There are things people have misconceptions about Cargo Insurance. In this new post, we would like to raise some awareness regarding this subject, so the next time you will know what to do!
Expectation | Reality |
Cargo insurance insures everything with your shipment. | Cargo insurance does not cover any form of liability other than the merchandise itself. |
For instance, let’s imagine a heavy machine on a flatrack. The flatrack, stowed below deck, could come in contact with other merchandise causing some damage like the breakage of several hydraulic fluid lines. The damage is very cheap to fix. However, the hydraulic fluid that leaks everywhere in the hold can contaminate everything it touches. You may believe the shipper has to file a claim against the cargo insurance to deal with having the contamination cleaned up, but it couldn’t as this is a commercial liability.
Expectation | Reality |
In the event of a covered loss, the beneficiary of the loss will get the total face value insured on the cargo insurance certificate less the deductible. | Cargo insurance only pays approved claims for covered perils on what can be a proven loss. |
If you have not lost it, you can not claim it. For example, a shipper who ships a heavy machine insures the shipment CIF + 10%. This means the value insured covered the cost of the machine, the insurance, the freight costs to transport the machine, and an additional 10% which can cover unforeseen costs related to a loss.
Let’s suppose the shipper’s machine incurs damage along the way and it was not a total loss as the machine was repairable. The good news is the damage caused by a covered peril which would be covered and is repairable at the destination. You may think the claim should be for the complete cost to repair (sounds reasonable), but if you include the cost to transport plus an additional percentage since the cargo did not require to be re-transported; the shipper never incurred that cost.
While the shipper could have filed a claim with the insurer, the claim would have been rejected for the cost of transportation and any additional percentage since those things were never lost. However, cargo insurance will only refund for lost amounts caused by covered perils and actual losses, which may be less than the total insured value.
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Expectation | Reality |
My carrier has my back. | The majority of methods of transportation do not take full liability for the cargo they carry. |
Some methods of transport take a bit of liability which matches with a small fraction of the actual value. In the case of air carriers who typically operate on a tariff to control the rules of engagement, there is little cover given. Some air carriers will allow you to ‘declare value’ to extend carrier liability, but it will cost you, and there will be restrictions. You can expect to pay about $0.85 per hundred dollars of declared value. Ocean carriers limit their liability to $500 per package. As a general rule, ocean carriers consider one shipping container as one package.
Ground carriers are required to pay only if they are proven to be responsible for causing the loss or damages and the amount to be paid is very restrictive, for the most part, carrier liability covers up to a certain dollar amount per pound and it also varies depending on the unit quantity and commodity type (freight class).
Expectation | Reality |
Cargo insurance is too expensive to win the deal. | Cargo insurance rates depend on the situation. Costs vary depending on the risk, commodity, and value of the merchandise. |
Shipping a container to Malaysia will need a higher insurance rate than shipping the same container to Mexico from the United States. Shipping a container of auto parts will be less insurance cost than shipping a container of cellphones.
But most of the cases checking calculations is less than 1% of the total deal for shipping to mitigate the risk of up to a $65,000 loss for example which looks pretty affordable.
Expectation | Reality |
My team doesn’t have time to arrange cargo insurance for each shipment. | There are specialized companies to do this job for you and is extremely fast. |
Companies like CARGO CARE SERVICES can do this for you, we only need the general details on each shipment and we can issue the COI for you in minutes, so you can avoid E&O and focus on your job. You will receive a certificate for each shipment on time with the support of an excellent team.
On the other hand, if you have a Transportation Management Systems (TMS), it helps to manage everything to do with the mountain of shipments you book daily. Today, cargo insurance can be integrated into the TMS, allowing forwarders, 3PL’s, TMS portal users, and major shippers, to request cargo insurance in few steps when booking a shipment. GET MORE INFO NOW!
In both cases, you can contact us for a rate, for advice, or whatever you need related to cargo insurance, we have a team with 12 years of experience in this topic and it will be a pleasure to assist you.