THREE REASONS MARINE INSURANCE IS AN ABSOLUTE MUST
There is seldom a day in which we are not bombarded by announcements that we need more insurance, or that we need to save money on insurance. We’ve got to have home and car insurance, for example. When we go to an office supply store, sometimes we’re asked if we would like to buy an extended warranty for a $10 calculator. We’ve become numb to so many voices yammering about insurance in our day to day lives.
But when it comes to shipping freight internationally by sea, it is essential. Importers often make the mistake of not purchasing coverage for their freight. There are several possible reasons for this. The importer may be inexperienced or purchasing from a new vendor. The importer may have thoughtfully considered the price of the product and the transit time, and requested estimated freight costs from several freight forwarders and have chosen the most economical option. Most forwarders, in an effort to appear less expensive, do not list insurance on their quotes. After all, the customer did not request it up front, so why include it and appear to be overpriced?
Once the importer chooses a freight forwarder, the forwarder may ask if the importer would like to purchase insurance. But many times the forwarder may be so happy to close the business they simply forget to ask.
Other times the importer may assume that the freight is insured automatically. After all, motor carriers (truckers) are required to carry certificates of insurance stating covered liability for freight usually up to $100,000.00. But ocean carriers play by a completely different set of rules.
There are three reasons that Marine insurance is an absolute must when shipping internationally. All have to do with the rules of COGSA (Carriage of Goods by Sea Act). According to Wikipedia, “COGSA is a United States statute governing the rights and responsibilities between shippers of cargo and ship-owners regarding ocean shipments to and from the United States. It is the U.S. enactment of the International Convention Regarding Bills of Lading, commonly known as the “Hague Rules.”
The U.S. Congress felt that the Hague rules did not offer shippers enough protection against damage to freight from ship owners. So they set a standard that carriers would have to pay up to $500/package. At the time COGSA was passed, freight was typically shipped in crates, bags or cartons of some kind. But later, shippers began placing cartons on pallets. Ship owners seized the opportunity to begin defining each pallet as a “package” and effectively limit liability to $500/pallet.
Later, when shipping containers of 20 and 40 feet in length came into prominent use, ship owners again seized the chance to begin defining each container as a package, thus limiting liability to $500/container. Therefore, without insurance, any claims against loss or damage to your freight are limited to $500 per container.
Secondly, under the rules of COGSA, if there is a disaster at sea in which environmental clean-up is required, the importer could be held liable for a percentage of the clean-up costs. For instance, if there is a fire on board the ocean vessel and your freight becomes lost or damaged, not only would you be reimbursed a paltry $500 maximum for the loss of your cargo, you would also be expected to pay for some of the clean-up! This is why additional insurance is important.
Lastly, Marine insurance also protects your freight from loss in times of war and/or piracy. Like the recent film Captain Phillips illustrates, piracy is alive and well in the modern world.