Cargo insurance protects shippers from financial losses due to damage, theft, or disasters during transit. Carriers and NVOCCs are generally only responsible for cargo losses when they are proven to be directly liable, and even then, compensation is often limited by law. For example, ocean freight liability may be capped at just $500 per package under certain circumstances.
Every shipment carries risk the moment it leaves its original location to head to its final destination. According to industry estimates, cargo damage, loss, and theft cost global supply chains billions of dollars each year. While each of these elements is closely monitored and ample precautions are taken to minimize the possibility of complications, these situations do happen, and cargo insurance is here to protect you accordingly.
What Does Cargo Insurance Actually Cover?
Cargo insurance covers transits carried out by sea, air, road, rail, registered post, and courier. It protects against loss or damage caused by external factors throughout the journey. To purchase cargo insurance, the insured party must have a financial interest in the shipment, whether as the shipper, consignee, buyer, or seller. Responsibility for obtaining coverage is often determined by the Incoterms agreed upon during the sale.
What Are the Different Types of Cargo Insurance Coverage?
There are three primary cargo insurance coverage types, commonly governed by the London Institute Cargo Clauses (ICC):
- All-Risk (ICC “A”): Covers all losses except named exclusions, such as improper packing, inherent vice, or abandonment. This is the broadest and most recommended coverage.
- Free of Particular Average / FPA (ICC “C”): Covers named perils only – fire, explosions, sinking, aircraft crash, jettison, and collision, among others.
- With Average / WA (ICC “B”): Includes all FPA perils, plus damage from heavy weather.
| Coverage Type | What’s Covered? |
| “All-Risk” | Everything except exclusions |
| Free of Particular Average (FPA) | Named perils only |
| With Average (WA) | Adds “heavy weather” peril to FPA |
For most shippers, All-Risk coverage offers the best protection for the price. That being said, FPA or WA coverage may suit lower-risk commodities or tighter budgets.
One important note on insured value: the cargo must be insured for 100% of its invoice value plus freight charges. Underinsuring cargo can trigger a co-insurance penalty. If a shipment is insured for less than its full value, claim payments will be reduced proportionally. For example, if a $110,000 piece of manufacturing equipment is insured for only $55,000, a covered loss of $55,000 may result in a claim payment of just $27,500 due to the co-insurance penalty.
What Are the Risks of Not Insuring Your Cargo?
How limited is carrier liability without cargo insurance?
When relying on carrier liability without taking out your own cargo insurance, it is extremely limited. Carriers are only required to pay claims when they are found directly at fault, and proving their fault across multi-carrier shipments is difficult. Even when liability is established, legal caps often apply such as:
- Carriage of Goods by Sea Act: $500 per package or customary freight unit
- Warsaw Convention: Air freight $9.07 per pound or $20 per kilogram
- Domestic air, interstate road, and warehouse: As little as $0.50 per pound or $50 per shipment
Imagine your electronics company ships $200,000 worth of electronics overseas without cargo insurance. If the shipment is damaged during transit and carrier liability is limited under applicable law, compensation could be as little as $500—leaving your business responsible for the remaining loss.
Carrier liability isn’t the only financial risk associated with uninsured cargo.
What happens to uninsured cargo in a General Average situation?
In a General Average event, all cargo owners aboard the vessel may be required to contribute toward losses incurred to save the ship and its cargo. Cargo insurance typically covers these contributions and provides the required guarantee, while uninsured cargo owners may be required to post significant cash security before their goods are released.
What Are the Benefits of Comprehensive Cargo Insurance?
- Full financial recovery: Insured shippers receive the full value of their goods, regardless of carrier liability.
- Business continuity: Damaged or lost inventory does not stall operations when claims are covered.
- Simplified claims handling: Working through an experienced freight partner like LogiWorld means access to an organized claim process with all documentation already in place.
- Protection from Acts of God: Carriers have zero liability for events like typhoons or earthquakes. Cargo insurance covers these scenarios in full.
- Risk management: Cargo insurance transforms potentially catastrophic losses into manageable business expenses.
Why Choose LogiWorld for Cargo Insurance?
Cargo insurance is a practical necessity for anyone with a financial interest in goods in transit. The cost of a policy is a fraction of the potential loss from a single uninsured incident.
LogiWorld offers cargo insurance solutions for shipments of all sizes, with no cap on the insured value. Whether you’re moving a pallet or a full container load across the world, our team can arrange the right coverage for your needs.
