Marine Cargo Insurance: Truths and Myths

Marine cargo insurance is not a formality. It is a technical contract that decides whether you recover millions after a loss, or nothing at all. Yet many businesses in SA who depend on international asset transit misunderstand what is covered, when cover stops and why claims fail. Here are some of the blind spots

 

Carrier Liability Is Minimal

Shipping lines are not insurers. Under the Hague-Visby Rules, carrier liability is capped at about R16,000 per package or R50 per kilogram (depending on SDR rates). That is meaningless against say a R10 million container. Without your own policy, you are virtually uninsured.

 

The Ordinary Course of Transit

Policies cover goods only while in the ordinary course of transit, which is usually a continuous journey from seller’s warehouse to buyer’s warehouse or other final destination. If cargo sits for weeks in port storage or is warehoused without agreement, insurers will involve policy exclusions which stipulate exact points when cover terminates. Make sure you stay within these time points as many claims have fallen short in this regard.

 

Incoterms: Who Carries the Risk?

Incoterms are the international trade rules published by the International Chamber of Commerce. They define who is responsible for transport, risk and insurance at each stage of a shipment. The chosen term directly affects whether you, or your counterparty, must arrange marine insurance.

Four broad categories:

E-Term (Ex Works): The buyer takes on almost all responsibility from the seller’s door. Buyer must arrange full insurance.
F-Terms (FCA, FOB, FAS): The seller delivers goods to a named place or vessel, but the buyer takes risk and arranges insurance once goods are handed to the carrier.
C-Terms (CIF, CIP, CFR, CPT): The seller arranges carriage (and in CIF/CIP, insurance), but the risk passes to the buyer at the port of shipment. CIF/CIP are where most misunderstandings occur, as sellers often buy minimal insurance.
D-Terms (DAP, DDP, DPU): The seller carries risk right up to delivery at the buyer’s named place. Insurance responsibility normally sits with the seller until final delivery.

Incoterms decide who is responsible for arranging insurance, but they do not guarantee the quality of that insurance. Many buyers assume “CIF includes cover” without realising it is usually bare bones C Clauses.

 

CIF: The Biggest Illusion

CIF (Cost, Insurance, Freight) is the most misunderstood Incoterm in South African trade.

Not automatically Clause C: Incoterms only say the seller must provide insurance. They do not specify which clause. By default, freight forwarders almost always buy Clause C, because it is the cheapest and ticks the box. That is why most CIF shipments end up with bare bones cover. But a buyer can and should negotiate Clause A cover in the sales contract.

Port only cover: CIF insurance stops at the destination port (e.g. Durban). The inland leg, where South Africa’s hijacking and theft risks are highest, is not included unless specifically extended.

The inland gap: Non marine asset insurers are reluctant to cover the road or rail journey because it’s difficult to prove where damage occurred, at sea, in port or inland.

If “forced” to buy on CIF, insist on:

• A Clauses and make it part of the contract.
• Warehouse to Warehouse wording to include inland transit.
• Consider a contingency or DIC policy locally, in case the seller’s cover still falls short.

 

A, B, C Clauses Explained

Every cargo policy is based on one of the three following Institute Cargo Clauses (ICC). Understanding differences is key.

Clause A (All Risks): Broadest protection. Covers theft, rough handling, accidental damage, seawater ingress. Excludes delay, poor packing, inherent vice, war and strikes (unless added).

Clause B (Middle Ground): Covers fire, explosion, sinking, capsizing, collision, plus earthquake, volcanic eruption, and water ingress. Excludes theft and most handling damage. Rarely used.

Clause C (Bare Bones): Only covers fire, explosion, sinking, collision, capsizing, jettison. Excludes theft, rough handling and other common losses. This is the cheapest form and the default under CIF.

At an absolute minimum, you need Clause C for General Average. But in practice, wide A Clauses is always preferable

 

General Average: Paying for Other People’s Cargo

When a vessel sacrifices cargo or incurs extraordinary costs to save the voyage, all cargo owners contribute. Any party with goods on the conveyance ship, are legally bound by maritime law to share in the loss proportionally, so having proper insurance cover is vital. A, B and C Clauses cover your General Average contribution.

Even if your goods are intact, you still have a legal maritime obligations, for example to post a bond or cash deposit before release.

 

Valuation Mistakes

Policies often default to CIF + 10%. This usually undervalues landed cost because it ignores import duties, VAT, replacement escalation etc. With second hand goods, insurers usually demand surveys or appraisals.

Many claims fall short because clients assumed these costs were included.

A stronger basis is the prime cost of goods at final destination cost + 20%, which includes duty, inland freight and other ancillaries like VAT. Most insurers will accept this if it is declared upfront.

VAT is only insurable if the claim arises within South Africa, after the VAT has been paid on import. If the cargo is lost at sea before clearance, there is no VAT liability, so this does not form part of the claim.

 

Packaging

The Cargo Clauses exclude losses caused by insufficient or unsuitable packing or preparation. For example:

Goods must be packed to withstand ordinary transit shocks — lifting, vibration, seawater, and inland trucking.

Poor crating, weak pallets or unsecured loads can all lead to repudiation.

For reefers, continuous temperature logs are mandatory

Use export grade packing standards, document the process and monitor reefer cargo with IoT devices.

 

Delay, Demurrage and Detention

Delay and loss of market are excluded even under Clause A. If your fruit rots in Durban during a strike, the insurer will not pay.

Demurrage (port storage charges) and detention (holding containers too long) are also excluded unless endorsed.

Use reliable carriers, build service levels into contracts and recognise that delay extensions exist but are costly and narrow.

 

War, Strikes and Piracy

By default, cargo policies exclude losses from war and strikes, riots, and civil commotion (SR&CC). However, most insurers will include these events if you ask for them, the only exception is South African unrest, which is always covered separately by SASRIA.

What to watch out for:

• War risk areas: Insurers publish lists of high-risk zones (e.g. Red Sea, Gulf of Aden, West Africa). If your shipment crosses one, you must declare it.
• Sanctioned territories: Goods moving through UN/EU/US sanctioned countries (Iran, Syria, North Korea, etc.) are usually uninsurable. Even an unintended transshipment through these ports can void cover.
• Piracy hotspots: Still active in the Gulf of Guinea and off Somalia. Some underwriters require armed escorts or rerouting.
• South African unrest: Strikes and protests at local ports or on road routes are not covered by marine war/strikes clauses. You must arrange SASRIA Transit.

Always request war and strikes cover, check if your route crosses a war risk area or sanction zone and make sure SASRIA is in place for local risks. Speak to a professional risk advisor.

 

Cross Voyages: The Overlooked Risk

A cross voyage happens when goods are shipped between two foreign ports, for example, Chinese goods sold to a buyer in Europe, but routed via Durban for transshipment.

Why it is important for insurance:

A South African policy may not automatically cover goods that never start or end in South Africa.

Cross voyages must be specifically declared and endorsed on the policy.
Premiums are higher, as risk sits outside the “normal” SA trade lanes.
Sanction and war zone exposure is common, as goods may pass through multiple jurisdictions.

To avoid claim issues, declare all cross voyages to your insurer in advance. Check if warehouse to warehouse terms still apply or if transit stops shorten cover. Confirm sanctions and war clauses apply to the full route.

 

Commodity Sensitivity

What you ship is an important aspect of marine cargo insurance. Insurers apply stricter terms, higher rates or exclusions depending on commodity type. Examples:

• Second hand goods: Require condition surveys, photos or appraisals. Without them, insurers reduce or deny claims.
• Attractive electronics (phones, laptops, tablets): Seen as theft prone. Often require armed escorts, GPS tracked carriers and premium loadings.
• Hazardous cargo (chemicals, fuels, batteries): Need compliance with IMDG codes and declared stowage. Insurers may demand specialised packaging or refuse cover entirely.
• Temperature controlled goods: Claims hinge on continuous temperature records. Any data gap can void the claim.
• Fragile or high value goods (fine art, wine, luxury goods): Usually require specialist packaging, security and a higher deductible.
• Bulk cargoes (grain, coal, scrap): Susceptible to “inherent vice” like spoilage or moisture. Insurers often exclude natural deterioration unless damage is from an insured peril.

Always declare the exact commodity type, packaging method and security arrangements upfront. Tailor cover to the risk profile rather than accepting a generic policy. Speak to a professional risk advisor.