Freight & Customs

Cargo insurance, and what to do when it goes wrong

The shipping line is not insuring your goods. Their liability is capped by law at $500 per package and has been since the 1930s. This is what marine cargo insurance actually covers, why the cover your supplier bought is probably the wrong tier, and the seven things that decide whether a claim gets paid.

Three expensive beliefs How a claim works
Why this page exists

We told you FOB leaves you uninsured and then stopped

Our Incoterms reference says, correctly, that FOB obliges nobody to insure anything and that under CIF the seller only has to buy the minimum tier. Both sentences are true and both are useless on their own, because the next question is what you should actually do, and this site did not answer it anywhere.

So: what follows is a plain-language explanation of how marine cargo cover is structured, what every policy excludes, and what a claim requires. It is not legal advice and it is not a policy. Your certificate wording and your bill of lading govern, and where this page and either of those disagree, they win.

Start here

Three beliefs that cost importers the most

Each of these is held sincerely by people who have imported for years, and each one is wrong in a way that only becomes visible at the worst possible moment.

1“The carrier is responsible if they lose it”

Carrier liability is a limitation regime, not insurance. Under the US Carriage of Goods by Sea Act the carrier's liability is capped at $500 per package, a figure set when the Act was written and never raised. It is still $500 today.

It gets worse, because COGSA never defines "package". Courts have reached different answers, and the bill of lading wording matters. A shipment described as 480 cartons on 24 pallets is capped at $240,000 if a carton is the package and $12,000 if a pallet is. Same cargo, same loss, twentyfold difference, decided by how the paperwork reads and which court hears it.

2“My supplier sold me CIF, so it is insured”

Under CIF the seller's only obligation is Institute Cargo Clauses (C), the narrowest tier. It does not cover water entering the container.

Water is the most common way ocean cargo is actually ruined: condensation inside the box, a failed door seal, a wet deck. A CIF certificate can be entirely valid and pay nothing on the most likely loss you face. It is also cover bought by someone whose risk ended when the goods crossed the ship's rail.

3“I will sort it out if something actually happens”

General average can bill you for a shipment that was never damaged, and hold your container until you pay.

If a vessel is deliberately sacrificed in part to save the whole, by jettisoning cargo, grounding to avoid sinking, or accepting salvage, every cargo owner on the ship contributes proportionally to the value saved. Your undamaged container is not released until you post a general average bond or guarantee. An insured shipper's underwriter issues that. An uninsured one finds the cash.

The three levels

Institute Cargo Clauses A, B and C

Almost every marine cargo policy in the world is written on one of these three, and the difference between them is not a matter of degree. (A) is all risks with stated exclusions. (B) and (C) are lists, and if your loss is not on the list it is not covered.

ICC (A)All risks

Covers physical loss or damage from any external cause, except what the policy specifically excludes. The burden sits with the insurer to point at an exclusion rather than with you to prove your loss was on a list.

What it addsTheft, non-delivery, handling and stowage damage, breakage, and the large category of things that go wrong without anyone being able to say exactly what happened.

Use it whenThe default for manufactured consumer goods. If you are reading this page to decide, this is almost certainly the answer.

ICC (B)Named perils, wider

Covers a defined list of events. If your loss is not on the list, it is not covered, however unfair that feels.

What it addsOver ICC (C): earthquake, volcanic eruption and lightning, water entering the vessel, container or place of storage, and total loss of a package lost overboard or dropped while loading.

Use it whenOccasionally sensible for robust, low-value, hard-to-damage cargo where the premium difference is material.

ICC (C)Named perils, minimum

The narrowest cover in normal use, and the level a seller is obliged to provide under CIF. Broadly: catastrophes to the vessel itself.

What it addsFire or explosion, the vessel sinking, grounding, stranding or capsizing, collision, derailment or overturning of a land conveyance, discharge at a port of distress, jettison, and general average sacrifice.

Use it whenRarely the right choice for finished goods, and frequently mistaken for real cover because a CIF seller's certificate arrived.

Peril lists above are the standard clause structure and are given so you can tell the tiers apart. Individual policies vary, and the wording on your certificate is what actually governs. Read it, and specifically check which of the three you have been sold.

Where claims actually die

What no cargo policy covers, at any tier

None of this is hidden and none of it is unreasonable. It is worth knowing in advance because the first one on the list is the most common reason a claim is refused, and it is the one entirely within your control.

Insufficient or unsuitable packing

The single most common reason a claim is declined. If the cartons could not survive a normal ocean voyage, the loss is treated as caused by the packing rather than by the voyage. This is squarely on you and your factory, and it is the one exclusion you can actually design out.

Inherent vice

Damage the goods did to themselves: things that corrode, ferment, melt, off-gas or simply degrade over time without an external cause.

Ordinary wear, leakage and loss in weight

Ordinary leakage, ordinary loss in weight or volume, and ordinary wear and tear are excluded at every tier.

Delay

Loss of market, missed season, spoiled launch date. Even where the delay was caused by an insured peril, loss caused by delay is excluded. A container that arrives six weeks late and undamaged is not an insured loss.

Wilful misconduct of the insured

Your own deliberate act.

Unseaworthiness and unfitness

Where the vessel or the container was unfit and you knew about it.

Insolvency of the carrier

Financial default of the vessel owner or operator, where you knew or should reasonably have known.

War and strikes

Both are excluded as standard and both are normally available to buy back as separate clauses. On some routes at some times, that buy-back stops being optional.

Packing is the exclusion you can design out

Insurers decline claims for insufficient packing constantly, and they are usually right to. Cargo has to survive being stacked, craned, trucked over bad roads, and sitting in a steel box that swings between humid and hot for five weeks. Packing that is adequate for a domestic pallet is frequently not adequate for that.

This is the strongest practical argument for booking an inspection at the container loading stage: somebody independent looks at how the goods are actually packed and stowed, with photographs, before the doors close. That report is both a way to avoid the loss and, if it happens anyway, evidence that the packing was sound.

Inspection stages, including loading Who is obliged to insure what
When it happens

Seven steps, and the first hour matters most

Whether a claim gets paid is largely decided in the first hour after a container is opened, by people who are not thinking about insurance and are thinking about getting the truck away.

The two deadlines worth committing to memory: notice of damage that was not apparent on inspection goes to the carrier within three days of delivery, and suit against the carrier under COGSA must be brought within one year of delivery or of when delivery should have happened.

Give your warehouse team the first three steps in writing before your first container lands. They are the ones who will be standing there.

What happens at the port Freight & customs
  1. Note the damage at delivery, in writing, on the delivery receiptBefore the driver leaves. A clean receipt signed for damaged goods is the hardest single fact to argue past later, because the carrier will say the goods left their custody in good order and your own signature will say so too.
  2. Give the carrier written noticeApparent damage: at the time of delivery. Damage not apparent on inspection: within three days of delivery under COGSA. Missing this does not automatically end a claim, and it hands the carrier their best argument.
  3. Photograph everything before anything movesThe container with the seal still on it and the seal number legible. The doors opening. The load as stowed, before a single carton is lifted. Damaged cartons in place, then opened. Most weak claims are weak because the evidence was created after the pallet was broken down.
  4. Mitigate, and keep the receiptsEvery policy requires you to act as though uninsured: stop further damage, separate sound stock from damaged, keep it safe. Reasonable costs of doing that are generally recoverable. Doing nothing is a breach.
  5. Do not destroy anythingThe damaged goods are the evidence. A surveyor may need to see them. Disposing of a ruined pallet to clear warehouse space, before anyone has looked at it, has ended real claims.
  6. Notify the underwriter and let them appoint a surveyorPromptly, in writing, with the documents: commercial invoice, packing list, bill of lading, the insurance certificate, the delivery receipt with the damage noted, and the photographs.
  7. Protect the claim against the carrier in timeSuit against the carrier under COGSA must be brought within one year of delivery, or of the date the goods should have been delivered. Underwriters who pay you take over that right and will expect it to still exist. Letting it lapse can prejudice your own claim.
Straight about this

We are not insurance brokers

We arrange cover alongside the freight and we will tell you which tier you are being offered and what it excludes, which is more than most importers are ever told. We do not underwrite anything and we are not licensed to advise on insurance. For high-value, fragile or unusual cargo, a specialist marine broker is genuinely worth the call, and we would rather point you at one than sell you thinner cover and hope.

Talk about a shipment Air or ocean
Questions

Frequently asked

Does my supplier's CIF insurance cover me?

Only at the minimum level, and probably not for the loss you are most likely to have. Under CIF the seller is obliged to provide Institute Cargo Clauses (C), which is a short list of catastrophes to the vessel and does not include water entering the container. It is also a policy arranged by a party whose own risk ended at the origin port. If the cargo matters, buy your own (A) cover and treat the seller's certificate as a bonus.

Is the shipping line responsible, and what is the carrier liability limit?

Not in the way most people assume. Carrier liability is limited by law rather than being insurance. Under the US Carriage of Goods by Sea Act it is capped at $500 per package, a figure that has never been increased. Because COGSA does not define "package", whether that means each carton or each pallet is genuinely disputed, and the difference can be twentyfold on the same shipment. Recovering anything also requires proving the carrier was at fault, within a one-year deadline.

What is general average, and can it really happen to me?

It is a rule of maritime law, several centuries old and still in force, that when part of a ship or its cargo is deliberately sacrificed to save the rest, everyone whose property was saved contributes proportionally. It applies whether or not your own goods were touched. In practice your container is not released until you post a general average bond or guarantee, which an insurer provides as a matter of routine and an uninsured shipper funds in cash. It is rare, and it is the specific rare event that turns a shipping problem into a solvency problem.

What does cargo insurance cost?

It is normally a small percentage of the insured value, and the actual number depends on the commodity, the route, how it is packed, the cover level and your own loss history. We are not going to publish a rate here for the same reason there are no freight rates anywhere on this site: any number we printed would be wrong for most people reading it. What is worth saying is that it is routinely one of the smallest lines in a landed cost and the only one that pays out.

What value should I insure for?

The standard basis is commercial invoice value plus freight plus a percentage, commonly ten percent, to cover the costs of dealing with a loss. Insuring for the factory cost alone leaves you paying the freight twice on goods you no longer have.

Why do claims get declined, and what does cargo insurance not cover?

Most declined claims are not disputes about honesty. They are packing, and they are evidence. Insufficient packing is an exclusion at every cover level, so cargo that could not survive a normal voyage is treated as having caused its own loss. After that it is a clean delivery receipt signed for damaged goods, photographs taken after the load was broken down, or notice given too late. All three are avoidable in the first hour after a container opens.

Do you arrange the insurance?

We arrange cover through the freight side of a shipment and we will tell you plainly what tier you are being offered and what it excludes, which is more than most people are told. We are not insurance brokers and we do not underwrite anything. For high-value or unusual cargo, a specialist marine broker is worth the conversation and we will say so rather than sell you something thinner.

What is the COGSA $500 per package limit?

The Carriage of Goods by Sea Act caps an ocean carrier's liability at $500 per package unless you declared a higher value and paid for it. A package is usually read as the shipping unit on the bill of lading, so a container declared as one package caps the whole container at $500. It is the reason carrier liability is not insurance and should never be treated as a substitute for it.

What is the difference between ICC (A) and ICC (C) cover?

Institute Cargo Clauses (A) is all-risks cover, subject to the named exclusions. (C) is a short list of named catastrophes to the vessel: fire, stranding, collision and the like. (B) sits between them. The practical gap is that (C) does not cover water entering the container, theft, or handling damage, which is most of what actually happens to cargo. If the goods matter, buy (A).

Do I need cargo insurance?

If losing the shipment would hurt, yes. Carrier liability is capped low enough that it will not replace your goods, your supplier's CIF certificate is usually only the minimum (C) cover, and general average can bill you for a casualty that had nothing to do with your cargo. Cover is normally a small fraction of the value of what it protects, which is why the answer for most importers is straightforward.

Get started

Tell us what is moving

What it is, what it is worth, how it is packed and where it is going. We will come back on the freight and tell you what cover is being offered with it.

  • Container loading inspection booked before the doors close, with photographs.
  • Licensed customs brokers at every major US port of entry.
  • No invented rates, for freight, duty or premium.

Tell us about your project

We'll come back with a scope and a quote. If we're not the right fit, we'll say so.

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Keep reading
Incoterms 2020 Explained Who is obliged to insure Only two of the eleven rules require cover, and one buys the minimum. Third-Party Inspection in China Stop the loss instead Container loading inspection, photographed before the doors close. US Customs Clearance for Importers What happens at the port ISF, entry, exams and the clock that starts on arrival.
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