Cargo Insurance Explained: Do You Really Need It?

Many businesses assume that if their goods are lost or damaged in transit, the carrier will cover the cost. In reality, carrier liability is strictly limited, and it is almost never enough to make you whole. Cargo insurance exists to cover the difference between what a carrier is legally obliged to pay and what your shipment is actually worth.

Why Carrier Liability Isn't Enough

Ocean and air carriers limit their liability by international convention, and those limits are based on the weight of the goods, not their value. In practice that can work out to a few dollars per kilogram. For a container of high-value electronics or machinery, a payout calculated on weight alone might cover a small fraction of the loss. Worse, carriers can avoid liability entirely in certain circumstances, such as damage caused by events outside their control. Relying on carrier liability leaves most of the financial risk sitting with you.

What Cargo Insurance Covers

A cargo insurance policy covers physical loss or damage to your goods while in transit, based on their actual insured value rather than their weight. Depending on the policy, cover can extend across the full journey — from the supplier's warehouse, through ocean or air freight, and on to the final destination. Most policies are written on an "all risks" basis, covering a broad range of causes of loss, though standard exclusions such as inadequate packing or inherent defects in the goods still apply.

How Value Is Calculated

Cargo is typically insured for the commercial invoice value plus freight costs, often with an additional percentage — commonly 10% — added to reflect lost profit or incidental expenses. Insuring for the full landed value means that if the worst happens, the payout reflects what it actually costs you to replace the goods and cover the wasted freight, not just the factory price.

When It Matters Most

Cargo insurance is worth serious consideration for high-value shipments, fragile or sensitive goods, long or multi-leg journeys with several handling points, and any consignment where losing the goods would materially hurt the business. It also matters under Incoterms where risk transfers to you early in the journey — under FOB or CIF, for example, the risk of loss can sit with the buyer for most of the voyage, whether or not the seller arranged transport.

Getting It Right

The key is to have cover in place before the goods move, insured for the correct value, with a clear understanding of what is and isn't covered. Arranging it after a problem has occurred is not an option, and discovering a gap in cover during a claim is an expensive way to learn the detail.

Flagship Forwarding can arrange cargo insurance as part of the forwarding process and advise on the right level of cover for your shipment. Contact us before your next consignment ships to make sure it's properly protected.