Cargo insurance is vital as it covers your goods in transit regardless of whether this involves travelling over land, sea, inland waterway or air (or a combination of different modes of transport - “multi modal”) and regardless of whether you are using your own company vehicles or third party transportation. This also includes the storage of goods during the transportation process until they reach the final agreed named place of destination. However, the risks of transporting cargo increases when it stretches beyond domestic borders and involves international trade – this increase in risk is driven by geographical factors, multiple carriers being used and the extended time it takes for safe delivery over a longer distance.
Cargo claims and issues can occur during packaging, loading and unloading, transhipment (shipment of goods to an intermediate destination which could involve a change in the mode of transport), customs inspection causing damage and during delays. Claims could also come to light after final delivery if the damage is not identified until after the goods are unpacked.
Every business that makes or trades physical products needs to consider some form of cargo insurance. Cargo insurance can cover (nearly) anything ranging from raw materials through to manufactured products and is relevant for manufacturers, distributors, wholesalers, importers and exporters.
Insurance can be taken out on goods sold by you or your customer – depending on the terms of sale and who carries the risk at what point. Often the customer / buyer will prefer the seller to carry the risk, for obvious reasons, but even if the customer has chosen to take responsibility for insurance, it is prudent to establish that they have adequate cover or for you to take out “Difference in Conditions” or contingency cover to insure the goods for your own account and during any transit beyond the risk transfer point. The risk transfer point (the “delivery” point) is important to Cargo insurance as it is a factor in establishing insurable interest at the time of a loss.
The International Chamber of Commerce’s Incoterms® rules (there are eleven of them) are the world’s essential terms of trade for the sale of goods. They facilitate trillions of dollars in trade globally each year and hold a universal meaning for buyers and sellers. Incoterms® are extremely relevant to the topic of Cargo insurance because these rules describe the obligations between buyer and seller , including who organises the insurance of the goods, where the seller delivers the goods and where the risk transfers from seller to buyer. The chosen Incoterms® rule should be specified in (and become part of) the sales contract and the “named place” should also be specified (this is where the risk transfers from seller to buyer or the place of delivery / destination) to remove uncertainty. To avoid any misunderstanding of the interpretation of the final agreed Incoterms® rule, you must make reference to the year of the rule in the sales contract - the latest Incoterms® rule is called “Incoterms® 2020” which came into effective from 1st January 2020.
It is important to note that in the latest Incoterms® 2020 rules, the level of Cargo insurance applying to the CIP Incoterms® rule increased from the minimum level of cover provided under the Institute Cargo Clause “C” to a broader “All Risks” cover provided by the Institute Cargo Clause “A” – this means that the seller (under “CIP”) should now obtain a higher level of Cargo insurance cover.
Consider additional expenses which you might incur – extra costs incurred for sending replacement items or extra forwarding costs for unloading or storing items if goods are stopped during transit.
As with all contracts, ensure that you know the law which governs the insurance policy and which jurisdiction applies in the event of any dispute. Also ensure that you are covered for all sailings and sendings at and from all ports or places in the United Kingdom and to all ports and places in the World (and visa versa).
As with all insurance, it is important to understand what may not be covered in a Cargo insurance policy. It is typical that a standard Cargo policy would not cover ammunition, arms or explosives but this could also extend to not covering fireworks, money, manuscripts, lap top computers, fine art, precious stones or mobile phones – these would typically require special attention by insurers. Also, insurers might exclude water damage where the goods are stored directly on the floor. Insurers will not pay a claim which is in contravention of any sanction and this will be explained in a Sanctions and Embargo exclusion clause contained in the policy (this applies to all insurances).
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