For a business that buys or sells goods across borders, ocean marine insurance is what protects the shipment between the supplier’s door and its own. Once cargo leaves a warehouse in Shanghai, Bogotá, or Hamburg, it passes through trucks, ports, container yards, vessels, and customs, and every party along the way limits what it will pay if something goes wrong. The ocean carrier’s liability is capped by law at a fraction of what most cargo is worth, and the other parties have similar limits of their own. Cargo insurance is how the owner of the goods closes that gap, and for importers, exporters, and distributors moving product through South Florida’s ports and airports, it is usually the most important policy they don’t think about until a container arrives damaged.
Who Carries the Risk Depends on the Terms of Sale
The first question in any cargo loss is who owned the goods, and who bore the risk, at the moment they were damaged. That is set by the terms of sale, usually expressed as Incoterms. Under some terms the seller carries the risk until the goods are loaded on the vessel. Under others, the buyer takes on the risk the moment the goods leave the seller’s facility, or the seller carries it all the way to the buyer’s door.
A business that buys on terms where risk passes early is exposed for the entire voyage, whether or not it arranged the shipping. A business that sells on terms where it keeps the risk until delivery needs coverage all the way to the customer. Cargo insurance should match the terms on each purchase order and invoice, and businesses that buy and sell on a mix of terms need a policy that recognizes both.
Why the Ocean Carrier Won’t Make You Whole
Many importers assume the shipping line pays when cargo is lost or damaged. In practice, ocean carriers are protected by international conventions and federal law that limit their liability per package or per shipping unit, and they are excused entirely for several causes, including perils of the sea, fire, and errors in navigation. Even when the carrier is liable, the claim process is slow and the recovery is usually a small fraction of the cargo’s value. Freight forwarders, NVOCCs, truckers, and warehouses all have their own limits too. A cargo policy pays the owner directly, and the insurer pursues the carriers afterward.
General Average
General average is the rule of maritime law that can catch an uninsured shipper by surprise. When a vessel’s master sacrifices cargo or incurs extraordinary expense to save the ship, such as jettisoning containers in a storm, fighting a fire, or salvage after a grounding, every cargo owner on board shares the cost in proportion to the value of its goods. That is true even if their own cargo arrived undamaged. Before the cargo is released, the owner must post security for its share. An insured shipper’s underwriter provides that guarantee. An uninsured shipper has to post it in cash or wait while its goods sit at the port.
How Cargo Policies Are Written
Cargo coverage is written on different levels of protection. All-risk coverage protects against physical loss or damage from any external cause not specifically excluded, and it is what most importers and exporters should expect. Named-peril forms cover only the causes listed, such as fire, sinking, stranding, or collision, and they leave common losses like theft, water damage, and rough handling uninsured. The difference in premium is usually small compared with the difference in coverage.
Most policies attach on a warehouse-to-warehouse basis, following the goods from the seller’s premises through inland transit, port handling, the ocean voyage, and on to the final destination, including air shipments when the policy is written to include them. Some policies also extend to goods sitting in a third-party warehouse or at a consolidation point for a set period, which matters for importers whose containers stop in a Doral or Medley warehouse before reaching the customer.
A business that ships regularly usually carries an open cargo policy, which automatically covers every shipment within its terms, with the business reporting shipments or values periodically. That avoids the risk of forgetting to insure a single container and gives the business a consistent rate. Occasional shippers can insure individual shipments instead.
Valuation and Exclusions
Cargo is typically insured for its invoice value plus freight and insurance costs, often with an added percentage to cover the expenses and lost margin that come with replacing a shipment. Agreeing on the valuation basis in advance avoids arguments after a loss.
The exclusions deserve attention. Cargo policies generally exclude loss caused by insufficient packing, the inherent nature of the goods, ordinary wear, and delay, even when the delay is caused by an insured event. War, strikes, riots, and civil commotion are excluded from the basic cover and added back by separate clauses, which are important for shipments moving through regions with labor or political instability. Perishable goods such as flowers, produce, and seafood need coverage for refrigeration breakdown, since temperature loss without physical damage to the container is otherwise excluded.
Related Coverages for Businesses in the Supply Chain
Ocean cargo insurance protects the owner of the goods. Businesses that handle other people’s cargo need different coverage. Warehouses and third-party logistics providers carry warehouse legal liability for the goods in their care, freight forwarders and NVOCCs carry their own liability coverage, and trucking companies carry motor truck cargo, which is covered on our transportation insurance page. Contractors working on vessels have a separate set of exposures, including the U.S. Longshore and Harbor Workers’ Compensation Act and, for crew members, the Jones Act, which our marine artisan contractor pages address.
For goods once they arrive, commercial property insurance covers inventory at the business’s own location, and the cargo policy and the property policy should be coordinated so there is no gap at the loading dock.
Worth Confirming on Your Program
- Your Incoterms on purchases and sales, and whether your cargo policy follows the risk on each
- All-risk coverage rather than a named-peril form
- Warehouse-to-warehouse attachment, including inland transit and air shipments
- Coverage for goods stored at third-party warehouses or consolidation points
- An open cargo policy if you ship regularly, with a clear reporting process
- The valuation basis agreed in advance
- War and strikes clauses added
- Refrigeration breakdown for perishable goods
- Coordination between the cargo policy and your property policy at your own location
Talk to an Advisor
Cargo insurance is simple to carry and expensive to be without. We can review your purchase and sales terms, your shipping volume, and the goods you move, and help place an open cargo policy with a marine market that fits your trade.
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Miami: 305-969-8776 Orlando: 407-993-2331 Stuart: 772-247-3788
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