Food spoilage is an urgent problem in the global supply chain. In fact, a third of all food produced globally is lost or wasted, totalling more than $35 billion a year.
Ineffective cold chain processes and management cause a considerable share of these food losses. For businesses involved in import and export, ensuring proper insurance for reefer cargo is critical for safeguarding perishable goods and avoiding significant financial losses.
Reefer cargo insurance protects goods that require refrigeration during transport, such as food, pharmaceuticals, and other temperature-sensitive items.
This article explores the importance of reefer cargo insurance, the risks involved, and how businesses can protect their goods during shipping.
Reefer breakdown refers to the malfunction or failure of refrigeration units (reefers) responsible for maintaining the required temperature for specific cargo.
Reefer cargo insurance is a specialised form of marine cargo insurance that covers the risk of loss or damage caused by the breakdown of these refrigeration systems.
It ensures businesses are compensated if their goods spoil or are damaged due to temperature fluctuations during transport.
Reefers, or refrigerated containers, are crucial for transporting perishable goods, such as frozen food, flowers, and medical supplies. These containers are equipped with refrigeration units to maintain the necessary conditions for the cargo.
However, reefers are prone to unique risks such as mechanical failure, improper handling, or power supply issues during Ocean Shipping or freight forwarding. Even a small failure in the refrigeration process can lead to spoilage, resulting in expensive losses.
Using Pazago's real-time cargo tracking and automated document management can help mitigate these risks effectively.
Maintaining refrigeration throughout the transportation process is critical for businesses shipping temperature-sensitive goods.
Any breakdown or malfunction in reefers can lead to delays in shipment inspection, cargo rejection, or even health risks if the goods are meant for consumption.
That’s why reefer cargo insurance is vital—it covers the loss and mitigates the risk of significant financial damage to companies involved in supply chain management.
Now, let's dive into the nitty-gritty of what reefer cargo insurance covers.
Refrigerated goods are especially vulnerable to damage; even a small temperature change can cause significant losses. The FAO estimates that 30-40% of total food production can be lost before it reaches the market due to improper input use and a lack of proper post-harvest storage, processing, or transportation facilities.
This highlights the critical need for reefer cargo insurance to protect perishable goods in transit and mitigate significant financial losses.
Reefer cargo insurance protects against the risks of transporting temperature-sensitive goods. This insurance covers many claims, from mechanical failures to temperature deviations, ensuring businesses involved in import and export, freight forwarding, and logistics can safeguard their perishable shipments.
Here’s a breakdown of the key coverage details under reefer cargo insurance:
One of the most common claims under reefer cargo insurance involves temperature deviation. A sudden spike or drop in temperature during transit can spoil goods such as frozen food, pharmaceuticals, or flowers.
Reefer insurance covers losses from these deviations, ensuring businesses maintain quality control from shipment to delivery.
Delays during Ocean Shipping or freight forwarding can result in perishable goods deteriorating beyond use. Reefer insurance offers protection for losses due to prolonged transit times, giving businesses peace of mind even during unexpected delays.
Reefer cargo insurance covers mechanical breakdowns, such as refrigeration system failures, which can lead to cargo spoilage. This insurance ensures coverage for losses from faulty equipment, whether due to improper maintenance or unforeseen system malfunctions.
Sometimes, human error during shipment inspection or loading can result in improper temperature settings for reefer containers. Reefer insurance covers damages caused by incorrect temperature settings, preventing businesses from suffering costly mistakes.
Poor ventilation can cause condensation and spoilage, particularly in refrigerated containers. Reefer insurance compensates businesses for cargo damage caused by insufficient airflow during transit.
Contamination can occur due to improper handling, spreading mould, bacteria, or other hazardous substances that spoil the cargo. Reefer insurance covers contamination claims, protecting businesses from financial losses due to tainted shipments.
Controlled atmosphere containers are designed to regulate the internal environment by managing gas levels. Reefer cargo insurance ensures protection in the event of incorrect atmosphere control, which could spoil fruits, vegetables, or other sensitive goods.
Poor packaging or improper stowage can damage cargo even with the best refrigeration. Reefer cargo insurance covers losses due to inadequate packaging, ensuring businesses aren’t left with uncompensated losses due to improper handling.
Reefer cargo insurance also provides protection against shortages or theft, a common issue in logistics. Whether the goods are lost in transit or stolen at a port, this coverage ensures businesses are compensated for their losses.
Condensation, or "sweat damage," occurs when temperature changes cause moisture to form inside the reefer container, potentially spoiling goods. Reefer insurance covers this type of damage, preventing spoilage from excess humidity.
Many reefer containers have humidity controls to maintain the ideal moisture level. If these controls are misused, it can lead to damage or spoilage of goods. Reefer cargo insurance covers claims arising from incorrect use of humidity controls.
Power failures during transit can result in the refrigeration system shutting down, exposing perishable goods to unsafe temperatures. Reefer insurance covers the financial impact of power outages during the shipment process.
Controlled-atmosphere reefers depend on accurate gas levels to keep the cargo fresh. If gas levels are incorrect, it can lead to spoilage. Reefer cargo insurance covers losses from incorrect gas levels, especially when shipping fruits or vegetables.
Reefer malpractice refers to improper handling or operational errors made by the carrier. Reefer cargo insurance protects against damages caused by such errors, ensuring businesses aren’t left to cover the costs of carrier mistakes.
Pazago's collaboration with ICICI Lombard provides a seamless digital insurance process to secure your perishable goods throughout transit.
But hold on, it's not all covered—here's what you need to watch out for in typical reefer cargo insurance policies.
While reefer cargo insurance provides comprehensive protection for refrigerated goods, certain exclusions can leave businesses vulnerable to unexpected losses. Claims for specific items such as meats or pharmaceuticals are often not covered under standard reefer policies.
These exclusions can impact coverage when transporting high-risk goods, and knowing what’s not covered can help companies make informed decisions when managing perishable shipments.
Reefer cargo insurance policies often exclude high-risk goods such as meats, fresh seafood, and pharmaceuticals. These items are susceptible to temperature fluctuations, and due to the increased risk of spoilage, insurance providers may refuse to cover them under standard marine cargo insurance.
Example: A company shipping fresh seafood might find that their reefer cargo insurance policy doesn’t cover the shipment, especially if there’s a higher risk of spoilage due to extended transit times.
For businesses handling such high-risk products, additional specialised coverage may be required to ensure protection during Ocean Shipping and freight forwarding. If your company frequently ships temperature-sensitive goods, you must check your shipping insurance policy to understand any exclusions that apply.
Delays are expected in supply chain management, especially during international shipping. However, many reefer cargo insurance policies exclude claims related to delays unless there’s a direct mechanical breakdown or other covered event.
Similarly, negligence—such as improper handling or incorrect shipment inspection—is often excluded from coverage.
If a shipment is delayed at a port due to paperwork issues, the resulting spoilage may not be covered under reefer cargo insurance.
Additionally, if negligence is proven, such as failing to maintain proper refrigeration settings, the insurance company may reject the claim.
Businesses must comply with proper handling procedures and avoid unnecessary delays to avoid potential claims denials. Proactive planning and communication within the logistics chain are critical for minimising the impact of delays and negligence on refrigerated shipments.
Another common exclusion in reefer cargo insurance involves spoilage caused by improper temperature settings or tampered seals. The insurance company may not cover the claim if the goods are damaged due to human error, such as incorrect refrigeration settings.
Similarly, if tampering is detected—intentionally or accidentally—this could lead to a denied claim.
Example: If the refrigeration unit was set too high or too low for the goods being transported, the resulting spoilage, mainly caused by the shipper's or handler’s mistake, could be excluded from coverage.
This exclusion highlights the importance of thorough training and careful shipment inspection procedures. Businesses must ensure that reefers are properly monitored and sealed to maintain the shipment's integrity. Regular checks and documentation are essential to avoid costly claims rejections.
Knowing what's excluded is eye-opening, right? Now, let's talk about what drives the cost of this essential insurance.
Did you know the global cold chain logistics market is expected to reach $585 billion by 2027? As businesses rely more on refrigerated transport, understanding the cost factors and deductibles in reefer cargo insurance is essential for protecting temperature-sensitive shipments.
The cost of reefer cargo insurance depends on several factors, including the type of goods being shipped, the route, and the deductible chosen.
Pazago's cost-effective solution and robust risk management practices can help optimise insurance costs while ensuring maximum coverage.
A deductible is the amount the policyholder must pay out of pocket before the marine insurance policy kicks in. Choosing the right deductible can significantly impact your premium and the overall cost of reefer cargo insurance.
We've covered costs, but the claims handling process can be a real maze—let's navigate that next.
In today's complex supply chain management, ensuring optimal storage conditions and timely delivery is paramount.
However, managing claims related to reefer cargo insurance can be challenging due to various factors, such as temperature fluctuations, mechanical failures, and human error. Below, we explore the key challenges and solutions in handling reefer cargo claims.
Maintaining the correct temperature throughout the transportation process is critical for refrigerated cargo. Marine cargo insurance often faces claims when goods are damaged due to temperature discrepancies. Proper temperature management involves setting the “set-point” at the right level based on the cargo’s needs.
Understanding and monitoring these factors can prevent insurance claim letters for reimbursement from becoming common.
Accurate documentation is vital in supporting marine insurance policy claims and avoiding disputes. Reefer cargo claims require detailed paperwork to prove the cause and extent of damage.
Proper documentation supports claims and reduces the risk of legal disputes, ensuring that freight insurance providers and stakeholders have the necessary information.
Pazago's efficient document management system can play a pivotal role in maintaining accurate documentation, making the claims process smooth and quick
Refrigerated containers require consistent maintenance to avoid issues like faulty refrigeration and inadequate air circulation. Proper maintenance ensures that the cargo stays in optimal condition during transit.
Despite preventive measures, mechanical failures can still occur. Reefer containers rely on refrigeration systems that are prone to breakdowns. When these systems fail, perishable goods are at risk, leading to marine insurance claims.
Human error is an unavoidable challenge in the reefer cargo process. Mistakes, from incorrect temperature settings to improper cargo loading, can have significant financial impacts.
Taking simple precautions, such as double-checking settings and ensuring proper communication, can minimise the risk of cargo damage and subsequent import-export insurance claims.
Pazago’s automated notifications and proactive planning can significantly reduce human errors.
When cargo is compromised, prompt action is critical to mitigate further losses. Claims handlers must evaluate the situation swiftly to protect the client’s interests.
Marine surveyors are critical in investigating claims related to reefer cargo. They assess the cargo's condition and determine the cause of the damage.
Legal considerations play a vital role in handling reefer cargo claims. Claims handlers must be familiar with relevant laws and regulations governing marine insurance.
Managing claims can be a headache, where solutions like Pazago come into play.
Pazago is designed to simplify and streamline EXIM management for businesses around the globe.
Supporting operations in over 110 countries, Pazago ensures smooth trade processes while delivering a 20% cost saving and a 50% reduction in turnaround time (TAT).
In collaboration with ICICI Lombard, Pazago ensures your refrigerated shipments are safeguarded against various risks. Here’s what you get:
Peace of mind through protection" 🛡️—that's what Pazago delivers. Beyond streamlining global trade, Pazago cargo insurance shields your perishable goods from every risk during transit. 🌍
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