Ultimate Guide To Cargo Insurance And Why Businesses Need It?
- Adit Bhatnagar
- Feb 23, 2022
- 6 min read
Cargo can move by sea, air, or land—hence, by ships, planes, trains, or trucks. The transport medium depends on the type of cargo and the distance. For example, food intended to enter Hong Kong from China is transported by trucks. The choice of the truck is due to the short distance and the weight of the products.
However, cargo risks arise when a business imports or exports products across borders. The risks include the possibility of the cargo being damaged or lost before reaching its final destination. In addition, many factors can affect cargo, such as adverse weather, collisions, delays, and theft. Therefore, the outcome of cargo risks can be extremely costly.
These cargo risks are why businesses buy cargo insurance to protect their cargo beforehand. This article explains why cargo insurance is vital for any business importing and exporting goods.
What Is Cargo Insurance?
Cargo insurance is the best policy to protect the value of your cargo from damage, loss or theft. The insurance covers cargo movement through any transportation method, including ship, flight, truck, or train. Things can always go wrong and may be out of your control. The insurance can be purchased for both business cargo and personal cargo.
The cover will begin either from the loading to the unloading of cargo during the principal transportation (sea or air) or from door-to-door. Hence, cargo insurance will help the business by reimbursing the market value of the products, no matter how big they are
It can be provided by your insurance broker per shipment or on an annual policy, as well as through the freight forwarder managing your cargo.
What Does Cargo Insurance Cover?
Weather Damage
Weather is one of the most common factors affecting cargo, from typhoons and hurricanes to rough seas, unclear air, and more. Weather can make the trip a bit more chaotic, making the cargo move uncontrollably. Rough weather can damage cargo or even cause cargo loss. The weather can affect any transport medium at any point and is uncontrollable when the journey has already begun.
For example, in December 2021, a cargo ship was caught in a winter storm and had to deliver ice-covered products to the port. The ship mainly carried cars from Japan to Russia, and the cargo was clearly damaged. In most cases, the outcome was almost uncontrollable, and businesses can suffer a significant financial loss and struggle to recover.
How Does Cargo Insurance Cover Weather Damage?
Such situations are unpredictable, so businesses must purchase cargo insurance to protect their goods and assets. The insurance will reimburse the business for the value of the damaged or lost goods at market value. It is a perfect cover for companies to have peace of mind when a dark cloud looms.
Collisions Damage
May it be the road or the sea, accidents unfortunately occur and can happen at any time. There have been hundreds of accidents that have damaged the loaded cargo. Collisions could damage or completely lose precious cargo, resulting in lost income and damage to the business’s relationships with receiving brands.
For example, many cargo trucks are involved in collisions when the cargo is not secure. The unsecure cargo causes the truck to go off balance, crash into other cars, or tip over. A cargo collision like this would cause significant damage to the cargo and possibly be unrecoverable. The business will still have financial losses even if it is not their fault, and the receiving company will still expect their products on time.
How Will Cargo Insurance cover Collision Damages?
Accidents are devastating, and cargo damage can be costly. A cargo insurance policy will protect the business in collision cases and will reimburse the cost of replacing or repairing the cargo. In addition, cargo insurance will pay you the amount you are insured for if a sudden collision happens to your freight.
Theft Loss
One of the cargo risks of importing and exporting products is theft. There is always a chance the cargo may be lost to crime by minor criminals or pirates. Such situations are surprising and could happen at any location or transport. The outcome of cargo theft can cost a business a large amount of money and delay business flow. No one is safe from such situations.
For instance, according to a recent report, cargo theft value increased 60% in 2025, compared to the previous year.
How Can A Business Recover From Cargo Theft?
As you can tell, cargo theft has increased over the years and, unfortunately, may not be avoidable. Cargo insurance recognises that this factor is outside the company’s control and will cover the value of stolen goods. The insurance will help the business during these challenging situations and allow the business to focus on future steps.
Fire & Explosion Damage
As we all know, when engines and machines are involved, there is always a risk of fire and explosions. Such incidents are catastrophic to the freight forwarder and the cargo owners. When a fire breaks out, it can burn all the cargo and destroy any chance of recovery. It is unfortunate and can cause significant financial damage. This results in companies spending even more to resend cargo to the receiving firm.
A very recent example of such an incident occurred in February 2022. A cargo ship in the middle of the Atlantic caught fire and damaged all the cargo. Unfortunately, the cargo included luxury cars, and all crew members had to abandon the ship. An incident like this can cost a business millions without insurance and interrupt its future business.
Is Insurance the Best Fire & Explosion Damage Recovery Solution?
Cargo insurance can reduce the impact of a tragic situation like this. Cargo insurance understands that these situations are sudden and can significantly affect the business. The insurance will reimburse the market value of the cargo on the burning ship. Importing and exporting products can be stressful, and cargo insurance helps reduce that stress. Whatever goes wrong, cargo insurance will have you covered.
What is General Average in Marine Cargo Insurance?
When the ship captain encounters a dangerous situation, he may decide to sacrifice part of the shipment to save most of the cargo and/or the vessel. In that case, all stakeholders in the shipments, including all cargo owners, will be liable for any unforeseen damages or losses. A general average will be declared to help move on from the situation and make all the stakeholders bear the losses, not only those who are directly hit.
In summary, when the General Average is declared, every cargo owner will be responsible for and have the duty to share the cost of damage or losses arising from the unfortunate situation. The purpose of the general average is to immediately take action at a time of real danger to save lives and property.
What Are Common Situations Where a General Average is Declared?
Ship fire
Storm at sea
Mechanical breakdown
The ship hits the coast (grounding)–for example, Ever Given: Suez Canal blockage.
When the cargo is insured, the insurance company will provide the funds to settle the general average for the business. Therefore, cargo insurance coverage can help the business avoid a large financial loss, as general averages can add up to millions of dollars. Additionally, cargo insurance saves the business time and effort. Hence, the company can hand over the documents to the insurer, which will take care of the general average process.
What Are The Main Benefits Of Cargo Insurance?
Purchasing cargo insurance is a smart decision for businesses importing or exporting products. The policy offers key benefits, including financial coverage, ensuring reimbursement for losses. It also provides peace of mind, allowing businesses to remain worry-free after sending cargo. To protect your business, invest in cargo insurance.
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Cargo Insurance FAQs
Why should my business invest in cargo insurance?
Cargo insurance protects your business from financial losses due to damage, theft, or loss of goods during transportation, ensuring peace of mind and financial security.
What types of cargo are covered by cargo insurance?
Cargo insurance covers various types of cargo, including commercial and personal goods, regardless of the transportation method used—air, sea, land, or rail.
How do I purchase cargo insurance?
You can purchase cargo insurance through your insurance broker for individual shipments or an annual policy, or through the freight forwarder managing your cargo.
To Learn More about Cargo insurance and get the best protection for your cargo, contact Red Asia Insurance.
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