Should I Purchase Cargo Insurance When Shipping Freight Internationally?

shipping containers and various cargo vehicles

 

When shipping internationally, the freight moves through many more hands than it does when shipped nationally. The longer the trip, the greater the risk of damage. That’s why you may want to consider shipping insurance when shipping freight internationally.

Insurance is not mandatory, but damaged products can cause unexpected costs for individuals shipping packages. International carriers are held responsible for packages damaged in their care, with certain restrictions, yet the damage done to some packages has unknown origins.

When the origin of the damage is unknown, the cost of the damaged product could become the responsibility of the original sender in some cases.

Cargo Insurance

Cargo insurance insures packages usually containing items including but not limited to personal/household and commercial/industrial items.

The cost to insure a package depends on the variety and market value of the items being shipped, and the distance the items will travel. If the package is damaged or lost anywhere throughout the shipping process, the insurance company reimburses the shipper for the item’s value. Although shipping companies generally recommend insuring their packages, it is not required and, therefore, up to the discretion of the consumer.

Ultimately, cargo insurance is about providing a safety net for an investment.

yellow safety helmet before shipping containers

Uninsured Cargo

Some cargo is too valuable to lose. Driving without insurance is always a risk, and international shipping is not much different. If a package were lost or broken and uninsured, then the shipper or their company would be responsible for the replacement value.

The shippers of uninsured freight can depend to a certain extent on carrier insurance for accident coverage. Carriers are companies that transport goods using a variety of devices such as roads, railways, oceans, and airports. Carrier insurance is the insurance a package handler has for accidents that could happen while packages are in their possession. However, there can be limitations depending on the carrier’s insurance policy.

Even though quality control measures are implemented at every carrier checkpoint, damage still occurs to some products that make it to the recipient. Identifying which point throughout multiple carriers the package was compromised becomes challenging. In this situation, a damaged and uninsured package would be ineligible for any possible repayment options. Insurance agencies understand how to navigate IMO regulations that govern what happens to compromised goods.

International Cargo Insurance Benefits

Since many international items are shipped via freight vessels, if the vessel sunk, then the shipment is lost to the sea. Those that don’t sink are often subject to damage from poor handling, rough transportation, and/or improper storage. Even less likely, but probable, is the possibility of theft. Therefore, one of the best reasons to consider cargo insurance for international shipments is to protect the packages—the investment.

A General Average is a legal agreement between international carriers that equally divides maritime cargo losses between the carriers involved. The agreement was designed with the freight crew’s safety in mind. It states that in the event of a situation where a ship’s cargo compromises the safety of those onboard, some cargo might be released for the greater good of the ship, cargo, and crew.

The standard procedures involved in General Average agreements are outlined in a maritime Code of Safe Practice for Cargo Stowage and Securing, also known as CSS Code.

If a package was on a vessel that issued a General Average claim, then a cash deposit or bond are often required before the packages are released. This deposit is also required even for the packages onboard that were not compromised. However, if the package owner has international cargo insurance, the insurance provider would handle the claim, thereby expediting the package’s release process.

Is International Cargo Insurance Worth Purchasing?

Freight accidents due to human negligence are rare. Most of the freight containers lost at sea are because of natural maritime catastrophes. In fact, weather and rough seas account for thousands of containers lost at sea. These containers are usually either 20 or 40 feet long and eight feet wide; they can carry between 35,000 and 45,000 pounds respectively. That’s a lot of plastic drums that could be lost, for instance.

freight ship with shipping containers on rough sea

Although some countries contribute forces for maritime security efforts, international waters are generally considered lawless oceans. Pirates, terrorists, and international war efforts could also compromise a shipment traveling through a lawless territory.

So, there are many potential points throughout the international shipping process where problems could occur. Since a shipment could move through many different checkpoints and travel through various terrains and environments, the chance for an accident increases with distance traveled. None of these situations will necessarily occur.

However, their possibility is reason enough to consider, at least, purchasing cargo insurance for international shipments.

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