The Ultimate Guide To Cargo Insurance And Why Businesses Need It?
Millions of products are being imported or exported from one country to another daily. Sometimes we don’t even notice a product is imported by a business. For example, companies could import your food, wine, phone, or even clothes. Importing and exporting products is part of the logistics industry, and the products are called cargo.
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, the food meant to be entering Hong Kong from China uses trucks as their medium. The choice of the truck is due to the short distance and the weight of the products.
Although there are cargo risks if a business is importing or exporting products worldwide or even across borders. The risks include the chance of the cargo being damaged or going missing before reaching the final destination. In addition, many factors can affect the cargo, from bad weather, collisions, delays, theft and more. 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 will explain why cargo insurance is vital for any business importing and exporting products.
What Is Cargo Insurance?
Cargo insurance is the best policy to protect the value of your cargo from damage, loss or theft. The insurance will cover the cargo movement through any transport – 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 unloading of cargo during the principal transportation (sea, air) or door-to-door. Hence cargo insurance will help the business by reimbursing the market value of the products no matter how big it is
It can be provided either 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?
Just picture this- a huge ship stacked with thousands of cargo containers moving through the rough seas, moving up-down, side to side, and suddenly one box tips over. The movement will damage or lose the cargo to the sea. Weather is one of the most common factors that affect cargo. From typhoons, hurricanes, rough seas, unclear air and more. Weather can make the trip a bit more chaotic, resulting in the cargo moving uncontrollably. Rough weather can cause the cargo to be damaged or even lost. 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 transported cars from Japan to Russia, and clearly, the cargo was damaged. The outcome was almost uncontrollable. The business suffered a significant financial loss and suffered to recover.
Such situations are unpredictable, and this is why a business must purchase cargo insurance to protect their goods. The insurance will reimburse the value of the damaged or lost goods at market value to the business. It is a perfect cover for companies to have peace of mind when a dark cloud is in the sky.
May it be the road or the sea, accidents occur unfortunately and could happen anytime- no matter how safe one is. There have been hundreds of accidents that have harmed the loaded cargo. Collisions could damage or completely lose precious cargo, which will result in the business losing income and damaging its relationships with receiving brands.
For example, many cargo trucks get into 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 was not their fault, and the receiving company will still expect their products on time.
Accidents are devastating, and cargo damage can be costly. A cargo insurance policy will protect the business in such 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 surprising collision happens to your freight.
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 a business flow delay. No one is safe from such situations.
As you can tell, cargo theft has increased over the years and, unfortunately, may not be avoidable. Cargo insurance understands that this factor is out of the company’s control and will cover the value of stolen products. 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 there are engines and machines involved, there is always a risk of fire and explosions. Unfortunately, there are fire and explosion cases for all modes of transport. 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 a large amount of financial damage. Resulting in companies spending even more to re-send cargo again to the receiving firm.
A very recent example of such an incident occurred in February 2022. A cargo ship 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.
Cargo insurance can reduce an impact of a tragic situation like this. Cargo insurance understands 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 reduces this 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 to pay for 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 General Average is declared, every cargo owner will be responsible and have the duty to divide the cost of damage or losses due to 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.
Common situations where a general average can be declared include:
When the cargo is insured, the insurance company will provide the funds to settle the general average for the business. Therefore, the cargo insurance policy coverage can help save the business a large amount of financial loss as usually general averages can add up to millions of dollars. Additionally, cargo insurance saves time and effort for the business. 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?
Before importing or exporting products, purchasing cargo insurance is one of a business’s smartest decisions. The insurance has various benefits that allow the company to continue their regular business.
One of the top benefits is the financial coverage provided by the insurance policy. Even if you suffer the worst loss due to one of the above situations – the insurance will reimburse the value back like it never happened. No business should lose money for something that is not in its control.
In addition, another benefit linked to cargo insurance is cargo owners’ peace of mind. The insurance allows businesses not to worry after cargo is sent to the freight forwarder. If things go wrong, you are covered, and you will bounce back. Additionally, the insurance provides confidence to move on and deal with the challenging situation. Being stuck in one tragic situation can ruin a business, and insurance is the only way to stress less and focus ahead.
Therefore, if you are a company that sends products anywhere near or far, you need topurchase cargo insurance to keep your business safe.