INTERNATIONAL

SOURCING &
PROCUREMENT
LOGISTICS
ASSIGNMENT UNIT 3
SAIKIRAN

2019-M-14101996A
What is Cargo Insurance?

Cargo insurance is the method used in protecting shipments from physical damage

or theft. In fact, insuring cargo ensures that the value of goods are protected against
potential losses which may occur during air, sea or land transportation.

The movement of goods across the world comes with certain risks. These risks are
mitigated through insurance coverage since there is no guarantee that damage or
loss will not occur.

Is cargo insurance a requirement?

There is no requirement to buy cargo insurance. However, it is highly
recommended so you can better protect your goods from exposure to risks—some
that could be catastrophic. It’s important to weigh the insurance costs with the
potential losses and collateral damage that could occur without insurance.
Keep in mind that even if you prove an ocean carrier is legally liable, their limit of
liability is $500.00 USD per package or customary shipping unit, or the actual
value of the goods, whichever is less. And air freight carriers are only liable for 19
SDR per kilo (around $24.00 USD). As you can imagine, most freight has a much
higher value than these rates. Therefore, without the proper insurance, you could
lose a big part of the value of your cargo.

Who is liable for damage?

Some of the most common types of damage are outside a carrier’s liability,
including fire, acts of God, strikes, accidents of the sea, insufficiency of packing,
and more. With these regulations in place, proving a carrier is legally liable for
your freight can be difficult.
Next to that, there are many companies handling your freight throughout storage
and transit. It can make it difficult to trace where damage occurred or prove who is
liable for said damage. With a cargo insurance policy, you are covered for these
losses and don’t need to prove liability.
 
What is general average?
If a marine carrier experiences a fire or some other extraordinary sacrifice or
expenditure occurs, the carrier may declare general average. If this happens, all
those who have cargo on the ship may be required to share in the cost of the
expenditure.
If an ocean carrier declares general average and your cargo was on the ship, your
cargo will not be released until the salvage security and general average deposit are
calculated. This can take weeks and be quite costly. For example, I had a customer
several years ago that had to pay close to $50,000 USD simply to release their
cargo from the container. The freight was only valued at $100,000 USD.
 

Can I make a trade deal with my buyer or supplier?

Simply making a trade deal with buyers or suppliers may not be enough coverage.
Under cost insurance and freight (CIF) terms, they are only obligated to provide
minimal coverage. If you choose to pursue this type of coverage, always closely
examine their policies to make sure your cargo is sufficiently covered.
 

Top 3 qualities to look for in a quality cargo

insurance provider
Many companies out there will offer cargo insurance. But finding the right one for
your business may take some research. Just because an insurance provider has the
highest rates doesn’t always guarantee the best coverage. You need a provider who
cares about your freight. That’s why C.H. Robinson works hard to provide:

1. The right cargo insurance provider will offer a variety of flexible policies
based on your needs. And with low or no deductibles.
2. All-risk coverage. Find a provider who can coverage all of your standard
commodities against financial exposure, physical loss, or damage while your
goods are in transit.
3. Qualified insurance teams. With plenty of insurance experts to guide you
through the purchasing and claims process, great cargo insurance providers help
you navigate the complicated rules and regulations to quickly resolve claims.
Importance of Cargo Insurance

 The risk then continues during the ordinary course of transit to terminate
on delivery.

 Cargo insurance has coverage of loss or damage caused by war, civil war,
revolution, rebellion, insurrection or civil strife or any hostile act,
capture, seizure, arrest, restraint detainment, general average and salvage
charges, strikes, riots, etc.

 Trade coverage covers the insurance needs of the various type of cargoes
of general nature.

 Several commodities and foodstuffs provide for particular hazards.

Institute of London Underwriters (ILU) have adopted uniform trade
practices.

 Which are followed by other insurers for insurance of cocoa, coffee,

cotton, fats oil knots, hides, skins, leather, metal, oilseeds, sugar, tea and
so is assured under a standard policy.

The Need for Cargo Insurance

Carriers do not guarantee the safe delivery of cargo. There is always the possibility
that cargo will be damaged during the transportation process.  To make things
worse, the carrier may not be responsible for the cargo loss or damage by the terms
of the contract or as a matter of law.
 
Ocean carriers in particular, are very well protected under the maritime law.  If
your cargo is lost or damaged during sea transport – there is certainly no guarantee
that the ocean carrier will be responsible. 

The bottom line is that cargo insurance is necessary to protect the cargo interest
against inevitable losses that occur during the transportation of goods. 

A cargo insurance policy indemnifies the cargo interest in the event of loss or
damage to cargo due to a peril insured against while at risk under the policy. 
 
The majority of cargo insurance policies are underwritten on an “all risk” basis.
This means that the insured are covered for all risk of loss or damage except for
those risks that are specifically excluded in the policy such as loss or damage due
to willful destruction of the goods by the insured or the inherent vice of the goods.

Some policies are enumerated perils policies that insure cargo for only those risks
expressly listed in the policy. 

For example, a  policy might have a clause that reads as follows: 

“This insurance is against the perils of the seas, fire, assailing thieves, jettisons,
barratry of the master and mariners and all other like perils, losses or misfortunes
that have or shall come to the hurt, detriment or damage of the property insured
hereunder or any part there of except as otherwise provided for herein.”

That is old language but it is fully applicable today. Of the risks enumerated by far
the most important are “perils of the seas” which refer to fortuitous losses arising
through the extraordinary action of the elements at sea such as heavy weather and
waves. 

The policy also covers against   accidents in navigation or other marine causalities
such as sinking, stranding, collision, striking of rocks and icebergs.

Other perils covered include:

1. Fire - both direct and consequential damage whether from smoke, steam or efforts to
extinguish a fire.

2. Assailing thieves - forcible taking of a shipment rather than mysterious disappearance or

pilferage.

3. Jettison - voluntary dumping overboard of cargo to relieve a vessel in distress.

4. Barratry - fraudulent, criminal or wrongful act of the ship's captain or crew that causes loss or
damage to the ship or cargo.

 There are other perils that might be covered.  The fact is that one should always make
certain that his/her cargo policy provides adequate coverage terms.

 Cargo insurance may be purchased on an open policy basis.

 This is a long term / continuous contract of insurance, which automatically covers all
goods in transit at the risk of the insured as long as the policy remains in force, that is,
from the date of attachment of the policy until canceled by the insured or the insurer. 
  That is different from a “special” cargo policy which covers one single shipment of goods
and must be negotiated and issued before each separate shipment is made. 

 Historically, cargo insurance policies were only for ocean transport.   However, it is
noteworthy that today policies are routinely underwritten to insure the cargo for risks that
occur during ocean transport as well as inland transport, warehousing, and other periods
of time during the transport process. 

 This is done by inclusion of a Marine Extension Clause or a Warehouse-to-Warehouse

Clause or similar clauses that continue insurance coverage during the entire transport. 

One Last Note:

 Cargos that are shipped by sea are subject to risks that are unknown
elsewhere.

 If your cargo is lost or damaged, you have suffered a particular average.

Your policy will cover you for the loss assuming you have the proper policy
that covers the risk.

 However, sea transport may give rise to a general average.

 If the shipowner makes an intentional sacrifice of property or expenditure of

money during the course of a voyage for purposes of avoiding a peril to the
ship and its cargo – then all parties to the voyage must contribute to that
loss. General average is typically a covered risk under cargo policies.  

 For example, if a vessel catches fire and deviates to a port of refuge - all
cargo interests (and the shipowner) will pay their pro-rata share of the port
of refuge expenses (no matter how innocent the cargo interest is). 

 The loss is “general” and all parties to the voyage must contribute to that
loss. That is just one example of a general average. That being said, make
sure you have cargo insurance to avoid any type of damager and provide a
smooth transit.   
Changes in the Insurance Policy:

 A marine policy typically covered only three-quarter of the insured's

liabilities towards third parties .

 The typical liabilities arise in respect of collision with another ship, known
as "running down" (collision with a fixed object is a "allision"), and wreck
removal (a wreck may serve to block a harbour, for example).

 In the 19th century, shipowners banded together in mutual underwriting

clubs known as Protection and Indemnity Clubs (P&I), to insure the
remaining one-quarter liability amongst themselves.

 These Clubs are still in existence today and have become the model for other
specialized and noncommercial marine and non-marine mutuals, for
example in relation to oil pollution and nuclear risks.

 Clubs work on the basis of agreeing to accept a shipowner as a member and

levying an initial "call" (premium).

 With the fund accumulated, reinsurance will be purchased; however, if the

loss experience is unfavourable one or more "supplementary calls" may be
made.

 Clubs also typically try to build up reserves, but this puts them at odds with
their mutual status.

Various specialist policies exist, including:

 Newbuilding Risks: This covers the risk of damage to the hull while it is

under construction.

 Open Cargo or Shipper’s Interest Insurance: This policy may be

purchased by a carrier, freight broker, or shipper, as coverage for the shipper’s
 goods. In the event of loss or damage, this type of insurance will pay for the
true value of the shipment, rather than only the legal amount that the carrier is
liable for.

 Yacht Insurance: Insurance of pleasure craft is generally known as

"yacht insurance" and includes liability coverage. Smaller vessels such as
yachts and fishing vessels are typically underwritten on a "binding authority" or
"lineslip" basis.

 Increased Value (IV): Increased Value cover protects the shipowner against

any difference between the insured value of the vessel and the market value of
the vessel.

 Overdue insurance: This is a form of insurance now largely obsolete due to

advances in communications. It was an early form of reinsurance and was
bought by an insurer when a ship was late at arriving at her destination port and
there was a risk that she might have been lost (but, equally, might simply have
been delayed).

 Cargo insurance: Cargo insurance is underwritten on the Institute Cargo

Clauses, with coverage on an A, B, or C basis, A having the widest cover
and C the most restricted.

The Institute Cargo Clauses:

Coverage under a cargo insurance policy is determined by the Institute Coverage

Clause (ICC) which you buy with the policy. ICC is the standard coverage under
cargo insurance which is accepted by all marine insurance companies. There are
three types of ICCs which are as follows –
1. Institute Coverage Clause ‘C’

This clause gives the basic coverage under a cargo insurance policy. The coverage
includes only named perils which are as follows:
1. Fire and/or explosion.
2. Overturning, collision or derailment of the transportation vehicle.
3. Jettison.
4. Discharge of the cargo at a point of distress.

2. Institute Cargo Clause ‘B’

This clause is wider than ICC ‘C’ as it covers the damages suffered due to the
following perils:
1. Perils covered under ICC ‘C’.
2. Earthquakes.
3. Lightning.
4. Volcanic eruptions.
5. Water seepage into the transport vessel or storage area.
6. Losses suffered when loading or unloading the goods.

3. Institute Cargo Clause ‘A’

This is also called ‘All Risk Cover’ as it includes all the perils due to which the
goods can be damaged. The coverage includes the following perils:

1. Perils covered under ICC ‘C’ and ICC ‘B’

2. Loss due to rainwater.
3. Theft, pilferage or any other type of malicious damage.
4. Shortage, breakage or any type of partial loss.
5. Any other losses suffered by the cargo other than the excluded ones.

You can choose any type of coverage clause but ICC ‘A’ is better because of
the comprehensive scope of coverage that it provides.
 Exclusions Clauses under cargo insurance :

Though cargo insurance policies provide quite a comprehensive scope of coverage,

there are some perils and instances of loss which are not covered by the policy.
Common exclusions under marine cargo insurance policies include the following –

1. Damages suffered due to negligence and/or wilful misconduct

2. The loss suffered due to delay in transportation
3. Damages which occur when goods are not properly packaged
4. Perils like war, riots, civil commotion, strike, etc.
5. Costs incurred in removing the wreckage after a damage
6. Damages suffered due to biological, nuclear or chemical weapons
7. Damages due to radioactive contamination
8. If the charterers, managers, owners or operators of the vessel become
financially insolvent and are unable to transport the goods, the consequent losses
would not be covered
9. Inherent vice in the cargo which is certain to cause damage
10. Normal loss in weight of the cargo and leakage or breakage of goods
11. If the transportation vehicle is unseaworthy, i.e., not fit to transport the
goods, but the vessel is used for transportation, consequent losses would not be
covered.

Claims Procedure :

Marine insurance is called as protection against future loss.

Marine insurance isimportant because through marine insurance the owners can be
sure of claiming damages by considering the mode of transportation.

There are four modes of transport – air, road, rail, and water. Out of which water is
the riskiest way of transportation, where it causes huge financial casket of the
transporter.
Another feature is that the transporter can choose the insurance plan as per the size
of the ship and the routes he has been chosen to transport his cargo.

The marine insurance policy covers the damage caused due to :

1. Natural calamities like cyclones, earthquakes, etc.

2. Sinking or stranding ships.
3. Expenses like survey fees, forwarding costs, etc.
4. Man-made disasters like theft, violence, etc.

Following are not covered under marine insurance:

1. Loss or damage due to willful act or negligence.

2. Loss or damage due to delay.
3. Loss or damage due to improper packing.
4. Loss or damage due to war, strike, etc.
5. Financial default of the owners, managers, operators.

Notice to Insurer :
Intimating insurance company about the loss or damage of goods is the first step to
be taken by the insured under claim of Marine Insurance. In the event of loss or
damage to the goods, insured or his agent has to give immediate notice to the
insurance company.
Reasonable Care :
Ina marine Insurance, it is a condition of the policy that the insured and his agents
should act as if the goods are uninsured and should take all such measures and
actions as may be reasonable and necessary to minimize the loss or damage. They
must also ensure that all the rights against carriers, baileys or third parties are
protected. So Reasonable care is one of the measures to be taken in to
consideration under the procedures of claiming Marine Insurance against loss or
damage of export import goods of international trade.
Survey and Claim:
Survey and claim is the next step to be followed under procedures and formalities
to claim Marine Insurance under export and import goods. In a Marine Insurance,
at the time of taking delivery, if any package shows signs of outward damage,
insured or his agents must call for a detailed survey by the ship surveyors and
lodge the monetary claim with the shipping company for the loss or damage to the
packages. A certified marine surveyor can be appointed at the location where
damaged cargo is available.
Outward Condition:
When the outward condition of the packages is apparent, the insured takes delivery
unsuspectingly. After reaching warehouse, one opening the packages, they find
damages to goods. In such an event, the insured and or agent should immediately
inform the insurance company and call for the ship surveyor for detailed survey.
They should not make any delivery of goods. They should not disturb the packing
materials or the contents in packages. This is important in claiming Marine
Insurance under export and import trade.
Missing Packages:
In case any package is found missing, the insured must lodge the monetary claim
with the insurance company and its baileys (shipping company) and obtain a
proper acknowledgement from them. This is one of the formalities to claim
Insurance under import export of international trade.
Time Limit:
In a Marine Insurance, the time limit for filing suit against the shipping companies
is one year from the date of discharge of goods, which may change as per the rules
and regulations of insurer.

Documents Required:
The following documents are to be submitted by the insured to enable the
insurance company to settle the claims expeditiously:

1. Original insurance Policy or Certificate.

2. Copy of Billing Lading.

3. Survey report / Missing certificate.

4. Original Invoice and Packing List together with shipping specification or weight
notes.

5. Copies of Correspondence exchanged with the carriers or bailees.