Marine cargo insurance, should you buy it?

Marine cargo insurance – Why you need it?

Do you know that over 100 million containers are shipped via ocean freight each year, but not all have marine cargo insurance? These containers have an average size of 2.44 m by 12.19 m (8 ft by 40 ft) and can hold up to 26,480 kg (58,000 lbs). Unfortunately, approximately 10,000 of these large containers get lost at sea each year and the number is expected to increase as the import and export business continues to grow.

Should you buy a marine cargo insurance prior to shipment?

Factors for ocean freight loss and damages

What could be the reasons for ocean freight loss and damages? Here is a list we have gathered for you.

Packing damage

Two-thirds of cargo damage and accidents can be attributed to improper packing such as over packed boxes, insufficient padding, and incorrect stacking of cartons.

The image below shows the proper way of packing your shipping container. Visit our blog next month and learn how you should properly pack your shipping container to avoid packing damage while your shipment is on transit.

Cargo movement

With various types of movement occurring in ocean freight during a voyage such as heaving, pitching, rolling, surging, swaying and yawing, some loss and damage to cargo shipment becomes unavoidable.

Watch this video to see these various movements caught on tape.

Container ship in huge storm – good reason to take out marine insurance

Storms create huge waves that cause water to infiltrate cargo containers causing damage to goods. This video shows just how this is possible.

Ships in severe weather shows why marine cargo insurance is important

Overboard losses and jettison

Strong winds can make a ship unstable during storms and can result in some cargo containers to get lost overboard. There are even instances wherein the ship is left with no option but to purposely dump overboard some cargo – jettison.

Destroyer in storm demonstrates importance of marine cargo insurance

Fire

Most dangerous cargo such as chemicals and ammunition have higher fire and explosion risk. This leads to unexpected ship fire and explosion just like what is shown in the video below.

Burning cargo ship in port – make sure you take out marine insurance

Sinking

Strong storms can be catastrophic for ships as it can overwhelm them, causing them to sink along with the cargo. All cargo is generally lost in such situations.

Cargo ship sinking near New Zealand – shows the need for marine insurance

Hijacking

Pirate attacks causes freight to be delayed for ransom, while some are even stolen. This news clip shows the impact of pirates in the import and export industry.

Pirate attacks in modern era – another reason for marine insurance

Stranding

Factors such as storms, groundings, government delays, port strikes, vessel collision and freight contamination cause ships to get stranded. This results in delayed or damaged freight as was the case from the LA port disruption early this year.

Why should you purchase marine cargo insurance

Given these above uncertainties, are you willing to just let your cargo sail without any marine cargo insurance? Probably not and that’s a wise decision on your part.

Here are some additional reasons why you shouldn’t let your cargo sail without any marine cargo insurance.

Reduces your exposure to financial loss

Yes! You will be paying additional fees to get a marine cargo insurance, but the benefit it brings to your business outweighs this cost.

How can purchasing a marine cargo insurance reduces your exposure to financial loss?

If you’re an exporter who has not been paid for the goods at the time of shipment, or an importer who has paid for all or part of the goods prior to receiving them, you run the risk of suffering a financial loss if the goods are lost or damaged during transit. Purchasing a marine cargo insurance takes this responsibility off your business.

Expedites release of cargo

Time is vital to any business and the quicker your cargo gets released from the port, the better it will be for your business.

How can purchasing a marine cargo insurance expedite the release of your cargo?

A bond has to be posted or cash has to be deposited following a general average, before a cargo has to be released. By purchasing insurance for your cargo, your insurance company assumes this responsibility thus expediting the release of your cargo.

Saves you from potential legal problems

Save your business from the trouble of going through these situations. Purchase marine cargo insurance that suits your unique requirement.

How can purchasing a marine cargo insurance save you from potential legal problems?

Most sales contract obligates sellers to provide marine cargo insurance. By purchasing a marine cargo insurance, your are providing additional protection to either the buyer or the bank’s interest, fulfilling their requirement.

How much should you insure your goods?

After all is said and done, it is sensible to take out marine cargo insurance. However, do you know how much you should insure your goods and how much it will cost?

Probably not. But no worries! We are here to help you.

How to calculate for your marine cargo insurance?

The cost of insurance is usually a rate applied to the amount you wish to insure. The common practice when calculating the amount to insure for marine cargo insurance is as follows:

Amount to insure = invoice cost + freight cost + extra costs

The extra costs are usually just 10% of the invoice and freight cost to allow for:

• Landing charges
• Bank charges
• Road transport
• Customs broker fees
• Currency conversion
• Handling and payment

Note that this does not include the cost of insurance. Adding the cost of insurance to the amount to insure is a little more complicated. Contact us if you would like us to help you with that.

Sample case scenario

This sample case scenario will show the difference in insuring just the machine vs including freight cost and the extra costs.

Exporting a Machine worth $250,000

Cost of goods                                                                      : $250,000
Freight cost                                                                          : $12,000
Extra costs                                                                            : $26,200
(Sum of cost of goods + freight cost) multiplied by 10%
Total amount to be insured                                              : $288,200

The above scenario shows two options on how you can insure your goods. You can simply insure the cost of goods valued at $250,000 or follow the recommended marine cargo insurance calculation of $288,200.

Avoid unwanted fees due to packing damage – buy a marine cargo insurance

What’s the difference?

If you insured your machine for its cost price only and the truck rolled over to final destination, the insurance company would only cover the cost value of the machine, but you cannot recover the excess equivalent to $39,850. That obviously would not make you very happy?

But that would mean I have to pay more, right?

In most cases, the premium cost difference between $250,000 and $289,850 is minimal. So the error in miscalculating the sum value of your marine cargo insurance would not have cost you any more insurance premium. Sadly, it will cost you substantially in the event of a loss.

Do you have additional questions regarding marine cargo insurance? We are happy to answer these for you. Call us at 1300651233, today.

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