Ship Fire Destroys Rp 40 Billion in Cargo! Can Insurance Cover It?

Ship fires are one of the most frightening risks in the shipping industry. Once a fire breaks out at sea, it’s extremely difficult to extinguish. Not only can the ship be destroyed, but so can its cargo, worth tens of billions of rupiah.

Many cargo owners think that fires at sea are rare. In fact, data from Allianz Global Corporate & Specialty shows that more than 15% of total losses in the maritime sector are caused by ship fires. If you have a high-value cargo, for example, worth IDR 40 billion, and don’t have cargo insurance coverage, the potential loss could be devastating.

This article discusses the risk of ship fires, which can cause losses of up to tens of billions of rupiah. It explains the Fire and Explosion Coverage in cargo insurance policies, and the role of insurance brokers in ensuring your protection is intact. L&G Insurance Broker, an insurance broker located in South Tangerang, is ready to be your strategic partner in maritime logistics risk management. And before a major risk hits your business, Contact L&G Insurance Broker now at 08118507773 for free consultation before any risk occurs.

Fire Risk in Ports and at Sea: A Threat to Billions Worth of Cargo

Ship fires can occur anywhere—whether docked in port or sailing at sea. This risk must be thoroughly understood by cargo owners and exporters in the shipping industry.

A. Sources of Fire Risk in Logistics

In ports, fires often originate from chemicals, short circuits, or human error during loading and unloading. At sea, fires are usually caused by engine failure, fuel leaks, or explosions in cargo holds carrying dangerous goods. Ship fires are unpredictable and can spread rapidly at sea, far from assistance.

For example, in 2023, a container ship caught fire in Singaporean waters for 14 hours. Hundreds of containers worth over Rp150 billion were completely destroyed. Not all cargo owners were successful in filing claims, as some lacked cargo insurance specifically covering fire risks.

B. Double Loss and General Average Risk

• Without a marine cargo insurance policy, the owner of the goods not only loses the value of the cargo, but also has to bear large additional costs, such as:
• Evacuation and Cleaning of Ship (General Average): This is a maritime legal risk where all cargo owners on the surviving ship must share the losses (salvage charges and cleaning costs) in proportion.
• Cargo Detention: If a general average risk is declared, your cargo will be held at the port (lien on cargo) until you provide security or cash (cash deposit).
• Demurrage Costs at Port.

• Legal costs resulting from late delivery or contract disputes.

All of this can add up to billions of rupiah beyond the value of the lost cargo. This is why cargo insurance is mandatory protection.

Fire and Explosion Coverage in Cargo Insurance Policies

One of the most important protections in marine cargo insurance is Fire and Explosion Coverage — which is a guarantee against loss or damage to goods caused by fire or explosion during transportation.

A. Fire Protection Coverage Details

• This coverage covers risks at various stages of logistics:
• Fire on a Ship or Transport Truck: For example, a ship’s engine catches fire and spreads to the cargo, which is a guaranteed risk.
• Chemical Explosion: This situation is common on ships with flammable cargo, where the policy must cover the risk of explosion (Fire and Explosion Clause).
• Damage Due to Fire Extinguishing: Goods can be damaged not by fire, but by the extinguishing water or chemicals used, and this is covered under the warranty.
• Fire in Port Before Departure: If it occurs before the ship sails, the policy can still cover the loss as long as the coverage period has started (Warehouse to Warehouse Coverage).

B. Policy Limitations and the Need for Insurance Broker Guidance

It’s important to note that not all cargo insurance policies automatically cover fire. Some policies are limited to damage caused by physical accidents, not fire or explosions (Named Perils Policy). Policies also have strict exclusions, such as:

• Inherent Vice (Cacat Ada): If the cargo catches fire due to its own nature (for example, an unstable chemical reaction in goods not declared as dangerous).
• Undeclared Dangerous Goods: Claims may be rejected if the exporter does not properly declare dangerous goods, violating shipping regulations.

This is where it is important to have guidance from an experienced insurance broker to select the right policy and ensure compliance.

Strategies to Ensure Your Policy Covers Major Risks

As a cargo owner or exporter, you can’t simply purchase a standard policy without understanding the details of the coverage. There are several important steps to ensure your policy truly covers the risk of ship fire:

A. Verify Policy Type and Coverage Amount

• Choose All Risks Marine Cargo Insurance: Make sure you have All Risks Marine Cargo Insurance (ICC A), not a Named Perils Policy (ICC C). An All Risks policy covers almost all types of risks, including fire.
• Check Fire and General Average Clause: Look at the Fire and Explosion Clause section and ensure that the General Average contribution guarantee is included, which is crucial for cargo shipments worth IDR 40 billion.
• Ask for Accurate Coverage: Make sure the policy covers the full value of the cargo, plus shipping costs and potential profit (CIF + 10%), to avoid underinsurance.

The Role of Insurance Brokers in Protection Validation

Insurance brokers like L&G Insurance Broker have the ability to analyze policy terms, compare premiums, and ensure you don’t miss out on important clauses like Fire and Explosion Coverage. Without proper guidance, many property owners only realize their coverage gaps after an incident occurs—when it’s too late.

Real Case Study: Rp40 Billion Loss in a Single Incident

Imagine a manufacturing company shipping industrial machinery worth Rp 40 billion overseas. The shipping vessel experiences a fire in the engine room due to a short circuit. The fire quickly spreads to the container where the machinery is stored, and the entire cargo is destroyed.

A. Scenarios With and Without Insurance

• With Marine Cargo Insurance (ICC A): Losses of IDR 40 billion can be covered by the insurance company, including General Average and Salvage Charges.
• Without Insurance: The entire value of the cargo would be lost — including significant additional costs, such as re-shipping costs for replacement goods, delay penalties from overseas buyers, and the loss of future business contracts.
• The total financial losses suffered could exceed IDR 45 billion if calculated with the domino effect on business reputation and operations.

B. The Importance of a Quick General Average Guarantee

The process of salvaging a burning ship is costly. When a general average risk is declared, an insurance broker immediately issues a General Average Guarantee (written guarantee) to the shipowner. This guarantee replaces the billions of rupiah in cash that exporters must urgently provide to secure their cargo from port detention. Without brokers, exporters would face a severe liquidity crisis.

The Role of Insurance Brokers in Underwriting Fire Claims

Often, exporters or cargo owners don’t understand the technical details of the insurance policies they purchase. This is where cargo insurance brokers play a crucial role as client advocates.

Brokers like L&G Insurance Broker are responsible for:

• Review each clause in the policy to ensure maximum coverage, especially fire, explosion and general average risks are covered.
• Assisting customers in the claims process quickly and efficiently, including collecting evidence and required technical reports (survey reports).
• Negotiate with the insurance company to ensure that the compensation received matches the actual value of the cargo, avoiding disproportionate deductions.

With extensive experience in the international logistics and shipping industry, L&G has handled a wide range of major claims, from ship fires to total losses. This kind of broker support ensures that clients not only purchase a policy but also receive real protection when disaster strikes.

Proactive Risk Management (Loss Prevention)

Insurance brokers also provide proactive risk management (loss prevention) services to exporters. For fire-prone cargo (such as chemicals or products with inherent risk), brokers provide advice on:

• Stowage and Cargo Segregation: Recommendations for cargo placement to avoid sources of fire or heat.
• International Standard Packing: Ensure that the packaging of goods meets insurance requirements so that claims are not rejected.
• Dangerous Goods Declaration: Guiding exporters to declare dangerous cargo in accordance with IMO (International Maritime Organization) regulations, which is a primary prerequisite for the policy to remain valid in the event of a ship fire.

Conclusion

A ship fire is no small risk; with cargo valued at Rp40 billion or more, the loss of a single shipment can be devastating to a company’s financial stability. These losses stem not only from the value of the lost cargo but also from the general average costs that can freeze the surviving cargo. Cargo insurance coverage that includes Fire and Explosion Coverage and general average risks is a mandatory financial safeguard for cargo owners in the shipping industry.

Marine cargo insurance is complex, and choosing the wrong policy (such as choosing ICC C instead of the comprehensive ICC A) can have dire consequences in the event of a ship fire. Professional insurance brokers like L&G Insurance Broker, located in South Tangerang, ensure your policy is in good condition, covers all major risks, and most importantly, issues a quick General Average coverage. Partnering with a broker ensures claims are resolved quickly and transparently.

Don’t wait until the risk of a ship fire actually affects your cargo worth tens of billions of rupiah. Secure your business and assets now.Contact L&G Insurance Broker now at08118507773for a free consultation before the risk and get the best cargo insurance solution that guarantees real protection amidst the high risks of the shipping industry.