Why is cargo insurance important in sea freight?

Sea freight is an economical and efficient solution for the international movement of larger volumes of goods. At the same time, it involves a number of risks. A shipment often travels over a long route and through the involvement of several parties before reaching the consignee from the shipper. During this process, it may be exposed to weather conditions, handling damage, water ingress, fire, theft or even the loss of a container.

Many companies assume that in the event of damage, the shipping line or the carrier will fully compensate the loss. In practice, this is not the case. Carrier liability is usually limited and, in many cases, does not cover the full value of the goods. In addition, there are certain events where the carrier may be exempt from liability.

It is especially important to mention the principle of general average. This may apply when extraordinary measures must be taken to save the vessel, the cargo and the voyage, for example by sacrificing part of the cargo or incurring significant salvage costs. In such cases, the costs are shared proportionally among the cargo owners whose goods are on board the vessel. This means that even the owner of cargo that arrives undamaged may still have a financial contribution to pay.

Cargo insurance provides financial protection precisely for these types of situations. With appropriate insurance in place, the insurer may, subject to the terms and conditions of the policy, compensate losses arising from damage to, loss of or destruction of the goods. It may also provide cover for costs resulting from general average.

Another important aspect is that the cost of cargo insurance is usually minor compared to the total freight cost and especially to the value of the goods. While a single damage event may result in losses of several million forints, the insurance premium is relatively low in comparison. For this reason, cargo insurance should not be considered an unnecessary additional cost, but rather a proportionate and reasonable investment in security.

Before arranging insurance, it is advisable to clarify the exact value and nature of the goods, the packaging, the route, the applicable Incoterms, the number of transhipments and the type of risks for which cover is required. It makes a difference whether full “all risks” cover is needed or whether insurance for specific defined events is sufficient.

Special attention should be paid to sensitive, fragile, moisture-sensitive, high-value or easily stolen goods. In these cases, proper packaging, accurate documentation and adequate insurance together provide real protection.

Overall, marine cargo insurance supports the financial security of importers and exporters. It helps ensure that damage, loss or a general average situation does not jeopardise business processes or the stability of the company.

In Mission Transport’s quotation and freight organisation process, the question of cargo insurance already arises during the preparation phase. When a client requests a quotation for sea freight, it is important to clarify the exact value and nature of the goods, the packaging, the route, the applicable Incoterms, the number of transhipments and whether the client already has its own cargo insurance or would like us to assist with this.

When determining the insured amount, it is not only the invoice value of the goods that can be taken into account. It is also possible for the insurance to cover the freight cost, as in the event of a damage incident, the loss may not be limited to the goods themselves but may also include the related transport costs. In certain cases, the goods may also be insured above their invoice value, meaning that the insured amount may exceed the value stated on the commercial invoice. This may be justified if the client also wishes to take into account additional costs, reproduction, replacement or other business consequences.

Mission Transport can support clients by helping them identify what information is required in order to arrange insurance and by drawing attention to the points that may represent a risk. Such factors may include high cargo value, sensitive or fragile goods, moisture-sensitive products, routes involving several transhipments, or shipments linked to time-critical delivery obligations.

If the client does not have its own insurance, we can, upon request, assist in obtaining and coordinating a cargo insurance option. This way, the client receives not only a freight quotation, but also a clearer picture of the risks, the appropriate insured amount and the available protection options that should be considered for the specific sea freight shipment.