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Freight insurance and its importance

Freight transport is a fundamental activity for the economic and social development of any country. However, it also involves a number of risks that can affect the integrity and value of the goods transported. From accidents, theft, fire, breakdowns, to natural phenomena, there are many situations that can cause the loss or deterioration of cargo.

To prevent these mishaps from generating serious problems for any company, it is advisable to have freight insurance. This type of insurance provides adequate protection to safeguard products in case of damage or loss during transportation, whether by sea, land or air.

In this article, we will explain in detail what this insurance consists of, the different types of coverage available and the advantages it can offer.

What is freight insurance?

Transport insurance is a contract that establishes that the insurance company will indemnify for damages and losses suffered by the goods during transportation. This coverage applies to both the transport vehicle and the objects transported, regardless of the means of transport used: river, rail, air or sea transport.

However, transport insurance is governed by the principles of indemnity, which are as follows:

  • No one may claim compensation in excess of the actual damage suffered.
  • The insurance must not generate profits or benefits for the insured person.

In addition, it is important to emphasize that the indemnity provided by the insurer should not be a reason to obtain undue profit.

Types of freight insurance

Depending on the means of transport used, there are different types of insurance that offer different coverage and conditions.

The two main types are explained below:

Land cargo insurance

This insurance covers goods being transported by road, whether in trucks, vans, trailers or containers, and usually applies only to domestic shipment, i.e. within the same country.

Covers damages or losses caused by accidents, theft, fire, explosions, strikes, riots, acts of terrorism or vandalism, among other risks. However, the value of the indemnity will depend on the type of merchandise, the declared value and the conditions of the policy.

For more information on safety tips related to road transport, we invite you to consult our article on this subject.

Marine cargo insurance

Marine cargo insurance protects products that are transported by air or water, whether in airplanes, ships or boats. This type of insurance covers possible damages or losses that may occur during transportation due to various risks, such as shipwreck, collision, fire, explosion, piracy or general average.

In the event that the goods are damaged or lost, the insurance compensates the value of the goods, taking into account factors such as the type of goods, the declared value, the conditions of the contract and the York and Antwerp rules.

Types of freight coverage

When purchasing cargo insurance, the frequency with which the goods are shipped and the risks to which they are exposed must be taken into account in order to choose the most suitable coverage policy.

The coverage policy is the contract that specifies what risks the insurance covers and what conditions apply. Although there are several types of cargo coverage policies, we will focus on the most common ones and the protections they provide.

All risk policy

It is the most complete and offers greater security against external risks. This policy compensates for any damage or loss suffered by the merchandise due to causes beyond the owner’s control.

For example, if your merchandise is damaged due to natural disasters, negligence, poor packaging, customs rejection, abandonment, or any other reason, the all risk insurance will pay you the value of your merchandise.

Named dangers policy

Also known as “free of particular damage”, the named dangers policy is more limited and only protects the damage caused by the vessel carrying the goods. In other words, this policy compensates you for damages or losses suffered by your merchandise due to collision, sinking, derailment, non-delivery, bad weather, fire or theft.

Although it is usually cheaper than the comprehensive policy, it is important to bear in mind that it also has more exclusions in its coverage.

Single policy

The single policy, also called a voyage policy, is a good option if goods are shipped irregularly by sea. This policy only covers a specific trip and is tailored to your needs.

For example, if you are starting your business in the international market and you make small shipments, a single policy is your best choice. This policy is usually more economical and flexible than those mentioned above.

Warehouse to warehouse policy

It is the most common option in a B2B supply chain environment. It guarantees the protection of goods from the time they leave the warehouse of origin until they arrive at the warehouse of destination.

This type of coverage generally incorporates marine cargo insurance, although it is crucial to confirm this with the carrier in charge.

Contingency policy

The contingency policy is linked to freight brokers, who act as intermediaries to facilitate the search for the best transport for your merchandise.

Sometimes your goods may be damaged during transport and the carrier refuses to pay. In that case, the freight broker may intervene with a contingency policy and compensate your claim. This action not only provides you with an additional guarantee, but also avoids possible complications and mishaps.

General average policy

A general average policy is a type of insurance that covers damages or losses that occur when the master of the ship has to sacrifice part of the cargo or the ship to save the rest. This situation is known as general average and is less frequent than other maritime risks, such as theft, sinking or deterioration of the goods

A recent case of gross damage was the Ever Given vessel, which ran aground in the Suez Canal in March 2021. To free the vessel, the channel had to be dredged, the ship towed and part of the cargo unloaded. The vessel’s owners declared the vessel to be in general average and claimed $916 million in compensation from the cargo owners.

For all these reasons, freight insurance is a beneficial investment that ensures the safety and success of any business worldwide.

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