What is the importance of cargo insurance in 2023?

When doing international trading cargo insurance is the most important factor. This blog helps you to understand cargo insurance in a simple explanation.

What is the cargo?

Before the discuss cargo insurance, we need to understand the term “cargo” and the term “insurance”. Cargo can be simply defined as goods or products in trading for commercial value or exchanging products or services. There are many types of cargo. Such as general cargo, bulk cargo,hazadors cargo,project cargo,bonded cargo etc.

What is insurance?

Next, we will understand the meaning of insurance. Insurance is the method of managing your risk for commercial values.

What is Cargo Insurance?

When considering cargo, you have to face some kinds of risk associated with transportation, loading, and unloading, stored in warehouses. Such as damages or loss of your cargo. If you are registered with a cargo insurance company pay a claim according to damage or loss and terms of insurance policies.

Main types of Cargo insurance

There are 3 types of cargo insurance according to the modes of transportation. Below will discuss them one by one.

1. Land cargo insurance

As per the name of land cargo insurance, it is used when transporting goods in the mode of land. It may be a truck, van, car, lorry, rail, and so on. Land cargo insurance is used as a risk prevention option when occurring accidence and theft damages during transportation.

2. Air cargo insurance

This type of insurance coverage uses when transporting goods by air.

3. Marine cargo insurance

Marine cargo insurance is the most famous insurance type for international trading. This is used for cargo that is transported by sea. There are so many risks associated with sea transportation, So it is most important to register your cargo with an insurance company. It is mostly used when importing and exporting goods.

Before entering into the insurance process, It is better to get an idea about the risk associated with cargo transportation.

What are the risks may have to face transporting goods by sea-on foreign trade?

There are many risks that occur transit of the cargo by sea. Perils can be divided into two categories as perils of the sea and perils on the sea. Below mentioning examples of the perils related to marine insurance.

Perils of the sea

1. Collision

ship collision occurs when two ships touch accidentally and as a result of that physically damaged the ships.
And also, collisions may happen between ships and any other floating things (icebergs, offshore drilling platforms, etc.) in the sea or port.
That kind of damage can’t be measured as only cost. but the result of a collision at sea effect is also beyond the money. Such as life losses and due to collision making traffics on marine routes it is time-consuming. It will affect to world trading industry.
These days sea collision is more due to the marine technological improvement impact on the shipbuilding industry from manufacturing high-speed ships at high sea.

Example of ship collisions at sea

2. Sinking

The main reason for the sinking is the ship is flooding. And may sinking occur due to Navigational issues, Human errors. Bad weather condition is mostly affected to ship sinking.

Example of Sinking ships

3. Stranding

The meaning of stranding is ship becomes immobilized. The ship’s mechanical error or failure may be the reason for this.

4. Unexpected weather condition

This is a natural effect anyone can’t stop. Bad weather conditions are made high swells at sea. It negatively affected ships that are sailing at the time. Bad weather conditions may affect to ship. Bad weather may cause the to ship sink.

Heavy storm

Next, discuss the perils of the sea and how it is harmful to your cargo.

Perils on the sea

1. Fire

Fire can happen onboard a ship due to various reasons. Such as below
Cargo storage is wrong. Because some of the two types of cargo can make fire.
Technical Failures of a ship.
Leaking of high-pressure fuel or gas pipes.

example incidences of fire on a cargo ship in Sri Lanka

2. Jettison

Jettison simple definition is throwing cargo out of the ship at sea. This happened during an emergency cause of the voyage. Examples of emergency cases are fire on board a ship, Need for weight reduction on a ship. jettison is done according to the instructions of the Ship captain. He has the right to throw goods in an emergency. And also he is liable to keep records of the cargo list of what has faced jettison.

Example for jettison

3. Thieves

Piracy attack in the ship transportation at sea. When occurring a piracy attack your cargo may be lost.

4. Barratry

5. War

8. Other risks not mentioned in the above categories

Now you have a better idea about the risks associated with sea transportation. As a security option or prevention of loss of cargo value, you must do cargo insurance.

Why should you do cargo insurance?

When traveling goods by sea insurance is very important to shipowners as well as cargo owners. Absence of marine insurance shipowners and cargo owners have to incur financial loss and more. When considering international trading, marine insurance of cargo is a mandatory requirement in the import and export procedure. Both of shipper and consignee are legally liable to do cargo insurance coverage.

What benefits of cargo insurance?

Cargo insurance reduces costs related to loss of finances when damage or loss of cargo.

All risk coverage
Peace of mind
Money saving
Liability coverage

Exclusions of insurance coverage

This means insurance does not cover it due to specific reasons. It is better to be aware of that kind of situation as a cargo importer, exporter, and freight forwarder.

For the special cargo-may does not cover insurance under the hazardous cargo, specific electronic devices, high value or delicate cargo
Packaging issues-Poor packaging or damaging packaging, your insurance company may not cover insurance for damages or loss of cargo due to error packaging. the unsuitability of packing or insufficient packing also causes to errors in packaging methods.
Flawed products-If there are faulty products in your package insurance does not cover
Loss in weight/volume due to Ordinary leakage, breakage
Willful misconduct of the assured
Death of animals due to natural perils
Property or other loss due to rats

Insurance claiming process

In this section, I would like to take about how to claim from an insurance company. Explain step by step as below,

If your cargo has been lost or damaged by the transit process you need to inform your cargo insurance company immediately.
Will conduct a survey to identify damages or losses
You need to submit evidence and proof of witnesses along with the duly completed claim form.