Cargo insurance – what it actually covers, and why it matters more right now
Most businesses shipping goods internationally assume they’re covered if something goes wrong. Some are. Many are not – or not in the way they think. With disruption escalating across key global shipping routes, now is a good time to understand what cargo insurance actually does and does not include.
Why this is worth revisiting now
In our recent article on the Strait of Hormuz, we looked at how the conflict involving Iran has effectively halted commercial shipping through one of the world’s most critical maritime passages. Carriers are rerouting. Surcharges are appearing. Schedules are shifting. War-risk premiums have risen sharply for vessels near the Gulf.
For businesses with goods in transit – or shipments planned in the coming weeks – the question of cover has become urgent. But cargo insurance is also one of those areas where assumptions tend to run ahead of reality at the best of times. Disruption just makes it more visible.
It’s worth taking a step back and looking at how cargo insurance actually works.
The carrier’s liability is not the same as insurance
This is the most common misunderstanding in freight. When a shipping line, airline or road carrier moves your goods, they carry some liability for loss or damage. But that liability is limited – sometimes very limited.
For sea freight, the Hague-Visby Rules govern carrier liability. They calculate compensation per package or per kilogram – whichever produces the higher figure. The standard rate is around 2 SDR (Special Drawing Rights) per kilogram, currently roughly £2 per kg. For high-value goods, that figure can fall well short of the actual loss.
For air freight, the Montreal Convention sets liability at approximately 22 SDR per kilogram. That is a ceiling, not a promise of full recovery.
Carriers also have a range of defences available. These include inherent vice (the nature of the goods causing the loss), inadequate packing, and acts of God. Any of these can reduce or remove their liability entirely.
Green Leaves Logistics, like all BIFA members, operates under the current BIFA Standard Trading Conditions. These also limit liability. The practical implication is clear: to protect the full commercial value of your goods, you need your own cargo insurance policy.
What cargo insurance typically covers
A standard marine cargo insurance policy – the term ‘marine’ applies even when goods travel by air or road – will typically cover:
- Physical loss or damage to goods in transit
- Loss or damage during loading and unloading
- Theft
- General average contributions (where a carrier sacrifices part of the cargo or vessel to save the whole)
- Storage at a warehouse during the journey (on many policies)
The most comprehensive standard option is Institute Cargo Clauses (A). This is an ‘all risks’ basis – it covers all physical loss or damage except specific named exclusions. Clauses (B) and (C) offer progressively narrower cover. Most reputable freight insurers offer a choice. The right level depends on the nature and value of the goods.
What is typically excluded – and why war risk matters right now
Standard cargo insurance policies typically exclude:
- War, strikes, riots and civil commotion (known as SRCC risks) – unless separately added
- Inherent vice or the natural deterioration of goods
- Delay – even when a covered peril causes it
- Inadequate packing or preparation of the goods
- Deliberate damage by the insured
The war exclusion is the most relevant issue right now. In normal circumstances, insurers can add war risk cover to a policy at relatively low cost. The separate Institute War Clauses exist for exactly this purpose. But when a region becomes an active conflict zone, insurers act quickly.
The London market’s Joint War Committee maintains a list of high-risk maritime areas. It has already extended its designations to include waters around Oman and parts of the Gulf following the current conflict. War risk cover for those areas has become significantly more expensive, harder to obtain, or subject to new conditions.
If you have shipments transiting the Gulf region, check now. If you arranged war risk cover before the conflict escalated, contact your insurer or broker. Confirm whether that cover remains in force, at what premium, and whether any new conditions apply.
The general average question
General average is one of those concepts most cargo owners never think about until it affects them. The principle dates back centuries in maritime law. It holds that if a carrier takes action to save a voyage – for example, jettisoning cargo or diverting to a port of refuge – all parties with a financial interest share the loss proportionally.
In practice, this means your goods can be undamaged and you still face a bill. You may have to contribute to losses suffered by other cargo owners, or to costs incurred by the carrier, before they release your shipment. These contributions can be substantial.
With cargo insurance that includes general average cover, your insurer handles that contribution. Without it, you face an unexpected financial demand before you can recover your goods.
General average declarations become more likely when carriers face difficult decisions about routes and diversions. That describes the current environment precisely. Make sure your cover is in place and up to date.
Practical questions to ask about your current cover
If you ship goods internationally on any regular basis, work through these questions with your insurer or freight forwarder:
- Is war risk included, or is it a separate add-on? Many open cover policies include it as standard; others do not. Check the wording.
- Does your cover reflect the full commercial value of your goods? Underinsurance is common. A policy should cover the invoice value, freight costs, and a margin of around 10% for replacement.
- What clauses apply? Institute Cargo Clauses (A) offer the broadest cover. If your policy sits on Clauses (B) or (C), understand what that means for the risks you face.
- Are your goods covered during storage in transit? Route disruptions mean shipments are spending longer at ports, warehouses and transhipment hubs. Check whether your policy extends to cover that time.
- Are you covered for all modes? Some shippers are now moving goods by sea and then air to avoid the Gulf. Check that your policy covers the full journey, not just one leg.
- Who declares the claim, and how? The process matters as much as the policy. Know your insurer, how to notify them, and what evidence you’ll need.
A note on delay
Most cargo insurance policies do not cover financial loss from delay. This applies even when the delay results from a covered event such as a vessel diversion or port closure. If your goods arrive three weeks late and you face penalties, lose a contract, or incur demurrage charges, standard cargo insurance will not help.
Delay is a separate risk to manage. Review your contractual terms with buyers and suppliers. Build in buffer stock where possible. Keep close contact with your freight forwarder when disruptions arise. It is also worth reviewing your Incoterms arrangements – the point at which risk transfers determines who bears the commercial consequences of delay.
How we can help
At Green Leaves Logistics, we arrange comprehensive cargo insurance cover tailored to your shipments. That includes war risk, general average and multimodal cover where needed. We work with experienced marine insurance specialists and can help you understand what your current policy includes – and what it doesn’t.
If you have shipments in transit right now, or planned movements through regions affected by the conflict, it’s worth a conversation sooner rather than later.
Get in touch with the team at via our contact page or call us on 0121 361 0333.
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