Posted On August 1, 2022
Freight shipping can be risky business.
Even with the best preparation and prevention, damaged cargo is always a risk when shipping freight. Ensuring the monetary value of the cargo is protected with appropriate insurance is an important part of the shipping process.
Shippers need to know when to purchase a cargo insurance policy, for how much and the best type of insurance policy for the shipment type.
But before we delve into the world of cargo insurance, we first need to make an important distinction between the various cargo insurance options.
Understanding the difference between carrier liability, excess liability coverage and freight insurance
While freight insurance (also called cargo insurance) might sound like a catch-all term for the coverage applied to your products as they move through the supply chain, there are actually several different types of insurance, each with a unique purpose.
When a shipper hires a carrier to transport goods, the carrier is responsible under federal law for the safety of the goods, and is required to reimburse the shipper, up to a certain amount, if the cargo is damaged, lost or stolen (with numerous exceptions—check out our freight claims guide for more in-depth information). This is what’s known as carrier liability, and the amount of liability coverage a shipment has is determined by the freight classification and weight. Liability coverage provided by carriers typically ranges between $0.50 and $25 per pound.
For goods with a small profit margin or low value, additional coverage usually isn’t necessary—if a shipment is only worth $1,000 and the carrier liability will meet or exceed that, then shippers don’t need to worry about risk. But for many shipments, limited carrier liability isn’t enough. For example, a shipment of printers might have a value of $100,000, but the carrier’s liability offered by the trucking company would require reimbursement up to $20,000. If those printers were damaged or lost during transit, the shipper would lose the difference—in this case, $80,000.
Thus, companies have the option of increasing carrier liability by shipping with a declared value.
Declared value is the shipment value stated by the shipper to increase the standard limits of liability listed in the terms and condition of the bill of lading. For an additional cost, carriers will extend the amount they pay if they are found liable for damaging or losing cargo.
However, the shipper must still prove the carrier was at fault for the loss. In addition, carriers have several defenses with regard to cargo damage, including acts out of their control, acts of God, natural disasters and acts of war, among others.
Freight insurance coverage, also known as all-risk cargo insurance, is the broadest, most comprehensive form of coverage for cargo. It covers the full value of goods while in transit from origin to destination. Unlike declared value, coverage is not dependent on where or how the goods were damaged, only that the loss occurred in transit. It’s facilitated through a freight broker, third-party insurance company or insurance agent, and can be considerably less expensive than declared value coverage.
Flat World recently announced a new partnership that makes obtaining freight insurance incredibly easy. We’ll talk more about that in a bit.
Benefits of cargo insurance
The biggest benefit of cargo insurance is less financial risk. Because the insurer reimburses the shipper for damages incurred during transit, the business doesn’t incur a monetary loss.
Convenience is another major factor in why many companies choose freight insurance. Submitting claims to a carrier can be a complicated and frustrating process that can take months—and if the claims don’t meet carrier qualifications, the shipper won’t receive compensation.
A cargo insurance provider will handle the claims process on behalf of the shipper, and often provide a payout even if the claim doesn’t meet the carrier’s requirements. Reimbursement is quicker, too, with claims resolution often happening within 30 days. And when obtained through a freight forwarder or third-party logistics partner, freight insurance is often considerably more affordable than declared value.
Types of freight insurance coverage
The specific cargo insurance policy a company chooses will depend on the transportation mode and/or how often and how much a company is shipping goods.
Inland marine coverage
Freight that’s being transported on land will require land cargo coverage, also called domestic inland transit insurance.
Ocean marine coverage
Like the name suggests, freight that’s moved via ocean vessel requires ocean marine coverage, sometimes just called ocean coverage or marine coverage.
How to purchase freight insurance through an insurance company or 3PL
Before purchasing cargo insurance, companies need to first evaluate whether insurance is worth the cost. Flat World does this for our clients by reviewing the last 12 months of shipments, the number and dollar amounts of claims, cost of insurance, and amount of reimbursement.
While other types of insurance warrant the process of requesting quotes from multiple insurance companies, the time required to do so for a specific shipment usually isn’t worth the potential cost savings of just a few dollars That’s why it’s helpful to find one go-to insurance company and use them consistently for all your shipments that justify coverage.
The Flat World/Roanoke partnership
Flat World now partners with Roanoke Insurance Group to provide Flat World customers with quick and cost-effective access to Roanoke’s cargo insurance. Shippers can purchase insurance coverage on a single-shipment level within Pipeline, Flat World’s transportation management system (TMS), for a fraction of the price of declared value.
The process is easy.
After activating the freight insurance option within the TMS, shippers just need to enter the value of goods being shipped. The rate quotes that appear on-screen within seconds already have the cost of the freight insurance built in. The platform can also alert the shipper about how much liability the carrier has for their shipment, allowing them to quickly decide whether they’d like to purchase cargo insurance. The coverage is automatically calculated to include the cost of goods, freight charges plus 10% to cover your miscellaneous handling charges.
Exclusions to Roanoke’s cargo insurance coverage
Most cargo insurance policies come with restrictions or exceptions, including the Roanoke coverage offered through Flat World. In addition to maximum coverage of $250,000 per shipment,* commodities including marble and granite products, scrap, used goods, perishable products, windows, and glassware have restricted coverage or might not be insurable. Your representative at Flat World can provide more information.
*In some instances, Roanoke can obtain underwriter approval for coverage above $250,000 per shipment.
Purchasing freight insurance through Pipeline
If you have questions about freight insurance or the freight claims process, or want to purchase Roanoke insurance through Pipeline or Pangea, contact us. Our team of experts can help you determine the best cargo coverage strategy for your supply chain.