Cargo insurance is an important element that needs to be taken into consideration while making business in international trade. During International sales transactions, several days or weeks may pass, between the time the products will depart from the seller’s warehouse or the named place of loading until the moment the products will arrive at the named placed of destination. During this transit time many risks can be incurred which can cause damages to the products before being delivered to the buyer. International cargo insurance is made in order to secure the products against any risks that can cause them damages and eliminate the possibilities of disputes between the seller and the buyer.

International Commercial Terms (Incoterms) define the trading party that is liable for any risks involved during the transit time. Thus, either the seller or the buyer will need to take actions to secure the products against any risks. If no cargo insurance is made, then in case an accident takes place it will not be possible to compensate loss.
There are limits of liability for international land, air and sea carriers which can be a type of insurance for the products in transit but only if it can be proved that the damage caused was attributed to the carrier’s negligence. But many times a loss can be attributed to natural disasters, stolen products, bumpy roads, storms etc. This type of losses will not be covered by the carrier’s insurance and traders should not risk not to make their own insurance.

Types of International Cargo Insurance

Three types of Cargo Insurance are available:

  • Open Cover: This type of insurance is covering multiple consignments. It is agreed between the trader and the insurance company taking into consideration various aspects of the business and it is renewed per period. Most of the times the insurance company is securing up to a specific value and every time a consignment is completed the insurance amount is reduced. In such case the Open Cover Insurance Contract is renewed when the amount becomes zero. This type of Insurance is usually less expensive than the Voyage Specific but requires greater export volumes.
  • Voyage Specific: This type of insurance is covering one consignment per time. The estimation is made based on information that are valid for the specific consignment and it can vary depending on the way the insurance company is calculating its charges and forms its pricelist.
  • Seller’s Interest Insurance: This type of insurance is made to cover the seller in case the Incoterms do not specify that it is the seller’s responsibility to provide insurance on the cargo but the buyer is not taking action in making insurance on the cargo. Many times even though the for example the Incoterms are EXW or CFR the buyer does not make insurance on the cargo and in case of damaged cargo he gets in conflict with the seller and does not want to take the liability of the risk and many times does not want to import the products. In order to cover such types of risk the seller can proceed and make such type of insurance but usually the buyer is not aware of it in order.


Who can offer cargo insurance services

Cargo Insurance is usually made by Insurance companies or freight agents who may also supply this service. Many freight agents may not supply this service but this should not really affect the trader’s decision in selecting a freight agent. Most of the times it is preferable the party that has the liability for the transportation risk to form his own partnerships with insurance companies as in case of a claim raised the trader will most probably be able to face it faster and with better results.

Factors affecting the value of the Insurance agreement

There are various factors that affect the insurance agreements. Some of them are listed below:

  • Cargo Value + freight value
  • Item type/category to be insured
  • Delivery point (how safe is the delivery point in respect to additional risks incurred, wars, strikes, riots etc.)
  • Insurance covering door to door deliveries or door to port or port to port deliveries
  • Method of Shipping (Land, Air, Sea)
  • Used or New goods
  • Period of Shipping (weather conditions)
  • Cargo packaging quality

What to do in case of cargo damage

Insurance companies need to be presented with a lot of evidence in order to refund a damaged cargo. One of the first things to do when receiving damaged cargo is to write an analytical text with all the remarks about the damaged materials on the shipping document that is escorting the cargo. There is no point in not accepting to receive the cargo (if it has been transported by land). This is not correct practice.

At the same time, before unloading the products from the truck or container it is necessary to make pictures of how the cargo arrived. You might need them to place a claim to your supplier in case the claim is attributed to bad packaging issues(something that is not rare). When the cargo has insurance it is also important to contact the insurance company immediately and inform them about the damage. This step has to be made before starting to unload the products. A lot of insurance companies have a policy to send their inspectors in order to view the situation and make their own conclusions. In such case it will be better to contact the insurance company and follow the steps that they will suggest you.

It is also recommended when you do decide to unload the cargo to make some pictures also from the full quantity that will be damaged.

Filing a claim to the supplier, the carrier or the insurance company (depending on the situation) should be taken care asap if you want your claim to have as many chances as possible to be compensated. Some suppliers due to ISO certification might asked you to fill in their own claim form in order to proceed in evaluating it. This is a standard procedure for them and it will help you also file your claim with a lot of details.

In general when it comes to claiming for receiving damaged cargo you need to be careful and capture the evidence that will support your statement. Serious suppliers and insurance companies will not be able to reject a claim that is very well backed up.

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