Recently it seems that every month we are hearing about a new cargo ship disaster leading to tremendous loss to its cargo. Just last month a cargo ship containing 4,000 vehicles caught fire and sunk into the Atlantic Ocean. Although this is an extreme example, it does shed light on the growing risk that cargo experiences as cargo fleets age and sail into worse weather each year.
So in the face of increasing risk to my cargo, does my business really need cargo insurance?
There are a number of factors to consider in determining a need for cargo insurance. First, do I have a concentrated risk that would materially affect my business if something bad happened? This may be the most important consideration, as cargo insurance could reduce exposure to a major financial loss. We sometimes call cargo insurance “piece of mind” coverage, since it can protect the business from catastrophic loss.
Second, is my business liable for the loss if something bad happens? Many times a company that imports from overseas will assume that the seller is covering the goods and therefore there is no need to buy insurance. However this is not often the case. Even if the terms of sale indicate that the seller is paying for the insurance, it is a good idea to have coverage just in case the seller’s insurance doesn’t cover the loss or if the seller doesn’t accept responsibility for the loss. Also keep in mind that traditional carrier liability is usually minimal and not nearly enough to cover losses you might have. For example, many international transportation carriers limit their liability to only $500 per container!
Another thing to consider is something called General Average. If a ship is in peril and cargo has to be sacrificed in order to save the ship, even if a company’s cargo was safe there is a chance that general average may be declared and thus all parties to the voyage would be responsible for the loss.
And finally, do I have other shipments besides ocean imports that are part of my supply chain? Cargo insurance can cover the entire supply chain, including inventory at warehouse locations and even small parcel shipments!
So as you can see a cargo policy can provide tremendous value to your business, not to mention piece of mind so that you don’t have to worry about a major financial disruption due to cargo loss. And the cost of a policy is typically much, much less than if you were to insure through the transportation carriers on a shipment by shipment basis. If you would like additional information, please contact Horizon West Insurance Services at 626-359-6683.