Most shippers discover the gap between carrier liability and cargo insurance at the worst possible moment. The carrier is not your insurer, its liability is capped by international convention, and the cap is calculated in a way that has nothing to do with the value of your goods.
Carrier liability, and why it is not enough
Under the liability regimes that apply to ocean carriage, a carrier's exposure for loss or damage is limited per package or per kilo, whichever produces the higher figure, unless a higher value was declared and paid for. For a pallet of electronics, that limit can be a small fraction of the invoice value. Carriers also have defences: acts of God, perils of the sea, inherent vice of the goods, insufficient packing.
The result is that a claim against a carrier is slow, contested and capped. A marine cargo policy pays on the value you insured, subject to its own terms.
What a marine cargo policy covers
The standard market wordings run from named perils to all risks. All risk cover, which is what most commercial shippers buy, responds to physical loss or damage from any external cause, subject to exclusions.
| Usually covered | Usually excluded |
|---|---|
| Physical loss or damage in transit | Inherent vice, ordinary leakage and wear |
| Jettison and washing overboard | Insufficient or unsuitable packing |
| General average contributions | Delay and consequential loss |
| Salvage charges | War and strikes, unless added back |
| Theft and non-delivery | Wilful misconduct by the insured |
Two exclusions deserve attention. Insufficient packing is judged against what the trade considers adequate for the voyage, so cutting packaging cost can void a claim. Delay is excluded even when caused by an insured peril, which means a missed season is your loss, not the underwriter's.
General average, the clause that surprises people
If a vessel suffers a casualty and the master takes action to save the voyage, the cost is shared proportionally by everyone with cargo aboard. Under general average your uninsured cargo can be held until you post security, even if your specific containers were untouched. A cargo policy handles that contribution and the security. Without it, you pay before your goods are released.
How to value the policy
Standard practice is to insure at CIF value plus ten percent, and on project cargo the valuation deserves more care still. The uplift covers the incidental costs of a loss. Under-insuring triggers average clauses, where the insurer pays only the proportion insured. Over-insuring wastes premium and can complicate a claim.
Remember that customs value and insured value are different figures. Customs value on a US import is FOB based, as set out in how to calculate US import duty. Insurance runs on the landed value.
Who buys the cover
The Incoterm decides. Under CIF and CIP the seller arranges insurance, though CIF requires only minimum cover, which is far narrower than most buyers assume. Under FOB, FCA and the other terms the buyer arranges it from the point risk transfers. If you are buying CIF and your supplier is insuring at the minimum, you are exposed for the difference.
Practical claim discipline
Photograph the cargo loaded and sealed. Record the seal number on the bill of lading. Note damage on the delivery receipt before signing, because a clean receipt is very hard to argue with later. Notify the carrier and the underwriter in writing immediately, keep the packaging, and do not dispose of damaged goods before survey.
For consolidated cargo the discipline matters more, because LCL shipments pass through two extra handling points where damage is possible without anyone noticing.
FAQ
Is cargo insurance required?
Not by law, but many trade terms and letters of credit require it, and carrier liability limits make it a commercial necessity for most cargo.
Does the carrier's liability cover my goods?
Only up to a package or weight limitation set by convention, and subject to defences. It is not equivalent to insurance.
What is all risk cover?
Cover against physical loss or damage from any external cause, subject to the policy exclusions such as inherent vice, insufficient packing and delay.
How much does marine cargo insurance cost?
It is a percentage of the insured value that varies with commodity, packing, route and claims history. For most general cargo it is a small fraction of the freight.
Am I covered while goods sit in a warehouse?
Standard transit clauses cover storage in the ordinary course of transit for a limited period. Extended storage needs a separate arrangement.
Shipping high value cargo through the Caribbean or Latin America? Ask us how the cover should be structured before the container is booked.