The importance of cargo insurance in maritime transport

  • 10/12/2019
  • 10 minutes

It is undeniable that maritime transport is associated with many challenges and opportunities, don’t you agree? In this scenario, cargo insurance emerges as an important protection mechanism to ensure the smooth running of the business.

However, besides the mandatory reasons, why hire it? What are the biggest dangers of not having a suitable option? Are there perspectives for this market in the coming years?

Taking these and other matters into consideration, we spoke with Ricardo Guirao, who is the director of transportation at Aon — a company that’s present in over 120 countries and with diverse risk, pension, and health solutions. Enjoy the content!

What is the importance of cargo insurance in maritime transport?

According to the expert, two aspects of cargo insurance need to be highlighted. The first is that, for the owner of the cargo, it is necessary to protect the goods against the risk of loss and damage during transportation. “It is essential to note that the owners of goods that transit in the national territory, according to Decree-Law No. 73 of 1966, in article No. 20, item H, must have their insurance policies”, he explains.

The second point is that it is the responsibility of the sea carrier to assume civil liability for damage caused to third party cargo during transport. Decree-Law No. 73/1966 also conditions this figure for the need to contract a policy.

Regardless of local regulations and legal aspects, insurance has as its basic premise to reduce exposure to the risks and financial impacts that a possible loss or damage may cause to the company — whether to the contractor or to the contracted party. Thus, in addition to generating the replacement of financial loss and the protection of assets, there is the maintenance of a good image before the community in general.

Another factor that deserves special mention, especially in shipowners’ policies, is the guarantee of losses due to gross malfunction, which is an intentional act performed by the ship’s captain due to the safety of the vessel, crew and cargo, in situations of imminent danger whose aim is to avoid a greater evil. It is the freight contractor that needs to assume responsibility for the losses incurred as a result of gross damage.

What are the obligatory insurances in the marine environment? And why are they recommended?

The owner of the vessel operating cargo transportation under a charter party shall contract the compulsory Carrier Carrier Liability Insurance (RCA-C), which aims to cover losses and damage to the cargo carried as a result of accidents with the vessel, such as:

  • ship grounding;
  • varation;
  • wreckage;
  • folding;
  • fire or explosion of the ship/vessel.

“Because this insurance is mandatory, it is recommended so that the company can act in accordance with the law, and protect itself against any claims within the scope of civil liability,” says Guirao. In this context, it is appropriate to recall Bill 1572/2011, which comments on the limitation of liability to the waterway carrier.

Still regarding the compulsory insurance, it is necessary to mention two important modalities in the maritime environment:

  • RCA (Cargo Waterway Carrier Liability Insurance): mandatory for waterway and lake facilities;
  • RCTR-VI (TE / TI): governs Mercosur and must be contracted for transport between member countries.

Basic covers are almost always divided into 3 distinct categories, one of which is broad and the other two restricted. There are also additional coverages that can be hired according to the requirements of the business in question.

What dangers arise from not having adequate insurance?

For a transport insurance contract to bring security to an organization, it is essential that its placement is performed by companies that specialize in this segment. Therefore, it is valid to give preference to companies that have professionals with extensive experience and deep technical knowledge on the subject.

After all, they must obtain and evaluate all information from the company’s logistics operation, analyzing and identifying all risk exposures from shipment origin to final destination.

In a very brief way, this process is aimed at identifying what are the risks to which transportation is subject. This requires a detailed analysis of a number of factors, such as:

  • type of cargo;
  • modal;
  • packing;
  • travel distance;
  • means of transport;
  • composition and structure;
  • boundaries involved;
  • among others.

Not having good cargo insurance can lead not only to non-compliance with current legislation, but also leave transport vulnerable to various risks such as accidents, breakdowns, or even theft.

In addition, Guirao says that “when conducted by specialists, it allows assessing possible concentrations or accumulations of risk along the journey, identifying and proposing risk management measures in order to mitigate it and create the best insurance contract to ensure ample loss replacement”.

What is the outlook for the waterway insurance market in the coming years?

Considering that Brazil has the road network as the main means of disposing of the goods that transit in the country, due to its continental characteristics, cabotage or waterway insurance is a viable alternative, with lower costs and risks compared to road transport.

Large shippers have already made a more effective transition using this type of modal. “One of the biggest drivers of change is the increase in logistics costs involved in road transport, due to aspects related to freight, insurance and high exposure to various risks”, justifies Guirao.

As a novelty, due to the emergence of P&I insurance and its offering by insurance companies based in Brazil, there is likely to be an increase in the level of companies adhering to this insurance. According to Guirao, “previously, the scenario was limited to the small liability coverage offered by the RCA-C”.

Cargo insurance is essential not only to ensure the performance of shipping companies in compliance with the law, but also to protect organizations from damage and loss.

If you enjoyed this article, be sure to download our free e-book: “How shipping agencies work and what’s their importance for cargo transportation“!