Insurance Guide for B2B Logistics
In the world of global logistics, protecting your cargo is crucial. Freight and shipping insurance provide peace of mind and financial protection against potential losses, damages, or theft during transit. This guide will help you understand the various types of insurance available, their coverage, costs, and how to choose the right insurance for your needs.
Types of Freight and Shipping Insurance
1. Cargo Insurance
Cargo insurance protects the shipper's interest in the goods being transported. It covers loss or damage to cargo during transit.
Subtypes:
- All-Risk Coverage (Type A): The most comprehensive protection, covering all risks of physical loss or damage, except those specifically excluded.
- With Average (Type B): Covers total loss events and partial loss below deck.
- Free of Particular Average (Type C): Also known as "named perils" coverage, this policy only covers specific risks listed in the policy.
2. Freight Liability Insurance
This insurance is for carriers, freight forwarders, and logistics providers. It covers their liability for cargo loss or damage.
3. Errors and Omissions (E&O) Insurance
Protects logistics professionals against claims of negligence or failing to perform their professional duties.
4. Warehouse Insurance
Covers goods stored in warehouses against risks such as fire, theft, and natural disasters. Read more in our guide on warehousing.
5. Marine Insurance
Specifically designed for goods transported by sea, covering various maritime risks, including general average.
Freight/Shipping Insurance Selector
1. What is your role in the shipping process?
Cargo Insurance
Cargo shipments are generally safe, but unforeseen events can occur during transport. It's important to understand that carriers and forwarders have limited liability, and their terms and conditions can be complex for non-specialists.
Incoterms® and Liability
Incoterms® rules define the rights and duties between buyers and sellers in transportation services. They clarify who pays for what and who is liable for damage or loss of goods in transit. Carriers and forwarders are only liable for demonstrable mistakes or negligence during transport, with limits on their liability and maximum compensation.
Carriers and Freight Forwarders
There's a significant difference between the liability of a carrier (who physically transports goods) and a freight forwarder (an intermediary arranging transport). Freight forwarders have partial liability, while carriers are liable as shown in the table below:
| Modes of transport | Standard conditions | Maximum liability |
|---|---|---|
| Air freight | Montreal Convention | SDR 22 per kg |
| Sea freight | Hauge-Visby Rules | SDR 666.67 per package or SDR 2 per kg, whichever is higher |
| Road transport (international) | CMR Conditions | SDR 8.33 per kg |
| Rail | CIM Convention | SDR 17 per kg |
Note: SDR (Special Drawing Rights) is a virtual currency unit maintained by the International Monetary Fund (IMF). As of November 2023, SDR 1 is approximately EUR 1.22.
Cargo Insurance Coverage
If your consignment's value exceeds the carrier's or forwarder's liability limit, consider cargo insurance. This ensures compensation based on the commercial invoice value if something goes wrong in transit. The insurance premium depends on factors like goods value, nature, origin, destination, and transport mode.
Common Risks and Measures
- Damage: Includes scratches, dents, or water damage. The sender is responsible for proper packaging.
- Lost or stolen goods: Requires proof that loss or theft occurred during transportation.
- Delays: Usually not covered by carriers or forwarders, and difficult to insure against.
- General average (sea freight): Refers to collective damage to ship and cargo, with costs shared between ship owners and cargo owners.
Filing Claims
Claims for damage, loss, or theft must be filed within specific timeframes: two years for air or sea freight, one year for road transport. For insured consignments, the process involves holding the carrier liable first, then contacting the insurance company.
When to Consider Cargo Insurance
Insurance is advisable when:
- The consignment value exceeds the carrier's or forwarder's liability amount
- Shipping to unfamiliar destinations with poor infrastructure
- The relatively low cost of insurance outweighs the potential risk
Remember, cargo insurance offers protection against extensive damage that occurs rarely, making it a worthwhile investment for many shipments.
Comparison of Main Insurance Types
| Insurance Type | Primary Beneficiary | Coverage | Typical Cost Range | Key Features |
|---|---|---|---|---|
| Cargo Insurance (All-Risk) | Shipper | Comprehensive coverage for loss or damage to goods | 0.3% - 0.5% of cargo value | Covers most common perils; suitable for new, export-packed goods |
| Freight Liability Insurance | Carrier/Logistics Provider | Liability for cargo loss/damage | Varies based on operations | Limited coverage; often included in carrier's quote |
| E&O Insurance | Logistics Professional | Professional negligence claims | Varies based on business size | Protects against claims of professional mistakes |
| Warehouse Insurance | Warehouse Operator | Goods in storage | Varies based on facility size and value of goods | Covers risks specific to warehouse storage |
| Marine Insurance | Shipper/Vessel Owner | Maritime-specific risks | 0.5% - 1% of cargo value | Includes coverage for general average events |
Cost Overview and Examples
Insurance costs can vary widely based on factors such as:
- Value and type of goods
- Mode of transport (air, sea, road, rail)
- Origin and destination
- Level of coverage selected
- Company size and claims history
Examples:
- For a $100,000 shipment, cargo insurance might cost $300-$500.
- Marine cargo insurance typically ranges from 0.5% to 1% of the cargo value.
- DHL Express shipping insurance starts at 3% of the package value for outbound shipping, or 1% for inbound.
Major International Cargo Insurance Providers
- Allianz Global Corporate & Specialty
- AXA XL
- Chubb
- Zurich Insurance Group
- AIG
What's Not Covered by Cargo Insurance?
Typical exclusions include:
- Inherent vice (issues caused by the nature of the goods)
- Improper packaging
- Delay-related losses
- War, strikes, or civil unrest (unless specifically included)
- Employee dishonesty
Tips for Choosing the Right Insurance
- Assess your risks: Consider the value of your goods, transport modes, and routes.
- Understand carrier liability: Know what's covered by your carrier's insurance.
- Choose appropriate coverage: Decide between basic, broad, or all-risk cover.
- Compare providers: Look for reputable insurers with industry expertise.
- Review regularly: Update your coverage as your business evolves.