries Inc., a worldwide science and technology organization that operates within the aerospace and defense sectors, tailors its use of cargo insurance to the kinds and volumes of business it’s doing, the locations it’s shipping to, and shipping terms, says Rick Roberts, director, risk management and employee benefits and former president of risk management society RIMS.


For instance, when Ensign-Bickford purchases goods on FOB shipping point terms, it doesn’t take ownership until the products reach a domestic port. the corporate needs coverage only from the port to at least one of its plants. Moreover, these shipments typically pass by truck. Given the dimensions of the products, it’s difficult to load enough on a truck to satisfy the company’s deductible. As a result, it often is sensible to self-insure for these trips.

In contrast, Ensign-Bickford recently started shipping to Europe, South America, and therefore the Mideast. The volumes are larger, and a few customers have requested the shipments be covered by cargo insurance. “Customers want to form sure if the ship goes down, they’ll still get their important products quickly,” Roberts adds.

It may seem that the corporate transporting a shipper’s goods would have some liability if the products don’t arrive as they’re alleged to . But in most cases, the carriers’ liability is extremely limited.

The industry standard can vary counting on transport mode. An ocean carrier typically is responsible for $500 per customary shipping unit, like a pallet or container. meaning a corporation that loses a container crammed with $1 million in goods may recover a scant $500. “Cargo insurance provides more protection,” Robinson says.

Some questions a supply chain professional will want to deal with when considering cargo insurance include: Which parts of the shipping journey are presumably to present risks? Does my company ship products that are susceptible to theft and/or damage? At what point does my company take ownership of the goods?

“Know the danger characteristics,” says Steve Connor, president of Wyvern International Insurance Brokers Inc., Barrington, Ill. That’s critical to determining how best to mitigate them.

Companies also got to determine the approach they’ll take. Some purchase insurance only for catastrophic events. Others companies’ supply chains are susceptible to more frequent, but less severe events, and that they may adjust their deductible to reflect this. “Deductibles can home in amount and vary consistent with the extent of risk companies are willing to soak up themselves,” Griswold adds.


Cargo insurance are often complicated. it is also less regulated than another sorts of insurance. As a result, it are often a “potential minefield for unsophisticated buyers,” Connor says.

For these reasons, most cargo insurance is sold through brokers, who are fiduciaries by law. “They represent the customer, not the insurance firm ,” Connor says. Equally important, reputable brokers are experts in pricing, coverage, and other elements of cargo policies.

Brokers can also help companies minimize potential risks in their supply chain, says Ted O’Sullivan, head of Protecht Risk Solutions with Falvey Cargo Underwriting, North Kingstown, R.I. as an example , to require advantage of lower wages, some manufacturers in China have shifted operations from the Chinese coast to central China. instead of still use ocean transportation, a number of the businesses moved to the China-Europe Block Train, which spans 8,000-plus miles through Asia, Russia, and eastern and western Europe.

“We had to know the risks of companies considering a shift from ocean to rail,” O’Sullivan says. Train cars typically aren’t heated, and travel through Siberia sometimes during winter. additionally , rail cars aren’t always secure, therefore the goods might be susceptible to theft.

While many freight forwarders offer cargo insurance, that convenience can accompany ies own costs. For starters, the shipper is one step faraway from the particular insurer, and typically won’t know the freight forwarder’s loss history, both of which can influence price and coverage. “It could also be an excellent policy, but it’s hard to understand ,” says John Miklus, president of the American Institute of Marine Underwriters.

Companies that ship infrequently may decide the convenience of working through a freight forwarder outweighs any downsides, notes Gordon Adams, vice chairman , risk management, Servco Pacific Inc., which operates auto dealerships across Hawaii, among other businesses.

They’ll want to repeatedly reassess their decision because the volume and/or value of their shipments increases. Frequent shippers with an honest loss history may find coverage less costly on their own.


Shippers also got to decide whether to get cargo insurance on a transaction-by-transaction or on an “open cargo” basis. because the term implies, insurance purchased on a transaction-by-transaction basis covers one transaction. An open cargo policy lasts until it’s terminated, although most companies and insurers review them annually.

Companies that ship infrequently and are not overly concerned with loss may find a transactional model adequate. “But once you begin stepping into high-value goods or sensitive products, you would like to form sure you’ve got adequate insurance and take a more proactive risk management approach,” says Mike Falvey, president of Falvey Insurance Group.

Shippers can assess the three V’s to work out when to shift to an open cargo policy: the worth of their shipments, the speed or frequency with which they ship, and therefore the volume of every shipment. As any of those increase, the case for an open cargo policy becomes stronger, O’Sullivan says.


Most ocean cargo policies typically offer coverage from “warehouse to warehouse,” says Ralph Santoro, regional manager, ocean marine with Tokio Marine America. If a shipment travels from a U.S. warehouse via truck to a port, then on a ship to Europe, where it docks and again moves via truck to a French warehouse, many policies will cover the whole journey. “If a loss occurs, we all know what policy it’s under,” Santoro says.

Similarly, many bills of lading are titled multimodal, or contain terms and conditions that mention multiple modes of transportation, just in case the carrier must substitute one sort of transportation for an additional . This could be needed if, as an example , shipments that were scheduled for air transportation finish up moving by rail because inclemency grounded the planes.

Correspondingly, shippers’ cargo policies “should be robust enough to handle all modes of transportation,” notes David Pasco, senior account manager with Roanoke Trade, a subsidiary of insurer Munich Re.

An “unnamed location” provision covers a shipment if there is a break within the voyage and therefore the goods are temporarily stored. “It’s a catch-all if something happens you cannot control,” Adams explains.

Some cargo policies include provisions specific to the mode of transport or items being covered. for instance , an insurer may require a corporation shipping high-value freight via truck to stay a minimum of two drivers within the truck cab in the least times, and to never leave the cab unsecured, Santoro says. Similarly, the insurer may require the shipper to stay the packages freed from content descriptions, which could tempt would-be thieves, Santoro says.


Stock-throughput policies, or STPs, are growing in popularity, Falvey says. These provide coverage for materials as they modify from stock to raw materials to work-in-process to finished goods, and whether they’re in storage, a processing location, or on their thanks to a final delivery.

Adams provides an example: a corporation delivers vessels of raw tuna to a cannery, where they’re cooked, cleaned, and canned before traveling to a warehouse then on to their final destination.

“People assume that cargo insurance covers goods to the location , through the value-add processes and therefore the continuation of the voyage, but that’s not always the case,” Adams says. as an example , cargo insurance typically wouldn’t cover spoilage that occurred if the facility went down while the fish were in processing. A stock throughput policy—essentially, an enhanced cargo policy—likely would cover the cargo as it’s being processed. “It’s a broader policy and covers more of the risks you face during this scenario,” he says.

A number of terms and documents are important in cargo insurance policies. the knowledge presented within the bill of lading (BOL), like the value and weight of the products and their starting and ending points, typically is employed to work out the worth of the products being insured, Lee says. (The term “contract of affreightment” is employed sometimes . This refers to the agreement under which a ship owner agrees to hold a shipment via water.)

For goods traveling via ship, a replica of the BOL is given to the ship captains, Adams says. If they need to jettison cargo, this is often noted on the bill of lading. If a shipment is broken , the sort and extent of the damage is also noted. “These determine the extent to which you’ll claim cargo loss,” he notes.

Another key piece of data is that the point at which ownership transfers from seller to buyer. This typically follows the terms of sale, which are usually stated within the invoice or sales contract. Shippers “have to demonstrate title to goods at time of loss,” Connor says. In contrast to most insurance transactions, shippers might not even own the products once they purchase a cargo policy. However, to file a claim for a loss, they typically will got to show that they had title to the products when the loss occurred.


One concept unique to ocean insurance policies is that of “general average.” This comes into play if a ship’s captain determines that to save lots of the vessel, the crew must jettison a number of the cargo. “It’s called a ‘deliberate sacrifice’ for the greater good,” Griswold says. this will occur due to inclemency , engine trouble, or a fire, among other events.

The idea behind “general average” is that each one parties—the shippers and therefore the carriers—benefit when some cargo is tossed overboard. So, instead of place the loss entirely with the corporate whose products were sacrificed, everyone takes a financial hit.

While the calculations can become complicated, each shipper’s portion generally is predicated on the share value of its goods relative to the combined value of all the products on the vessel, and therefore the ship itself, says Pasco.

After a general average has been declared and therefore the vessel arrives at port, no cargo typically is released until the shipper has posted a general average bond or guaranty. “If you’ve got insurance, it’ll provide the warranty ,” Bernas says. Companies that do not have insurance got to come up with a guaranty or some instrument that shows they will pay.

If a vessel completely sinks and there is no recovery, the overall average concept doesn’t inherit play. “There’s nothing to be saved from the venture,” Griswold says.

The coverage provided can differ from one cargo policy to subsequent . “Open cargo insurance” is meant to hide frequent shippers, Robinson says. It typically covers most risks, including damage, theft, piracy, general average, and shipwreck. Losses resulting from cyber attacks, illicit trade, civil and military unrest, and therefore the delayed delivery of time-sensitive or perishable goods tend to be excluded, he says.

Some other specific losses could also be excluded also . Griswold provides an example: a policy for a corporation that’s shipping intricate machinery might exclude mechanical derangement, or damage to the electrical or mechanical components or workings of the machine.

Many cargo insurance policies are written for what’s referred to as “CIF plus 10.” This refers to the value of the products , plus insurance and freight costs, with 10 percent for profit. If a corporation presents a claim, it generally will recover CIF plus 10.

Some insurance companies don’t require documentation on the worth of the shipment(s) so as to get cargo insurance. However, if a shipper files a claim, the insurer may require an invoice or other information so as to validate the worth of the products on the claim.


The price of a cargo policy depends on numerous factors. These include the things being shipped, their origin and destination points, and therefore the carrier’s loss history. Items at greater risk of theft are, not surprisingly, costlier to insure.

The way during which the products are packed can also impact price, Bernas says. Goods which will be shipped within crates or containers tend to be priced more favorably than goods that cannot be packed, or are simply shrink-wrapped, where they’re more susceptible to both damage and theft.

The mode of transportation can inherit play, Bernas says. Shipments via barge tend to be costlier than vessel shipments, because barges are more open, smaller, and likelier to capsize in heavy weather. Ocean shipments tend to be costlier than air, because the products are exposed to varied risks for a extended time.

Shippers will want to figure with their brokers and insurers to verify they’re complying with any regulations that inherit play when their shipments cross national boundaries. as an example , certain countries require shippers whose goods travel on their roads or rail systems to get an area transit policy, Griswold says.

“A cargo policy may be a living, breathing thing,” Pasco says. Shippers got to regularly review their coverage to form sure it continues to adequately protect against the risks to which their shipments are exposed.

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