The Beginner’s Guide to Cargo Insurance

A key factor in logistics and freight forwarding is contingency planning. In a world of unknowns, having protection in place to safeguard your investments is important.

Between 2020 and 2022 an average of 2,301 containers are lost at sea per year. While this represents less than 0.001% of all international trade, it can be catastrophic for businesses whose containers are lost. This is where cargo insurance comes into play.

Here at Allegro Freight Forwarding, we are experts in freight channels and the safe delivery of your assets. We have put together this guide about cargo insurance to help businesses like yours get the most from their policies.

Cargo insurance is a protection policy which covers a business for the cost of shipments if they are lost, damaged, or stolen. Much like household insurance, should your shipment be lost at sea rf damaged in transit, the policy will pay for the cost of the goods.

The name of the insurance might vary depending on the shipping method you choose. Freight sent via land or air is typically called cargo insurance. For shipments via sea, this instead might be called maritime cargo insurance.

Find out whether sea freight or air freight is the best overseas shipping solution >

The cost of the insurance will likely vary depending on the value of the goods being transported. High value items are going to have a higher premium as they are more likely to be stolen or are harder to replace if they are lost.

Freight forwarders can handle customs themselves. They are well suited to doing so, as the navigation of country borders and regulatory compliance is one of their primary functions. With a forwarder handling the legal side of things, the manufacturer can get on with their own interests with ease.

It may also be the case that a freight forwarder occasionally outsources the customs compliance with a trusted customs broker. In this case, there will be no noticeable change to the customer – just a smooth shipping journey.

Contact the team at Allegro Freight Forwarding for reliable shippers that can navigate customs for you.

While we have covered some of the regulatory bodies within the UK, it is important to note that there will be differences with other countries. Exporting your goods abroad to the USA, China, Europe, or anywhere else, will come with individual hurdles that need to be navigated by a specialist forwarder.

There is a regulation known as the UK Trade Tariff that details the requirements surrounding the import, export, and transportation of goods both in and out of the UK. It also sets out to consolidate and compare UK data with EU TARIC data (TARIC is the integrated tariff of the European Union).

A good freight forwarder, like Allegro, understands the customs and methods needed to comply with them for each country that they provide their services for. This all goes on in the background – all you need to know it that we’ve got you covered.

There are different types of cargo insurance which will pay out in different eventualities. These include, but are not limited to:

• Total Loss. This will only pay out if the entire shipment is lost. This should only be taken if the cost of damage is small or the goods are easily repairable, but not replaceable.
• Land Cargo. As the name would suggest, this covers cargo being transported by rail or road.
• All-Risk Coverage. The most comprehensive coverage, including physical loss or damage, is “all-risk coverage”. This is a good option for high value items or perishable goods.

It is the responsibility of the business to get cargo insurance on their shipments, not the carrier or the freight forwarder, so understanding your insurance and what it covers is important.

Learn more about the documents needed for international shipping >

The world is ever changing, and we cannot always predict what will happen tomorrow. There are several reasons why you might need cargo insurance:

1. Weather
   1. Rough weather conditions can lead to damaged and lost cargo across all shipping methods. While there are systems in place to minimise this loss, extreme weather conditions can lead to shipments being damaged and, in the worst cases, destroyed.
2. Pirates
   1. No, we aren’t talking about Captain Hook. Pirates still pose a threat to international shipping. Pirates will try and steal cargo, fuel, or in some cases the ship itself. Insuring your shipments can help protect against theft and damage.
3. Natural Disasters
   1. Earthquakes and tsunamis can damage infrastructure, slow the supply chain down, and damage goods waiting at port for transportation. They can be hard to predict, and aren’t always common, but being protected can prevent these occurrences from being disasters for you.
4. Accidents
   1. Accidents happen, and it’s the same for freight forwarding. The most recent incident at the time of writing was the crash in Boston which caused a bridge to collapse. Not only has this impacted the shipments on the ship that crashed, but also on the ships stuck in port and the ones out at sea.
   2. Suez Canal Crisis in 2021. During this incident, a cargo ship blocked the Suez Canal in Egypt for 6 days. This led to a longstanding impact on the international supply chain as ships were unable to meet their delivery deadlines, raising the prices of freight containers in addition.
   3. Cargo Plane Crash. In May 2024, a FedEx plane crashed when the landing gear failed. While nobody was harmed, had this plane been carrying fragile freight it could have led to damages – and a worse crash would have worse results.

While the chances of these events occurring are small, they are possible. Insurance can help mitigate the risk should these events occur for your business.

Ultimately, insurance protects you from being out of pocket should a shipment be damaged in transit. This can help businesses:

• Settle Debts
  If the business has taken out a loan to purchase the shipment, the insurance can cover the cost of the debts.
• Meet Contractual Obligations
  While there is no legal requirement to have cargo insurance, many carriers will not transport goods without additional coverage. This minimises their risk and liability should an incident occur.
• Minimise Disruption
  Should the worst happen, and your shipments are lost at sea or in an accident, insurance can help keep your business and supply chain moving. In the event of a payout, a business can resume their trading. Without insurance this could be delayed while new capital is raised and orders are placed.

Cargo insurance will not cover a business for every eventuality. There are limitations which a business will need to consider and plan for accordingly:

• Incorrect packaging – poor packaging or storage which leads to the damage of products will not be covered by insurance.
• Types of shipments – not all shipments are covered by insurance. Some insurance providers will not cover perishable products for delays, for example.
• Loss due to delay – as per the above, the cost of delays are not always covered in cargo insurance. If this is a risk to your business, getting this as part of your policy will be important.
• Goods are in storage – typically, if shipments are being stored for more than 72 hours, cargo insurance is void as they are no longer deemed as “in transit”. Understanding what your policies are and their limits will help you to plan accordingly and make sure your shipments are protected throughout their journey.

It is important to understand the limitations and conditions of your insurance. Speaking with your insurance provider to understand these requirements will prevent insurance being cancelled or not paying out in the event of lost or damaged goods.