For many Canadian shippers, the most dangerous part of moving goods overseas isn’t the storm, the machinery or the distance – it’s what they think is covered.
Michael Wright (pictured), head of marine at HDI Global SE – Canada, says the risk profile of ocean and air cargo is fundamentally different from inland transit, yet many cargo owners still treat them as interchangeable from an insurance perspective.
“The biggest risk here is the absolute risk of total loss,” he said. “When you look at moving goods by ocean or by air, you have to keep in mind that a vessel is essentially a massive building that floats, that’s what it is.”
Keeping that “building” safe is far from simple.
Wright said a ship depends on numerous mechanical systems to stay safe at sea – from managing ballast tanks and bilge pumps to navigation and tracking bad weather – and once it is in open water, there is a significant risk of loss, noting that vessels that lose power can be lost very easily.
Air cargo risk is even more binary.
“Heaven forbid, if an aircraft were to crash, there is no partial loss,” he said. “It is, it’s a catastrophic loss.”
Beyond straightforward physical loss, ocean shipments carry a uniquely maritime exposure that many non‑specialists still underestimate: general average.
Wright explained that general average is a maritime concept that applies when a vessel gets into trouble and has to take extraordinary measures to save both the ship and its cargo; in those situations, all cargo interests are required to share in the resulting costs.
To enforce that contribution, shipowners have significant leverage.
“In order to force the cargo interest to do that, the vessel owner has the right to put a maritime lien on that cargo. In other words, they can hold on to the cargo,” he said.
Cargo owners then need to post security before their goods are released.
“The cargo owners need to come up with a financial guarantee. It’s either a letter of credit, cash, or an insurance policy. The insurance policies that you can purchase can include coverage for a maritime lien, so that they can release their cargo and the cargo can continue on,” Wright said. “That is a very unique, yet high level of risk available to the clients.”
Despite that complexity, Wright still sees many companies assuming their existing arrangements will protect them on international movements.
“Many clients will rely on their inland cargo policies, assuming that they are transferable to international ocean shipments. And that’s the failure,” he said. “I’ve worked as a broker for a good portion of my career and we’ve come across that a lot, where people would just assume they had the coverage.”
Bills of lading can create a similar sense of security.
Wright said many cargo owners rely on bills of lading for protection, even though a bill of lading is fundamentally a contract of carriage that sets out the rights, responsibilities, limits and exclusions for all parties involved in that shipment.
Those limits matter. Carriers’ liability is often capped by weight or package.
Wright illustrated the point with a simple example: a container of goods shipped to Germany via an ocean carrier. In that scenario, he noted, the carrier’s liability is capped by the contract, typically using either a per‑package limit or a formula based on the cargo’s weight, depending on what has been agreed.
Shippers often skim the paperwork and draw the wrong conclusion.
“They will issue a document, people will read that document, and they’ll just go, ‘Well, I guess the carrier is going to insure this for me, I don’t have to worry about it,’” Wright said. “It’s only when they have a claim that they recognize they don’t.”
For Wright, the most persistent risk trend is not a new peril or a novel fraud – it’s a mindset.
“That’s one of the biggest trends is the assumption of who’s covering what,” he said. “I’ve been in the business for over 30 years. I see it all the time. People make the assumption, and that’s the risk, I would say, is the assumption of coverage.”
In a market where more Canadian trade is expected to move by sea and air, that assumption could become increasingly costly.
