Delivery cargo by sea service is one of the most popular methods today. Vietnam has the advantage of a long coastline running along the country, so sea method is more invested and expanded. Shipping cargo by sea service has the advantage of low cost, diversified routes, but the travel time is long, so there is more risk for goods. Buying insurance for goods is one of the ways to reduce risks that importer and exporter use nowadays.

1. What is Cargo Insurance

Cargo insurance for goods transported by sea (marine insurance) is a type of insurance that supports protection for risks at sea related to the process of transporting cargo.

Insurance will insure the goods from loss, loss from objective reasons, beyond the control such as:

• The vessel got accident, causing serious damage, sinking or puncture.
• Cargo is damaged and lost during loading and unloading
• Loading and unloading at a port where the accident is happening, where the war is happening
• Special risks such as un-delivered goods, under-delivered, stolen or robbed
• General average and related expenses (rescue costs, expertise costs, costs of claims and proceedings…)

2. Reason for buying insurance

• Preventing the case that goods and assets transported by sea are at risk
• Minimize the amount of compensation for shippers when there is a loss
• Reduce insecurity when transporting goods, especially with high value goods

3. Type of insurance

Cargo insurance has 3 types: A, B, C. These 3 types of insurance will have different coverage with different policies and insurance contents.

For easy image, please see the table below for your reference:

(*) – Can be agreed additionally;

(**) – Also valid in cases of partial loss or partial damage.

4. Insurance cost

The cost of insurance will depend on the following factors:

– The value of goods on Invoice: normally value cargo will be the FOB price

– Freight of the cargo

– The scope of insurance: from port to port or from port to final destination.

– Commodity nature: the level of risk

The formula is as follows:

I = CIF x R with CIF = (C+F) / (1-R)

In fact, many companies will use the following simpler formula: I = R x (C+F)

• I: insurance cost
• C: value of cargo
• F: freight
• R: rate of insurance

R will be decided based on more or less risky cargo, The scope of insurance, type of insurance

In SM Global, for normal cargo in containers (FCL), ICC A Condition, port-to-final destination including discharge container, we can provide R around 0.12%

5. Type of cargo that need to buy insurance

Insurance is still recommended to buy for import and export goods. in fact, many importers and exporters are still not really interested in this. However, there are some types of goods that are recommended to buy insurance to avoid unfortunate risks:

• High value cargo

With high-value goods, buying insurance is considered a necessary measure. Insurance will help the buyer reduce the pressure in delivery cargo, or compensated for part of the loss so as not to cause unfortunate consequences.

• Fragile goods

Fragile goods are considered to have a high level of risk in delivery. Some products can be mentioned such as: mirrors, glassware, ceramics, … but this item will be carefully packed, but the risk of falling is high, so buying insurance is very necessary.

• Long- transportation cargo

Shipping by sea has a much longer transit time than by air. Transit time can be a few days (to Hong Kong, Shenzhen, Singapore, …) to one or two months (to the EU, UK, USA, …). But the shipment takes a long time, especially when the weather is bad, it is better to buy insurance.