Why is freight insurance so important in international trade?

Why is freight insurance so important in international trade? Freight insurance, that is, cargo transportation insurance, is an insurance that uses various goods as the subject of insurance during transportation.

According to different modes of transportation, it is divided into:

  • Ocean freight insurance,
  • Air cargo insurance,
  • Rail freight insurance,
  • Road freight insurance, etc.

According to whether import and export are involved, it can be divided into domestic freight insurance and international freight insurance.

If: Your cargo is on this ship…

Why is freight insurance so important in international trade?
picture from sohu

Cargo transportation insurance is a very important aspect of international trade, because the transportation of goods in international trade is long, long, involves many aspects, and has a wide variety of risks. Especially in the process of ocean transportation, ships often encounter storms and waves. Such as natural disasters, or accidental risk accidents such as rocking, fire, grounding, war and other accidents. Therefore, it is very important to insure cargo insurance for the transportation of goods in international trade.

In addition, goods are usually loaded and unloaded, moved, stacked, and stored many times during long-distance transportation, and various losses may also occur in these processes. In order to ensure timely compensation for losses in economic accounting, it is necessary to insure cargo transportation insurance. Don’t take a fluke mentality to save premiums and refrain from insuring.

Some international trade terms, such as CIF (Cost, Insurance and Freight-cost plus insurance plus freight), CIP (Carriage and Insurance Paid to-freight, insurance paid to the designated destination)… It can be seen that insurance premium (I) is almost as important as the value of goods (C) and freight (F) as a component of international trade prices. The insurance clause in international trade contracts is also one of the most important transaction clauses, which shows the importance of international trade freight insurance.

In international trade, insurance documents are transferable. In addition to the “insurance policy”, insurance documents also include “insurance certificates” and “joint certificates”.

Insurance Policy

It is an official certificate for the establishment of an insurance contract relationship between the insurer and the insured. It is an official document for the insured to make a claim against the insurer or appeal to the insurer. It is also the main basis for the insurer to settle claims.

Insurance certificate

It is a document issued by the insurer to the insured to prove that the goods have been insured and the insurance contract has taken effect. It simplifies insurance documents. The insurance certificate has the same effect as the insurance policy, but when the L/C letter of credit stipulates that the insurance policy must be submitted, generally the insurance certificate cannot be substituted for the insurance policy.