International trade involves sending goods overseas via rail, road, sea, or air. Today, international trade is the norm with globalisation and online shopping. However, the transport of goods over great distances invites great risk. Hence, international cargo insurance is the best way for businesses to protect their investment.
What risks do businesses face when shipping cargo by different modes?
The type of risks a business meets when shipping cargo may differ depending on the mode. Here are some of the common risks when shipping cargo:
Shipping by sea
When shipping by sea, the weather is a major hazard. There are treacherous weather-related threats, are typhoons, tropical cyclones, hurricanes, and squalls. Such storms can harm and even sink cargo vessels. They all create fierce winds, surging waves, and torrential rains. Hurricanes can cause wind surges of 160 miles per hour. Such weather conditions pose a serious danger to life, cargo, and the ship.
Aside from the weather, geographic hazards can damage and sink cargo-carrying vessels. These include icebergs, sandbars, coral reefs, and more. Technological hazards are extremely dangerous out at sea. These hazards include anything that goes wrong with the vessels and their equipment. This means anything from structural issues to engine problems and navigational equipment failure. Such issues can cause leakages in the vessels, leading to damage or loss of the cargo.
Shipping by air
Air shipping has similar dangers to shipping by sea. With air travel, even a minor crash can cause major loss of life, cargo, and air carrier. No risk is too small when it comes to air transport. Technological failure may arise from the plane’s engine, navigational equipment, and more. Weather-related dangers are thunderstorms, icing and visible moisture caused by freezing temperatures. These factors can cause fatal air crashes, destroying air carriers and cargo.
Shipping by air requires close collaboration by stakeholders at all supply chain levels. This includes the shippers, air carriers, and governments. Without collaboration, there is a danger of theft of the cargo. Shipping by air is also more expensive than other types.
Shipping by rail and road
There is a greater risk of accidents with road transport. This makes it less safe compared to other modes of cargo transit. Technical failure with the vehicle can cause accidents and loss or damage to the goods. Other vehicles of the road may also cause accidents leading to loss. Road transit can face breakdowns and traffic delays that impact delivery times. Some countries have poorly made and poorly-maintained roads. Some places also exact heavy tolls and road charges on vehicles. Road transit becomes unreliable during heavy monsoons due to floods. The risk of theft may be higher in both road and rail transport.
Rail transport is ideal for high-volume goods over lengthy distances. These lengthy distances are not ideal for time-sensitive cargo. Some countries have over-saturation of their rail networks. The rail network may also not be as extensive as roads. In some countries like India, rail is less reliable than road transport, putting cargo at risk.
Insurance for Shipping Cargo Globally
Businesses need to protect their investments from damage and loss. International shipping of cargo entails facing various risks and dangers to the cargo. So, international cargo insurance is a must for goods undergoing international transit. It covers goods in transit whether they are travelling over sea, land, air, or a combination of these modes. It reimburses the policyholder in the event of any loss or damage to their cargo.
What does international cargo insurance cover?
International cargo insurance covers almost every type of cargo. This includes everything from raw materials to all types of manufactured products. Typical international cargo insurance policies do not cover arms and ammunition. It could also not cover precious gems, fireworks, laptops, mobile phones, and fine art.
The international cargo insurance plan also covers loss or damages for cargo travelling via sea, road, rail, air, or a combination of the transit modes. It may also include coverage for goods that are time-sensitive and it may offer door-to-door coverage. There may be blanket coverage options for global shipments. There are also coverage options for one-off transits.
International cargo insurance may cover goods travelling over hazardous routes and high-risk areas. It may also cover war and terrorism situations. It protects the value of the cargo from theft, physical damage, or general average.
Why do you need insurance for international shipping?
Cargo insurance is not a legal rule. Even then, it is advisable to take international cargo insurance for your shipments.
- Your shipment faces a lot of risks as it moves across countries and through different ports of entry. It moves through different modes of transport and many hands. There are external factors of risk, such as bad weather and traffic conditions. The longer the transit, the greater the exposure to risk.
- Carriers are not responsible for losses and damages that are unforeseeable. This includes when the loss is a result of fires, collisions, and lightning. In cases of criminal acts, negligence, and un-seaworthiness of the vessel, the carrier is still not responsible.
- When the carriers are liable by law, there is a limit on their liability. Often their liability is less than the value of the goods undergoing shipment. For example, international treaty limitations restrict an ocean carrier’s liability to $500 per package.
- The Maritime Law of General Average says that cargo owners are proportionately liable for losses. This includes when cargo was thrown overboard, whether on purpose or not. They also must cover expenses incurred when trying to save the carrier and its crew from danger.
- A ship’s captain may declare General Average for which you must post a cash bond before you can receive your goods. This is applicable even when your goods are not lost or damaged.
What are the factors that decide the premium of international cargo insurance policies?
Annual coverage or shipment-by-shipment
Shipment-by-shipment insurance coverage is ideal for businesses that do not export often. Annual policies allow repeated shipments under a single policy for an extended time. So, they work out to be less expensive than if businesses bought coverage for every shipment.
Nature and value of the goods
Certain goods are more expensive due to their nature. For example, perishable items are more expensive than non-perishable items. Flammable and corrosive materials are also more expensive to cover. High-value goods like valuable electronics and luxury items also invite higher premiums. The nature and value of the cargo hold additional risk for the insurers. These items face greater chances of theft, damage, or loss during transit.
Cargo sometimes has to travel through hazardous conditions, unpredictable weather, and areas of war or terrorism. Or they may need to travel through areas known for piracy and hijacking. Cargo may need to travel via dangerous routes due to the geography of the region. In such cases, premiums tend to be higher for the cargo. Political instability at the point of origin or destination can increase premium prices.
Cargo that can undergo shipment via containers and crates often have favourable premium pricing. Goods that cannot be packed in such ways or that are shrink-wrapped are vulnerable to theft and damage. So, those goods may incur higher premium prices.
Modes of shipment
Shipment mode may impact premium prices as different modes have varying levels of risk. Moreover, some modes are much faster than others. Even within the same mode of transport, the type of vehicle may impact premiums. For example, barges are more expensive than other maritime vessel shipments. This is because barges are smaller, open, and more likely to capsize in bad weather. If the cargo has to undergo multiple changes in modes of transportation during transit, the premium may be more costly.
The insurance company will look at any previous losses to determine the risk level of the business. So, a history of losses will entail higher premiums.
How to buy international cargo insurance?
Get in touch with our subject expert to learn more about the potential risks associated with international cargo shipping. Receive a comprehensive list of coverages and benefits relevant to your needs. Choose from the best insurance policies provided by different insurers in one place at SecureNow.