Question

• whats the need for cargo insurance?
• What are The elements, options and provisions of cargo insurance?
• What are some of the dangers if an exporter does not have cargo insurance?
• How differences in the mode of transportation may affect how cargo insurance is purchased?

Answer 1

Cargo or freight insurance cover against risks of damage or physical loss to freight during shipment in various modes including land, air and sea. The need for cargo insurance arises with the growth of international trade. Cargo insurance is required for the benefit of international and local trade and reducing the risks in exporting and importing. The need for cargo insurance is felt more in the case of import-export businesses ensuring the safe delivery of cargo in proper condition.

The main elements covered under cargo insurance include infestation, rejection by the customs authority, abandonment of the cargo, inappropriate packing damages, dishonesty of the employees, collision damages, theft, non-delivery, fire and damages due to sinking, heavy weather and derailment. Other risks covered under cargo insurance include explosion, lightning, strikes, storm, other natural disasters, road or rail accidents, burglary and riot etc.

Risk of loss is the main danger if the exporter ignores cargo insurance. In case the entire shipment without cargo insurance sinks into the ocean, then it is a big loss for the exporter and there will be no compensation for the loss as the exporter ignored the cargo insurance.

Trade statistics reveal that 90 per cent of international trade is carried out by the sea. This indicates that cargo insurance is designed with the sea mode of transportation on a primary basis with container vessels in perspective. The cargo insurance policy is determined based on property value, goods, merchandise, wares etc. The policy is applicable from the time the shipment leaves the warehouse to the moment it reaches the destination. The purchase of cargo insurance is impacted through the various means of transport and basis of insurance purchase and accordingly, the price of the cargo insurance varies. Cargo insurance is also done on time basis – one trip open cover cargo insurance policies (Air mode), voyage basis – specific cargo insurance policies (Ship mode) and travel or shipment basis – freight standard cargo insurance policies (road and rail modes).