This month our resident advice columnist answers questions about cargo insurance and questions about whether or not vessel seizures are covered.
Dear Ahab, I saw recently that Iranian military forces seized a Mediterranean Shipping Co. vessel in the Persian Gulf at the Strait of Hormuz. How can I make sure my shipments aren’t impacted by instances like this? — Cargo Curious
Dear Cargo Curious: Great question! I know it’s easy to get all “doom and gloom,” when reading the headlines, but you’re running a business here. You don’t have the luxury of curling up into a fetal position and not shipping anything. However, barring complete avoidance, the only reasonable and inexpensive option you have to ease your mind and keep your business viable is to purchase cargo insurance.
Quite frankly, everyone should have it, because events like the MSC Aries seizure aren’t exactly broadcasted on social media or AM radio before they happen. While purchasing cargo insurance will add a small cost to your shipments, it will give you peace of mind because if something unforeseen happens to your cargo you’ll get reimbursed for whatever you lost. Keep in mind, war-restricted waters like the Strait of Hormuz aren’t covered by every insurance plan. However, some plans do cover these areas. Therefore, check with your insurance agent before you buy anything, and they will work with you to figure out the best coverage plan to address those concerns.
Remember, in a supply chain this big and interconnected, threats are everywhere. The chances of having a month without something happening are pretty low. Therefore, do yourself a favor and buy cargo insurance. Your mind, and business, with thank you for it later.
Dear Ahab, when I pay for car insurance, my premium goes up if insurance has to cover repairs on my car. Is that the case with shipping insurance? Will I have to pay more after my ship gets seized? – What’s the Difference
Dear What’s the Difference: The short answer is, no. Cargo insurance rates differ from your home insurance or car insurance plans in that the rates really don’t fluctuate. Over the past decade, there have been minimal adjustments in insurance rates, but, otherwise, the cost to insure containerized cargo really doesn’t fluctuate.
What does fluctuate, however, is the cost of what you’re shipping. As we approach peak season, consider the cost of what’s in your containers. Would you rather pay a pretty static price to keep those containers insured every time they sail, or risk the cargo – and the potential profit you could make selling it – to save a fraction of the cargo’s value?
Dear Ahab, the world has become an increasingly dangerous place, and I think it makes sense to stop shipping goods for now. What do you think? – Scared Strait
Dear Scared Strait: I don’t know everything about your business, but I know one thing: not having anything shipped is a surefire way to go out of business – FOREVER! Remember, it’s impossible to predict the future, and it’s impossible to completely eliminate disruptions to the supply chain. Therefore, buy some cargo insurance, hedge your bets, and for God’s sake stop being so scared!
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