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Cargo Insurance: A Vital Link in Your Supply Chain

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Cargo Insurance: A Vital Link in Your Supply Chain

Cargo insurance provides protection against all risks of physical loss or damage to freight from any external cause during shipping, whether by land, sea or air.

Risk Management Strategies

Risk Retention: Self Insurance. No Insurance

Risk Sharing: Pooling Risk among a group who shares in the losses

Reduction: Change Terms of Sale. Re-Route Cargo. Package Engineering.

Transfer: Risk of loss borne by another party (insurance) in exchange for financial consideration (premium)

Types of Cargo Insurance

• Free of Particular Average (ICC-C)

Named Peril:  Won’t pay partial damages unless the vessel is stranded, sunk, burned or involved in a collision
> Catastrophic / Total Loss

Burning
Sinking
Stranding
Overturn
Explosion
Collision
Crash of aircraft
Washing overboard
Jettison
Collision of truck
Overturn of truck
Collapse of pier
General Average

• All Risk (ICC-A)

Named Exclusions: All risks of physical loss/damage unless specifically excluded.

Improper packing
Abandonment of cargo
Rejection by Customs
Failure to pay or collect
Inherent vice
Employee dishonesty
Barge shipments
Goods subject to an on-deck B/L
Losses caused by temperature or pressure
Used goods
Failure to provide timely notification of loss
Loss in excess of policy limits

Most Common Exclusions under “All Risk” Terms

• Improper or inadequate packing
• Packing should be sufficient to:

> Withstand frequent handling, jarring and jostling
> Withstand extremes of weather and temperature
> Discourage or complicate pilferage and tampering

• Abandonment of cargo
• Rejection by Customs or other governmental authorities
• Failure to pay or collect
• Inherent vice

> Infestation, failure of product to perform intended functions andlatent defects

• Loss caused by delay or loss of use and/or market

> Seasonal merchandise such as calendars and holiday cards

• Nuclear
• Radioactive contamination, chemical, biological, bio-chemical andelectromagnetic weapons
• Cyber attack
• Losses when goods are not in the ordinary course of transit
• Losses due to Strikes, Riots & Civil Commotions (generally covered by aSR&CC Endorsement)
• Acts of War (certain limited Acts of War, but not while on land, aregenerally covered separately by endorsement or by a stand-alone warpolicy)

Why needed?

1. Physical Loss/Damage

2. Theft,Pilferage, and/or Piracy

  • Thieves often highly sophisticated and organized
  • Penalties are not stringent enough to deter
  • Victims hesitant to report: fear of insurance costs or brand damage
  • Lack of collaboration / fragmented information
  • Inability to identify appropriate law enforcement contacts
  • Limited awareness and training throughout supply chain

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2015 Stolen Cargo Value (Global) = $22,600,000,000

  • Piracy attacks in 2015: 246
  • 203 vessels boarded
  • 15 vessels hijacked
  • 27 attempted hijacking incidents
  • 1 vessels fired upon
  • 14 crew injured; 271 taken hostage; 1 killed
  • Est. +10 billion usd in pirated cargo
  • Often motivated by terrorism
  • Generally, commercial vessels do not maintain defensive weapons on board.

Most common commodity groups targeted for theft:

Food & Bev (Including Alcohol)  24%
Metals                  15%
Electronics          12%
Home/Garden  10%
Apparel                8%
Auto/Parts          8%

3. Terms of Sale (Incoterms)

• Ultimately, buyer pays for everything
• Best terms for buyers are generally “F” terms

> Control own shipping and insurance
> Not forced to work with seller’s service providers
> Insurance cost not included in base price of goods, reducing imported value

• Best terms for sellers are generally “C” terms

> Buyer responsible for loss or damage
> Can guarantee insurance sufficiency
> Cost can be included in price of goods

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View Introduction to Incoterms on our YouTube channel. 

 

4. General Average

• When GA has been declared, all freight is seized and the shipper must post a General Average guarantee (Bond) to obtain release of the freight.
–      Usually 8% – 12% of cargo value
• Without Cargo Insurance, cash must be posted by the cargo owner.
• Pre-dates cargo insurance
• Shared risk concept

> Ancient principal of equity; widely unknown by shippers
> Vessel owner risks livelihood (vessel), as well as lives of captain and crew
> General Average provides a way of distributing the risk

• Typically declared by the vessel owner or master when:

> Freight is jettisoned (thrown overboard)
> The vessel sustains damage.
> Corrective action is taken at the expense of either the vessel owner or cargo owners.

Save the Voyage

 

5. What’s it cost?

Calculation

Freight value + Com value x 1.1 = ______ / 100 = _______ x.30 = ____________

Shipments are generally insured for Cost, Freight + 10%

Cost                       $100,000
Freight                $3,000
Total                      $103,000
10%                       $  10,300

Insured Value:   $113,300

Where to buy?

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