Do you want to be aware of the potential risks involved in international trade and shipping? Want to plan to protect cargo from unexpected situations during cargo transit? Then this article may be important for you, here we will discuss in detail about cargo insurance which will help you plan properly to avoid unexpected damage to your goods. Moreover, whether you are an exporter or an importer, if you want to protect your business from financial loss due to damage or loss of goods during transit, cargo insurance is an essential step for your business.
Cargo insurance is a risk management that protects against financial losses due to lost or damaged goods. The cargo insurance covers a variety of unexpected damages, that’s— vehicle accidents, cargo renunciation, damage due to natural calamities, being captured by pirates, acts of war, stolen etc. It covers up to the limit of insurance coverage that separates liability from the carrier.
Why need cargo insurance policy coverage?
Generally, cargo shipments are a safe and secure way for goods transport. But sometimes mistakes can happen during the transportation of goods, or unexpected events can happen which can cause financial loss to the exporter or importer. If you outsource the shipments of your goods to a professional carrier or freight forwarder, you can get forgiven for believing that the carrier or forwarder is fully liable for any loss or damage.
Carriers and forwarders only have some limited liability. If your cargo involves an unfortunate incident, you may be faced with a long list of terms and conditions that may be difficult for non-specialists of cargo insurance to understand.
For this reason, we will outline the general principles here, which will help you know what are the most common risks associated with the transportation of goods and when cargo insurance can provide compensation to the customer.
What are the Types of Cargo Insurance?
Typically, cargo insurance is of three types – air, land and marine cargo insurance.
Air cargo insurance
Air cargo insurance covers goods that buyers or sellers transport by airplane. It’s discovered to protect the buyer or seller from the financial fallout. It covers financial losses such as damaged, wrongly delivered or stolen items shipped by the seller as per the terms of the policy. In some cases, the insured can get compensation for the delay in the shipment of the importer’s item, if the shipment is delayed due to financial loss.
Air cargo insurance is often purchased based on carrier liability, which is insurance that air freight companies can provide to cover the goods they transport. However, the insured may have to prove that the carrier was negligent or responsible for the loss and may have significant exclusions included in its liability policy. Air cargo insurance can be used to provide more comprehensive coverage for those shipping and receiving goods.
Land Cargo Insurance
Land cargo insurance is an instrument to ensure the safety of goods transported by land, which are used as a means of transport by road, shipped in trucks and other utility vehicles. This insurance provides coverage for unforeseen collision damage, theft and other perils of cargo shipping. This insurance provides coverage for the transportation of goods within the geographical boundaries of the country.
Marine Cargo Insurance
Marine cargo insurance is international goods shipment through sea routes that cover all the unexpected damages and loss. For example: any damages due to bad weather conditions, loading and unloading damages of goods, piracies and other possible losses according to type of insurance offers coverage.
Why is cargo insurance important?
If you take all the preventative measures you can to protect your shipment from damage, the insurance policy will cover other factors beyond your control. For example, unexpected bad weather and lack of proper packing of other shipments on the ship your cargo is traveling on (for LCL shipment) can easily damage your cargo etc. Also, the Maersk Honam fire early last year may be a good example. It is always best to have safety equipment ready to ensure that sea freight ships reach their destination safely, and cargo insurance is a good way.
6 importance things shippers need to know before purchasing cargo Insurance policy
When you purchase cargo insurance policy from a broker or agent, there are 6 importance things you need to know:
1. Value your product
One of the main mistakes shippers make when choosing coverage is undervaluing their product. Doing so means that, if an event occurs, you may not receive enough payment and will be forced to eat the remaining costs. If we can offer one piece of advice, it’s to value your invoice as accurately as possible.
2. The type and level of coverage you need
Many carriers purchase a cargo policy to make themselves more attractive to shippers, but this coverage isn’t always enough. And just because a carrier has a certificate of insurance with a certain amount of cargo insurance, doesn’t mean your claim will be covered.
To protect your product, be sure to find out how much insurance your carrier has and what that insurance covers. Then, secure a policy that makes a difference.
3. Exclusion of coverage:
The last thing you want is to invest in a cargo insurance policy and file a claim, only to discover that it doesn’t cover the event you experience. Exclusions vary by policy and type of cargo, but some examples of possible exclusions include:
__If the goods are damaged by rain. __If the freight is not properly attached to the trailer. __If the trailer is not properly attached to the tractor. __If the truck’s refrigeration system fails.
Before you buy a policy, make sure it covers your right type of cargo. For example, if you transport refrigerated goods, you will need a reefer breakdown policy.
4. Your Responsibilities Under the Carmack Amendment
The Carmack Amendment is a law passed by Congress in 1935, and it establishes a uniform set of rules governing interstate shipments. Before the Carmack Amendments were enacted, each state had its own unique process for cargo insurance and loss management.
As a shipper, you have three responsibilities under this amendment:
__You must prove that the goods were in good condition when you delivered them to the carrier. __You must confirm that the goods were damaged when they were delivered (or when an event occurred which prevented delivery). __You have to prove the amount of damages
There are situations when you, as the shipper, may not be liable — such as in the case of an act of God or a crime committed by a public enemy.
5. How to Get C-TPAT Certified
The Customs-Trade Partnership Against Terrorism (C-TPAT) was formed after 9/11 and focuses on improving the supply chain security of non-governmental organizations to combat terrorism. To be certified, you must have a documented process for mitigating risk in your international supply chain. Once you are certified, you will be considered “low risk” and enjoy faster cargo processing and less stringent customs inspections.
It’s important to note that being C-TPAT certified (and working with a C-TPAT certified carrier) can help lower your insurance premiums.
6. Trustworthiness and security of your chosen provider
Before working with a carrier, it is crucial to evaluate their trustworthiness, security and credibility. There are two ways to do this:
__Check out their A.M. Best Ratings __Ask for their motor carrier number and check their __DOT safety rating
If you want to risk a provider that has a low A.M. The best or DOT safety rating, you can probably negotiate for the carrier to cover a larger portion of the cargo insurance.
Although cargo insurance is not required, it is essential to ensure that your shipment is protected. While you can take every necessary preventative measure, much of the shipping process is out of your control—and a cargo security policy can help protect the health of your bottom line.
Daniel Jack is a senior finance and insurance writer and analyst at The US Pedia. For more than 8 years, he has been helping consumers learn about the finance, insurance and banking related. Daniel enjoys translating the complexities of insurance into easy-to-understand advice and tips to help consumers make the best choices for their needs. He completed his MBA (Master of Business Administration) from the University of Chicago.
