Cargo vs. freight insurance - choosing the right coverage for importers

Lost or damaged cargo is an unfortunate part of operating as an importer. In fact, up to 1,382 shipping containers are lost at sea each year with an estimated annual loss of more than $4 trillion. You can protect against losses if you have the right insurance for lost or damaged shipments.

Freight insurance and cargo insurance may sound like the same thing, but important differences separate them into different categories. Some people use the terms interchangeably, adding to the potential confusion. This refresher helps you get the essentials right so you can choose the best coverage for your needs.

3 common freight insurance misconceptions

1. "I already have an insurance policy"

Does your policy offer wide, transportation-specific, all-risk coverage? Double-check your deductible. In some cases, they can be as large as $25,000. Your freight forwarder may be able to get your deductible as low as $350.

2. "The carrier already insures my freight" 

Often, a carrier's legal liability policy covers less than your freight’s actual value. Additionally, a carrier will only pay out after you have proven that they were directly responsible for damaging your freight and your freight was in their possession at the time of damage.

3. "I've never needed insurance before" 

If you don’t invest in cargo insurance, you could be stuck paying the tab for losses and unexpected legal liability. In-transit damage, losses, theft, and accidents can devastate your bottom line. Make sure your goods are protected against these risks. 

What does freight insurance cover?

Both freight insurance and cargo insurance are intended to protect goods that are transported, in the event that they’re lost or damaged. This includes coverage for goods shipped domestically and internationally via land, air, sea transport, or any combination of logistics modes. But the similarities end there.

You may be surprised to learn that freight insurance only covers the freight forwarder or logistics provider against claims due to mistakes or negligence. This means that freight insurance protects the shipment while it’s in transit.

One important caveat about freight insurance is that the amount paid out may not cover the full value of losses or damages. Carriers are required to have freight insurance under law, but the coverage doesn’t necessarily pay for the full value of goods.

When do I need cargo insurance?

Cargo insurance is designed to reimburse importers and exporters with the full value of your shipped goods if they’re lost or damaged in transit. It’s comprehensive and covers various risks, taking into account details such as:

• The cargo’s origin and destination
• The route of the freight forwarder or carrier
• The size, weight, and dimensions of the cargo
• The type of cargo transported, such as fragile, hazardous, or perishable

Cargo insurance covers your goods from the moment they leave their starting location until the moment they arrive at their final destination. The amount of coverage included in your plan can be negotiated when purchasing your policy to ensure you are covered for the full value of your goods. The following table shows the types of risks that comprehensive cargo insurance can cover:

Compared to the cost of most shipments, the price of cargo insurance is often relatively small when you consider the benefits of protecting yourself against interrupted business operations.

Protect yourself against the unexpected

Freight insurance mostly protects the freight forwarder or carrier against losses and liability, while cargo insurance protects the importer or sender of goods. Getting the right coverage for your next shipment will help mitigate against a variety of risks, including lost or damaged cargo.

Cole has more than half a century of experience in safe and efficient freight forwarding. We can help guide you to cargo insurance coverage that best fits your needs. Contact us now to learn more.

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