Cargo insurance

What it means

Goods-in-transit insurance, also called cargo insurance, covers damage to goods during transport: breakage, destruction, loss or theft. It is taken out either for a single shipment or as an annual open policy covering all shipments, which is more practical for regular senders.

The reason for separate cover is the carrier’s limited liability. For road transport under the CMR convention, the carrier is liable only up to a limit based on the weight of the goods and not at all for certain events. For expensive, lightweight goods the carrier’s compensation covers only a fraction of the value.

Who insures the goods depends on the agreed Incoterms rule. Under CIF and CIP, for example, insurance is the seller’s obligation; under the others it is up to whoever bears the risk during transport. Without a clear agreement, it can turn out that nobody insured the goods.

How it works in practice

For clients who export or import regularly, we first find out which Incoterms rules their contracts use and who bears the risk in transit. On that basis we advise whether an open policy is worthwhile or whether they can rely on the seller’s insurance.

The sum insured should reflect the full value of the goods including freight and, where relevant, expected profit; otherwise there is a risk of underinsurance and a reduced payout. Under an open policy the premium is often based on annual shipment volume, so it must be reported accurately at year-end.

In the accounts, the premium on a purchase of stock can form part of the incidental acquisition costs if it relates to a specific shipment. With an open policy covering all shipments, it is usually expensed directly in the period.

What to watch out for

When damage occurs, speed matters. The damage must be noted on the consignment note or CMR at delivery, photographed and reported to both the insurer and the carrier within short deadlines. Without this, the claims settlement becomes much harder.

Watch out for policy exclusions as well. Insurers often do not cover damage caused by inadequate packaging, delayed delivery or the inherent nature of the goods, such as food. For sensitive goods it is worth agreeing extended cover.