Cargo insurance, also known as freight insurance, marine insurance or shipping insurance, covers the risks of loss or damage to goods and merchandise while in transit by any method of transport – sea, rail, road or air – and while in storage anywhere in the world between the points of origin and final destination.
Like it or not, lots of things can go wrong during the transport
of goods. Companies who outsource the transportation of their
products to a professional carrier or freight forwarder often
mistakenly believe that the carrier or forwarder is fully liable for
any damage. But in fact what often happens in the unfortunate
event of a problem occurring is that they are presented with a long
list of terms and conditions that are impossible for non-specialists
to understand. In this document, we explain what you need to
bear in mind, what the most common risks associated with goods
transport are, and when it makes sense to arrange insurance cover.
When using a logistics company to transport your goods, it is important to have a clear understanding of the issues you will face in the event of damage, loss or theft.
Important standard terms include:
• Incoterms and liability
• Carriers and freight forwarders
• Cargo insurance cover
Incoterms and liability
The Incoterms rules describe the rights and duties between the purchaser and vendor of the transportation and delivery services. The Incoterms clarify
who pays for what. They also set out who is liable in the event of any damage or loss of goods in transit. The carrier or freight forwarder is only liable if damage or loss occur through demonstrable mistakes or negligence during transport.
Likewise, there are limits to the extent of carriers’ or freight forwarders’ liability and to the maximum amount of compensation they are required to pay.
Carriers and freight forwarders
There is a considerable difference between the liability of a carrier and of a
freight forwarder. A carrier is a company that takes care of physically transporting goods from A to B. A freight forwarder is an intermediary that arranges transport on behalf of customers. So a freight
forwarder is only partially liable if something goes wrong. If a customer works directly with a carrier, the carrier is liable
Cargo insurance cover
If the value of your consignment is
higher than the maximum amount your
carrier or freight forwarder is liable
for, it is wise to ask about transport
insurance. Transport insurance gives you
the certainty that, if something should
go wrong in transit, you will receive
compensation of the value
If there is no invoice, the market value
will be used to determine the amount.
Transport costs will also of course be
It is the shipper’s own responsibility
to arrange insurance as necessary. In
some cases, the option of insuring the
cargo is something the carrier or freight
forwarder will highlight specifically to the
The level of the insurance premium
depends on several factors, including:
• The value and nature of the goods
• The destination
• The selected mode of transport
This includes goods which get scratched,
dented or wet in transit.
The sender is responsible for ensuring
that the consignment is suitably packed.
If a consignment has damaged or
inadequate packaging when the carrier
receives it, the carrier records this fact on
the transport agreement.
In the case of air or sea freight, if the
goods inside are visibly damaged upon
receipt by the consignee, then the carrier
must be held directly liable. In the case
of road transport, a note written on the
transport agreement is sufficient. In all
cases, notice must be given immediately
and in writing.
If the damage to the consignment is not
immediately visible, the carrier must be
informed within three working days that
it is to be held liable in the case of air or
sea freight, or within seven working days
for road transport.
The goods are usually delivered to the
consignee even if they are damaged,
unless continuing to transport them is
pointless or impossible.
Lost or stolen goods
This includes the loss or demonstrable
theft of part or all of the consignment.
In such cases, it is important to
demonstrate that the loss or theft has
occurred during transportation of the
goods. In principle, a loss is indicated
with a note on the transport agreement
which lists the contents and quantities
of the consignment. The carrier signs the
transport agreement when they receive
the consignment. If the consignee
discovers a loss upon receipt, and makes
a note of it on the transport agreement,
this serves in principle as sufficient
evidence that the loss occurred in transit.
Theft must be proven, for example with
the aid of CCTV footage. Any case of
theft must always be reported to the
police, and the responsibility for doing
so lies with the party that was liable for
the consignment at the time of the theft.
If there is no actual proof of theft, the
incident is treated as a loss.
If just part of the consignment is lost or
stolen, the affected party is compensated
on a pro rata basis. In the event of
loss or theft of air or sea freight, the
carrier must be directly held liable. For
How great is the risk of damage or
In reality, the risk of damage is fairly
small. In 2012, the risk of your
consignment being lost or stolen in
transit was approximately 0.04% for road
Air freight was slightly less susceptible
to theft or loss at 0.03%, and you ran
the lowest risk of your goods going
missing as sea freight at just 0.01%. In
comparison, the average chance of your car being stolen in a Northern European country was around ten times higher, at 0.2%.
road transport, a note on the transport
Late delivery of goods can sometimes
lead to financial losses, known as
‘consequential damages’ or ‘special
damages’. Carriers and freight forwarders
almost never accept liability for
damages of this kind. At most, they are
required to reimburse the freight costs
paid if mistakes or negligence can be
demonstrated. It is not usually possible
to insure against consequential damages.
This is because it is difficult to quantify
the exact extent of such losses and to
estimate the associated level of risk.
General average (sea freight only)
Although it does not happen often, it is
important to bear ‘General Average’ in
mind. This is collective damage to both
a ship and its cargo. If a ship is in danger,
it may be necessary to make sacrifices
to safeguard the ship itself, its crew
and its cargo. All the costs associated
with the salvage operation including the
value of any goods sacrificed are shared
proportionally between the owners of
the ship and the owners of the cargo. In
practice, this means that the consignor
of the sea freight bears part of the costs.
However, it is possible to insure against
Filing a claim for damage, loss or
To hold a carrier liable, it is necessary
to file a claim for the damage, loss or
theft within a certain period of time. For
uninsured consignments transported as
sea or air freight, the consignor must
claim for damages within two years. For
road transport, the relevant timeframe is
shorter at just one year.
If the consignment was insured, the
consignor must first hold the carrier
liable and then contact the insurance
company in order to file a claim. The
timeframe for filing a claim varies from
one insurance policy to another. If the
claim is approved, the insurance company
will reimburse the full value based on
the commercial invoice. If there is no
invoice, the market value will be used to
determine the amount.
The insurance company in turn holds the
carrier liable for reimbursement of the
When opinions differ
Generally speaking, most carriers and
customers manage to resolve things
without too many problems. However,
there can sometimes be conflicting
opinions about an incident. In that case,
it is important to collate all the relevant
documentation such as bills of lading and
transport agreements. These documents
indicate the condition and the contents
of the consignment at the moment the
carrier received it. If the difference of
opinion persists, help should be enlisted
from a loss adjuster. It is generally the
carrier’s responsibility to take this step.
Costs and benefits
There is no doubt that insurance is money well spent, not least because it is so rare for a consignment to have a value lower than the amount the carrier or freight forwarder is liable for. Conversely, remember that if a shipment has a higher than usual value and something does go wrong, the balance can change dramatically.
Your relationship with the carrier or freight forwarder
Perhaps you have a good relationship with your carrier or freight forwarder, and you are convinced that they will go beyond their legal obligations in the event of loss or damage and reimburse
you in the interest of retaining your business. If the damage is small, a carrier or freight forwarder may indeed make a gesture of goodwill. However, you should not expect a huge payout. The carrier or freight forwarder will make the decision based on the amount of time needed to recoup the extra costs. If that will take too long, they will only pay you the legally required minimum.
A carrier with insurance
Your carrier might also have insurance of its own. However, this is of no relevance to you as a customer. Carriers can only arrange insurance to cover their own liability. In some cases, such as force majeure, they will not be liable at all and you, as the customer, will bear the full cost of the damage.
There are always factors which are not covered by liability, so when deciding whether or not cargo insurance is necessary for your shipment, it is important to bear in mind the principle behind insurance. Insurance offers cover against relatively extensive damage that occurs relatively rarely.
If the value of your consignment exceeds the amount that the carrier or freight forwarder is liable for or if you are shipping to unfamiliar or less wellorganised destinations, the relatively low extra costs of cargo insurance should most definitely be given serious consideration.
Covering loss or damage of your goods transited by air, sea or road.