Are you covered the way you think you are?
Imagine: you’re watching the morning news, and you see that an ocean freight vessel from China to the US has capsized.
As a shipper, your first thought may be “did I have any freight on that vessel? If I did, what will happen?” It’s easy to assume such an incident will never happen to your company, but according to the Monterey Bay Aquarium Research Institute, an estimated 10,000 containers per year are lost at sea.* That’s more than one container going overboard per hour, every hour in the year. Whether it’s an ocean container gone overboard or a pallet delivered to your warehouse with damage, as an international shipper, it is critical to understand your liability.
This brief overview will allow you to better understand the basic terminology associated with shipping. More importantly, you’ll learn how you can protect yourself from that “uh oh” moment.
[*] Barry, James. Monterey Bay Aquarium Research Institute. “MBARI teams with…”. http://www.mbari.org
Freight Liability is what the typical freight shipment is covered by. This is the type of insurance you will commonly hear referenced by the term limited liability coverage. If something happens to your shipment and the claim is approved, you will receive a limited reimbursement in accordance to the mode of transportation:
Full Container Load (FCL): up to $500 per container
Less than Container Load (LCL): up to $500 per outmost packing unit
Air Freight: up to 19 SDR per kg (roughly $24 per kg)
Road Freight: often $0.50 – $5.00 per pound with varying maximums
For many customers, these reimbursement amounts won’t even begin to cover the costs to repair damaged goods or replace lost goods. Unfortunately, in the logistics industry, most would agree that claims aren’t easy to file or get approved. Claims can take many months to process, and depend on the claim party, to prove carrier negligence as well as loss/damage.
Additionally, a carrier is protected from payment of any claim if the request is associated with of 17 various defenses (such as an “Act of God”, “Fire”, or “Insufficiency of Packaging”).
Finally, if damage is not noted by the receiving party on the delivery document at the time of the delivery,
the carrier is often released from liability.
Freight Insurance is an individual insurance policy taken out on a particular shipment. It will generally cover in full the value of the product being shipped, plus the cost of transportation. The claims process often goes quickly — claims can be processed and paid in as little as two weeks.
To get the claim filed approved, proof of damage or loss must be demonstrated and quantified. Since these policies are typically raised on your behalf, any funds being paid out are sent directly to your company from the insurance provider.
Our Recommended Best Practices
Understand your exposure
Obviously, you’re moving freight from point A to Point B. But what about the details? Do you need appointment deliveries? Can you unload a shipment within the free time? Are you paying your own duties? Do you require customs assistance? Make sure your pricing includes what you really need, not just the minimum.
Use the right packaging
Good packaging lowers the risk of damage and speeds up claims. Don’t let packaging be the reason for a claim to be denied. Why have the insurance if you aren’t meeting the requirements to receive a payout?
Have a process to receive deliveries
Inspect all freight received at the time of delivery for damage.
Note any damage on the delivery order for use in a future claim.
Take pictures of any damage immediately.
In the case of damage, contact the freight forwarder or designated internal company representative immediately.
Have a process to send out shipments
Inspect all freight prior to departure for damage.
Create an internal escalation procedure for damage identified prior to shipping.
Take pictures of all freight departing the facility to show that no damage exists prior to departure, as well as the quality of the packaging.
Help your suppliers help you
If you are not the shipper, send written instructions as part of your process to convey your expectations for packaging and documentation to suppliers.
When in doubt,
purchase freight insurance
By purchasing insurance up front, you invest in peace of mind so that if nearly anything happens to your shipment, the value of the goods is covered in its entirety. Don’t have an “uh oh” moment.