Are you importing goods from China or other foreign locations for your Amazon Store or other e-commerce store? Not sure if you need to insure your goods when they’re shipped via air or ocean freight? Is it cheaper to buy coverage through your freight forwarder or on your own? Curious as to what it costs to buy ocean cargo insurance?
In this article, I’m going to talk about how, why, and how much it costs to get insurance on the goods you’re shipping from China, or other foreign locations to the United States.
So, let’s start with why you should get shipping insurance on your goods once they leave the factory in China.
The main reason is that regardless of how they are shipped, there are often claims resulting from damages or theft that do occur. Now, if you’re a small business shipping small parcel shipments via FedEx, DHL, or UPS, then you probably don’t need insurance because the values are pretty low per shipment and you could likely absorb a claim out of pocket.
But if you’re shipping hundreds of thousands or more in value via containers then having insurance makes sense. You don’t want to pay out of pocket for a large claim if goods arrive damaged, wet, or lost at sea.
You may be thinking lost at sea? Damaged goods shipped in a steel container – that’s nonsense.
Unfortunately, it’s not. Containers do go overboard and in some instances are thrown overboard by the ship’s captain to save a voyage at risk of sinking. In addition, there have been notable cargo ships lost entirely at sea over the past few years where thousands of containers go down with the ship.
Even if your container doesn’t go overboard we have settled dozens of claims relative to water-damaged goods, theft of goods, and broken and damaged goods from inside the container.
Remember, you’ve paid for those goods in full to the manufacturer before the voyage began so any loss that happens is on you and if the container is lost, that’s a total loss out of your pocket.
In addition, there is something called General Average which is a shipping term used and accepted internationally. This basically says that if one or more “interests” or owners of goods onboard a ship suffer a claim because the captain of the vessel casts containers overboard to save the voyage – known as a voluntary sacrifice – then all the other interests or owners of goods aboard that vessel will proportionally share in that loss.
This is a risk you have even if your goods make it to your warehouse undamaged, and if you rely on your freight forwarder’s coverage you’ll be surprised that does not include coverage for the general average.
Like a lot of business insurance issues, you’ve got to ask yourself, is it better to trade a few dollars today in premium for transferring the big risk of losing a huge amount of money if your goods are lost, damaged, or destroyed? It only takes one claim to erase dozens of years of premiums to make it worth it. And we’ll focus on that in a minute.
How do you get ocean cargo insurance?
There are two predominant ways of getting ocean cargo insurance. You can bundle it with the other charges your freight forwarder charges you, or you can buy it on your own. So, let’s look at the differences.
If you buy insurance from your freight forwarder or from your shipper you’re likely getting very limited coverage and overpaying for it. I say limited because the forwarder or shipper’s policy typically covers you for claims for their negligence which means if your damage is not their fault, their policy won’t pay.
In addition, the forwarder’s policy may not protect your goods once they’re offboarded from their ship. That means when your goods are trucked to your warehouse or stored in a warehouse they’re not protected.
Insuring your goods on your own policy gives you the ability to customize protection to insure your goods from the moment they leave the dock of the Chinese Product Manufacturer until they arrive at your warehouse, and even while in your warehouse and beyond to your customer’s warehouse.
You can get your own cargo policy from an insurance broker like me who specializes in this area of insurance and who represents the top insurers of cargo coverage. Using an expert broker gives you more options and advice than going direct to one insurer.
What does ocean cargo insurance cost?
When you purchase insurance from a shipping line you’ll pay about .5% on the value of those goods. As an example, if you shipped $100,000 worth of goods your CIF premium would be $500 on that voyage. If you had 10 voyages per year, you’d end up paying about $5,000 for the year in shipping insurance costs.
If you had the same $100,000 worth of goods crossing the ocean ten times in a year and you had your own ocean cargo insurance policy you would likely pay an annual premium of about $4,500 so slightly less, but for much better protection which can be customized to fit you and not the shipper.
Here’s the bottom line
I always tell my clients that they should be in control of their insurance and not leave it up to another party where they put themselves at risk of getting inferior coverage terms and possibly overpaying.
Now, I will give you an exception – if you only do a few shipments a year or you’re just starting out and don’t know what your shipping exposures are going to look like, then buying coverage through the forwarder or shipping line may be a good option. Then, when you get higher volumes I’d suggest buying your shipping insurance policy.
When it comes to business insurance doing it the easy way may not necessarily be the best way and the last thing you want to do is jeopardize your cash flow, and business by making a mistake here. It pays to work with an expert who’s been through this dozens and dozens of times to help you make more informed decisions about protecting your goods on the water, in the air, or once they’ve landed in your warehouse.
In addition, we insure a lot of companies importing goods from China for product liability, product recall coverage, and more, so if you’re looking for an insurance broker to talk to about your situation, I’d love to hear from you.
I promise you one thing if we do connect. No high-pressure sales nonsense – just a conversation to see if we’re a good fit for you and your business insurance needs.