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The Importance of Cargo Insurance for International Shipping


SMEs (small-medium enterprises) know they need to expand beyond their shores to compete with the big brands in their sector, and this is where international shipping bridges the gap for them. Shipping and using freight forwarders has enabled SMEs to connect with new markets offshore and grow a more extensive customer base.

Partnering with international freight forwarders as made it easier for SMEs to grow their revenue, secure competitive shipping rates, and use the same resources once only afforded to big businesses. With better purchasing power, these smaller enterprises can compete and gain market share offshore.

Therefore the first step to taking your business global is to establish a mutually beneficial working relationship with a reputable international freight forwarder. The provider’s specialized knowledge regarding international customs, shipping costs, and trade routes are at your disposal.

For example, a freight forwarder will calculate shipping costs to specific trade routes across the globe. The cost of shipping to Germany, China, the USA, or any other trade hub can be negotiated with the right shipping partner, and this insight can provide SMEs considerable cost savings.

However, risk of damage or loss is unavoidable, and accidents do occur. Loss and, or damage to cargo during transport can be devastating and costly, so to counterbalance the risks associated with cargo shipping, customers (businesses) are encouraged to take out cargo insurance.

Understanding Cargo Insurance

Cargo insurance is a necessary preventative measure in today’s globalized market. With customers’ expectations at an all-time high, cargo insurance provides SMEs with financial security, if goods are damaged, lost, or stolen during transit.

Insurance coverage varies according to the type of policy. While every shipping carrier provides insurance, the scope of this coverage varies; therefore businesses are advised to buy additional coverage to ensure their goods are secured with a comprehensive insurance plan.

Types of Insurance Coverage


The all-risk policy is one of the broadest types of insurance coverage available. As the name implies, an all-risk policy offers protection from any physical loss or damage incurred during transit, unless the loss is specifically excluded.

Common exclusions associated with an all-risk policy include:

  • Inherent vice
  • Damage to cargo as a result of negligence
  • Improper stowage by shipowners
  • Customs rejection
  • Cargo abandonment
  • War, strikes, riots, and civil commotions (WSRCC)
  • Loss of use/market
  • Loss over the policy limit
  • Employee dishonesty
  • Failure to pay/collect

Named Perils

Also referred to ask “free of particular average,” the named perils policy only provides coverage for particular perils listed in the policy.

Common types of losses that can be covered by the policy include vessel collision or sinking, bad weather, non-delivery, theft, and burning.

General Average

If a ship or its cargo sustains a loss or is damaged due to a voluntary sacrifice; to safeguard the whole from a common peril, a general average can be invoked, meaning all parties must proportionately share or contribute to the loss according to their cargo’s value.

While general averages claims are rare, SMEs consider getting coverage for this type of risk to avoid any liability if a general average claim is invoked.

Why Get Cargo Insurance?

There are several reasons why SMEs should opt-in for insurance beyond the carrier insurance. Potential hazards exist between your port of origin and the final destination. Ocean freight is particularly fraught with risk. Having a guarantee that goods are covered in the event of any loss or damage can put any business’s mind at ease.

Another considerable benefit is the avoidance of substantial financial losses. Cargo insurance protects from significant, uninsured losses which could compromise a company’s ability to fulfill orders and meet customers’ expectations.

Additional manufacturing costs, expedited freight charges, costs for other sales calls, and incremental criminal investigation costs are just some of the other expenditures a company faces should cargo be lost, damaged, or stolen during transit.

Insurance coverage reimburses you for any potential losses, minimizing its impact on your company’s profitability.

It’s also relatively easy to get insurance coverage. All freight forwarders provide insurance coverage and have carrier liability. What’s more, most insurance coverage policies can be customized according to the policy holder’s desired coverage and risk tolerance.

Get The Right Insurance Coverage

Appropriately insuring goods during transit starts with research. Companies must educate themselves on the type of insurance coverage available.

Different regions operate across different shipping lanes, which will demand specific insurance policies. Working with the right international freight forwarder will ensure SMEs have a strategic risk management policy in place to protect their shipments.

The value of the shipment will also play a critical role in determining the type of coverage required.

Companies must assess their risk tolerance and consider their shipment’s risk profile to estimate the impact of loss on their finances. SMEs should partner with an insurance professional to create a comprehensive coverage plan that covers end-to-end supply chain issues.

The Real Cost Of Cargo Loss

The health of any enterprise is determined by the perceived value of their goods and/or services. Interruptions to any supply chain can severely impact the company’s ability to conduct business and deliver its goods to its customers.

Whether it’s a delay in the arrival of goods or the loss and/or damage of goods, any interruptions during transit can adversely impact revenue and profit. A reduction in inventory can result in lost market share and severely damage the brand’s image.

Cargo shipping is a dynamic process. Multiple exposure points mean it is nearly impossible to predict transportation risk. The unpredictability of risk underscores the importance of purchasing cargo insurance.

By analyzing and understanding the types of risks that can impact their business, the owners’ can successfully develop best practices that mitigate any supply chain risks. In doing so, key risks are managed before they arise, protecting their company’s financial health and securing future growth.

Author Bio

Paul Rehmet is the Chief Product Officer for Shipa Freight. He is responsible for translating the company’s vision into an easy-to-use online freight platform for its customers. In his 25-year career, Paul has held various technology leadership positions with early-stage startups and Fortune 500 companies including Unisys, Destiny Web Solutions, and US Airways.

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