Know Your Responsibility: Why Cargo Insurance Matters More Than You Think

Ignorance Isn’t Coverage

Many brands rely on 3PLs to handle their logistics, assuming their goods are insured once they leave the factory floor. This assumption is risky and often incorrect. A common blind spot for importers and exporters lies in the misunderstanding of Incoterms, insurance responsibilities, and the limits of 3PL coverage.

Why knowing your responsibility when it comes to cargo insurance is essential and how failing to do so can stop your supply chain cold.

Incoterms: Define the Risk, Define the Responsibility

Incoterms (International Commercial Terms) define who is responsible for goods at each point in transit and not who insures them. If your Incoterms say FOB, CFR, or DAP, you must understand where your responsibility starts and ends. These terms do not guarantee that insurance is in place during that period, you must arrange it.

Importers often assume suppliers or customers have the correct coverage, but cargo insurance is only valid if explicitly arranged. Relying on someone else’s policy without verifying it leaves your goods and your business exposed.

The Myth of 3PL Insurance

3PLs are not your insurer.

While many 3PLs carry liability coverage, it is:
•   Limited in scope and payout
•   Subject to exclusions
•    Designed to protect the 3PL, not you

3PL insurance is third-party liability coverage, not first-party cargo insurance. If your shipment is damaged, lost, or stolen, you’re often left chasing partial recovery, or none at all.

You need first-party cargo insurance to be fully protected. It travels with the goods, regardless of how many handlers or locations they pass through.

General Average: The Hidden Cost No One Sees Coming

If a vessel experiences a major issue, like a fire, grounding, or emergency jettison, General Average may be declared. This means all cargo owners on board must share the cost of the loss or emergency effort, even if your goods weren’t damaged.

If you don’t have insurance, you’ll be required to:
• Pay a General Average bond out of pocket to release your cargo from the port
• Face delays or total loss if you can’t afford that payment

With proper cargo insurance, the insurer posts the bond on your behalf—keeping your goods moving and your cash flow protected.

Know Your Responsibility

Whether you’re new to importing or scaling fast, don’t assume others have your back. Know what your Incoterms require. Know that 3PL insurance isn’t your coverage. Know that contingent and General Average coverage aren’t optional, they’re essential.

Cargo insurance isn’t just paperwork. It’s your defense against the unexpected

Kelly Rulon, Practice Leader of Retail and Apparel