Cargo Insurance Explained: Why Basic Carrier Liability Is Never Enough

Most shippers assume that if something goes wrong with their shipment, the carrier will compensate them for the full value of the loss. This assumption is wrong — and it can cost you everything. Carrier liability is limited by international convention to a fraction of actual cargo value.

What Is Carrier Liability and Why Is It So Limited?

International carrier liability limits are shockingly low:

• Ocean freight (Hague-Visby Rules) — Approximately $2.70-$3.50 per kg. A 500 kg shipment worth $50,000 could result in a payout of just $1,350.
• Air freight (Montreal Convention) — Approximately $30 per kg. Better than ocean, but still inadequate for high-value goods.
• Road freight (CMR Convention) — Approximately $11 per kg.

Carriers also have extensive grounds to exclude liability entirely — including Acts of God, inherent vice of the goods, and insufficient packing by the shipper.

What Does Cargo Insurance Cover?

All-risk cargo insurance (Institute Cargo Clauses A) covers: physical loss or damage during transit, theft and pilferage, water damage, fire and explosion, overturning or derailment of conveyance, and general average contributions.

What Cargo Insurance Does Not Cover

• Delay (unless specifically endorsed)
• Loss of market or consequential losses
• Inherent vice — damage from the nature of the goods themselves
• Insufficient or improper packing by the shipper

How Much Does Cargo Insurance Cost?

Cargo insurance premium is typically 0.1%-0.5% of the insured value. For a $50,000 shipment, the premium is likely $50-$250 — a very small cost relative to the protection it provides. Always insure on CIF+10% (cost, insurance, and freight plus 10% for anticipated profit) to ensure full coverage including your margin.

How to Arrange Cargo Insurance

You can arrange cargo insurance through your freight forwarder (convenient), your insurance broker (often better terms for regular shippers), or directly from a specialist marine insurer. Note that CIF incoterm only requires minimum ICC C coverage — not the comprehensive ICC A all-risk coverage that most shippers need.