Get insurance – because damage happens

When you plan on sinking your hard-earned startup capital in your first shipment, you should consider obtaining insurance. The risk of damage or loss caused by mishandling or weather conditions is higher than you might imagine. According to the London insurance market Lloyd’s, on average, one ship sinks every single day. Even if a ship arrives safely in port, most damage to goods occur enroute. It is reported that 30% of all freight damage in transit is unavoidable. However obtaining cargo insurance can protect your financial investment and bring you some easy and cost-effective peace of mind.

Perils of the Logistics Chain

Your goods will pass through many hands on its way to you, from loading and unloading from trucks and containers, through ports, exam sites, and warehouse after warehouse.  Each step is necessary for your merchandise to ultimately reach you, but having your goods move through so many checkpoints increases the chance of damage.

Then, unfortunately, if damage does occur, based on the fine print of most shipping agreements, the burden to prove that the carrier was at fault is placed on you. You must definitively prove that:

  1. Loss occurred while the shipment was in the carrier’s care, custody, and control
  2. The carrier was negligent in handling your shipment

Note: This proof usually consists of a shipping receipt or Bill of Lading with damage noted on it. Always check the condition of your goods before signing a receipt. A receipt without any damage to or loss of goods noted is called a clean receipt. If you sign a clean receipt, your carrier will deny liability.

However, even if you are able to prove that the transporter was at fault, you may still not get the full value of your goods. Carriers strictly limit their liability. If you turn over any Bill of Lading, for example a FedEx or UPS tag, you will find the fine print outlining exactly what a carrier agrees to cover.

Below you will find some of the typical limits of carrier liability. Would these limits meet the value of your goods?

Ocean Carriers $500/package (a full container counts as one package)
International Air Carriers $9.07/lb. or approx. $20/kg – under the Warsaw Convention or 19 Special Drawing Rights* (approx. $29/kg.) under the Montreal Convention
Domestic Airlines $.50/lb. customary, but varies by carrier
Domestic Truckers $.50/lb. customary, limited by tariff
Couriers (UPS, FedEx) $100 or less, per shipment
Warehouse Limited

Does your seller really insure your shipment under CIF?

Yes, but that doesn’t mean that they will refund you or send you a replacement shipment! CIF (Cost, Insurance, and Freight) terms specify that handling an insurance claim falls on you.  This could entail:

  • Seeking reimbursement from an overseas insurance company, under a policy into which you have no visibility.
  • Determining who pays the difference from the deductible with the vendor.
  • Arguing with an insurance company whose fine print is rife with loopholes.

Be in control of your destiny!

If your shipment has already left, ask your supplier for a complete copy of the insurance policy and the insurance certificate detailing the policy terms and conditions. In addition, you should request a list of the local insurance claims adjusters contracted by the insurance company, so that you have their contact information handy, if necessary.

Then read through the fine print and contact the local agent to determine the claim and settlement process.  Find out if they generally settle the claim locally or back at their home office overseas.

If nighttime reading of the fine print distracts you from building your business, request your vendor to change terms to CNF, “Cost and Freight,” (or even “Free Carrier,” FCA – read why here) and credit you for the insurance cost.  Then you can contact your own preferred insurance company or transportation provider to get a quote for insurance under your terms.

Even if your shipment has already left and the shipper didn’t insure the cargo, there’s still time to insure your cargo.  Most forwarders will insure your shipment as long as it is enroute, and you call them right away to get a quote to cover your investment.

Peace of Mind is Easy & Affordable!

Insuring your shipment is surprisingly affordable, with costs typically starting with low minimum fees and at less than 0.50% of cargo value. Cost of insurance ranges by country of origin and mode of transportation. The riskier the freight and shipment, the higher the premium – much like getting car insurance for a teen driver.

Typically coverage is available through a single call to your transportation provider. When considering cargo coverage, be sure to address the following points and related questions to determine if your needs are covered:

  • Locality:
    • Is it a U.S. based company? You do not want to chase your money from an overseas company that may not speak your language.
    • Are their surveyors close to you? If the underwriter chooses to survey your damaged cargo, it’s important that they can get there fast!
  • Credibility:
    • What is the financial rating of the underwriter? Some overseas firms have been offering very good rates, but bad at paying claims and shutting down when hit with large claims.  These ratings can be checked here: http://www3.ambest.com/consumers/consumersearch.aspx?bl=36
    • Is their adjuster and surveyor networks approved by Lloyd’s of London and AIMA, two worldwide reputable insurance agencies?
  • Customer service:
    • What is your forwarder’s process for helping you gathering all evidence and documentation to fulfill the underwriters requirements? This step most frequently delays settlement of a claim.
  • Speed:
    • How long does claim settlement historically take? If the documents are in order, the money should be back in your pocket in 30 to 90 days.

While damages may happen, financial loss can be minimized. Taking control of your own destiny, at least when it come to insuring your shipment, is easier and more affordable than you might think.