Cargo Insurance: The Shipper vs. Carrier Decision

Train Cargo

If you’re a manufacturer, distributor, wholesaler or retailer whose business involves the shipment of goods, your principal decision regarding Cargo Insurance shouldn’t be whether to purchase the coverage, but from whom — the shipper or an insurance carrier?

Protecting yourself with Cargo Insurance — also known as Goods in Transit Insurance — is always the right decision. Whether by land, sea or air, shipping is full of risk, with perils including theft, fire and more. All freight carriers are legally required to carry a minimum amount of Liability Insurance, but the coverage Liability Insurance provides is insufficient to fully protect you in the event of theft or cargo damage or loss resulting from natural disaster or accident. So, Cargo Insurance is a must.

Whether to obtain it through the shipper or an insurance company comes down to which option is more cost-efficient.

If shipping goods is a one-time or rare event for your business, obtaining coverage through the shipper is typically the better option. Shippers mark up the cost of Cargo Insurance — much the way car-rental agencies do with Auto Insurance — but they don’t impose the $2,500 to $3,000 minimum premium insurance companies generally require, so for individual shipments, purchasing Cargo Insurance through the shipper usually winds up costing less.

If shipping is a regular function of your business, a program custom-designed by an experienced broker, with coverage provided by a reputable insurance company, is the way to go. In addition to being both more cost-effective and specific to your needs, coverage from an insurance company gives you control over the claim process — a frequent source of dispute when the insurance is provided by the shipper. Several of the best-known commercial insurance companies offer excellent Cargo Insurance programs that include optional features allowing for customization, which affords you and your broker the opportunity to put your business out to market for the best available coverage and price.

What Cargo Insurance Covers

Originally written for ocean transport, Cargo Insurance also covers inland and air transport, warehousing and other aspects of the shipping process under a Marine Extension Clause, Warehouse-to-Warehouse Clause or similar clause that continues coverage throughout the cargo’s route, until it reaches the buyer.

When designing your policy, a good broker will instruct you to “Take me on the voyage,” to ensure your goods are fully covered. This includes assigning responsibility for the cargo throughout transport, to reduce the risk of dispute over coverage in the event of a claim.

Coverages you may need to consider for your business include:

Land Cargo Insurance — For goods transported by truck, van or train, this covers claims resulting from theft, collision and other risks.
Marine Cargo Insurance — This covers goods in transit by sea or air, including damage during loading and unloading, and risks including weather, piracy and disaster. There are three basic categories of Marine Cargo Insurance:

  1. Open Cover — Policies in this category cover all cargo for a specified time period, often one year.
  2. Specific Cargo or Voyage — As the name implies, this kind of policy applies to specified goods or a single voyage.
  3. Contingency — When responsibility for damage or loss is in dispute, this coverage effectively provides backup, including in cases where “general average” is applied. For example, if a crew jettisons cargo to save a vessel, the loss is assessed to all shippers, based on an average of the vessel’s entire load. Contingent Cargo Insurance covers the claim.

Top Marine and Shipping Risks

Worker shortages brought about by the COVID-19 pandemic, port and supply chain disruptions resulting from the pandemic and natural disasters, the blockage of the Suez Canal by a massive container ship — all have contributed to turmoil in worldwide shipping and air freight, with an impact on countless industries. This is why, in assessing shipping priorities in the brewing industry, the firm Global Logistics Management cited Marine Cargo Insurance protection, stating: “It is essential you insure your shipment covering the risk of loss or damage to your goods during transit by sea, air, rail or road, plus held storage.”

It’s also essential that you evaluate your Cargo Insurance coverage on a regular basis.

Compiled by one of the world’s leading Cargo Insurance companies, The Allianz Risk Barometer reflects potential disruption and loss scenarios, based on a survey of more than 2,700 experts in 92 countries and territories. For 2021, the barometer ranks the top three risks in the marine and shipping sector — based on the percentage of respondents who ranked the risk among their top three — as:

  1. Pandemic outbreak (51%)
  2. Business interruption (36%) – up from fourth in 2020
  3. Natural catastrophes (27%) – down from second in 2020.

Among all business sectors — both in the United States and internationally — business interruption ranks first on the 2021 Allianz Risk Barometer, followed by pandemic outbreak and cyber incidents, forming what Allianz calls the “Covid Trio.” Natural catastrophes rank sixth on the overall list of risks, immediately behind market developments, and changes in legislation and regulation, respectively.

The point is, risks evolve — as do your business and the Property and Casualty Insurance marketplace. As Supply Chain Management Review notes, “As business conditions change and your products evolve, you need to make sure your cargo insurance coverage changes in response. In addition, insurance carriers may introduce new features and take others away. With this in mind, it’s important to be aware of these changes and how they will affect your business.”

About the Author

Christopher Breck, CIC, CRM
Senior Vice President
Alper Services, An Alera Group Company

Christopher Breck began working at Alper Services in 1989 and is now a Senior Vice President managing the day-to-day insurance and business needs of many of Alper Services’ oldest clients. He specializes in delivering alternative risk solutions, including captive insurance programs. Chris maintains a broad industry focus that includes manufacturing, service, retail, healthcare and nonprofit organizations.

Contact information:
CBreck@alperservices.com
312-867-7359