Why is it Important to Insure Your Cargo?

When it comes to importing or exporting goods, you may want to consider investing in cargo insurance.

One of the biggest misconceptions of cargo owners is believing that the carrier hired to transport the merchandise is already insuring it and therefore they are fully covered.

Good carriers carry cargo liability insurance which only pays to the extent the carrier is liable and unfortunately the amount tends to be negligible in comparison to the value of the cargo.

To illustrate this point, picture the following scenario:

  • You hire “XYZ trucking” to move high-value medical equipment worth $70,000 with a gross weight of 2,000 lbs, from the airport in Miami to your facility in Atlanta. The equipment is completely damaged while in transit and the carrier’s liability policy states that it will pay $0.12 per pound; as a cargo owner, you might find yourself in a difficult situation.

Carrier’s liability varies depending on the mode of transportation used. Motor and rail carriers follow the guidelines of what is called the Carmack Amendment, under which the carriers are allowed to set their own limits of liability. Also, domestic air carriers set in their tariffs their own limits of liability which can be very low. International air carriers follow the Montreal and Warsaw Conventions, and the current limit of liability is approximately $10 per pound. Ocean shipments to and from the US are governed by the Carriage of Goods by Sea Act (COGSA) and the liability of an ocean carrier under COGSA is limited to $500 per package or shipping unit.

The above-stated limits of liability are the main reason why we recommend you obtain a shipper’s interest insurance to protect the full value of your cargo.

How Premiums are Calculated

To determine how much your cargo insurance will cost, you will need to have the following information at hand:

  • The value of your goods
  • Your current insurance rate, as provided by your insurer
  • The cost of freight
The most standard method of insurance calculation is the following:

The total value to be insured: the value of the cargo + the cost of freight + extra expense percentage (typically 10%).

If the value of your cargo is worth $10,000 and the transportation cost is $1,000, plus the 10% that would equal $12,100.00. This amount becomes the value to be insured. If the premium rate is 1%, it means that you will pay the insurer $1 per every $100 value of your cargo. In this example, your premium is $121.00.

Choose the Right Coverage

Another important decision from a shipper’s standpoint is the selection of the right coverage.
Many factors might come into play when choosing the coverage, such as the distance the cargo will travel, the fragility of the cargo, the value of the cargo, among others.

  • A very common policy is “All Risk”. An all-risk policy will cover all losses regardless of the cause. However, these policies normally contain a series of exceptions. It is very important to thoroughly review these exceptions in which your loss will not be recovered. This type of insurance policy is typically more expensive but offers more comprehensive coverage options.
  • Another less common one is the “Named Peril Policy”. This policy will cover what is specifically listed in the agreement. You might choose to cover only robbery or vandalism. This means that if the loss of the cargo occurred due to a traffic accident, you will not be covered.

Expert in Logistics

At Promptus LLC, we can fully insure your cargo offering various levels of coverage. Contact us today to get a quote on all your global logistics needs, including cargo insurance.