Many shippers assume that if a carrier loses or damages their cargo, the carrier pays. In practice, carrier liability is limited by international convention, excluded in many circumstances, and slow to recover. And under general average, a cargo owner can be asked to contribute to losses even when their own cargo arrives undamaged.
Carrier liability is limited by law
Most ocean bills of lading incorporate the Hague-Visby Rules. Under them:
- The carrier's liability is capped at 666.67 Special Drawing Rights (SDR) per package or unit, or 2 SDR per kilogram of gross weight lost or damaged, whichever is higher.
- The carrier is not liable for loss arising from a list of excepted perils, including error in navigation or management of the ship, fire (unless caused by the carrier's actual fault) and perils of the sea.
- Claims must be brought within one year of delivery.
The Hamburg Rules, adopted by fewer countries, set higher limits (835 SDR per package or 2.5 SDR per kg). The Rotterdam Rules were designed to modernise the regime but have not entered into force. The conventions are published by UNCITRAL.
For high-value, low-weight cargo, these limits can be a small fraction of the invoice value.
General average
General average is a centuries-old maritime principle: when an extraordinary sacrifice or expense is intentionally made to save a voyage from a common peril, such as jettisoning cargo, fighting a fire or paying for salvage, all parties to the voyage share the cost in proportion to the value of their interest.
When a shipowner declares general average, adjusters calculate each party's contribution under the York-Antwerp Rules (the current version is 2016, published by the Comité Maritime International). Before cargo is released, owners typically must provide:
- a general average bond, and
- security for their contribution, usually a guarantee from their cargo insurer, or a cash deposit.
Uninsured cargo owners must usually pay a cash deposit to release their goods, which can be a significant percentage of cargo value and take years to be finalised. Large casualties, including fires on container ships and high-profile groundings, have led to general average declarations affecting thousands of shippers.
The Institute Cargo Clauses
Most marine cargo policies are written on the Institute Cargo Clauses, published by the London market through the Lloyd's Market Association and International Underwriting Association. The 2009 editions are widely used:
| Clause | Scope | Typical use |
|---|---|---|
| ICC (A) | All risks of loss or damage, subject to listed exclusions | Manufactured goods, most containerised cargo |
| ICC (B) | Named perils, broader than (C), including water ingress and washing overboard | Some bulk and commodity trades |
| ICC (C) | Named major perils only, such as fire, sinking, collision, jettison | Minimum cover, often bulk commodities |
All three cover general average and salvage contributions. Common exclusions include insufficient packing, inherent vice, ordinary leakage and delay, so packaging quality directly affects insurability. Separate war and strikes clauses are usually added.
Insurance and Incoterms
Under CIF, the seller must insure to at least ICC (C) level; under CIP, to ICC (A) level. In both cases the minimum insured amount is the contract price plus 10% (110%). Under other rules, insurance is not an obligation of either party, so buyers purchasing FOB, FCA or EXW need to arrange their own cover from the moment risk passes. See FOB vs FCA for containers and our Incoterms overview.
Practical recommendations
- Insure on ICC (A) terms for most containerised cargo, at 110% of CIF value.
- Check that the policy starts when your risk starts under the Incoterm, including inland legs.
- Describe packaging accurately; poor packing is excluded.
- Keep documents that support a claim: packing lists, photos at stuffing, VGM, and survey reports.
- Notify insurers and carriers immediately on discovering loss, and note exceptions on delivery receipts.
Frequently asked questions
What is general average in shipping?
It is the legal principle under which all parties to a sea voyage share, in proportion to their values, the cost of an intentional sacrifice or expense made to save the voyage from a common danger. It is adjusted under the York-Antwerp Rules.
How much is a carrier liable for lost cargo?
Under the Hague-Visby Rules, liability is limited to 666.67 SDR per package or 2 SDR per kilogram, whichever is higher, and excluded for certain perils such as navigational error.
What is the difference between ICC A, B and C?
ICC (A) is all-risks cover subject to exclusions; ICC (B) and ICC (C) cover only named perils, with (C) the narrowest. All three include general average and salvage contributions.
References
- UNCITRAL, Texts on the carriage of goods (Hamburg and Rotterdam Rules; context on Hague-Visby).
- Comité Maritime International, York-Antwerp Rules.
- Lloyd's Market Association, Institute Cargo Clauses (A), (B), (C) 2009.
- International Chamber of Commerce, Incoterms® rules (insurance obligations under CIF and CIP).
Prepared by the Apex Ocean Lines industry experts and editorial team, checked against the sources cited. Short forms link to our shipping glossary.