Do You Need Cargo Insurance? What the Carrier Owes You If Your Shipment Is Lost

Your freight forwarder asks whether you want insurance. It sits on the quote as a few hundred dollars, and it is the easiest line on the page to say no to.

Then a container goes missing and you find out what the shipping line owes you. It is not what your stock cost.

Do you need cargo insurance to import into Australia?

No. Nothing obliges you to buy it. Your freight will move without it and your goods will clear customs without it.

Buy it anyway on almost any order worth more than a few thousand dollars.

The reason is not the odds of total loss, which are small. The World Shipping Council counted 1,478 containers lost at sea in 2025, against roughly 280 million shipped. The reason is the payout. When cargo is lost or damaged, the shipping line's liability is capped by a formula built on weight, not on what your goods are worth. For light goods with a high value, which is most of what product businesses make, that cap pays out cents in the dollar.

What does the shipping line actually owe you if your cargo is lost?

Open your bill of lading and find the clause paramount. It names the rules that govern the carriage, usually the Hague-Visby Rules, and those rules cap the carrier's liability.

The cap is 666.67 SDR per package, or 2 SDR per kilogram of gross weight, whichever is higher. SDR is an IMF unit of account. In October 2026 one SDR is worth about AU$1.95.

In plain money, that is roughly AU$1,300 a package or AU$3.90 a kilogram, whichever gives the bigger number.

That is a ceiling, not an entitlement. You still have to prove the carrier caused the loss, and the rules hand the carrier a long list of defences including perils of the sea, fire and insufficient packing.

Why per package probably means your whole container

Here is the part that catches people out.

If your bill of lading lists the packages inside the container, each one counts. Twelve hundred cartons at 666.67 SDR each is a cap so high it stops mattering.

If the bill does not list them, the container itself is the package. One package.

Australian courts read this strictly. In the El Greco case, a bill describing a container as said to contain 200,945 pieces of posters and prints was treated as a single package, because it never said how those pieces were packed. English courts have since gone the other way. El Greco is still the position here.

So ask your forwarder to have the carton count stated on the bill of lading. It costs nothing and takes one email. Even then the per kilogram figure usually does the work, because it acts as a floor.

A worked example on a $48,000 order

Three hundred cartons of apparel and accessories. Gross weight 480 kg. Invoice value AU$48,000, with another $4,500 of freight and duty you have already paid.

The container goes over the side in heavy weather.

With no insurance, your claim against the carrier is capped at the higher of:

• 666.67 SDR for one package, about AU$1,300
• 2 SDR times 480 kg, which is 960 SDR, about AU$1,870

So AU$1,870, against $52,500 of money out the door. And heavy weather is one of the carrier's listed defences, so the realistic recovery is closer to nothing.

Now price the cover. Policies are written on invoice value plus a 10 per cent uplift, so $52,800 insured. Single transit rates run roughly 0.1 to 1 per cent of insured value depending on the goods, the route and who packed them. At 0.35 per cent that is $185, and most insurers hold a minimum premium, so single transit cover often starts nearer $300.

Three hundred dollars against $52,800. That is the entire decision.

LCL changes the maths against you. Your cartons are handled more times and share a container with freight you did not pack, so damage and pilferage are both more likely. If you are still choosing, we have compared LCL and FCL properly.

Doesn't my supplier's insurance cover me?

Check your Incoterm before you assume it does.

• FOB. Risk passes to you when the goods are loaded on board at the origin port. Everything after that is yours.
• CIF. The seller must insure, at 110 per cent of invoice value, but only to Institute Cargo Clauses C. That is the narrowest cover sold. It names a short list of perils, and water damage inside a container is not one of them.
• CIP. The seller must buy Clauses A, which is all risks. CIP is rare on orders out of Asia.
• EXW and FCA. You carry the risk from the factory gate or close to it.

Buying CIF and never asking for the certificate means relying on a policy you have not read, bought by someone with no reason to make it generous, with claims handled in another country. Our guide to Incoterms covers where each one moves the cost and the risk.

What is general average, and why can it cost you money when your cargo is fine?

This is the one almost nobody plans for.

If a ship's master sacrifices cargo or spends extraordinary money to save the voyage, every cargo owner on board shares the cost in proportion. It is a maritime principle, not an insurance product, and it applies whether or not your goods were touched. Once general average is declared, the carrier can hold your containers at destination until you post security for your share.

After the Maersk Honam fire in 2018, cargo owners had to post 54 per cent of their cargo value to get containers released. That was 42.5 per cent salvage security plus an 11.5 per cent general average deposit. Undamaged cargo included.

With a policy, your insurer provides that guarantee. Without one, you fund it from working capital, in cash, before you see your stock. Whether your business could absorb that is a cash flow question before it is a freight one, and Kristy covers how cash actually moves in a product business.

What does cargo insurance not cover?

A standard all risks policy is Institute Cargo Clauses A. All risks means everything except the exclusions, so the exclusions are the part to read.

• Delay. Loss of market because your stock landed late is never covered, even when an insured event caused the delay.
• Inherent vice. Goods that deteriorate on their own in the ordinary course of the voyage, with no external accident involved.
• Insufficient packing. Narrower than insurers imply. The exclusion only applies where you or your own employees did the packing, and only where that packing was the dominant cause of the loss. Your factory is an independent contractor, so a claim refused on packing grounds is worth challenging.
• Wilful misconduct, unseaworthiness you knew about, and the standard war and strikes carve-outs, which you can usually buy back.

Two deadlines matter more than the exclusions. Most forwarder and policy wordings require written notice of damage within three to seven days of delivery. Court action against a carrier under Hague-Visby has to start within one year. Both clocks run quietly while you are still negotiating with the factory.

So photograph everything at unpack, before anything moves. Container number, the seal, the pallet as it sits, the damage, the carton labels. What good evidence looks like upstream is in our pre-shipment inspection guide.

When is cargo insurance not worth buying?

There are real cases.

• Samples by courier worth a few hundred dollars. The minimum premium eats a large share of the goods value.
• Low value, high weight orders. Cement, tiles, raw timber. The 2 SDR per kilogram cap can land above your invoice value, so the carrier's exposure already covers you.
• Stock you could replace inside your reorder cycle with no lost sales.

Everything else, insure it. Light and valuable is the danger zone, and that describes apparel, jewellery, electronics, cosmetics and most homewares.

How do you actually buy it?

Three routes.

• Through your freight forwarder or customs broker. Easiest, usually a tick box on the quote. Check what you are being sold. Some forwarders offer liability cover, which protects them rather than you.
• Through an insurance broker as a single transit certificate. Right for an occasional importer.
• An annual marine cargo policy. Right once you ship regularly. Priced on your whole shipping profile rather than per shipment, and usually cheaper per dollar shipped.

Whichever route, get these right on the certificate:

• Cover to Institute Cargo Clauses A, not B or C.
• Insured value at invoice plus freight plus duty plus 10 per cent. Insuring the invoice alone leaves the freight and duty uninsured, and you have already paid both. If you are not sure what that number is, start with our landed cost method.
• Warehouse to warehouse, so cover runs to your door or your 3PL, not to the wharf.
• General average and salvage charges included.
• The excess in writing, and whether it applies per shipment or per claim.
• The insured named in your trading entity, matching the name on the commercial invoice.

Insurance is one more line on a freight invoice that is already longer than your quote. The rest of those lines are explained in our piece on destination charges.

The checklist before your next shipment

• Incoterm confirmed, and you know exactly where your risk starts.
• If you bought CIF, the seller's certificate read and the clauses named.
• Carton count enumerated on the bill of lading, not just total pieces.
• Cover written to Institute Cargo Clauses A.
• Insured value includes freight, duty and the 10 per cent uplift.
• Warehouse to warehouse, general average included.
• Excess known before you ship.
• Claims notice window diarised against your expected delivery date.
• Unpack photographed before anything is moved.

Most of that is one email to your forwarder before the booking is confirmed.

We are in China for Canton Fair Phase 2, 23 to 27 October, and Phase 3, 31 October to 4 November. Freight terms come up at almost every factory table. If you want someone to run the shipping terms and the paperwork on your next order, book a call.