If my cargo is not adequately insured, what is my exposure?

An Expert's View about Freight Insurance in the United States

Posted on: 14 Nov 2011

Exploring the differences between types of marine cargo insurance from a risk management perspective.

may need to be employed or the vessel may need If my cargo is not to be taken to another port for repairs and inspection. Under such circumstances, the carrier adequately insured, would declare General Average as a mechanism to attach risk-sharing to all cargo interests aboard the what is my exposure? vessel. After declaring General Average, a vessel operator would typically ask each cargo owner for a deposit based on their cargo?s prorated value to By Rich Roche the venture, with the goal of covering the cost of Director any other cargo damaged or extraordinary expenses incurred by the operator while saving the Insuring cargo for international transport is very voyage. The self-insured cargo owner and the different from other forms of property insurance. vessel operator would then continue There is an entire body of law, known as correspondence on this issue for an average of Admiralty Law, that has evolved around marine about ten years, until all expenditures have been transportation. The coverage found in a marine discharged. Based on this scenario, General cargo policy (which also covers international Average could prove very costly and time shipments by air) is written to insure against the consuming for the self-insured. Not so for the many perils that may be faced during shipper covered by a broad-form policy, who would international transport. These include perils have their insurer attend to these matters on their specific to case law that has been developed and behalf. tested throughout history. Most marine policies therefore add clauses to cover concepts unique Other Types of Coverage to Admiralty law. Many of these risks are not Other types of marine coverage include: contemplated by riders attached to property covers that attempt to protect goods in transit. ? the Inchmaree clause, which provides As such, these riders fall short of the mark. extended risk coverage for latent defects in the ship; and, De Facto Self-Insurance Self-insurance is a common fallback position for ? Free of Particular Average, which is companies that move international cargo without bare-bones insurance, covering total the benefit of a marine policy. Whether mindfully loss only. Without the benefit of a done or not, moving cargo without adequate broad-form marine policy, such ex insurance coverage is de facto self-insurance; or tensions or limitations might not be at the very least, co-insurance?in cases where adequately addressed minimal insurance is in place but not written on or defined, leaving the cargo the broad-form needed to provide truly adequate owner with substantial exposure. coverage. Even when using Incoterms correctly, where the responsibility to insure is with the A good risk management program will usually other party, there may be exposure regarding uncover these idiosyncrasies of international difference in coverage for perils not specifically transport and protect against them. Many named in the transactional policy. Importers and companies employ the services of a marine exporters are cautioned to assess the risks and insurance broker to set up the right program. Other evaluate for adequate marine coverage. companies may rely on the services and expertise of their freight forwarder or Customs broker to General Average secure adequate coverage. Mohawk Global Trade A good example of an arcane concept fully Advisors can help you identify the many risks covered by only a marine policy is General involved in international cargo transportation, the Average. It commonly occurs in cases where extent of liability that might be incurred, and the something happens to the conveyance, possible solutions available to minimize that risk. necessitating sacrifice of some of the cargo in order for the voyage to successfully continue. This might happen if a vessel is grounded or if a fire breaks out onboard. In either case, tugboats ©2011 Mohawk Global Trade Advisors www.mohawkglobalta.com
Posted: 14 November 2011

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