If you are a manufacturer, exporter, importer or freight forwarder of a shipment that will travel by sea in a cargo ship, you may need ocean freight insurance. But, if that sounds like just another overhead cost that reduces your profit, it’s time to consider all the benefits of insuring your ocean freight.
Many cargo insurance policies offer warehouse-to-warehouse coverage, meaning the freight is insured from the moment it leaves its originating warehouse, to the moment it reaches the destination warehouse. This includes while it is in transit using any mode of transportation, including truck, rail, aircraft or ship.
But, the nature of sea transportation makes it more crucial to have insurance coverage in place. In addition, that coverage must be adequate enough to reimburse you for all the costs of replacing lost or damaged freight. That’s the first reason why you need ocean freight insurance.
The Risks of Shipping by Sea
Of course, your freight is at risk while in transit from the moment it leaves your dock. But the nature of ocean shipping exposes your cargo to risks that either do not exist in other transportation modes or they are increased for ocean shipping. These include:
Size of the Cargo
Of course, a cargo ship has much higher capacities than other modes of transportation. If you shipped five containers, they may need five transport trucks, five rail cars, but just one cargo ship. If anything happens to that one ship, your entire shipment is at risk.
Remote Transportation
A ship on the open seas does not have the same access to support services in cases of emergency. In other words, if a transport truck breaks down, it may be able to be fixed and back on the road in a matter of hours. For ships, the delay could be days or even weeks.
The Risk of Total Loss
For every mode of transportation, you may lose all of your cargo if something happens along the way. But, there are good chances, especially for road and rail freight, of recovering some or all of your shipment following an incident. This can help minimize replacement costs. But, in the case of a container or entire ship being lost at sea, salvaging any of it is virtually impossible.
Financial Risks
Many freight insurance policies are based on the value of goods. However, by its nature, ocean freight involves longer transportation times. And that can add to your costs. Replacing a lost or damaged ocean shipment involves more than the cost of replacing the goods in the shipment. There can also be significant costs related to the extended time delays in the shipment reaching its final destination.
Legal or Contractual Compliances
Ocean freight insurance may be required by law. Certain countries may require that you have a specific type of insurance in place before shipping or receiving freight to or from their shores. In addition, some shipping companies and/or port authorities may require that you have ocean freight insurance before they’ll allow your cargo to be loaded onto a vessel.
Business Disruption
Losing all or part of your shipment is problematic, whether or not you have insurance. However, without insurance, the issues are exponentially more complex, time-consuming and costly. Having ocean freight insurance in place helps your business be as prepared as possible for a freight loss or damage incident. And that protects your business against the impact of the loss.
To learn more about shipping by sea, check out our recent article Air vs Ocean Freight: Which is Best for Your Shipping Needs?
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