An Introduction to General Average and Cargo Insurance

What is Cargo Insurance？

Cargo Transportation Insurance (referred to as "Cargo Insurance") is an insurance that takes goods in transit as the subject of insurance, and the insurer is responsible for compensation liability for cargo losses caused by natural disasters and accidents.

Cargo Insurance can be divided into:

· Railway Transportation Insurance;

· Waterway Transportation Insurance;

· Road?Transportation Insurance;

· Air?Transportation Insurance.

Insurance Coverage

Insurance coverage among the above-mentioned Cargo?Insurance, taking Waterway Transportation Insurance (Marine Cargo Insurance) as an example, Marine Cargo Insurance is divided into Free from Particular Average (F.P.A), With Particular Average (W.P.A), and All Risks according to?insurance liability.

The scope of F.P.A 's liability is as follows, and?the most important feature is that the Particular Average is not compensated:

1) All losses of the entire batch of cargo caused by natural disasters such as severe weather, thunder and lightning, tsunamis, earthquakes and floods;?

2) Losses of cargo caused by?means of transport?being stranded, hitting rocks, sinking, colliding with each other, colliding with drift ice or other objects, fire or explosion accidents;

3) In the case of an accident on the means of transport, the cargo suffered losses caused by natural disasters at sea before and after;

4) Losses caused by one or several whole pieces of cargo?falling into the sea during loading, unloading and transshipment;

5) Reasonable expenses paid by the insured by taking measures to rescue, prevent or reduce cargo damage to the dangerous goods within the scope of the insured liability;

6) After?a shipwreck, the losses caused by unloading at the port of refuge and the special expenses incurred in unloading, storing and transporting cargo at the port of refuge;

7) Sacrifice, apportionment and rescue costs of General Average;

8) The transportation contract has a "Both to Blame Collision?Clauses". According to the Clauses, the cargo party should repay?losses of the ship.

In addition to the responsibilities of?F.P.A?listed above, W.P.A is also responsible for Particular?Average, that is, part of the loss of the insured cargo caused by natural disasters, such as:

1)The barge was attacked by sea water;

2)Attacked by sea salty air;

3)Obvious water marks on the outer packaging.

All Risks include F.P.A, W.P.A and 11 Additional Risks. Additional Risks include: T.P.N.D; F.W.R.D; Shortage Risk;?Intermixture and Contamination Risk; Leakage Risk; Clash and Breakage Risk; Odor Risk, Damp and Heat Risk; Hook Damage Risk; Breakage of Package Risk; Rust Risk. Additional Risks?cannot be insured separately. In addition to the above 11 Additional Risks, cargo owners can also choose Special Additional Insurances and Specific Additional Insurances according to the situation.

Insure a Cargo Insurance

Different cargoes?encounter different cargo risks during the transportation process. Shippers can choose appropriate insurance types to insure based on the value, natural attributes, trading methods, and transportation methods of their own cargo.

The insured amount of general?Cargo Insurance is appropriately added on the basis of the CIF price. The bonus rate is generally 10%, and the insurance amount = CIF price* (1 + bonus rate). Premium = insurance amount * insurance premium rate. The insurance method is generally to insure each shipment separately, of course, there is also an underwriting method of appointment insurance, which is suitable for long-term import and export enterprises. Shippers who have any doubts can also directly seek assistance from freight forwarders or insurance brokers?before applying for?insurance.

Cargo Insurance Cases

The incident of the "Ever Given"?blocking the Suez Canal once caused a sensation in the shipping industry. On March 23, 2021, the "Ever Given" was on its way from Malaysia to Rotterdam. It stranded in Suez Canal and caused channel congestion. After six days of towing and rescue operations, the ship resurfaced on March 29. The shipowner declared the aforementioned towing operation as General Average on April 1, 2021, and appointed General Average Adjuster Richards Hogg Lindley to collect related General Average Guarantees. It is believed that the cargo owners who have cargo on "Ever Given"?have been notified to provide Average Guarantee and related documents.

At this time,?the insurer will sign the General Average Guarantee and related documents to the General Average Adjuster for the cargo that has been insured for Cargo Insurance. Shippers who have not purchased Cargo Insurance shall sign the General Average Guarantee?and related documents by themselves, and pay cash guarantees before they can apply for delivery of the cargo. Obviously, the existence of Cargo Insurance greatly reduces the outflow of funds and the cumbersome process.

The above is the initial sharing of Cargo Insurance. Hoping that everyone can protect their cargoes and themselves in international trade and international freight.

From STU Supply Chain: Global Logistics & Shipping Solution - STU Supply Chain