Transporting goods, either internationally or domestically, is not without risks. Many things can go awry between point A and point B that may lead to the loss or damage of your cargo. Even if you can prove a carrier’s liability, the exercise often proves time consuming and expensive while the damages eventually awarded may not cover the losses. And many types of common damage are entirely outside of the transporter’s liability, including acts of God, accidents at sea, fire, and more.
That is why having the correct cargo protection plan is so important. While you cannot always prevent freight loss from happening in transit, you can protect the value of your products against possible losses at sea, in the air, or on the rails. Understanding the best insurance option for your particular shipping situation is the key to avoiding unexpected losses.
There are a staggering number of containers lost at sea every year. Yet in the event of loss of goods, shippers often misunderstand how liability works. Add to the mix the complex and ever-changing set of rules and regulations surrounding the subject, and the potential for shipping headaches multiplies exponentially. This article hopes to clear up some confusion and offer some guidance when considering cargo protection.
Is cargo insurance required?
The short answer is no. There is no rule requiring the purchase of additional cargo insurance. In most cases, however, it is highly recommended to better protect your merchandise from potentially catastrophic loss. Be sure to evaluate insurance costs against the possible expense of losses and collateral damage you would face without insurance.
Be advised that even if you are able to prove a carrier is legally liable for damage or loss of goods, their obligation may be limited. For example, the limited liability for ocean carriers is typically $500 USD per container unit, or the actual value of the goods, whichever is less. (And defining what a container unit is can be disputed. Is it the one shipping container that goes overboard, or is it the 250 individual boxes within the one container? The difference in interpretation can be expensive.) Without adequate insurance, a large part of the value of your cargo could be lost.
What else do I need to know about liability?
Assuming your goods are fully insured by the entity responsible for transportation could be a costly mistake. The International Chamber of Commerce recognized the need for more transparency in understanding insurance liability with the release of Incoterms 2020®. Under these guidelines, default insurance coverage for CIP (Carriage and Insurance Paid) was raised from minimum coverage to the higher “All Risk” protection level.
In addition to particular average risk, cargo owners may face an additional shared general average risk. If a maritime vessel experiences a fire, extraordinary equipment failure, or some other unexpectedly large expenditure during a voyage, the carrier may declare general average. If this occurs, all entities with cargo aboard the ship may be required to share in covering the cost of the expense. The process can be time consuming and expensive before goods are released.
That is why all policies should be read carefully and specific liability understood to make sure cargo is sufficiently covered.
What are other considerations for finding the right cargo insurance?
With shipping demand outpacing capacity, disrupted trade routes like the six-day blockage of the Suez Canal in March 2021, and increased weather delays attributed to global warming, importers/exporters may be focused on schedules more than risks. However, it would be short-sighted to worry about business losses due to slipping timelines if the damage or loss of property is not also in the equation. Planning for the quickest delivery route is useless if usable merchandise is not delivered. Cargo protection is vital. Here is what to look for:
- Incoterms: Acknowledging the incoterm agreed upon for your cargo shipment will establish the boundaries of liability between the supplier and buyer.
- Liability: Carefully examine all contracts to determine who is liable for goods at each stage of transportation. Once a shipment is accepted and signed for at various points of the journey, responsibility for insurance coverage may also be passed along.
- Transportation Route: The level of care for handling freight in different global locations can vary greatly from one country to another. Countries with a lack of infrastructure may further expose your freight to additional risk factors.
- Inspection: An example of a situation that may cause issues is when cargo is being delivered to the destination and the receiver signs the proof of delivery document without inspecting the freight. Receivers rushing to move trucks may not always take the time to fully inspect the freight upon receipt. Because the receiver signed the proof of delivery without any notations of damage a later claim may be denied later when damages are found during the unpacking of the cargo.
Do I need cargo protection insurance? The answer is YES!
Should your cargo value exceed the limited liabilities, cargo insurance protection offers the strongest defense against unforeseen events. Without cargo insurance protection, suppliers are at risk of not being paid should the buyer not receive the product as ordered.
By choosing to move forward with cargo protection insurance, you can rest assured your cargo is covered. Whether it is subject to damage, theft, or loss, your liability mitigated, which can drastically reduce the amount of time you would need to spend fighting for reimbursement. Cargo value is rarely lower than the limited liabilities of the carrier or forwarder which is why protecting yourself with cargo insurance protection is the best option.
At Juno Logistics, our goal is to provide customers with the highest quality of service. When you choose to add cargo insurance protection through Juno, we shoulder the burden by reporting and handling claims on your behalf. We are here to answer your questions and to explain why this value added service is right for your cargo.