Freight Insurance: Cost, Coverage & Meaning | Freightos (2024)

When your business ships valuable cargo across the globe, you need the peace of mind that comes with reliable freight insurance. But with so many options out there, how do you choose the right coverage for your needs? Don’t worry, we’ve got you covered. In this comprehensive freight insurance guide, we’ll break down everything you need to know to protect your shipments and your bottom line. Let’s dive in!

What is Freight Insurance?

Freight insurance is a type of policy that safeguards your goods against loss, damage, or theft while they’re in transit. Think of it as a safety net for your cargo – if something goes wrong, you’re covered. Many shippers assume that the carrier’s liability will fully protect them, but that’s often not the case. Carrier liability is limited and may not cover the full value of your goods. That’s where freight insurance comes in.

It’s important to note that freight insurance is different from the carrier’s liability. Carriers are required by law to carry a certain level of liability insurance, but this is often insufficient to fully cover the value of your goods. Freight insurance, on the other hand, can be tailored to your specific needs and can provide much higher levels of coverage.

Types of Freight Insurance

There are several types of freight insurance to choose from, depending on your specific needs:

• Cargo Insurance: This is the most common type, covering physical damage or loss of goods during shipping. It can be arranged by the seller, buyer, or a third party and is often used in international trade.
• Liability Insurance: Protects against third-party claims of bodily injury or property damage. This is particularly important for freight forwarders and logistics providers.
• All-Risk Coverage: The most comprehensive option, covering a wide range of risks. This type of policy provides the broadest protection but also tends to be the most expensive.

Within cargo insurance, there are three main levels of cover:

1. Basic Cover: Minimal protection against major disasters like accidents and natural disasters. This is the lowest level of cover and is not recommended for high-value or sensitive goods.

2. Broad Cover: Expands on basic to include theft, non-delivery, and more. This is a good mid-range option for many businesses.

3. All-Risk Cover: The highest level of protection, covering all risks unless specifically excluded. This is recommended for high-value, fragile, or critical shipments.

Freight Insurance Coverage

So, what exactly does freight insurance cover? A typical policy will protect against risks like:

• Physical damage from accidents, rough handling, or extreme weather events
• Theft, pilferage, and non-delivery of goods
• General average sacrifice in the event of a maritime incident
• Loss overboard on sea voyages
• Customs rejection or delays

However, it’s equally important to be aware of common exclusions. These may include:

• Wear and tear or gradual deterioration
• Improper packing or labeling of goods
• Employee dishonesty or intentional damage
• Delay-related losses, unless specifically included
• War, strikes, or civil unrest, unless specifically included

Always carefully review your policy documents to understand what is and isn’t covered.

Freight Insurance Cost

On average, freight insurance premiums cost around 0.3% to 0.5% of the commercial invoice value of the goods. But costs can vary based on factors like:

• Type and value of goods being shipped
• Mode of transport (air, sea, road, rail)
• Destination country and shipping route
• Level of cover selected

To keep your freight insurance costs down, consider steps like:

• Properly packing and labeling your cargo to minimize risks
• Providing accurate declarations and documentation to avoid disputes
• Choosing reputable, experienced carriers with good safety records
• Opting for appropriate, not excessive, levels of cover

It’s all about finding the right balance of protection and cost for your unique needs.

Specialized Freight Insurance Types

Certain transport modes come with unique risks and insurance needs. For example:

Air Freight Insurance

Air freight is fast and efficient but also comes with risks like airport handling and the potential for delays. Air freight insurance can protect against these specific risks and may also cover the costs of the air freight itself and associated charges.

Container Shipping Insurance

If you’re shipping goods by sea, container shipping insurance is a must. Sea voyages are subject to risks like rough sea conditions, port congestion and delays, and the potential for containers to be lost overboard or damaged in transit. A good container shipping insurance policy will protect you against these marine-specific risks.

Freight Insurance for Different Stakeholders

Freight Cargo Insurance

This type of insurance is designed specifically for cargo owners. It can be arranged by the seller (under CIF or CIP Incoterms), the buyer (under FOB, FCA, or EXW terms), or by a third party like a freight forwarder.

Freight Forwarder Cargo Insurance

Freight forwarders play a key role in arranging insurance for their clients’ shipments. They may offer cargo insurance as an additional service, acting as an intermediary between the client and the insurance provider. Freight forwarders can also take out their own insurance to cover their liabilities in the event of an incident.

How to Choose the Right Freight Insurance

To select the ideal freight insurance for your business, consider these key steps:

1. Assess your risks: Evaluate the types of goods you typically ship, your usual transport modes, routes, and destinations. Identify any unique risks associated with your cargo or shipping processes.
2. Check carrier liability: See what risks and liabilities are covered by your carrier’s insurance and identify any gaps in protection.
3. Get the right level of cover: Choose from basic, broad, or all-risk cover based on your specific needs and budget constraints.
4. Compare providers: Look for reputable insurers with deep industry expertise, competitive rates, and strong customer support. Don’t be afraid to shop around.
5. Review regularly: As your business evolves, periodically review your insurance coverage to ensure it still meets your needs. Update as required.

With the right freight insurance in place, you can ship with confidence knowing your cargo is protected. At Freightos, we’re here to help you navigate the complex world of freight with ease.

Remember, when it comes to your valuable cargo, it’s better to be safe than sorry. Invest in robust freight insurance and enjoy the peace of mind that comes with knowing your goods are covered, no matter what the journey brings.

Happy shipping!