Understanding cargo insurance for international shipping

Cargo insurance transfers the financial risk from your business to an insurer, protecting your investment from unexpected events.

In global trade, billions of dollars’ worth of goods cross borders and change hands multiple times before arriving at their final destination.

Yet even with all the planning, processes, and safeguards, the journey of a shipment remains vulnerable to storms, collisions, port incidents, theft, and handling damage.

Most businesses assume the shipping company (carrier) will cover the loss. But while carriers do have liability, it is severely limited by law.

That’s where cargo insurance comes in, helping to protect your goods for their full value, regardless of any unexpected events during their journey.

In this article, we explain the basics of cargo insurance, why it's important, and how it protects your bottom line.

What is cargo insurance?

Cargo insurance is a form of protection that covers goods while they are being transported from one place to another.

It applies across all modes of transport—sea, air, road, and rail—and provides compensation if the shipment is lost, damaged, or stolen before reaching its destination.

Having insurance ensures that the owner or party with an insurable interest in the goods does not carry the entire financial risk of transit.

Instead, that risk is transferred to an insurer. This makes it especially important in international trade, where shipments often change hands multiple times and travel long distances.

This protection, formally known as Shipper's Interest Cargo Insurance, covers the actual value of your goods. It is distinct from the carrier’s liability insurance.

Carrier liability vs. cargo insurance

The biggest mistake businesses can make is confusing carrier liability with cargo insurance. They are not the same thing. 

• Carrier liability is limited by international regulations. If your goods are lost or damaged, the carrier’s payout is often based on the weight of the shipment, not its actual commercial value. Moreover, you usually have to prove the carrier was negligent to get paid.
  
  
• Cargo insurance is a policy that protects you. It covers the full commercial value of your goods against loss or damage, regardless of who was at fault. It ensures you get paid quickly so you can replace your inventory and keep your business running. 

What does cargo insurance cover?

A good cargo insurance policy protects your goods from the moment they leave the seller’s warehouse until they arrive at your door.

It covers common risks like:

• Theft and pilferage
• Damage from rough handling during loading and unloading
• Loss due to accidents, collisions, or severe weather

What is the General Average rule?

General Average is a unique maritime rule, whereby if a ship faces a major emergency (like a fire or imminent sinking), the captain can deliberately sacrifice cargo (e.g., throw containers overboard) to save the vessel and the remaining goods. 

If this happens, all cargo owners whose goods were saved must contribute proportionally to cover the losses of those whose cargo was sacrificed. 

Without cargo insurance, you could be forced to pay a large sum even if your own shipment arrived safely.

Types of cargo insurance policies

The two most common categories of cargo insurance are all-risk coverage and named perils coverage.

All-risk coverage

This is the most comprehensive policy option. It protects your shipments against nearly all external causes of loss or damage. Think of it as covering everything unless it's specifically listed as an exclusion.

Named perils coverage

This is a narrower policy that only covers risks specifically listed in the insurance agreement (e.g., fire, collision, theft). If damage occurs from an unlisted event, you won't be covered.

Policies are also structured around shipping frequency. Single-shipment policies insure individual consignments, while annual or open policies apply automatically to all shipments during the policy period. 

How Cole International can help

At Cole International, we provide freight forwarding solutions to help businesses like yours move their goods seamlessly and protect their shipments throughout the journey.

Our team can work with you to:

• Review your shipping patterns and recommend the right type of coverage
• Explain policy terms so you know exactly what is and isn’t included
• Coordinate with insurers to align coverage with your trade requirements
• Ensure your cargo is protected from origin to destination

Our goal is to help you ship your goods smarter and faster. 

Reach out to one of our trade professionals to discuss how we can help you manage coverage, protect your bottom line, and keep your cargo secure wherever it travels.