Calculating the Potential Financial Loss If a Cargo Worth IDR 10 Billion is Uninsured

In the import-export business, every sea voyage is not just a shipment of goods, but also a significant gamble involving a company’s capital and reputation. The value of the cargo shipped can reach tens of billions of rupiah, with the potential for unforeseen financial losses in the event of accidents, damage, or loss.

Without cargo insurance coverage, financial losses from a single incident could shake a company’s financial foundations. Conversely, with the right protection, cargo owners can transfer this significant risk to an insurance company, allowing business to continue operating smoothly even in the face of unforeseen logistics events.

This article will walk you through a realistic calculation of the potential financial losses if a cargo worth Rp10 billion is not insured. You’ll see a mathematical simulation, a comparison between premiums and potential losses, and hidden risks, such as general average risk, which exporters and importers often overlook.And before that risk actually hits your business, Contact L&G Insurance Broker now at 08118507773f or free consultation before any risk occurs.

Why the Financial Risks of Billions-Worth Cargo Cannot Be Ignored

Any high-value cargo shipment carries significantly greater risks than regular shipments. Extreme weather, shipwrecks, or even human error can cause damage or loss of goods in a matter of minutes.

A. Statistics and Main Risk Types

According to a report by the International Union of Marine Insurance (IUMI), over 75% of maritime logistics loss claims are due to physical damage, theft, and general average risks. Imagine if your goods worth Rp 10 billion were involved in such a situation without marine cargo insurance coverage.

Risks arise not only in the form of damaged goods, but also in additional costs such as production delays, loss of customers, and contractual penalties. All of this can lead to significant financial losses and operational disruptions. Relying solely on shipping companies is insufficient, as their responsibilities are often limited.

B. Underinsurance Failure

Many exporters and importers make the fatal mistake of underinsurance, insuring cargo below its true value to save on premiums. If cargo worth IDR 10 billion is only insured for IDR 5 billion and partial damage occurs, the insurance company will apply the Average Clause. This means that compensation will only be proportionate, increasing the potential financial loss for your business.

Mathematical Analysis: Direct and Indirect Losses

To understand the magnitude of the risk, let’s run a simple simulation. Suppose an electronics company is shipping components worth Rp10 billion from Jakarta to Surabaya by cargo ship. During the journey, the ship experiences a fire in the engine room, resulting in the destruction of most of the cargo.

A. Direct Loss

• In the event of an incident, direct financial losses can reach:
• Value of damaged goods: Suppose Rp. 8,000,000,000.
• Re-shipping costs: Estimated at Rp. 250,000,000.
• Additional storage costs at the port: Estimated at IDR 150,000,000.

With total direct losses reaching Rp8,400,000,000, it is clear that without cargo insurance, your business capital is at risk of being wiped out in a single shipment.

B. Indirect Losses (Hidden Costs)

Indirect financial losses that are no less detrimental include:

• Contract Penalty: Fine due to delay in delivery to customer (e.g. Rp. 500,000,000).
• Reputation Damage: Loss of potential revenue due to a decreased reputation, estimated at Rp1,000,000,000 in the long term.
• Administrative and Legal Fees: Fees incurred when a dispute occurs with another shipping or logistics party (Rp. 100,000,000).

When added together, the total potential financial loss could reach Rp10,000,000,000, which is equivalent to the value of the entire cargo. This comparison illustrates how small the cost of protection is compared to the potential risk of total loss.

Risk Simulation: Damage, Loss, and General Average

A. Dampak Fatal General Average

In the shipping industry, general average risk is an emergency situation in which the ship’s captain has the right to sacrifice part of the cargo to save the ship and crew. This rule requires all cargo owners on board (including those whose goods are saved) to share in the cost of the loss proportionally.

General Average Example: If a ship carries a total cargo worth Rp100 billion and a general average risk occurs, each owner of goods shipping a cargo worth Rp10 billion must provide a contribution guarantee of Rp1 billion—even if your goods themselves are not damaged.

Without cargo insurance, the cost of this general average risk contribution is your full responsibility and your cargo will be held at the port until you pay it.

B. Comparison of Premium vs. Potential Loss

The average cost of cargo insurance premiums for such shipments is only 0.1% to 0.25% of the value of the goods.

• Premium Illustration: For cargo worth IDR 10,000,000,000, the cargo insurance premium (0.2%) is only around IDR 20,000,000.
• Risk Comparison: This Rp20 million premium protects your business from potential financial losses of Rp10 billion (500 times greater).

This comparison shows that marine cargo insurance is a smart financial decision that transfers the risk of total loss at very minimal cost.

Choosing the Right Marine Cargo Insurance Policy

A. Mandatory Coverage: ICC (A) and Warehouse to Warehouse

For cargo worth billions, exporters and importers must choose marine cargo insurance with the highest coverage, namely ICC (A), or All Risks. ICC (A) covers almost all risks of loss or damage not specifically excluded.

In addition to ICC(A), the policy must cover:

• Warehouse to Warehouse Coverage: This ensures goods are protected from the time they leave the shipper’s warehouse until they arrive at the recipient’s warehouse, covering both ground and transit logistics risks.
• General Average Clause: Provides a guarantee that your cargo will not be detained at the port when a general average risk occurs.

The Vital Role of Insurance Brokers in General Average Risk

Insurance brokers are key to addressing general average risks. When such incidents occur, brokers will immediately:

• Issue a General Average Guarantee from an insurance company without you having to spend billions of rupiah in cash.
• Ensure your cargo is promptly released from port detention.
• Without a fast insurance broker, general average risk can destroy a company’s cash flow.

The Impact of Reputation and the Role of Insurance Brokers

A. Impact of Business Reputation and Trust

Losses due to cargo loss not only impact finances but also customer trust. In international trade, a single incident can impact a company’s reputation and reliability in the eyes of business partners. Many large companies make cargo insurance a mandatory requirement in their contracts.

B. Why Go Through an Insurance Broker (L&G)

Purchasing insurance directly from an insurance company doesn’t guarantee maximum efficiency and protection. L&G Insurance Broker, as an independent insurance broker in South Tangerang, offers key advantages:

• In-depth Risk Analysis: Assess the specific risks of billions worth of cargo and draft a truly tailor-made policy, including ICC A.
• Best Negotiation: Compare policies from multiple insurance companies to get competitive premiums without compromising on coverage.
• Total Claim Assistance: Helps the claims process run quickly and smoothly, ensuring compensation is in accordance with the actual value of the cargo.

With extensive experience in the international logistics and shipping industry, L&G Insurance Broker is your strategic partner in global business risk management.

Conclusion

Shipping goods worth IDR 10 billion without cargo insurance is like sailing in a storm without a life jacket. The potential for total financial loss, including general average risks, delays, and cargo damage, can arise at any time without warning. A simple comparison of premiums and potential losses shows that marine cargo insurance is not just an investment, but a strategic step to maintain business continuity and reputation with global partners.

Selecting the right policy, especially ICC A with warehouse-to-warehouse coverage, and ensuring accurate coverage is crucial. Due to the complexity of claims and the risks involved, a professional insurance broker like L&G Insurance Broker of South Tangerang is a must-have for your business. L&G ensures your billion-dollar cargo is legally and technically protected, prepared for both general average and total logistics losses.

Don’t let your business face billions of rupiah in financial losses simply because you neglect to protect assets in international logistics. Taking proactive action today is key to business sustainability.

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DON’T WASTE YOUR TIME AND SECURE YOUR FINANCIAL AND BUSINESS WITH THE RIGHT INSURANCE.

HOTLINE L&G 24 JAM: 0811-8507-773(CALL – WHATSAPP – SMS)

Website: lngrisk.co.id

Email: halo@lngrisk.co.id

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