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Cargo comes in all shapes and sizes, and insurance plays a vital role in covering you from a variety of incidents that can occur while in transit.

Too many parties play a game of risk by not securing insurance for precious cargo, resulting in huge losses.

Although the insurance is known as ‘marine cargo’, the cover goes beyond just risks at sea. This insurance is much broader than goods in transit and applies to both domestic and overseas transport by any means including road, rail and air.

Marine cargo cover can be taken out by the largest multi-national corporation to the smallest SME.

Who needs cargo cover?

  • Exporters
  • Importers
  • Wholesalers
  • Retailers
  • Manufacturers
  • Contractors
  • Franchisors or franchisees
  • Suppliers 
  • UK and overseas exhibitors

These are just some of the sectors where you may require marine cargo insurance. Insurers can also provide buyer’s or seller’s contingency cover to provide a safety net.

Common misconceptions

There are many common misconceptions about marine cargo insurance, one of which includes mistakenly believing that the responsibility to insure lies elsewhere.

For example, hauliers and freight forwarders possess insurance but this is to protect their legal liability rather than their client’s cargo.

A goods in transit section of a combined policy will not always provide adequate storage or transit cover outside of the UK, while a marine cargo policy can cover worldwide transits and can include storage insurance both before and after the journey.

Why purchase marine cargo insurance?

It reduces the company's exposure to financial loss – whether buying or selling goods, the company has a financial interest in their safe transportation and delivery. Marine cargo insurance protects their interest in the event of a loss.

Protection from General Average

General Average is a legal principle in maritime law, whereby all cargo owners proportionately share losses resulting from voluntary sacrifice or costs incurred in order to prevent a total loss. Following the declaration of a General Average, all cargo on a vessel will be held pending receipt of General Average Guarantees and Bonds from everyone who has goods onboard. Cargo owners are well-advised to be insured, so their insurers can handle these situations on their behalf and provide the required guarantees to allow their cargo to be released.

It’s usually a contractual requirement

As part of the sale contract, it’s often a commercial necessity to have marine cargo insurance. Being able to quickly replace damaged goods will help the company maintain strong customer relationships. Marine cargo insurance can also protect the interests of banks or third parties helping to finance the transaction.

Carrier’s liability insurance won’t fully protect the company

Haulage and shipping companies may be responsible for the transportation of the company's goods, but their liability will be limited by contract or law in the event of loss.

Furthermore, carrier’s liability insurance doesn’t cover many common causes of loss, such as General Average. Any compensation available often falls short of the full valuation of the goods and pursuing overseas hauliers can be a difficult and time-consuming process.

The company can maintain control of their own insurance

If a UK retailer imports goods from China, the cost of marine cargo insurance is likely to be included as part of the sales contract. The insurance is then taken out with a Chinese insurer by the supplier.

In the event that the goods are damaged en route, the UK retailer would have to deal with the Chinese insurer via a UK agent; someone with whom he has no usual contact or relationship.

The simpler alternative is for the UK retailer to arrange their own marine cargo insurance via a UK broker and insurer. The sales contract would be amended to reflect that responsibility for insurance now sits with the buyer. This means that in the event of a claim, the process would be much quicker and easier, and the cost of insurance is likely to be far more competitive.

Misconception of hauliers!

Hauliers don’t insure the company's cargo, only their liability for loss or damage. In the event that cargo is damaged whilst the haulier is transporting it and assuming the haulier is negligent (therefore, liable), the compensation they pay is controlled by their contract conditions, such as RHA Conditions of Carriage.

So, even if two tonnes of cargo are worth £10,000, they will only be liable to pay £1,300 per tonne under standard RHA conditions, leaving the company significantly out of pocket. Cargo insurance prevents such shortfalls.

What are Incoterms?

Incoterms act as a set of international rules to show the contractual terms between the buyer and seller and determine who has an ‘insurable interest’.

It’s worth noting that only two of the eleven Incoterms (CIF – Cost, Insurance and Freight and CIP – Carriage and Insurance Paid To) place a contractual obligation on one party to purchase insurance and even then, only a minimum level of cover is required.

However, given the potential implications if the cargo is lost or damaged en route, it is prudent to purchase insurance wherever a party bears responsibility for the risk.

Here are four of the 11 Incoterms:

Ex Works (EXW)

Responsibility for everything is on the buyer. The seller need only make the goods available at their premises for collection by the buyer.

Free on Board (FOB)

The seller is responsible for the risk and costs of transporting the goods up to the point that the goods are safely loaded on to the vessel, after which the buyer assumes full responsibility.

Cost, Insurance and Freight (CIF)

A contractual obligation is on the seller to purchase insurance. The insurance is assigned to the buyer at the point that goods are loaded on to the vessel, when the title and risk transfer to the buyer. Although the insurance is arranged by the seller, any claims for loss or damage which occur after the point of assignment are payable to the buyer.

Delivered Duty Paid (DDP)

The seller is responsible for the risk and costs of transporting the goods up to the point that the goods are presented ready for unloading at the buyer’s named place. Crucially, the seller also has an obligation to clear the goods not only for export, but also for import, to pay any duty for both export and import, and to carry out all customs formalities.

Case Study: MSC Napoli

One high profile incident of significant cargo loss occurred back in 2007 when the MSC Napoli was damaged during a storm.

The 62,000-tonne container ship was grounded in Lyme Bay, Devon, with around 100 containers washing ashore.

A number of people turned up at Branscombe Beach to take valuable goods such as motorbikes, car parts, hair products and more.

The Marine Accident Investigation Branch later released a report showing ‘discrepancies in declared weights of containers’ and this could have been one of the factors in how the disaster occurred.

The total claims bill facing insurers following the disaster was around £120 million.

This covered the value of the vessel, salvage, clean-up costs and costs of lost insured cargo.

Around 40% of the goods were uninsured and the results of not being covered could have had a devastating effect on businesses and commercial relationships.

Understanding where responsibility for protecting cargo lies can be complicated, especially as there is usually no legal obligation to protect goods being transported.

Since any loss could have severe financial implications on a business, the need for insurance is crucial.

To find out more and to discuss your needs, please contact us on 01274 515 747 or email us at mail@lwood.co.uk

Source: Allianz Insurance plc

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