For a lot of insurance agents, ocean cargo insurance isn’t something they do every day, and when it comes time to review exposures, cargo risks are often overlooked. Here are a few key indicators that should prompt agents to discuss cargo insurance with their customers:

  • Foreign sales
  • Foreign general liability coverage
  • Imported parts or products, and/or manufacturing or processing in foreign countries
  • Subsidiary companies or salespeople in foreign countries
  • Customers in Hawaii, Puerto Rico or Alaska

Once it’s clear that a customer has a need for coverage, agents discover the ocean cargo application is not an ordinary ACORD form! Here are a few terms and phrases for agents to become familiar with when customers are ready to go to the cargo insurance market.

Bill of lading: A document issued by a transporter of cargo that lists goods being shipped and specifies the terms of their transport. The bill of lading serves, among other things, as the contract of carriage between the shipper and the transporter (also called a carrier), and provides evidence of the apparent condition of the cargo when received by the carrier. Any damage to the cargo identified by the transporter when the cargo is received will be noted on the bill of lading.

Cargo certificate of insurance: In marine insurance, a document issued on behalf of an insurance company covering a specific shipment. It is most often used when evidence of insurance is required, typically by a bank issuing a letter of credit. Can also be known as a “Special Cargo Policy” when issued for a specific shipment for one voyage.

Carrier: A widely used term for an insurance company, in the cargo context “carrier” also means a transporter of goods. “Common carriers” transport goods for the public; “contract carriers” transport cargo under individually negotiated contracts. Speaking of carrying, the phrase “carry on” derives from a nautical term that instructed sailors to carry as much sail as possible to maintain speed. As insurance professionals, we should keep calm and help our customers carry on.

Commodity: Any physical thing that has utility and trade value.

Container: A rectangular metal box that has revolutionized the transportation of bulk as well as packaged cargo by enabling multimodal handling, by vessel, truck, train or even airplane. Containers come in different lengths, but the standard measure is twenty-foot equivalent unit (TEU) or forty-foot equivalent unit (FEU).

Conveyance: A means of transportation. In marine cargo risks, common conveyances include vessels, aircraft, barges, railcars, trucks and owned vehicles. Do you know the difference between a boat and a ship? It’s all about size. According to the U.S. Naval Institute, “A ship can carry a boat, but a boat can never carry a ship.”

Demurrage: A penalty or storage charge for cargo held at a warehouse or other location before the consignee picks it up; or a penalty paid to a vessel owner for keeping a vessel longer than agreed in port for loading or discharge. Customarily, there is “free time” built into the transfer of cargo at a port or warehouse. Demurrage applies after the free period has expired.

Deviation: An unusual or improper variance in the vessel’s course from port of departure to port of destination, such as calling at an unscheduled port, delay in carrying goods or on-deck carriage of goods on vessels that are not designed for such carriage. Deviation to save a life or property at sea is not considered unreasonable. Marine cargo policies usually include a deviation clause to protect cargo owners in the event of a deviation or change of voyage, or errors in the description of the vessel or voyage.

Freight forwarder: An agent of the shipper who expedites the entire process of exporting cargo.

General average: A legal principle in maritime law predating insurance in which the parties in a sea adventure proportionately share a liability for losses arising from voluntary efforts to save the venture from peril. General average may be declared as the result of: voluntary sacrifice of part of the vessel or cargo, such as jettisoning cargo to stabilize a vessel in heavy weather; or extraordinary expenses that protect the vessel and/or cargo, such as towing charges to get a disabled vessel to port.

INCOTERMS: Incoterms are a set of rules that define the responsibilities of sellers and buyers in the delivery of goods under sales contracts. Shippers worldwide use standard trade definitions called INCOTERMS to spell out who’s responsible for the shipping, insurance and tariffs on an item. These terms of sale are commonly used in international contracts and are protected by International Chamber of Commerce copyright.

Inherent vice: Loss caused by a quality or property of a commodity that causes the commodity to damage or destroy itself, as opposed to damage from an external cause or occurrence. An example is spontaneous combustion.

Jettison: A deliberate act of throwing overboard cargo or parts of the vessel’s equipment during an emergency. For example, a vessel operator may jettison flammable material during a fire on board, or jettison heavy cargo to lighten a stranded vessel. Have you guessed the marine origins of the phrase “you went overboard”? In delivering good service, that’s certainly positive, but it’s impossible to only go a little overboard, of course.

Particular average: A partial loss of insured property caused by an insured peril that is not a general average loss. A particular average may involve the vessel or cargo, and even the total loss of a portion of the cargo shipment.

Perils of the sea: Accidents or casualties intrinsic to navigating waters, such as sinking, stranding, striking another vessel or a submerged object, or encountering heavy weather.

Stock throughput: A marine insurance policy that covers goods from raw material, through all stages of production and processing, until delivered to the final destination. A stock throughput can cover goods in different methods of transportation, as well as while at various types of processing and storage locations, whether owned by the insured or by a third party.

Valuation clause: Part of a cargo policy that documents the basis of valuation of cargo in the event of a claim and establishes the insured value of the goods.

These are just a few of the terms that shippers and cargo owners encounter when insuring the transport of goods. In upcoming articles, we’ll explore many more facets of ocean cargo risk. Climb aboard for a voyage of discovery.

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About Author

Julie Vogele, AMIM
Senior Marine Underwriter at Tokio Marine America
Julie Vogele, a senior marine underwriter with Tokio Marine America, has been underwriting all lines of ocean marine insurance in California for more than 30 years, with a specialty in ocean cargo insurance. She was among the first to earn the Associate in Marine Insurance Management (AMIM) designation from The Institutes in December 1998. Active in the marine insurance industry, Julie has served as past president of the Board of Marine Underwriters of San Francisco and still serves as a member of the BMUSF Board of Directors. She is currently on the Executive Committee of the Association of Marine Underwriters of San Francisco, where she has been president four times. She has also served on the Pacific Coast Advisory Committee for the Inland Marine Underwriters Association. Julie has guest lectured at the California Maritime Academy several times, been an instructor for the AMIM program and presented for the Inland Marine Underwriters Association and the Association of Marine Underwriters of San Francisco.

About Tokio Marine America

As part of our commercial ocean marine product offering, cargo owners and shippers are well served by unmatched financial strength, dedicated underwriting experts, and a suite of flexible and proprietary insurance products that can be tailored to fit your needs.

With over a 100-year history in the U.S., Tokio Marine America (TMA) offers tailored products to a diverse range of customers – from small to large-sized global businesses seeking traditional multi-line coverage, to larger private and public companies requiring full risk management solutions. Our commitment to providing the highest level of service is paramount. More than 93% of our customers recommend TMA based on our superior claims service. TMA is one of only three insurers with an A++ (Superior) XV rating from A.M. Best. With a solid foundation of financial stability, our strength lies in understanding your business and working in partnership to exceed your expectations.

By offering fully integrated solutions to meet our customer’s needs, we endeavor to deliver ANSHIN – safety, security and peace of mind to all our customers.

Tokio Marine America (TMA) is the marketing name for Tokio Marine America Insurance Company (TMAIC).