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Why do you need transportation insurance when shipping from China, and how do you even get one? These, and many more questions, are answered in this guide on Shipping Insurance When Importing from China.
Keep reading, and learn more about how you can get your cargo insured, how much it costs – and how you can file an insurance claim.
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Why sea freight insurance is critical when buying from China
Transportation damages are more common, when shipping from China, than many business owners might actually think. Cargo is not handled gently, be it in the factory floor, the port of loading in China – and the port of destination.
Whenever they do occur, a transportation insurance, covering damages, is the only thing that will keep your business above the water. If you don’t sign a shipping insurance policy, you cannot claim compensation.
How you can get your cargo insured
There are various ways you can get your cargo insured. The table below explains two ways you can obtain insurance:
a. Order a CIF shipment
The CIF incoterm is shortening for Cost, Freight and Insurance. By definition, when you buy cargo according to CIF terms (which includes transportation from the factory to the Port of Destination), your cargo is insured.
However, you should ask your supplier for a copy of the insurance policy.
b. Order shipping insurance through your freight forwarder (Recommended)
Buying insurance through the forwarder offers more transparency and control. First, you can request the insurance that specifically covers everything from inland transportation in China, to loading, sea freight and unloading.
Insurance is, as mentioned, ‘by default’ included in the CIF. If you choose any other incoterm, you must communicate, either with your supplier or freight forwarder (or both, depending on your shipping arrangement), that your cargo must be insured.
Freight insurance cost calculation
There’s no valid reason why you should ever consider opting out of freight insurance. All you need to do is to basically tell your forwarder that you want your cargo insured, and pay a small fee, based on your order value.
Normally, the cost of the insurance is set at around 0.5% to 0.6%, of the cargo value. Below follows an example:
Insurance Cost = ((Cargo Value + Transportation Value) x 10%) x 0.5%
Insurance Cost = (CIF Value + CIF Value x 10%) x 0.5%
Filing a freight insurance claim
Assuming you are buying regularly from China, the risk is quite high that you will, at some point, need to file a compensation claim.
The good thing is that it’s relatively simple and straightforward to file a compensation claim. In addition, the insurance companies normally offer quick payments.
Now, the first thing you must do when receiving your cargo is to check for potential transportation damages. If any damages are found, you must quickly, preferably within 24 to 48 hours of receiving the cargo, provide the following information to your freight forwarder:
- Images and video, documenting the damaged units and packaging
- A list of damaged products, quantity and the value of each damaged unit
- Proof of value (i.e., Proforma Invoice and Commercial Invoice)
- Proof of receiving the cargo (i.e., a receipt)
As such, you may receive compensation for a certain amount of damaged cargo, or the entire shipment – depending on the damaged quantity.
Normally, the freight forwarder can help you handle the claim, which means that you don’t need to deal with the insurance company. Once they’ve filed the compensation claim, you can expect a payment directly to your business bank account, within 1 to 3 weeks.
However, this can prove to be more complicated, if you allowed the supplier to book your shipment, as they may not be accustomed to managing insurance claims. I’ve seen plenty of situations where Chinese suppliers simply tell their customers to sort it out themselves.
Air Freight Insurance
The focus of this article is on sea freight. That said, the points made in this article also apply, to a large degree, to air freight insurance. While the risk of transportation damages may be slightly lower when importing goods by air, there’s no good reason to why you shouldn’t get your air cargo insured.
Insurance does not cover quality issues caused by the supplier, or lost sales
Transportation insurance only covers damages occurring during transportation. While it may be obvious to many of you, I still want to highlight that insurance never cover quality issues and damages, caused by the supplier.
As such, an insurance is not a replacement for a proper quality assurance strategy, including pre-shipment quality inspections.
Worth mentioning is also that transportation insurance may not cover the freight cost. Hence, you will only be compensated for the damaged cargo value (i.e., FOB price). Hence, you’ll lose the money paid for shipping.
However, that’s not the worst thing. A damaged shipment, in full or part, can ruin any business. As you’ll lose out on months of sales, until you can get a replacement shipment, it may spell the end for your business – even with an insurance payout.
Why you should invest in high quality export packaging
The best way to avoid the situation described, is to prevent transportation damages to begin with. While I still insist that you should get a shipping insurance, what truly matters is that your cargo is protected by high quality packaging from the very beginning.
Many Chinese manufacturers lack internal guidelines for export packaging. As always, this means that you are responsible for providing explicitly clear export packaging requirements, and verifying that these are followed.
So, what is high quality export packaging? As always, it depends. That said, it often looks something like this:
- Inner Cartons: 5 layers
- Outer Cartons: 5 layers
- Protective Plastic: Yes (Outer Cartons)
- Pallets: Yes (ISPM 15)
Protecting your shipment is even more important if you, like many other importers, ship the products directly to an Amazon warehouse – without checking the cargo before distribution.
Do you need help with shipping and customs?
We know how hard it is to understand the shipping and customs process, especially if you have never imported from Asia before. To help startups get a grip on the process, and avoid scams and overcharging shipping agents – we created the Starter Package:
a. Tutorials, Video Walkthroughs and Task Lists that guide you step-by-step through the entire shipping and customs process
b. Import duties, taxes and calculation examples for the US, Europe, Australia & more
c. Licenses, permits and how to obtain the required documents for the US, Europe, Australia & more
In addition, you can also book quality inspections, lab testing and shipping directly from the platform. Click here to learn more.