
Mostly, it’s because they don’t want to spend the money. They’re willing to take the chance that all their cargo will arrive damage free, all the time. Insurance industry losses from weather-related and man-made disasters are actually rising.
But, like house fires, car accidents and other mishaps, you never think it’s going to happen to you.
Many ocean shippers forgo marine cargo insurance despite the significant risks involved in transporting goods over long distances. Several reasons contribute to this trend, spanning from cost considerations to misconceptions about coverage.
- First, cost remains a major deterrent for many shippers. Marine cargo insurance premiums can seem expensive, particularly for small and medium-sized businesses operating on tight margins. These businesses often weigh the probability of loss or damage against the cost of insurance and may decide to take their chances. If they’ve successfully shipped goods in the past without incidents, the recurring expense of insurance might seem unjustifiable.
- Second, some shippers mistakenly believe that their freight forwarding or logistics provider offers comprehensive coverage. In reality, standard coverage offered by carriers, like the Carriage of Goods by Sea Act (COGSA) in the United States, limits liability significantly. Carriers generally cap compensation at $500 per container, far below the value of many shipments. This limited protection means that if a major loss occurs, the shipper could face substantial financial losses. Yet, the misconception persists, leaving shippers vulnerable.
Another factor is the complex nature of marine insurance policies. Understanding the terms, coverage limits, and exclusions requires significant knowledge, which many shippers lack.
Policies can be difficult to navigate, and shippers may not want to invest time and resources into deciphering coverage options. They might also be unaware of the various perils covered, such as theft, damage during loading and unloading, or losses from natural disasters. A lack of awareness about what marine cargo insurance truly protects against can lead to a false sense of security.
Additionally, some shippers assume that the likelihood of a catastrophic event is low, believing that advancements in logistics and vessel safety reduce the risk of loss or damage. While modern shipping has improved, unforeseen incidents like container loss at sea, piracy, and natural disasters still occur. Cargo claims for incidents such as containers falling overboard or goods getting damaged by rough seas are not uncommon, but the perceived low probability of these events often leads shippers to skip coverage.
A few shippers have strong relationships with customers or suppliers and agree to absorb certain risks as a cost of doing business. This informal approach may work in the short term, but it exposes all parties to potential disputes and financial strain if significant losses occur.
Shippers who work under contracts of sale like Free on Board (FOB) or Cost, Insurance, and Freight (CIF) might believe insurance is someone else’s responsibility. Under FOB, the buyer typically bears the risk once goods are loaded onto the ship, while under CIF, the seller must insure the cargo.
These arrangements can lead to confusion about who should actually purchase insurance, resulting in lapses in coverage.