Every shipment that leaves your warehouse carries a risk that most companies only recognise when something goes wrong. The goods arrive damaged. The volume at destination is lower than what was packed. Tracking stops updating and the package simply does not arrive.
When that happens, the question that follows is always the same: who pays for this?
The answer depends on a decision that needs to be made before the shipment leaves, not after. International cargo insurance exists to cover exactly this type of risk, but it does not operate automatically and not every policy covers every situation.
This article explains how international cargo insurance works, when it makes sense for global brands that export, what it covers and what it does not, and how to evaluate a policy before your next shipment goes out.
What happens to an uninsured shipment
When goods are lost or damaged during international transit, the carrier’s liability is capped by international conventions that set compensation limits well below the actual value of the products.
In air freight, the Montreal Convention establishes a liability limit of approximately 22 Special Drawing Rights per kilogram. In practical terms, that figure can represent a fraction of the real cost of the goods. In ocean freight, the Hague-Visby Rules set similar limits per unit or weight of cargo.
This means that even when the carrier is found liable, the compensation does not cover the full value of the lost or damaged goods. The exporter absorbs the difference.
For a global brand shipping high unit-value products, whether fashion, electronics, artisan goods, or any item with significant production cost, the gap between the carrier’s liability cap and the actual value can be large enough to turn a strong sales month into a net loss.
How international cargo insurance works
International cargo insurance is a policy that covers financial losses caused by physical damage, total or partial loss, and unforeseen events during the transport of goods between the point of origin and the final destination.
It is taken out by the exporter and can cover the full journey from warehouse dispatch to delivery at the buyer’s address abroad, depending on the conditions negotiated.
The insured value is typically calculated on the value of the goods plus freight and an expected profit margin, usually 10% of the total. That margin exists to cover not only the cost of the product but the financial impact of a lost sale.
The policy can be taken out on a per-shipment basis, which is common for brands that export infrequently, or as an open policy that automatically covers all shipments within a defined period. For brands with a regular export flow, the open policy tends to be more cost-effective and operationally simpler to manage.
What the policy covers and what it does not
Cargo insurance coverage varies depending on the conditions contracted, but broadly speaking there are two main types of policy available in the international market.
All-risk cover, known in the market as Clause A under the Institute Cargo Clauses of the London Institute of Underwriters, covers all risks of loss or damage during transit except for events explicitly excluded. It is the most comprehensive option and the most appropriate for brands shipping high-value goods.
Named-perils cover, corresponding to Clauses B and C, covers only specific listed risks such as fire, sinking, collision, and cargo handling accidents. Damage from improper handling, moisture, or partial loss may not be included depending on the clause contracted.
In both cases, certain exclusions apply regardless of the coverage level. The main ones are: inherent vice of the goods, inadequate packaging, war and military operations, and transit delays. A product that arrives damaged because it was poorly packed by the exporter is not covered. This is a relevant point for brands that handle packaging internally without a documented standard for international shipments.
Partial loss and damage: the most common claims in international export
Total loss of a shipment, when a package simply never arrives, is the scenario that comes to mind when discussing cargo insurance. In practice, however, the most frequent cases are different.
Partial loss occurs when only part of the shipped goods arrives at the destination. This type of claim is harder to substantiate because it depends on precise documentation at the origin. Without a detailed packing list and weight record per box, it is difficult to prove that the discrepancy occurred during transit rather than before the shipment left.
Damage is even more common. Products damaged by impact, moisture, temperature variation, or mishandling represent a significant share of cargo insurance claims. According to market data from the transport insurance sector, damage claims account for between 60% and 70% of registered incidents in international cargo, with higher incidence in air freight due to intensive handling at hub connections.
For the global exporter, this means the most likely risk is not total loss but a product that arrives defective, generating a return, a payment dispute, and a reshipping cost, all without compensation if there is no policy in place.
When cargo insurance makes sense for global brands
The decision to take out cargo insurance needs to be evaluated case by case, but there are situations where the case for coverage is clear.
The first criterion is unit value. Products with high production costs or that represent a significant share of monthly revenue justify coverage even for low-volume shipments. Losing a single consignment in that scenario can compromise the month’s result entirely.
The second criterion is the destination and the mode of transport. Routes with a higher historical incidence of damage or loss, such as air routes with multiple connections or destinations with less predictable logistics infrastructure, justify additional coverage. Air freight with connections through high-traffic hubs increases the risk of partial loss through handling.
The third criterion is the buyer profile. When the sale is made to an end consumer who has no tolerance for receiving a damaged product and will initiate a chargeback directly with their card issuer, the cost of an uncovered damage claim goes well beyond the value of the product. It includes the payment reversal, the lost sale, and the reputational impact of a negative review.
The fourth criterion is export frequency. For brands that export regularly, an open policy distributes the insurance cost across all shipments and typically carries a lower premium per insured unit than individual per-shipment contracting.
How the claims process works in practice
Taking out the policy is only part of the equation. Knowing what to do when a problem occurs is what determines whether the compensation will actually be paid.
The first step when damage or loss is identified is to register the incident immediately with the carrier and the freight agent, at the point of delivery or as soon as the discrepancy is identified. That registration creates the documentary basis the insurer will require to process the claim.
After that, it is necessary to gather all shipment documentation: the bill of lading or airway bill, commercial invoice, packing list, photographs of the packaging and contents at the time of receipt, and any communication with the carrier about the incident.
The insurer will assess whether the claim falls within the conditions covered by the policy and, if coverage is confirmed, process the compensation based on the declared insured value. Assessment timelines vary by insurer and the complexity of the case, but typically sit between 30 and 60 days for claims with complete documentation.
The critical point is origin documentation. Brands that do not have photographic records of the packaging before shipment and do not document the weight and contents of each unit have difficulty proving that damage or loss occurred during transit. This is a straightforward operational process to implement and makes a direct difference to the outcome of any eventual claim.
What to review in your operation before taking out a policy
Before contracting cargo insurance, it is useful to review several operational points that directly affect coverage and the likelihood of a successful claim.
The first point is packaging. Most policies exclude damage resulting from packaging that is inadequate for the mode of transport and the destination. Products exported in retail packaging without additional reinforcement for international transit carry a high risk of damage and an equally high risk of coverage exclusion.
The second point is the description of goods in export documentation. The commercial invoice and any customs export declaration need to describe the product with sufficient precision for the insurer to verify the declared value. Undervaluation in fiscal documentation, used by some exporters to reduce import duties at destination, compromises the compensation value in the event of a claim.
The third point is the incoterm agreed with the buyer. The incoterm defines at which point in the logistics chain risk passes from the exporter to the buyer. Under DAP, the exporter carries the risk to the destination. Under EXW, the risk passes to the buyer at the warehouse door. The insurance policy needs to be aligned with the incoterm to cover the correct leg of the journey.
A fourth point relevant to global brands selling into the US market specifically is the DDP standard. American consumers increasingly expect to pay a single landed cost at checkout, with no additional charges at delivery. Brands operating under DAP who do not make import duties transparent at checkout are creating a friction point that leads either to delivery refusals or to chargebacks. Getting the insurance structure right is part of a broader operational alignment that includes checkout configuration, duty calculation, and delivery terms working together.
If you want to structure your export operation with the coverage and predictability your next shipment requires, talk to our team and understand what needs to be in place.
