International shipping involves more moving parts than many new sellers expect. Beyond production and freight bookings, you also need a plan for what happens if something goes wrong. Marine cargo insurance is designed to address that risk. In this guide we explain what marine cargo insurance covers, who needs it, what types of coverage exist and how to choose the right policy.
What Is Marine Cargo Insurance?
Marine cargo insurance is a sub‑branch of marine insurance that protects goods while they move through the global supply chain. It covers the physical loss or damage of ships, cargo, terminals and any transport by which the property is transferred between the points of origin and final destination. Even though it is called marine cargo insurance, modern policies often extend beyond the sea voyage to include land and air legs. In practice, a cargo insurance policy compensates the cargo owner if their goods are lost, stolen or damaged during transit. Without it, you would shoulder the full cost of any misfortune.
How cargo insurance works
Cargo insurance pays out the value of insured goods (often up to 110 % of invoice value to cover freight and duty) if they are lost or damaged. To make a claim you need to show evidence of loss and comply with the policy’s conditions (such as notifying carriers in time). Policies can be tailored to cover a single shipment or a series of shipments and are usually purchased through freight forwarders, brokers or insurers.
What Does Marine Cargo Insurance Cover?
A well‑structured cargo policy provides more than just compensation for lost cargo. Typical coverage includes:
- Physical loss or damage: Cargo policies generally cover losses caused by fire, explosion, water damage, impact or collision and mishandling during loading or unloading.
- Theft and pilferage: Coverage can include complete theft or partial loss due to pilferage or container tampering.
- Natural disasters: Acts of God such as earthquakes, storms, lightning or floods may be covered.
- Transportation‑specific risks: Accidents involving the vessel or carrier, derailments or a ship sinking are typically covered.
- Non‑delivery and misdelivery: Many policies pay out for losses due to misrouting, unexplained disappearance or customs seizure (when extended cover is purchased).
- Temperature‑related damage: For perishable goods, you can buy clauses covering damage from improper refrigeration or exposure to extreme temperatures.
It is equally important to understand what marine cargo insurance does not cover. Standard policies usually exclude losses from inadequate packaging, delays, inherent vice (the natural deterioration of goods), acts of war or terrorism and losses beyond the policy’s limit. Special war‑risk cover or strike cover can be added if you need protection against political unrest or labour actions.
Types of Marine Cargo Insurance
Different policies exist because not all shipments carry the same level of risk. The main categories are:
All‑risk coverage (Type A)
An all‑risk policy is the broadest form of coverage. It protects against most causes of physical loss or damage from external events—such as accidents during loading or unloading, theft and natural disasters—except for specific exclusions like delay or improper packing. Shippers do not need to prove carrier negligence to receive compensation, making all‑risk suitable for high‑value or sensitive cargo.
With Average (WA) coverage (Type B)
Also called “With Average,” this coverage applies primarily to ocean freight and covers total or partial shipment damage. It offers a wider safety net than FPA coverage, including options to extend coverage for non‑delivery, pilferage and theft. WA policies are often purchased as supplemental insurance to cover gaps left by other policy types.
Free of Particular Average (FPA) coverage (Type C)
FPA insurance—sometimes referred to as named‑perils coverage—only covers total loss or damage caused by specific conditions like sinking, collision, fire or stranding. Because it is limited to major incidents, premiums are lower and it is frequently used for low‑value goods or second‑hand equipment.
Other specialist options
- War‑risk coverage: Provides protection against losses resulting from war, strikes, riots or civil commotions.
- General average coverage: Protects you from shared losses when a vessel owner sacrifices cargo to save the ship. In such cases, all parties with cargo on board contribute to the loss; this insurance covers your contribution.
Do You Need Marine Cargo Insurance?
Whether to purchase marine cargo insurance depends on your shipment’s value, the nature of your goods and your tolerance for risk. Consider the following factors:
- Financial exposure: Cargo insurance provides financial security and peace of mind by ensuring you’re not left bearing the full cost of lost or damaged goodsf. If a large shipment would be financially devastating to lose, insurance is a small price to pay.
- Risk mitigation: International shipping exposes cargo to many risks—from port congestion and rough seas to theft and extreme weather. Insurance helps you mitigate these risks.
- Legal or contractual obligations: Some sales contracts, letters of credit or supplier agreements require proof of cargo insurance. Even when not mandatory, having coverage can enhance your credibility with partners and customers.
- Limited carrier liability: Carriers and freight forwarders are often only liable for a fraction of your cargo’s value under international conventions. Cargo insurance fills this gap
- Business continuity: For businesses reliant on continuous supply, insurance helps ensure a single incident doesn’t disrupt operations or cash flow
When you might skip it
Small, low‑value shipments or samples may not justify the cost of coverage. Additionally, if your Incoterms agreement puts the risk on the buyer and they have their own insurance, you may not need to purchase additional cover. However, it is important to calculate the potential impact of a total loss before opting out.
How to Choose the Right Marine Cargo Policy
Selecting a policy involves more than picking the cheapest premium. Follow these steps to ensure adequate protection:
- Assess your cargo: Evaluate the type, value, size, fragility and susceptibility to damage of your goods. High‑value or fragile products often require broader coverage.
- Identify risks: Consider the transportation mode, route and seasonal factors. Assess risks such as theft, weather, handling and political instability.
- Check legal and contractual obligations: Review trade agreements, letters of credit and supplier contracts to determine required coverage.
- Compare coverage options: Understand the differences between all‑risk, WA and FPA policies, and determine whether you need war‑risk or general average clauses.
- Set policy limits and deductibles: Ensure coverage limits match your cargo’s value and select deductibles that balance affordability with risk tolerance.
- Consider additional clauses: For perishable goods or high‑risk commodities, consider temperature, infestation or theft endorsements.
- Work with reputable partners: Experienced freight forwarders and insurance brokers can help you understand policy terms and ensure your shipments are properly insured.
Conclusion
Marine cargo insurance is not legally required for every international shipment, but it is a prudent investment for most exporters and importers. By covering the cost of lost or damaged goods, insurance provides financial security, mitigates risks and satisfies contractual obligations. It also enhances your credibility and allows you to focus on growing your business instead of worrying about unforeseen events. When deciding whether you need coverage, consider the value and vulnerability of your cargo, the shipping route and your ability to absorb a loss. If the answer is “I can’t afford to lose it,” then marine cargo insurance is an essential safeguard.