Following the sinking of the GFS Pride: Who will compensate for the damage if something happened to the cargo at sea?

On October 13, 2026, the Singapore-flagged container ship GFS Pride was struck by an unidentified projectile while transiting the Strait of Hormuz. A fire broke out on board, and the vessel sank the following morning. All 21 crew members were safely evacuated; however, there is still no comprehensive official information regarding the extent of the damage to the more than 2,500 containers that were on board.

For cargo owners, while the debate over how exactly to classify the incident is significant, a far more pressing question remains: the cargo is lost—who will cover the losses?

Why doesn’t "all-risk" insurance cover everything?

Many cargo owners assume that purchasing "all-risk" insurance provides complete protection against any unforeseen circumstances. This is a common misconception.

According to the "Marine Cargo Insurance Clauses" used in China, "all-risk" coverage consists of "With Average" (WA) coverage—which protects against partial losses—plus 11 specific "general extraneous risks":

Theft, pilferage, and non-delivery

Damage from fresh water or rain

Shortage in quantity

Contamination or mixing with other substances

Leakage

Breakage or crushing damage

Odor (absorption of smells)

Damage from moisture or heat

Hook damage (damage caused by cargo-handling hooks)

Packaging failure

Rust damage

Risks such as war and strikes are classified as "special additional risks." They are not included in "all-risk" coverage and must be insured separately.

To obtain coverage for losses like those experienced by the vessel GFS Pride, one would need:

In China: Marine cargo war risk insurance (a supplementary policy purchased in addition to standard marine cargo insurance).

Internationally: "Institute War Clauses" (Cargo).

War risk insurance covers damage to cargo directly caused by war, hostile acts, armed conflict, or the use of conventional weapons—such as naval mines, torpedoes, bombs, and artillery shells. However, before paying for this additional coverage, it is necessary to clearly understand two key limitations.

Two "pitfalls" of war risk insurance

1. Coverage is limited to the transit phase

Standard cargo insurance policies—such as FPA ("Free from Particular Average"), WA ("With Average"), or "All Risks"—typically operate on a "warehouse-to-warehouse" basis, providing coverage from the warehouse at the point of origin to the warehouse at the final destination.

War risk insurance, however, functions differently. Its coverage begins only when the cargo is loaded onto a sea vessel (or barge) at the port of departure and ends upon its discharge from the vessel (or barge) at the port of destination. If the cargo remains on board after arrival, coverage is limited to a maximum of 15 days, starting from midnight on the day the vessel arrives at the port of destination (similar time limits apply to transshipment).

In other words, inland transport, storage at the port prior to loading, and any transit stages following discharge are not automatically covered by war risk insurance. Such stages must be addressed through other types of insurance or specific contractual terms.

2. Insurers may cancel the policy or adjust rates with short notice

War risk insurance policies—particularly open covers or open policies—often contain provisions that allow the insurer to cancel the policy or adjust premium rates with short notice. In the international market, a seven-day notice period is standard, though for certain high-risk regions, it may be even shorter. If the geopolitical situation escalates, a quote received yesterday could become invalid today.

Important note: Cancellation generally applies only to future shipments for which insurance coverage has not yet commenced. As a rule, it cannot be applied retroactively to voyages already in progress. Therefore, for any cargo transiting through high-risk waters, it is crucial to ensure that the policy is in effect and that the rates and terms are locked in before the vessel departs. Always check the validity period of any quoted rates.

General Average

Although cargo owners generally know how to initiate the claims process in the event of a ship sinking, many are caught off guard by a different scenario: the ship is involved in a collision or sustains damage but does not sink.

What Is General Average?

To ensure the overall safety of both the vessel and its cargo, the captain has the right to take extraordinary measures—such as flooding the hold to extinguish a fire, sealing off compartments, changing course to a port of refuge, or jettisoning cargo overboard. Under the “York-Antwerp Rules,” the shipowner may declare a “general average” (GA) to cover the resulting extraordinary sacrifices and additional expenses. These expenses are then apportioned among all beneficiaries—including the shipowner and the various cargo owners—in proportion to the value of their respective salvaged property.

What does this mean for cargo owners?

Even if your cargo remains undamaged, you are still obligated to pay a proportional share of the expenses incurred for the ship’s salvage, salvage operations, or expenses related to the port of refuge.

– The shipowner will hold your cargo until you provide security for general average (usually in the form of a letter of guarantee or a cash deposit). Without this, you will not be able to retrieve your cargo.

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The process of settling general average claims often takes a long time. Loss assessment is carried out by a “general average expert” appointed by the shipowner, which puts cargo owners at a disadvantage in terms of access to information and bargaining power.

Key Points Regarding Insurance Coverage

Standard cargo insurance (including “all risks” policies) typically covers general average sacrifices and contributions arising from risks insured under the policy.

However, “all risks” policies generally do not cover general average sacrifices and contributions resulting from acts of war. You must ensure that your war risk insurance specifically includes coverage for “general average losses and contributions arising from war risks.” It is crucial to obtain a clear and unambiguous response from your insurance company on this matter before purchasing insurance coverage and to always refer to the specific terms and conditions set forth in the insurance policy itself.

Who Is Responsible for Arranging Insurance? A Guide to Incoterms and the Transfer of Risk

The obligation to purchase insurance is primarily determined by the trade terms (Incoterms 2020) specified in the sales contract. However, it is crucial to distinguish between three separate concepts: the point of risk transfer, the obligation to purchase insurance, and the right to file an insurance claim in the event of a loss. Even if the trade terms stipulate that the buyer bears the risk, this does not necessarily mean that the seller is protected against losses—for example, if the buyer has not taken out insurance or refuses to pay after an insured event occurs.

Note: Under CIF/CIP terms, the seller’s insurance obligations are limited to a “minimum” level of coverage and do not automatically include insurance against war risks. The specific type of insurance, the sum insured (which, as a rule, must amount to 110% of the CIF value under the letter of credit), and the duration of the insurance coverage are determined strictly in accordance with the sales contract and the letter of credit.

Key Points

1. Export credit insurance is not cargo insurance

Export credit insurance (such as that provided by SINOSURE) covers risks related to non-payment—including the buyer’s bankruptcy, late payments, or refusal to accept the goods—as well as certain political risks. It does not provide direct compensation for the loss of or damage to the goods themselves. Even if damage to the goods leads to the buyer’s refusal to pay, whether the claim is covered depends on the terms of the sales contract, the point at which risk passes, the validity of the creditor’s claim, and the specific provisions of the insurance policy. Cargo insurance covers risks related to the goods, while credit insurance covers risks related to payment; these two types of insurance are not interchangeable.

2. Ensure that the route does not pass through high-risk areas

Cargo bound for the Mediterranean Sea, the Black Sea, or Europe and passing through the Suez Canal must cross the Red Sea—a region that is also classified as a high-risk area from the perspective of war risk insurance. Although rerouting via the Cape of Good Hope allows you to avoid these high-risk waters, it increases the voyage duration by approximately 10–14 days and raises both freight and fuel costs. Regardless of the route, always obtain written confirmation from the carrier of the actual shipping route before booking, rather than relying solely on standard sailing schedules.

3. Factor in costs associated with war risks in price quotes

As insurance premiums rise, shipowners often pass these costs on to downstream players in the supply chain by raising freight rates or introducing a war risk surcharge (WRS). When providing price quotes, ensure they include a buffer for potential insurance premiums and war risk surcharges. Alternatively, clearly stipulate these terms in contracts: who bears the costs of surcharges, how route changes are handled, the validity period of the price quote, and price adjustment mechanisms. In particular, contracts involving conflict-prone regions should be carefully reviewed and updated.

Ensuring Successful Settlement of Insurance Claims and Reducing Insurance Risks

Reviewing Insurance Policies: Ensure that insurance policies for cargo in transit or awaiting shipment include coverage for war risks, and verify that the policy’s validity period covers the entire period from loading to unloading.

Check Routes: Confirm with freight forwarders or shipping companies whether the planned route passes through areas such as the Strait of Hormuz, the Red Sea, or the Persian Gulf; inquire about possible plans to change the route and the associated costs.

Consult with insurers: Check with your insurance company or broker to confirm whether the policy covers general average costs and premiums resulting from military actions. Additionally, confirm the validity period of the quotes, the required notice period for policy cancellation, and specific terms regarding deductibles and coverage limits.

Review contracts: For orders under FOB or CFR terms, verify whether the buyer has arranged war risk insurance and request confirmation of insurance coverage. Additionally, assess the need for “seller’s interest” insurance.

Clarify the contract terms: Clearly define responsibility for arranging war risk insurance, the allocation of war risk surcharges, the party responsible for covering these costs, documentation and cooperation requirements in the event of a claim, and the deadlines for filing claims.

Conclusion

No company can predict when a war will end or exactly where a vessel might be attacked. However, every shipper can—and should—make proactive decisions regarding insurance coverage, risk exposure, and ensuring payment for their cargo before shipment. Often, a single overlooked clause in an insurance policy is what leads to a loss being deemed non-recoverable after an incident.

As a professional international freight forwarder, VIPUTRANS provides comprehensive booking and multimodal transportation services. We constantly monitor the security situation in critical maritime areas—such as the Strait of Hormuz and the Red Sea—and inform our clients in advance of route changes and surcharge adjustments. We also assist with the analysis of insurance policies and conduct expert risk assessments. If you currently have shipments in transit or awaiting shipment and would like us to analyze your routes and insurance terms, please contact us at any time.