02 August 2021 • 18 min read
Why Marine Cargo Insurance for China Shipments ?
China is the world’s factory, sending goods in all directions via sea. But recently, frequent maritime accidents have resulted in huge cargo losses, making shipping from the country a risky affair. The need for marine cargo insurance for your China shipments has never been more urgent than now.
When it comes to feeding the global demand for manufactured goods, China is the leader of the pack. Sixty percent of the country’s trade in value travels by sea. Transporting goods by sea - it goes without saying - is risky. Accidents, bad weather, and other circumstances beyond your control can lead to your valuable cargo being damaged or lost. The only protection against losing your goods to the perils of the sea is marine cargo insurance. Really, there is no good reason not to insure your cargo.
In this piece, we discuss the importance of cargo insurance for your China shipments, how much it costs, and where to buy it from.
What is marine cargo insurance?
Marine cargo insurance covers the loss of or physical damage to goods while in transit by sea. Your cargo is covered against losses or damage (partial or total) caused by:
- Natural disasters such as storms and earthquakes
- Theft, hijacking, piracy, and violence
- Vessel disasters such as sinking, stranding, and collision
- Accidents during loading and unloading
- Spillage from other containers
- Marine cargo insurance also covers expenses such as forwarding charges, survey fees, and reconditioning fees
Note: Forwarding charges kick in when the journey is aborted and the cargo has to be forwarded to its intended destination. A survey fee is paid to a marine surveyor for inspection of the insured cargo. A reconditioning fee is paid to repair or recondition damaged cargo.
Marine cargo insurance doesn’t cover losses or damage caused by:
- Inappropriate packaging, negligence, misconduct, and delay
- Inherent vice (damage to the goods due to their inherent nature, such as iron rusting and food spoiling)
- Cargo abandonment
- Rejection by customs
- Failure to pay or bankruptcy of the cargo owner
- Use of weapons
- War, strikes, riots, and civil commotions
What are the top China ports driving global trade? Click here to find out
Why buy cargo insurance for your China shipment
When shipping to and from China, these are the main reasons why your cargo is safer with insurance than without:
- High incidence of cargo loss: Recently, accidents involving shipments from China are on the rise. In the past year, there has been a worrying pattern of containers stacked precariously high on over-crowded ships falling into the sea. More than 3,000 containers were lost at sea in 2020 while the number for this year stands at over 1,000. This is the biggest jump in container losses in seven years. It’s also millions of dollars worth of cargo damaged or lost forever. Bloomberg estimates more than $150 million in losses for 2020 and $54.5 million for this year so far. Most of these incidents took place in the Pacific Ocean, one of the busiest shipping routes connecting suppliers in Asia with consumers in North America. A big chunk of the containers lost were on board ships sailing from China. Earlier this year, the Maersk Essen and Maersk Eindhoven were both en route from Xiamen to Los Angeles when they encountered bad weather. The Essen lost 750 containers in January and the Eindhoven 260 containers in February.
- Natural disaster zone: China has one of the highest frequencies of earthquakes, floods, and typhoons. According to CGTN, a cable TV news service run by China’s state media, the country is currently exposed to 22 types of natural disasters, including ocean disasters such as thunderstorms, typhoons, cyclones, and storm surges. This is all the more reason to insure your China cargo as it makes the long journey by sea to your shores. In 2017, a freight ship sank off the coast of Guangdong province when its cargo shifted due to high waves and strong winds caused by Typhoon Roke. In December 2020, a Chinese bulk carrier carrying 4,700 tonnes of cement sank in the South China Sea after encountering strong waves, which caused its cargo hold to flood. Both incidents resulted in significant cargo loss. Over just three days in July 2021, China has received its heaviest rainfall in a thousand years, leading to unprecedented flooding in Henan, a major logistics hub, and endangering transportation operations as well as people and property. China watchers say the intensity and frequency of natural disasters will only increase with climate change.
- Peak season risks: When shipping goods to and from China, traders must keep peak season in mind. This is the time cargo volumes entering and exiting China surge dramatically, leading to a jostle for space on carriers and a huge spike in cargo handling operations at ports and warehouses. As this is arguably the busiest time of the year for cargo handlers, accidents and oversights can happen, resulting in lost and damaged goods. With cargo insurance, you can remain calm through this chaotic period. Peak season comes every year and extends from August to November, in the run-up to the Christmas and New Year holidays. Peak season in 2020 was particularly busy. As the world slowly recovered from the first wave of Covid-19, cargo traffic from China to the US and Europe broke all records as businesses started restocking inventory, anticipating a rush of holiday shoppers. So strong was the demand for goods from Asia, particularly China, that the peak season spilled over into 2021. Apart from peak season, there are other dates and periods in the Chinese calendar that importers and exporters must pay attention to. The first is a mini peak season in January and February that comes ahead of the week-long Lunar New Year holidays in China. The second is Golden Week in October, when the Chinese celebrate National Day, again with a week-long break from work. Both periods are associated with a significant rise in cargo traffic from China and severe logistics headaches for everyone involved in the shipping industry.
How much does marine cargo insurance cost?
Marine cargo insurance is generally affordable. According to Steve Fodor, Director of the US-based Association for Trade Compliance, cargo insurance costs less than half a percent of the shipment value. So, it makes little sense to cut back on it to save on shipping costs.
How do you calculate the insurance amount and premium? There’s a simple formula used by insurance companies across the world, including in China.
First, you need to know the ‘insured value’ of the consignment. Usually, insured value is CIF plus 10 percent, or 110 percent of CIF. The CIF Incoterm stands for Cost, Insurance, and Freight. The additional 10 percent covers incidental costs in case of cargo loss, such as the fee for processing the insurance claim. Therefore:
Insured value = CIF + 10%
The insured value is the maximum amount the insurance company is liable for in the event of cargo loss or damage covered under the insurance policy.
The premium you pay is a percentage of the insured value specified by the insurance company.
To know about incidental charges related to buying marine cargo insurance, click here
Where to get cargo insurance in China
- From your freight forwarder: If you have a freight forwarder handling your China shipments, you can ask them to get your cargo insured as well. In fact, a diligent forwarder will always make sure your goods have adequate insurance cover while in transit. Most forwarders in China have ties with insurance firms, brokers, and agents. They offer a wide range of cargo insurance products, including ‘All Risk’ policies that offer the most comprehensive risk cover. China has a booming cargo insurance market with its hub in Shanghai, which is also home to the world’s busiest container port. Thanks to generous state support, marine insurance policies issued in Shanghai are exempt from many local taxes and surcharges. With the right freight forwarder working for you, you can avail of these cost-saving benefits while getting your cargo insured. Additionally, you can try out Cogoport’s end-to-end shipping services, which will take care of everything from your freight and local transport to documentation, customs, insurance, and more. Sign up and speak with our in-house experts to find out what’s on offer.
Read our guide to finding a freight forwarder in China here
- From an insurance company: Shippers also have the option of buying an insurance policy for their cargo directly from an insurance firm. If you’re buying cargo insurance in China, you can choose from well-known global insurers who have their offices in the country as well as established domestic companies. Ping An Insurance and the state-owned People’s Insurance Company of China are two of the most recognised home-grown insurers.
- From the carrier: Like freight forwarders, major shipping lines offer marine cargo insurance in partnership with well-known international insurers. For example, Maersk has partnered with Zurich Insurance while Hapag-Lloyd has a tie-up with Chubb (for some countries).
Insurance certificate and its importance
Most trade experts say an insurance certificate is a must-have document when importing from China. The insurance certificate captures the main points of the marine cargo insurance policy in a single document. It acts as proof that a particular consignment is insured. It is issued by the insurer or insurance broker. In China (or anywhere else where it is required), the insurance certificate is an important document that must be presented during customs clearance. Because it allows for faster access to information regarding the shipment’s insurance status, it hastens the customs clearance process.
In an insurance certificate, you’ll find the following details:
- Name of the policy holder
- Policy number
- Policy validity period
- Policy limit, or the maximum amount of compensation allowed
- Insurance premium amount
- Details of the shipment, such as description of the goods, vessel name, ports of origin and destination
Click here to know how to effectively communicate with your Chinese supplier