International shipping is already expensive, but the costs can go even higher when products are damaged or stolen in transit. And problems like these are only accelerating as global supply chains work through the pandemic.
According to CargoNet, a theft prevention and recovery network, 1,676 supply chain risk events occurred across the United States and Canada alone in 2020, which is a 16% increase from the previous year. The World Shipping Council similarly reported that only 1,382 containers were lost at sea between 2018 and 2019 on average. Between Nov. 30 and Jan. 31 last year, however, more than 2,675 containers were lost in only five incidents at sea, which is double the annual average in just two months!
Global shippers lose billions of dollars from damages, theft, and loss every year. This has come as an expensive lesson for many companies who’ve had to learn the hard way about the risks of either not having enough or the right type of cargo insurance in place to protect their interests. The bottom line is that cargo insurance is a must-have for every shipment moving via air or ocean freight.
Bad Things Can Happen
The risks and costs for shippers come from various reasons, including theft at the port or in transit on the ocean and road. Losses can also occur due to the product being mislabeled, damaged, misplaced, or even natural disasters.
While some cargo loss is accidental (such as the result of parametric rolling), most cargo theft is obviously purposeful. Technically speaking, cargo theft is defined as “loss of goods, chattels, money, or baggage as part of a freight shipment due to criminal activity,” and it’s unfortunately become more common. This is not surprising as cargo values continue to rise, and supply chains remain in disarray heading into the end of 2021. Theives are getting better and smarter too and often use the best of technology with bad intent. The inevitable introduction of autonomous ships may provide yet another attractive opportunity for thieves.
There are no guarantees in life (or freight transportation), so no shipper can ever be 100% sure every shipment will arrive in perfect shape. Luckily, companies can safeguard their interests with cargo insurance. Coverage can be purchased not only by shippers but also carriers, importers/exporters, contractors, or anyone else engaged in transporting goods. It’s usually the shipper or BCO who should be the most concerned about the risk of not having enough insurance though because they have the most to lose when problems arise.
Insurance Policy Types
Cargo insurance policies range from more comprehensive “all peril,” which pays for damage regardless of the cause, to narrower coverage that only compensates risks specifically named in the policy. A typical insurance policy will cover the basics such as theft, hijacking, provider errors, or other in-transit issues, including a vessel sinking or rain/saltwater damages.
Every insurance policy is complex, and it’s a mistake for a shipper to make assumptions about what is covered. It’s always important to look at the details and ask a partner you trust questions to make sure you have a clear understanding of the insurance terms. There can also be exclusions like some policies not covering the loss or damage of goods in the event of war or piracy. And, of course, it’s always important to document every shipment’s value regardless of the mode used to help with resolutions if there is an issue with loss or damage later.
When you are working with an insurance provider, the best way to get the best rates is to offer as much information about the shipment as possible. This allows them to accurately understand the exposure and liability they’re taking on by insuring the shipment. Also, just like with carrier rates you may be able to negotiate better prices when you frequently use the same insurer.
Cargo insurance is an important safeguard against the financial risk of the problems that inevitably pop up during the shipping process. International shipping is exceptionally unpredictable right now for many reasons. So, it’s now more important than ever to have the proper insurance.