Cargo insurance is a type of insurance that covers physical loss or damage to goods while they are in transit — whether by ocean, air, truck, or rail. It protects shippers, importers, and exporters against financial loss from events such as accidents, theft, fire, water damage, or natural disasters that occur during transportation. Cargo insurance is distinct from the carrier’s limited liability, which typically provides much lower compensation than the actual value of lost or damaged goods.
Carrier Liability vs. Cargo Insurance
This distinction is critical for shippers to understand. Parcel carriers (UPS, FedEx) and freight carriers (LTL, ocean) limit their liability for lost or damaged shipments to a predetermined amount per pound or per package — often far below actual replacement value. For example:
- UPS and FedEx base liability: $100 per package (for ground; more for declared value)
- LTL carriers: typically $0.10 to $0.50 per pound based on freight class
- Ocean carriers: limited by international convention (Hague-Visby Rules) to SDR 2 per kilogram or SDR 666.67 per package
Cargo insurance fills the gap between carrier liability and the actual commercial value of the goods.
Types of Cargo Insurance
- All-Risk Coverage: The broadest form — covers all physical loss or damage from external causes, subject to specific exclusions.
- Named Perils Coverage: Covers only specific listed risks (fire, collision, theft). Lower premium, narrower protection.
- Open Cargo Policy: A blanket policy covering all shipments over a defined period, automatically including new shipments as they occur. Preferred by high-volume shippers.
When to Declare Value vs. Buy Insurance
Parcel carriers offer declared value coverage as an add-on service. For low-value shipments, declared value may be adequate. For high-value goods shipped frequently, a standalone cargo insurance policy is typically more cost-effective than per-shipment declared value fees and provides broader coverage terms.