In the United States alone, cargo theft is estimated to cost $15 to $35 billion annually—and it’s on the rise. There was a 46% increase during the first quarter of 2024 compared to the same period in 2023.
When your shipment hits foreign ports and borders, that potential multiplies. Plus, theft is just one category from a laundry list of ways your goods could go missing or become damaged.
The primary role of freight insurance is to provide compensation to the shipper if freight is damaged or goes missing during transit, and there are many factors that go into calculating freight insurance cost.
What Is Freight Insurance?
When you ship goods, there’s a lot that can go wrong. Your parcels travel through multiple steps, get loaded and unloaded by different crews, all at varying levels of security and care.
Risks on the road from your business to the final delivery location include:
- Damage from handling, storage, negligence, etc.
- Loss, damage, or sacrifice from collisions, sinking, derailment, fire, etc.
- Damage due to poor packaging or improper labeling
- Natural disasters
- Geopolitical events
- Theft and fraud
- Piracy
- Abandonment due to customs rejection or failure to pay or collect
- Lost freight
While carriers typically make up for some loss and offer insurance options, these rarely cover the full cost of damage or loss.
Types of Freight Insurance
Freight insurance isn’t a one-size-fits-all product. Depending on what you’re shipping and how, you’ll need to decide what you want covered (whole or partial cost of goods, with or without the cost of freight) and select one or more types of policies. Options include:
- Named perils – Also known as “free of particular average (FPA)” or total loss only, a named perils insurance policy limits coverage to damage based on specific perils that are beyond human control by the responsible carrier. It’s frequently used for bulk, used, and waste materials and cargo.
- Broad cover cargo – A common selection, broad cover offers mid-range coverage against most types of loss and damage at a reasonable price.
- All-risk cargo – The most comprehensive type of maritime insurance coverage, all-risk (or “Type A”) policies provide blanket insurance coverage against loss or damage through final mile delivery. It’s most common for delicate, expensive, or critically important shipments.
- Duty – If a shipment is damaged during international transit, it still may incur significant duty and tax costs upon arrival. Duty insurance is a low-cost type of essential coverage for these expenses for damaged loads.
- Liability – A liability policy protects the covered parties (owners, freight forwarders, or logistics providers) from third-party bodily injury or property damage claims.
- Contingency – If a carrier refuses to pay a claim for damage or loss that occurred in transit, a contingency claim can be used to compensate freight brokers.
- General average – Rarely used, a general average policy triggers shared responsibility for the cost of lost or damaged cargo among all stakeholders connected to the shipment.
Insurance policies also break down by transport categories:
- Ocean cargo – Also known as marine cargo, ocean freight, or maritime cargo insurance, these policies cover cargo across international waters and borders, and may extend to air travel if treated as part of the total shipping route.
- Land cargo – Typically for domestic shipping only, land cargo policies insure goods shipped by truck, van, or train from theft, collision, and similar damages.
- Warehouse to warehouse – W2W policies protect goods traveling from a ship to a destination warehouse.
Factors Influencing Freight Insurance Costs
Insurers have to figure out how likely it is that damage or loss will incur in order to set policy prices for you. This is determined by:
Nature of the Goods
What exactly you’re shipping is key to your freight insurance cost at a few different levels.
First, you’ll need to select the category of goods (i.e., bottled beverages, fine arts, frozen meats, chemicals, and hazardous materials). The level of care and handling (such as temperature control and stackability) is relevant to calculating the likelihood of damage during transit.
You’ll also declare the value of your shipment, typically based on a commercial invoice value.
Shipping Routes and Distance
How long will the item be in transit and where? What are the current risk levels in terms of weather, piracy activity, destination country stability, customs reliability, and so on? The longer and more perilous the route, the greater your policy cost.
Transportation Mode
How will your shipment be traveling? Air, sea, road, and rail all contain different levels of risk that impact insurance costs.
Additional Factors
Your premiums will also be impacted by:
- Your claims history
- Negotiated discounts under contract
- Discounted rates available through a free Lojistic account
Calculating Your Freight Insurance Costs
For door-to-door cargo insurance, you can expect to pay an average of 0.5% of the goods’ value according to the American Institute of Marine Underwriters (AIMU).
Declared value is the first factor in calculating freight insurance cost. To figure out your premium, use this calculation:,
Premium = [(Commercial invoice value of goods + freight cost) × Policy rate] + 10%
For a mid-range policy with no contract, bulk, logistics company intervention, or other discounts, instant quote rates range from the following (depending on the goods category, with a $50 minimum charge):
- 0.5% to 3% by air
- 0.55% to 3% by land
- 0.66% to 3.64% by sea
Remember, the type of policy and factors noted above will affect your bottom dollar.
Navigating Freight Insurance with Expertise
With so many variables (and potential upcharges), your choice of freight insurance provider and policies are critical to keeping costs down and boosting your bottom line. Lojistic can connect you with a cost-effective insurance solution that offers low rates with no minimum per-parcel fee.
And we don’t stop there. Our parcel and freight auditing software provides shipping analytics, parcel shipping cost comparisons, access to discounted group parcel rates through our freight marketplace, and UPS & FedEx contract optimization.
Ready to start saving? Call us today, schedule a convenient time for us to contact you, or go ahead and set up a free Lojistic account today.
Sources:
National Insurance Crime Bureau. Cargo Theft: A $15 to $35 Billion Problem. https://www.nicb.org/prevent-fraud-theft/cargo-theft
Verisk. 2024 First Quarter Supply Chain Risk Trends Analysis. https://www.cargonet.com/news-and-events/cargonet-in-the-media/2024-q1-theft-trends/
Freight Insurance Coverage. Marine Cargo Insurance Costs: Factors Influencing Premiums. https://freightinsurancecoverage.com/process/marine-cargo-insurance-cost/
Roanoke Insurance Group Inc. Cargo Insurance Costs Calculator. https://www.roanokegroup.com/cargo-insurance-costs-calculator/
Fit Small Business. Freight & Cargo Insurance: Cost, Coverage & Providers. https://fitsmallbusiness.com/cargo-insurance/#Costs
Freight Insurance Center. Online Freight Insurance Rates for Instant Coverage. https://www.freightinsurancecenter.com/freightinsuranceonlinerates.htm
Author
Rich Harkey
Rich Harkey
Senior Strategy Manager
As the Senior Strategy Manager at Lojistic, Rich leverages over three decades of expertise to help businesses improve their shipping strategies and reduce costs. With a deep understanding of the requirements of shippers and the operational intricacies of carriers, he excels in everything from optimizing business rules and managing carrier invoices to negotiating carrier contracts.
Rich's comprehensive knowledge of the logistics industry, combined with his strategic insights and passion for data analysis, has enabled thousands of companies to gain visibility into their shipping expenses, driving impactful results.