- With ultra large container vessels becoming the norm, insurers are allegedly worrying over what they perceive as significant risk tied up in one place, The Loadstar reported last week.
- Their concern may be misplaced, however, since results show that nine out of 10 containers arriving in the U.S. have traveled uninsured.
- It isn't a matter of insuring some cargo and not others; those who don't insure tend not to change their habits unless diaster strikes.
Cargo insurance tends to cost roughly half a percent of the overall worth of the goods being shipped, yet shippers routinely prefer to take risks and go without any coverage at all. This is due in part to the misunderstanding that Cost, Insurance and Freight (CIF) or Free on Board (FOB) coverage is in place, when in reality, neither are active.
According to the International Chamber of Commerce (ICC), CIF is defined in part as: "the risk of loss of or damage to the goods passes when the goods are on board the vessel. However, the seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination," not merely the destination from which the goods will be shipped. In the case of FOB, things get a little more complicated, since there are two options: FOB Destination and FOB Origin. Here, shippers err in believing that the buyer has FOB Origin insurance when in fact, FOB Destination is designated, which means shippers are responsible for cargo until it reaches the port to which it is bound.
Another reason shippers skip insurance can be attributed to a reliance on luck, laziness, or attempted thriftiness. Shippers may assume that because nothing has gone wrong before, nothing can go wrong, but there's always a first time for accidents and injuries. For such an inexpensive service, the lack of shipping insurance is surprising, especially given the ups and downs of the past year within the industry.