Marisol International Transportation & Logistics Blog

General Average: Why Cargo Insurance is Crucial

Posted by Chelsea Mitchell on Apr 8, 2015 9:18:00 AM

Did you know? If a shipper neglects to secure cargo insurance and a disaster at sea occurs, the shipper could be held responsible for payment to the ocean carrier. 


Cargo insurance protects shippers' financial investments during ocean, air, rail or truck transportation. Insurance provides monetary compensation for shippers in the case of natural disasters, fires, vessel collisions, cargo theft or simple mishandling by carriers.

If a disaster occurs at sea, all parties with cargo on the vessel would be forced to proportionally contribute to the total loss based on the sacrificed cargo's value. This is known as the law of General Average. 

General Average is a legal principle of maritime law used when a voluntary sacrifice is made to save a vessel, its cargo or its crew from a common peril (i.e. jettison of cargo to extinguish a fire). 

If the shipper's cargo wasn't insured (and unaffected), the cargo will not be released at the port of discharge until the shipper posts a guarantee of cash, a bank guarantee or a bond. 

At this point, shippers would not only have to recover the cost it took to produce the goods and transportation expenses, but would also be required to pay a percentage of the lost cargo's value. 

If the cargo was insured, the process is very simple. The insurance company will handle all arrangements on the shipper's behalf. Additionally, the shipper would recover the cost of the cargo.

Insurance responsibility should always be outlined within the terms of sale between a buyer and seller. The terms of sale along with INCOterms will provide the details of when and where responsibility is transferred from the seller to the buyer. 

Additionally, when securing marine insurance, always insure the value of the freight plus an additional 10% to cover incidental costs in the event of a loss. Insurance should be secured from the date and location of the first cargo movement. 

Allow Marisol International representatives to effectively manage your insurance needs. Marisol offers competitive rates, high-risk coverage and special quotes for large volume shippers. Learn more about cargo insurance here

Contact us today for more information regarding cargo insurance. 

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