Cargo Insurance: What to Do When Your Freight Is Damaged

Cargo insurance (marine cargo or goods-in-transit insurance) is a policy that pays the value of the goods to the insured party if the cargo is lost or damaged in transit. The carrier’s liability, by contrast, is limited by international conventions: for road freight, for example, compensation under CMR is capped at 8.33 SDR per kilogram of gross weight, which may cover only a small fraction of the loss on high-value cargo. When freight arrives damaged, the first steps are to have the damage noted on the delivery document, photograph it and notify the insurer and the carrier in writing without delay.

Who Pays If Your Cargo Is Damaged?

The answer is rarely as simple as it seems. Who bears the cost of the damage depends on three questions: Did the damage occur while the goods were in the carrier’s charge, is the cargo insured, and which party bore the risk at that moment under the Incoterms rule in the sales contract?

Even when the carrier (trucking company, shipping line, airline) is at fault, its liability is limited by international conventions depending on the mode of transport:

• Road – CMR Convention: Compensation for loss or damage is limited to 8.33 SDR per kilogram of gross weight of the missing or damaged portion.
• Sea – Hague/Hague-Visby Rules (and the Hamburg Rules in some countries): The limit is calculated on SDR amounts set per package or per kilogram; which regime applies depends on the bill of lading and the applicable national law.
• Air – Montreal Convention: There is a per-kilogram limit for cargo expressed in SDR; because this limit is revised periodically, you should check its current value.

In some cases the carrier is not liable at all. Under CMR, for example, deterioration arising from the inherent nature of the goods, inadequate packing by the sender or improper loading can relieve the carrier of liability. That is why the assumption that “the trucker will pay” often ends, in practice, either in partial compensation or in a lengthy dispute.

Why Is 8.33 SDR/kg Often Not Enough?

The SDR (Special Drawing Right) is an IMF unit of account based on a basket of currencies, and its exchange rate changes daily. Because the CMR limit is tied to the weight of the cargo rather than its value, the gap between compensation and the actual loss grows for light but valuable goods.

A simple example: if a 500 kg pallet of electronic equipment is a total loss, the carrier’s maximum liability is 500 × 8.33 = 4,165 SDR. If the invoice value of the goods is several times higher, the difference stays with the cargo owner unless the cargo is insured. For building materials of the same weight, on the other hand, this limit may cover the entire loss. In other words, the CMR limit falls clearly short for goods with a high value-to-weight ratio, such as textiles, electronics, machine parts, pharmaceuticals and cosmetics.

CMR allows the limit to be exceeded if the sender declares a higher value of goods or a special interest in delivery in the consignment note and pays a surcharge. In practice, however, this is rarely used; cargo owners generally prefer to take out their own cargo insurance. For the function of the CMR document and how to fill it in, see our article what is a CMR consignment note.

Cargo Insurance vs. Carrier’s Liability Insurance

Two policies are frequently confused in the market. One protects the cargo, the other protects the carrier.

The practical takeaway: when a trucking company says “we have CMR insurance,” it does not mean your cargo is insured for its full value. To protect the value of the cargo, a separate cargo insurance policy must be taken out.

ICC A, B and C Clauses: Coverage Compared

International cargo policies are generally based on the Institute Cargo Clauses (ICC) of the Institute of London Underwriters. There are three main levels:

ICC (A) is an “all risks” approach: every risk not expressly excluded in the policy is covered. ICC (B) and ICC (C), by contrast, work on a named-perils basis; any risk not on the list is not covered.

All three clauses share common exclusions: deterioration due to the inherent vice or nature of the goods, insufficient or unsuitable packing, ordinary leakage and loss in weight, loss caused by delay, and willful misconduct of the insured. War and strikes risks are not included in the standard clauses; they are added through separate clauses (Institute War Clauses, Institute Strikes Clauses). For cold chain shipments, risks such as refrigeration unit breakdown usually require additional cover; our cold chain transport page can give you an idea.

Who Buys the Insurance Under Incoterms?

Incoterms rules determine the point at which risk passes from the seller to the buyer. An obligation to insure exists under only two rules; under the others, the party bearing the risk takes out insurance to protect its own interest.

Note that the minimum cover under CIF is ICC (C): if you are the buyer and want broader protection, you need to write it into the sales contract or take out additional insurance. For details of the rules, see our Incoterms 2020 guide.

For imports into Turkey, there is a regulation requiring transport insurance to be placed with an insurance company operating in Turkey, so companies importing into Turkey should confirm their choice of policy with their insurance advisor or agent. Because insurance is an element of customs value, it must also be declared correctly in the customs clearance declaration.

How Is the Insured Value Determined?

The insured value is the maximum amount payable in the event of a loss, so setting it correctly matters. Common market practice is to add a margin of around 10 percent to the CIF value of the goods (cost of goods + freight + insurance). This margin is intended to cover the anticipated profit and additional expenses incurred if the cargo does not arrive. Incoterms 2020 also requires the insurance obtained by the seller under CIF and CIP to cover at least 110 percent of the contract price.

This percentage is not fixed; the insured and the insurer may agree on a different margin or a different basis of valuation (for example, the invoice value only, or a value including customs duties). The premium is set by the insurer according to the type of goods, packing, route, mode of transport and the clause chosen; you should not assume a rate without obtaining a current quote.

One point to watch is underinsurance: if the sum insured is set below the actual value of the goods, compensation for a partial loss is usually reduced in the same proportion.

Step by Step: What to Do When Cargo Arrives Damaged

Most of a claim’s success depends on what is done in the first few hours. The sequence below provides a general framework for road, sea and air freight.

1. Inspect before taking delivery. Compare the truck seal, container doors, packaging and number of packages with the delivery document. If the seal is broken or its number differs, note it.
2. Have the damage noted on the delivery document. For road freight, write the nature of the damage (crushed, wet, missing packages, etc.) clearly in the relevant section of the CMR; for sea and air freight, on the delivery receipt or warehouse receipt, and obtain the signature of the driver or the person making delivery. A document signed “clean,” without reservations, makes a later damage claim harder.
3. Take photos and video. Before the truck or container is opened and during unloading, record the packaging, labels, seal and damaged goods with date information.
4. Set the damaged goods aside; do not destroy them. Preserve the goods and packaging until the survey is carried out, and take reasonable measures to prevent the loss from increasing.
5. Notify the insurer and the carrier in writing immediately. Watch the notice periods: under CMR, apparent damage must be reported with written reservations at the time of delivery, and non-apparent damage within a short period after delivery (7 days under CMR, excluding Sundays and public holidays). Sea and air transport also provide for different, short time limits; always check the notice requirement in your policy.
6. Request a survey. The insurer or a surveyor it appoints inspects the damage on site and reports on its cause and amount. Inviting the carrier to the survey as well makes the later recovery process easier.
7. Hold the carrier liable in writing. Send the carrier a letter stating that you hold it liable for the damage. This preserves the insurer’s right of recovery (subrogation) against the carrier after it pays the claim.
8. Collect the documents and submit the claim file. A complete file speeds up the claims process.

Documents Required for a Cargo Claim

• Insurance policy or certificate
• Commercial invoice and packing list
• Transport document: CMR, bill of lading (B/L) or air waybill (AWB)
• Delivery document bearing the damage notation
• Photos and any video recordings
• Survey report
• Letter of reservation/notice of liability sent to the carrier and its reply
• Where necessary, the customs declaration and documents showing the cost of repair or replacement
• Claim letter and bank details

In sea freight, the contents of the bill of lading and whether it is “clean” are decisive in a damage claim; for details, see our article what is a bill of lading.

Common Mistakes

• Mistaking the carrier’s CMR insurance for cargo insurance: That policy covers the carrier’s limited liability, not the value of the cargo.
• Settling for ICC (C) alone under CIF: Common types of damage such as theft, wetting or breakage are not covered under this clause.
• Signing the delivery document clean: If there is visible damage, it must always be noted on the document.
• Inadequate packing: Damage caused by defective packing is generally excluded from both insurance cover and carrier liability.
• Missing the notice deadline: Late notification can weaken or extinguish the right to compensation.
• Setting the insured value too low: Underinsurance leads to proportional compensation for a partial loss.
• Not allowing for transshipments with LTL/groupage cargo: Multiple loading, unloading and transshipment operations increase the risk of damage; packing and cover should be chosen accordingly.

What Does a Freight Forwarder Do in the Insurance and Claims Process?

Because a freight forwarder knows the route and mode of transport, it helps define the insurance requirement correctly: who should insure under which Incoterms rule, which clause suits the risk of the cargo and how the insured value should be calculated are all clarified at this stage. In the event of damage, the forwarder handles communication with the carrier, provides guidance on the notations to be made on the delivery document and on organizing the survey, and supplies the transport documents needed for the claim file.

Since 2005, KEY Forwarding has served cargo owners in road, sea and air freight and in customs clearance. You can discuss the right insurance option for your cargo and the steps to follow in the event of damage with our customer representatives.

Frequently Asked Questions

Is cargo insurance mandatory?

In general, there is no legal obligation for the cargo owner; however, under the Incoterms CIF and CIP rules, the seller is required to take out insurance. Under the other rules, the party bearing the risk is advised to take out insurance to protect its own interest.

What is the CMR liability limit?

Under the CMR Convention, the carrier’s liability for loss or damage is limited to 8.33 SDR per kilogram of gross weight of the missing or damaged portion. The value of the SDR in Turkish lira or euros varies with the exchange rate.

Are cargo insurance and CMR insurance the same thing?

No. Cargo insurance protects the cargo owner and the value of the goods; CMR insurance covers the carrier’s legal liability within CMR limits. Full protection requires cargo insurance.

What is the difference between ICC A and ICC C?

ICC (A) covers all risks not excluded in the policy. ICC (C) covers named major perils such as fire, explosion, accident, sinking and general average; damage such as theft, wetting and breakage is not covered under the C clause.

Within how many days must damaged cargo be reported?

Visible damage must be noted on the document at the time of delivery. Under CMR, non-apparent damage requires written notice within 7 days of delivery (excluding Sundays and public holidays); time limits differ for sea and air transport, and the notice requirement in the policy must also be checked.

How is the insured value calculated?

Common practice is to add a margin of around 10 percent to the CIF value of the goods; Incoterms 2020 also requires minimum cover of 110 percent under CIF and CIP. A different basis of valuation can be agreed with the insurer.

What documents are needed for a cargo damage claim?

The core documents are the policy, commercial invoice, packing list, CMR or bill of lading, delivery document with the damage notation, photos, survey report and the notice of liability sent to the carrier.