Many companies mistakenly believe the shipping line will reimburse them for the full value of their cargo in the event of damage.
That’s incorrect on a couple of levels. For one, carrier liability only kicks in if it’s proven that the steamship line’s negligence caused the damage. Second, even if negligence can be proven the carrier’s liability is limited to $500 per package or Customary Freight Unit (CFU) under the Carriage of Goods By Sea Act (COGSA).
So, if your CFU is a pallet worth $5,000 and it gets destroyed, the $500 liability limit means you’ll receive only 10% of that value. For an FCL shipment of 20 pallets worth $100,000, you’ll recoup $10,000 from the carrier. If the value of the goods is higher, you would obviously receive an even smaller percent of the true value.
Carrier liability also excludes acts of God, like weather-related disasters. If you purchase all risk marine cargo insurance, it covers acts of God and will reimburse you for the full declared value of your cargo.
Marine cargo insurance, a critical part of global trade, protects goods in transit. However, there are many misconceptions that can lead to financial losses or inadequate coverage.
Here are some of the most common misperceptions:
1. General Liability Coverage is Sufficient
Many believe that general liability insurance will cover cargo losses. This is incorrect. General liability policies typically do not cover damage to or loss of goods during transportation. Marine cargo insurance is specifically designed to address the unique risks associated with transporting goods by sea, air, or land.
2. The Carrier Always Covers Losses
Another common misconception is that carriers are responsible for all losses or damages. In reality, carriers have limited liability. For instance, maritime law sets specific limits on the amount a carrier must pay for damaged or lost cargo. In many cases, the compensation from the carrier is significantly less than the value of the goods. Marine cargo insurance fills this gap and provides comprehensive protection.
3. All Policies are the Same
Some businesses assume that all marine cargo insurance policies offer identical coverage. In truth, these policies can vary widely. Coverage may differ based on the type of goods being transported, the mode of transportation, and specific risks associated with the shipment. Businesses need to review policy details carefully to ensure appropriate coverage for their cargo.
4. Full Value of the Cargo is Always Covered
It’s a common mistake to believe that marine cargo insurance will automatically cover the full value of the goods. Depending on the terms of the policy, only a portion of the value may be covered, or there may be exclusions for specific types of losses. Additionally, some policies may require proper documentation and adherence to shipping guidelines to ensure coverage. Understanding these nuances is crucial to avoid unexpected financial exposure.
5. Only Necessary for High-Value Cargo
Marine cargo insurance is often thought to be essential only for high-value shipments. While it’s true that valuable cargo benefits greatly from insurance, even lower-value goods are susceptible to risks during transport. Theft, damage, accidents, and natural disasters can occur, regardless of the value of the goods. The cost of insurance is often minimal compared to the potential financial loss from an uninsured shipment.
6. Acts of God and War are Covered
Many assume that marine cargo insurance covers all types of loss, including those caused by natural disasters or acts of war. However, standard policies often exclude certain perils, such as war, strikes, and riots, unless additional coverage is purchased. Businesses involved in high-risk shipping routes or regions should consider extending their policies to cover these additional risks.
7. Insurance is Unnecessary for Short-Distance Shipments
Some shippers think marine cargo insurance is unnecessary for short-distance or domestic shipments. However, accidents can happen at any time, even over short distances. The risks do not diminish simply because the route is shorter. Comprehensive insurance provides peace of mind and financial protection, regardless of the length of the journey.
8. Filing Claims is Straightforward and Simple
Filing a marine cargo insurance claim can be complex, requiring specific documentation and evidence of loss or damage. Businesses often underestimate the effort needed to process claims successfully. Insurers may require detailed shipping records, proof of value, and evidence of the condition of the goods before and after transit. Understanding the claims process beforehand can make it smoother and more efficient.
9. Marine Cargo Insurance Covers All Types of Goods
There is also a belief that all types of goods are insurable under marine cargo policies. However, some items, like perishable goods, hazardous materials, or highly valuable commodities, may require specialized coverage or be excluded from standard policies. Businesses should consult with insurers to confirm that their goods are covered.
