Cargo Insurance for Commercial and Industrial Freight

Liability cap

Carrier liability is capped by weight, not by the value of your goods

A carrier's liability for lost or damaged cargo is limited by international convention and is calculated by weight or by package, not by the value of the goods. Two shippers who lose consignments of identical gross weight recover the same capped amount from the carrier, whether the boxes held precision instruments or steel offcuts, because the conventions measure the carrier's exposure in units of mass and packages rather than in invoice value.

For commercial and industrial cargo that cap sits far below what the consignment is worth. A pallet of control panels and a pallet of packaging film weigh much the same and attract the same convention limit, and the gap between that limit and the replacement cost is the exposure the cargo owner carries. Cargo insurance works on the opposite basis. It responds to a value declared for the consignment before it moves, and that declared value is what an indemnity is measured against.

Liability vs insurance

Carrier liability and cargo insurance are not substitutes

Carrier liability is a legal remedy against the carrier, while cargo insurance is a contract of indemnity between the cargo owner and an insurer. Recovering from a carrier means proving the loss occurred while the goods were in the carrier's charge, meeting the notice periods the convention sets, and accepting the capped figure. Recovering under a policy means presenting a claim built on the terms placed for that consignment.

The two run in parallel rather than as alternatives. An insurer that settles a cargo claim takes over the insured's rights against the carrier and pursues the carrier itself, a mechanism called subrogation. That is precisely why we lodge a written claim against the carrier even when a policy is in place: the claim preserves the recovery the insurer will later pursue, and failing to lodge it in time can prejudice the position of the cargo owner.

Conventions

Three conventions cap liability across sea, road and air

Three instruments govern most international carriage on the corridors we work: the Hague-Visby Rules for carriage by sea, the Convention on the Contract for the International Carriage of Goods by Road (CMR) for international road freight, and the Montreal Convention for carriage by air. Each caps the carrier's liability using the same principle, expressed in a unit of account per kilogram of gross weight or per package.

The Hague-Visby Rules apply the higher of a figure per package or shipping unit and a figure per kilogram of the gross weight of the goods lost or damaged. CMR applies a figure per kilogram of the gross weight short-delivered or damaged, and adds the refund of carriage charges and duties on the affected goods. The Montreal Convention applies a figure per kilogram of the package concerned, and requires the notice of damage in writing within a short fixed period after receipt.

All three allow the shipper to break the cap by declaring a higher value on the transport document and paying the carrier a supplementary charge for accepting it, which is a different instrument again from a cargo policy. The limits themselves are expressed in Special Drawing Rights (SDR), the International Monetary Fund unit of account, and they are amended over time.

Cover levels

Institute Cargo Clauses set three levels of cover: A, B and C

The Institute Cargo Clauses (ICC) are the standard wordings used in marine and transit cargo policies worldwide, and they come in three levels. Clause A is all-risks cover: it responds to physical loss of or damage to the insured cargo from any cause other than the exclusions written into the policy. Clauses B and C are named-perils cover: they respond only to the events listed in the wording, and a loss outside that list is not covered however genuine it is.

Clause B is the wider of the two named-perils wordings. It reaches events such as earthquake, volcanic eruption and lightning, entry of sea, lake or river water into the vessel, craft, container or place of storage, and total loss of a package lost overboard or dropped during loading or discharge. Clause C is the narrowest and concentrates on major casualties: fire or explosion, the vessel being stranded, grounded, sunk or capsized, collision, discharge at a port of distress, and general average sacrifice.

All three levels carry general average and salvage charges, and all three exclude war and strikes unless those risks are added back by separate clauses. Choosing between them is a commercial judgement about the commodity, the route and the handling the cargo will meet, and the level chosen is written into the policy placed for the shipment. We describe these wordings because they are the industry standard, not because they are a product we sell.

Insured value

Insured value is built from the invoice, the freight and a customary uplift

The conventional basis for the insured value of a commercial consignment is the commercial invoice value of the goods plus the freight, uplifted by a customary margin to cover the incidental costs a loss creates. The uplift exists because a total loss costs the cargo owner more than the face of the invoice. There is duty already paid or payable, survey and disposal costs, bank and documentary charges, the working capital tied up in the order, and the premium on replacing the consignment at short notice.

Declaring the value on that basis is what allows an indemnity to restore the cargo owner to the position held before the loss rather than to a fraction of it. Under-declaring to reduce the premium creates a shortfall that surfaces at exactly the moment the cover is needed, and where the policy applies an average condition the settlement is reduced in proportion to the under-declaration. We take the invoice value from the same commercial documents that support the export declaration, so the declared figure and the customs file agree.

Transit cover

Transit cover attaches at the origin warehouse and ends at the destination warehouse

Transit cargo cover is written on a warehouse-to-warehouse basis: it attaches when the goods are first moved inside the origin warehouse or place of storage for the purpose of immediate loading, it continues through the ordinary course of transit, and it ends on delivery to the named destination warehouse.

The principle matters on our corridors because a consignment leaving Jebel Ali for Damascus, or Shanghai for Alexandria, changes mode, changes vehicle, and rests in a consolidation warehouse and a transhipment yard along the way. Cover written port to port would leave the inland legs and the handling at both ends bare, and those are the legs where handling damage concentrates.

Warehouse-to-warehouse cover also runs against a clock. A fixed period begins on discharge of the goods from the vessel at the final port of discharge, or on unloading from the aircraft or vehicle, and cover ends at whichever comes first: delivery to the named destination, expiry of that period, or delivery to any other warehouse the cargo owner elects to use for storage or for distribution. Where the goods will rest longer than that, the extension is arranged with the insurer before the period runs out rather than after.

General average

General average can bill a shipper whose own cargo arrived undamaged

General average (GA) is a principle of maritime law under which every party with an interest in a sea voyage contributes proportionally to a loss deliberately incurred to save the venture. When a master jettisons deck cargo to refloat a grounded vessel, engages professional salvors after an engine failure, or floods a hold with water to fight a container fire, the sacrifice and the extraordinary expenditure are shared between the ship and all of the cargo on board.

Contributions are apportioned by value, not by fault and not by whether a given consignment was touched. Cargo that arrives in perfect condition contributes on the same basis as cargo that was thrown overboard. The owner declares general average, an average adjuster is appointed to draw up the statement, and the carrier exercises a lien over every container on the vessel until each consignee provides a general average bond together with either a cash deposit or an insurer's guarantee. Until that paperwork is in place the container is not released, and demurrage and storage accrue at the terminal.

An insured cargo owner passes the demand to the insurer, whose guarantee stands in place of a cash deposit and whose adjusters handle the correspondence. An uninsured cargo owner funds the deposit from working capital, on undamaged goods, before the container can move. For a full container of otherwise low-risk cargo on a long sea leg, this is the strongest single argument for placing cover.

Exclusions

Exclusions follow the causes the cargo owner controls

Cargo policies exclude losses that trace back to the condition of the goods or the way they were prepared rather than to an event in transit, and three exclusions account for most declined claims on commercial cargo. Insufficiency or unsuitability of packing excludes damage that a correct packing specification would have prevented: cartons stacked past their compression strength, machinery not cradled or lashed for a sea leg, hygroscopic goods loaded without desiccant, a container stuffed without dunnage.

Inherent vice excludes deterioration that a commodity produces in itself over a normal transit, such as fruit ripening, resin curing or unprotected steel oxidising in humid air. Delay excludes loss of market and consequential loss caused by a late arrival, even where the delay itself was set off by an insured peril. Wilful misconduct of the insured, ordinary leakage and ordinary wear and tear, insufficiency of marking, and insolvency or financial default of the vessel operator complete the standard list.

Every one of these is written into the wording, and the exclusions that bite on a given consignment are the ones in the policy placed for it. This is also where the forwarding work carries its weight: a correct packing specification, correct stuffing and correct marking remove the most common grounds for a declined claim before the container is sealed.