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Mark-up value for cargo shipment

Shippers normally mark up 10 percent on the full cost of the goods (“invoice value”) as the sum insured for cargo insurance to avoid under-insurance. It is a common, worldwide practice to cover unexpected expenses which may be incurred during transportation, for instance, extra storage fees due to delayed customs inspection or duty or tax or currency fluctuations. These expenses may be over and above the invoice value.

Mr. Chan, who is new to the trading industry, took out cargo insurance based on the invoice value. The goods were unfortunately detained for some reason, e.g. transshipment, for which he needed to pay extra storage fees for the period involved. In a case where cargo damage was found after the arrival of the cargo, Mr. Chan filed a claim with his insurance company for both the damage and the extra cost incurred. However, his insurance company declined the claim because the expenses were not included in the invoice value.

With cargo insurance, it is common to encounter unexpected risks leading to additional expenses during transportation. The 10 percent mark-up value is effective in dealing with these unexpected expenses.

If the shipper does not take out the 10 percent mark-up value, those unexpected expenses arising during the course of transit are not covered by cargo insurance. As a result, the shipper will need to bear the loss. In some special cases, the shipper may even take out insurance with a higher mark-up value to ensure sufficient coverage. The maximum mark-up value varies policy by policy and the premium for the mark-up value is non-refundable.

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