Asian risks report: Logistics insurance in China
With one of the best integrated infrastructure networks in the world and a powerful industry, China has become in recent years the busiest logistics hub in the worldwide. For domestic and foreign companies wanting to export, there are several options for logistics insurance in China. Logistics liability insurance for international shipping will usually cover air and sea freight, while domestic logistics will usually be delivered by trucks and trains. The logistics insurance market in China being dominated by an oligopoly of a few major insurers, it is important for companies to understand the coverage of basic insurance plans to make the best decision when it comes to logistics insurance. Foreign insurance companies usually provide tailor-made policies, covering both single shipment and project cargoes as well as extraordinary freight solutions. Domestic companies tend to offer insurance services very similar to each other. In this article, we give you key information on how logistics insurance works in China.
Overview of the market of logistics insurance in China
China mainly applies its own national legislation, the Contract law of the PRC, to transport contracts in China, unless a more specific law demands application. However, most of the local regulations incorporate several aspects of the international transport liability regimes for shipping goods. This means that despite the fact that logistics liability rules in China are being dictated by PRC’s law, liability for international freight is still determined by incoterms like in most other countries. When outsourcing transportation however, it is important to bear in mind that freight forwarders and professional carriers are not fully liable for any damage or loss. If the value of your shipment exceeds the maximum amount of compensation they are required to pay, it would make sense to opt for signing a cargo insurance policy. This category of logistics insurance can cover both domestic and international shipping and applies to any kind transportation (air, land, sea, and multimodal).
How to mitigate risk for domestic cargo?
Freight risk is positively correlated to cargo traffic: The risk increases during low season and decreases during high season, especially on occasion of Chinese New Year and around China National Day. Approximately 72% of road freight accidents in China is due to drivers’ irresponsible behavior, fatigue driving or vehicle blind spots. 26% are caused by weather and road conditions, and also natural disasters such as floods and typhoons that are common during the summer in the south-east of the country. Insurance policies covering freight transport within the country provided by large domestic companies present overall the same main clauses, what changes are the additional clauses shielding policy holders from losses and accidents during special transports. Since most risks are tied to road transports, it is advised to contract a comprehensive plan insuring cargo in their totality (rather than just a fixed amount or a liability percentage). Although more costly, this kind of plan allows for companies to be paid in full in case of loss.
Available solutions for international shipping from China
China’s marine and air insurance segments are among the fastest growing both at a regional and at global level. As part of a plan to convert Shanghai into a marine insurance center, marine cargo, air cargo, marine hull and marine liability policies issued there are exempt from business tax and local tax surcharges. Domestic insurance companies tend to offer similar policies and have a limited amount of additional coverage, leaving great room for maneuver to foreign companies. Overall, insurance companies either propose tailor-made solutions for a company’s logistics needs or have the option to add clauses to their standard offers depending on which type of cargo needs to be shipped. When picking your international freight insurance policy, make sure that all steps under your responsibility as per the incoterms rules of your contract are covered: some insurers’ policies do not cover delivery from ports to the final destination for example. That is why ad-hoc insurance policies are usually best for international shipping.
For more information about logistics insurance in China, take a look at our report made in collaboration with Daxue Consulting
Key takeaways about logistics insurance in China
- As a major logistics hub in the World, China has seen its offer in logistics insurance policies expand both in number and variety in recent years.
- Although the liability is defined by the PRC’s law, almost all clauses are identical to international cargo law standards.
- On land, almost all losses of cargo are caused by drivers’ recklessness or by extreme weather conditions.
- It is recommended to take extra insurance to cover fully the transported cargo against losses and also against shipment delays, which can be very costly to any business.
- Domestic insurance companies offer more standardized insurance products while international insurers offer customized insurance policies.
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