Whether you’re a frequent importer/exporter or are shipping an item internationally for the first time, the question, “do I need cargo insurance?” is likely to pop into your mind.
In fact, you might even be thinking, “I’ve mailed things domestically one hundred times and it’s always been ok” or “they really can’t lose something THAT BIG, can they?” The simple fact is that international shipping involves many more hands than a domestic shipment and just because a container isn’t lost, that doesn’t mean you won’t experience a total loss.
Though you may not feel like you need insurance, in the event of loss or damage, you’ll be glad that you sprung for the extra coverage, as it pays for itself in the end. As an illustration to the process of filing a claim, I am choosing a recent example that we came across involving a customer who was shipping agricultural farming equipment from Istanbul, Turkey to Kansas City, Kansas in a 20′ open top container out of gauge. Freight terms were DDU (delivery duity unpaid).
Forwarders are not obligated to mention insurance, but, a reputable international shipping company will always ask if insurance coverage is wanted. So this customer was faced with the choice. Do they spring for the extra insurance coverage or let it up to chance?
What is Cargo Insurance?
It’s insurance that covers a shipment that can include personal effects, household goods, cars or commercial vehicles, or any kind of industrial shipment. Shippers gather their freight rates based on the specifications of their shipments and will need to know and convey to their international freight forwarding companies their freight terms.
Freight terms will drive the freight proposal, but won’t always indicate if insurance coverage is requested – just WHO is responsible for what (read more about how to clarify the relationship between shipper and consignee).
Shippers are advised to ask the sender to approve or decline coverage. Cargo insurance rates are based on the products, the destinations, and the commercial value of your shipments. Cargo insurance will cover the cost of the item in the shipment in the event that the shipment is lost or damaged during the shipping process.
What Happens to Non-insured Cargo?
Should you decline insurance coverage or neglect to insure your shipment, you are taking the risk that, should a loss or damage occur, you will not be able to seek repayment for the cost of the shipment most likely resulting in a loss to you or your company.
Although, if gross negligence or mishandling of the shipments while in the possession of the carriers (steam lines, airlines, terminals, trucking companies) is determined in due time with the respective documentation and signature of the carrier’s representative at the time of the delivery, shippers can file a claim against that carrier.
However, the liability coverage from carriers is limited and in most cases will amount to nothing or very little.
IMPORTANT NOTE: Usually, the forwarders are not the carriers, unless they own the delivery trucks. One of the benefits of working with a freight forwarder is that you’re not tied to any single network or carrier line, which will give you access to more routes and price points, and a more timely and cost effective shipment. So, they won’t be liable, but the right crew would certainly help you navigate through a sticky situation like this.
Back to our Customer…
During shipment, the farming equipment was loaded by a crane onto the 1×20’ open top container. However, no special loading instructions were given between the shipper (the seller) / consignee (the buyer) or the container freight station (CFS) involved in the trans-shipment into the OT in Turkey.
The trans-shipment was successful and the farming equipment was loaded securely into the container. Since it was out of gauge, a tarp was provided by the steam line but it did not fully cover and protect the equipment from bad weather or ocean salt. Ideally, the equipment SHOULD have been delivered to the CFS and requested a shrink-wrap to seal it from water damage, but this was not the case.
During the shipment the electronics were water damaged. Once it reached the US port of entry in Savannah, GA the shipment was cleared through the U.S. Customs, but not before customs requested an inspection of the cargo.
The forwarder was involved in choosing the trucking company for the delivery to Kansas City but US customs did not inform anyone of the not so apparent water damage and the trucker did not see any apparent damage to report at the terminal.
Upon reception of the shipment, everything appeared to be in good condition and the cargo was off-loaded. If the damage was detected, the normal procedure of a claim would have been to have the driver sign an exception on the truck bill with the description of the damage. Thus, ensuring that the consignee was not responsible.
However, in our case the damage was not detected until the day after reception of the farming equipment. After a close examination, the electronics were found to be water damaged and malfunctioning. The consignee called the forwarder with serious concerns.
So What Happens Next?
The resolution to this story will depend on whether or not the buyer had opted for coverage. Had they not, they would be stuck with damaged goods, and out the cost of the machinery, the shipping, and possibly even the cost of repairs to make everything operational again.
Fortunately, the international shipping company had issued a certificate of insurance allowing the recipient to file a claim. The forwarder was able to assist with documentation, photos of the damage were provided, and a claim was filed. An inspection was scheduled and the repairs made to the machinery was paid for by the insurance company.
Anyone can appreciate how difficult it would have been to solve the liability issues without the benefit of a knowledgeable freight forwarder and the their coverage.
With so many moving parts such as the carrier, terminal and the suppliers, in the event of such a shipment being shipped without insurance would have been impossible for the average person to find who is at fault to seek restitution that they most likely would never receive.
Problems, though unlikely, can happen anywhere and any time during the shipment process. With insurance rates as affordable as they are, to me, a guy who has been doing this for more than 30 years, it seems like a no-brainer.
In Blackjack, the safe bet is to NEVER buy insurance when the dealer is showing an ace. In international freight shipping, ALWAYS buy insurance. Just build it into your costs.
Looking for cargo insurance? We’ll get you covered!