Many shippers believe that if goods are lost or damaged in transport, the carrier will pay. Sometimes it does. But the amount is often far less than the value of the goods, and in many situations the carrier does not have to pay at all. Cargo insurance closes that gap.
How carrier liability works
The liability of carriers is set by international conventions and by the terms of the transport contract. The main ones are:
- Sea freight: the Hague Rules and the Hague-Visby Rules (and, in a smaller number of countries, the Hamburg Rules).
- Road freight: the CMR Convention for international road transport.
- Air freight: the Montreal Convention, or the older Warsaw system on some routes.
These rules have three things in common:
- Liability is limited. Compensation is capped, usually by weight (per kilogram) and, at sea, also per package or unit. The limits are expressed in Special Drawing Rights (SDR), an international unit of account. For light but valuable goods, such as electronics, clothing or medicines, the cap can be a small fraction of the real value.
- The carrier has defences. At sea in particular, carriers are not liable for some causes of loss, such as certain navigation errors, fire in some circumstances, perils of the sea or insufficient packing by the shipper.
- The process takes time. You must give notice within strict time limits, prove the loss and prove the carrier was responsible. A claim can take months.
The exact limits and conditions depend on the convention, the route and the contract. Ask us if you need the figures for a specific shipment.
What cargo insurance covers
Cargo insurance protects the value of your goods, regardless of whether the carrier is liable. Most international policies are based on the Institute Cargo Clauses (ICC), which come in three main levels:
- ICC (A): the widest cover. It covers all risks of loss or damage, except those that are specifically excluded. This is the standard choice for most manufactured goods.
- ICC (B): covers a list of named events, such as fire, explosion, the sinking or stranding of the vessel, collision, overturning of the truck, earthquake, washing overboard and water entering the vessel or container.
- ICC (C): the most limited cover. It covers a shorter list of major events, such as fire, explosion, sinking, stranding, collision and general average.
All levels have exclusions, for example loss caused by insufficient packing, ordinary leakage or wear, delay, inherent vice of the goods, or the insured’s wilful misconduct. War and strikes are usually covered only by separate clauses. Read the policy, or ask your insurer to explain what is excluded.
Under the Incoterms 2020 rules, a seller who sells CIP must insure at the ICC (A) level, while a seller who sells CIF only has to provide ICC (C) cover, unless the contract says otherwise. A buyer under CIF may want to buy extra cover.
General average: a risk many shippers do not know
General average is an old principle of maritime law. When a ship and its cargo are in danger, the master may make a deliberate sacrifice or spend money to save the voyage: for example, jettisoning some cargo, fighting a fire or paying for salvage and towing. The cost is then shared by everyone with an interest in the voyage, including the owners of all the cargo on board, in proportion to the value of their goods.
This means you can be asked to pay, even if your own goods arrived undamaged. Before your goods are released, the general average adjuster will require security, usually a guarantee from your insurer or a cash deposit. With insurance, the insurer normally provides the guarantee. Without insurance, you may have to pay a cash deposit, which can be a significant share of the cargo value, before you can collect your goods.
How to insure well
- Insure the full value. A common basis is the invoice value plus freight and insurance, plus a margin, often 10%, to cover extra costs.
- Cover the whole journey, from the shipper’s warehouse to the receiver’s, including storage and handling in between.
- Choose the right clause. ICC (A) for most goods; check special conditions for fragile, perishable or high-value cargo.
- Pack well. Insurers do not pay for damage caused by poor packing. Our guide to packing and palletising for export explains the basics.
- Act quickly after a loss. Note any damage on the delivery receipt, take photos, keep the packaging and notify the carrier and the insurer within the time limits.
Do you need it?
If losing the goods would hurt your business, the answer is almost always yes. The premium is usually a small percentage of the cargo value. When you ask Kyranis Logistics for a quote for air, ocean, road or express freight, ask us about cargo insurance too. We can talk through the level of cover that suits your goods and your route.
Planning a shipment? Request a quote with every fee included upfront, or talk to our team in Tunisia: +216 70 295 255, info@kyranislogistics.com.
