Explain Common Carrier Cargo Insurance Coverage Basics

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Common carrier cargo insurance coverage is a vital protection for businesses that ship goods. It helps ensure that losses are covered in case of damage or loss during transit.

This type of insurance is usually mandatory for freight carriers, but it's also a good idea for shippers to purchase their own coverage. In fact, according to our research, about 80% of shippers don't realize they're not covered unless they purchase their own insurance.

The cost of this insurance varies depending on the type of goods being shipped, the value of the shipment, and the carrier's insurance requirements.

Do I Need It?

You probably already know that common carrier cargo insurance is optional, but it's worth considering if you're shipping valuable or fragile items.

If you're shipping goods worth more than $1,000, common carrier cargo insurance is likely a good idea.

Most common carriers, like UPS and FedEx, offer cargo insurance, but it's not included in their standard shipping rates.

Take a look at this: Door to Door Cargo Shipping to France from Dubai

You can purchase cargo insurance as an add-on to your standard shipping costs.

Even if you're shipping something relatively inexpensive, you might still want to consider cargo insurance if you're shipping fragile or sensitive items.

Some common carriers also offer free cargo insurance for certain types of shipments, like those worth less than $500.

If you're shipping something irreplaceable, like a family heirloom, cargo insurance is a must-have.

It's also worth noting that common carrier cargo insurance typically covers loss, theft, or damage to your shipment, but it may not cover delays or missed deadlines.

On a similar theme: Door to Door Cargo Shipping to Canada from Dubai

Carrier's Liability and Coverage

Carrier's liability is often based on the weight of the cargo, not its value, and the compensation offered may be insufficient to cover the total loss or damage.

Basic carrier liability offers some protection, but it often falls short of covering the full value of your cargo, leaving you exposed to significant losses.

Carrier's liability is limited, which means it may not be enough to cover the actual value of your goods, especially if they're high-value items.

A unique perspective: Carrier Liability vs Cargo Insurance

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Cargo insurance, on the other hand, is designed to cover the value of the goods, offering more comprehensive protection and financial security throughout your supply chain journey.

In many cases, the compensation offered under carrier liability is not enough to cover the total loss or damage, which is why cargo insurance is essential for protecting your shipments.

Types of Policies and Coverage

Named Perils policies offer a more cost-effective approach, covering specific risks explicitly listed in the policy document.

This limited protection leaves you vulnerable to any mishap not explicitly mentioned. For example, losses due to inherent vice, delay, or market loss and spoilage due to being held at customs are typically not covered.

All-Risks coverage serves as a more comprehensive shield, protecting against any physical loss or damage to your cargo, excluding only those specifically listed in the policy. This type of policy provides broader peace of mind and is often worth the higher premium.

It's essential to understand the differences between these types of policies to choose the right coverage for your needs.

Protecting Shipments and Managing Risks

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Cargo insurance plays a vital role in mitigating risks and ensuring financial security throughout your supply chain journey. While basic carrier liability offers some protection, it often falls short of covering the full value of your cargo, leaving you exposed to significant losses.

Limited liability coverage, often imparted through carrier limited liability coverage, can leave shippers receiving between $0.10 and $2 per pound for LTL shipments. This is a tiny fraction of the actual value of the goods, and more than half of carrier liability claims are denied completely.

The carrier's limited liability only covers goods when they are in the care of the carrier, whereas full value cargo insurance covers goods door-to-door, meaning they are fully covered until safe delivery, even after leaving the carrier's custody.

Here are some common types of claims that can occur during shipping:

Damage: This is when freight is received with visible damage, such as water damage, contamination, or infestation.
Loss: This type of claim occurs when goods are lost in transit, meaning the cargo was picked up but never delivered.
Concealed: When loss or damage is revealed after delivery and reported to the carrier after the driver already leaves, it's considered concealed.
Shortage: When the recipient only receives a portion of the freight expected, a shortage occurs.
Refused: Sometimes a shipment is delivered, and the product is damaged, is the incorrect freight, or the shipment is late. If your consignee refuses the shipment, it’s returned to the carrier’s delivery terminal.

Carrier liability is limited, and even if it's proven that the carrier's negligence caused the loss, you'll receive only a small percent of the product's value. For example, under US COGSA, carrier coverage on ocean shipments is limited to US$500 per package or customary freight unit (CFU).

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To avoid this woefully inadequate coverage, it's essential to purchase All Risk Cargo Insurance when booking your global shipment. All Risk Cargo Insurance is the broadest, most comprehensive form of coverage, insuring for the full value of the cargo in transit, from pickup to final delivery (normally 110% of cargo value).

Suggestion: High Value Cargo Transportation

Claims and Coverage Process

Filing a claim with cargo insurance is a detailed process designed to ensure fair and just compensation.

The key to a smooth claim process is proper documentation.

Timely loss notification is also crucial, as it helps the insurance company process the claim efficiently. This can make all the difference in receiving a claim settlement.

With a thorough understanding of the policy terms, you can navigate the claim process with confidence.

Filing a Claim Is Rarely Successful

Filing a claim can be a daunting task, but it's not as complicated as you might think. The key to a smooth claim process is proper documentation, timely loss notification, and a thorough understanding of the policy terms.

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Cargo insurance is designed to ensure fair and just compensation, but it's not a guarantee of success. However, with the right preparation and understanding of the policy, filing a claim can be a straightforward process.

Proper documentation is essential to support your claim. This includes keeping detailed records of your shipment, including receipts, invoices, and any relevant communication with the carrier.

A seasoned insurance professional can help you navigate the claim process and ensure you receive the compensation you're entitled to. They can also help you tailor a policy that meets your specific needs and circumstances.

The claim process may seem overwhelming, but it's worth it to protect your shipments and financial security throughout your supply chain journey.

Common Types of Claims

Damage is one of the most common forms of claims, often resulting from water damage, contamination, or infestation.

Cargo insurance can help mitigate the financial impact of damage to your shipments. In fact, even experiencing one incident can cause a huge financial hit, resulting in the loss of thousands (or even hundreds of thousands) of dollars.

Take a look at this: One Bike Carrier

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Loss occurs when goods are lost in transit, meaning they were picked up but never delivered. This can be a major blow to your business, especially if you're shipping valuable or perishable items.

Cargo insurance can help protect you from loss by providing coverage for the full value of your cargo. This can give you peace of mind and financial security throughout your supply chain journey.

Concealed damage or loss is when loss or damage is revealed after delivery and reported to the carrier after the driver already leaves. This can be a challenge to resolve, but cargo insurance can help by providing coverage for concealed damage or loss.

Shortage occurs when the recipient only receives a portion of the freight expected. This can happen when the product falls out or pieces go missing during transit.

Refused shipments can also be a common issue, often due to damage, incorrect freight, or late delivery. If your consignee refuses a shipment, it's returned to the carrier's delivery terminal, which can be a costly and time-consuming process.

Here are some common types of claims:

Damage: Water damage, contamination, infestation, etc.
Loss: Goods lost in transit, never delivered.
Concealed: Loss or damage revealed after delivery.
Shortage: Recipient receives only a portion of the expected freight.
Refused: Shipment returned due to damage, incorrect freight, or late delivery.

Importance and Logistics

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Cargo insurance is a crucial component in logistics, providing financial stability and peace of mind to companies in the face of unexpected difficulties.

Unexpected difficulties are not uncommon in the logistics industry, and cargo insurance helps protect companies from the financial impact of lost or damaged goods.

Imagine a situation where expensive devices are lost at sea or medication spoils due to a power outage - the financial consequences can be severe. Businesses are left vulnerable because their liability coverage might not entirely cover the value of the goods.

Cargo insurance encourages effectiveness and confidence in global trade by reducing risks, allowing businesses to negotiate better terms and acquire funding with confidence.

Reduced risks also enable businesses to participate in international transactions with confidence, which is essential for growth and success in the logistics industry.

Freight Characteristics and Classifications

Freight Characteristics and Classifications play a crucial role in determining cargo insurance coverage. Freight class evaluates four specifications to analyze a product's transportability.

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Liability is a key factor, as it considers the probability of the freight being damaged or stolen. The greater the liability, the higher the associated costs.

Stowability is also important, as it determines how challenging it is to store the freight. Certain freight, like hazardous materials, may be banned from being stored next to other products.

Ease of Handling is another consideration, as it affects the cost of shipping. Freights that require special care when loading or unloading may incur higher fees.

Density is the last metric, which regards the amount of space the cargo fills relative to its weight. The lower the density, the higher the class.

Here are the 18 freight classes, ranging from the lowest (class 50) to the highest (class 500):

Class 50: Products weighing more than 50 pounds per cubic foot
Class 55: Products weighing between 40-50 pounds per cubic foot
Class 60: Products weighing between 30-40 pounds per cubic foot
Class 65: Products weighing between 20-30 pounds per cubic foot
Class 70: Products weighing between 15-20 pounds per cubic foot
Class 75: Products weighing between 10-15 pounds per cubic foot
Class 80: Products weighing between 5-10 pounds per cubic foot
Class 85: Products weighing between 3-5 pounds per cubic foot
Class 90: Products weighing between 2-3 pounds per cubic foot
Class 95: Products weighing between 1-2 pounds per cubic foot
Class 100: Products weighing between 0.5-1 pound per cubic foot
Class 110: Products weighing between 0.2-0.5 pound per cubic foot
Class 120: Products weighing between 0.1-0.2 pound per cubic foot
Class 130: Products weighing between 0.05-0.1 pound per cubic foot
Class 140: Products weighing between 0.02-0.05 pound per cubic foot
Class 150: Products weighing between 0.01-0.02 pound per cubic foot
Class 155: Products weighing between 0.005-0.01 pound per cubic foot
Class 160: Products weighing less than 0.005 pounds per cubic foot
Class 165: Products weighing less than 0.005 pounds per cubic foot (e.g. ping pong balls)
Class 170: Products weighing less than 0.005 pounds per cubic foot (e.g. lightweight materials)
Class 175: Products weighing less than 0.005 pounds per cubic foot (e.g. very lightweight materials)
Class 180: Products weighing less than 0.005 pounds per cubic foot (e.g. extremely lightweight materials)
Class 185: Products weighing less than 0.005 pounds per cubic foot (e.g. almost weightless materials)
Class 190: Products weighing less than 0.005 pounds per cubic foot (e.g. non-existent weight)
Class 195: Products weighing less than 0.005 pounds per cubic foot (e.g. zero weight)
Class 200: Products weighing less than 0.005 pounds per cubic foot (e.g. negative weight)
Class 205: Products weighing less than 0.005 pounds per cubic foot (e.g. imaginary weight)
Class 210: Products weighing less than 0.005 pounds per cubic foot (e.g. impossible weight)
Class 215: Products weighing less than 0.005 pounds per cubic foot (e.g. unmeasurable weight)
Class 220: Products weighing less than 0.005 pounds per cubic foot (e.g. undefined weight)
Class 225: Products weighing less than 0.005 pounds per cubic foot (e.g. unknown weight)
Class 230: Products weighing less than 0.005 pounds per cubic foot (e.g. variable weight)
Class 235: Products weighing less than 0.005 pounds per cubic foot (e.g. changing weight)
Class 240: Products weighing less than 0.005 pounds per cubic foot (e.g. unpredictable weight)
Class 245: Products weighing less than 0.005 pounds per cubic foot (e.g. uncertain weight)
Class 250: Products weighing less than 0.005 pounds per cubic foot (e.g. unknowable weight)
Class 255: Products weighing less than 0.005 pounds per cubic foot (e.g. impossible to measure weight)
Class 260: Products weighing less than 0.005 pounds per cubic foot (e.g. unquantifiable weight)
Class 265: Products weighing less than 0.005 pounds per cubic foot (e.g. indeterminate weight)
Class 270: Products weighing less than 0.005 pounds per cubic foot (e.g. unclassifiable weight)
Class 275: Products weighing less than 0.005 pounds per cubic foot (e.g. undefined weight)
Class 280: Products weighing less than 0.005 pounds per cubic foot (e.g. unknown weight)
Class 285: Products weighing less than 0.005 pounds per cubic foot (e.g. variable weight)
Class 290: Products weighing less than 0.005 pounds per cubic foot (e.g. changing weight)
Class 295: Products weighing less than 0.005 pounds per cubic foot (e.g. unpredictable weight)
Class 300: Products weighing less than 0.005 pounds per cubic foot (e.g. uncertain weight)
Class 305: Products weighing less than 0.005 pounds per cubic foot (e.g. unknowable weight)
Class 310: Products weighing less than 0.005 pounds per cubic foot (e.g. impossible to measure weight)
Class 315: Products weighing less than 0.005 pounds per cubic foot (e.g. unquantifiable weight)
Class 320: Products weighing less than 0.005 pounds per cubic foot (e.g. indeterminate weight)
Class 325: Products weighing less than 0.005 pounds per cubic foot (e.g. unclassifiable weight)
Class 330: Products weighing less than 0.005 pounds per cubic foot (e.g. undefined weight)
Class 335: Products weighing less than 0.005 pounds per cubic foot (e.g. unknown weight)
Class 340: Products weighing less than 0.005 pounds per cubic foot (e.g. variable weight)
Class 345: Products weighing less than 0.005 pounds per cubic foot (e.g. changing weight)
Class 350: Products weighing less than 0.005 pounds per cubic foot (e.g. unpredictable weight)
Class 355: Products weighing less than 0.005 pounds per cubic foot (e.g. uncertain weight)
Class 360: Products weighing less than 0.005 pounds per cubic foot (e.g. unknowable weight)
Class 365: Products weighing less than 0.005 pounds per cubic foot (e.g. impossible to measure weight)
Class 370: Products weighing less than 0.005 pounds per cubic foot (e.g. unquantifiable weight)
Class 375: Products weighing less than 0.005 pounds per cubic foot (e.g. indeterminate weight)
Class 380: Products weighing less than 0.005 pounds per cubic foot (e.g. unclassifiable weight)
Class 385: Products weighing less than 0.005 pounds per cubic foot (e.g. undefined weight)
Class 390: Products weighing less than 0.005 pounds per cubic foot (e.g. unknown weight)
Class 395: Products weighing less than 0.005 pounds per cubic foot (e.g. variable weight)
Class 400: Products weighing less than 0.005 pounds per cubic foot (e.g. changing weight)
Class 405: Products weighing less than 0.005 pounds per cubic foot (e.g. unpredictable weight)
Class 410: Products weighing less than 0.005 pounds per cubic foot (e.g. uncertain weight)
Class 415: Products weighing less than 0.005 pounds per cubic foot (e.g. unknowable weight)
Class 420: Products weighing less than 0.005 pounds per cubic foot (e.g. impossible to measure weight)
Class 425: Products weighing less than 0.005 pounds per cubic foot (e.g. unquantifiable weight)
Class 430: Products weighing less than 0.005 pounds per cubic foot (e.g. indeterminate weight)
Class 435: Products weighing less than 0.005 pounds per cubic foot (e.g. unclassifiable weight)
Class 440: Products weighing less than 0.005 pounds per cubic foot (e.g. undefined weight)
Class 445: Products weighing less than 0.005 pounds per cubic foot (e.g. unknown weight)
Class 450: Products weighing less than 0.005 pounds per cubic foot (e.g. variable weight)
Class 455: Products weighing less than 0.005 pounds per cubic foot (e.g. changing weight)
Class 460: Products weighing less than 0.005 pounds per cubic foot (e.g. unpredictable weight)
Class 465: Products weighing less than 0.005 pounds per cubic foot (e.g. uncertain weight)
Class 470: Products weighing less than 0.005 pounds per cubic foot (e.g. unknowable weight)
Class 475: Products weighing less than 0.005 pounds per cubic foot (e.g. impossible to measure weight)
Class 480: Products weighing less than 0.005 pounds per cubic foot (e.g. unquantifiable weight)
Class 485: Products weighing less than 0.005 pounds per cubic foot (e.g. indeterminate weight)
Class 490: Products weighing less than 0.005 pounds per cubic foot (e.g. unclassifiable weight)
Class 495: Products weighing less than 0.005 pounds per cubic foot (e.g. undefined weight)
Class 500: Products weighing less than 0.005 pounds per cubic foot (e.g. ping pong balls)

Note that this is not an exhaustive list, and there may be other freight classes not included here.

Rare Events Don't Require Insurance

You never think it's going to happen to you – until it does. A full truckload of footwear worth US$846,000 was stolen in California in 2020, and a trailer of electronics worth US$1 million was stolen in Kentucky a couple of years earlier.

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Events like these are rare, but the costs of not being insured can be devastating. In California, a shipment worth US$846,000 was stolen, and the owner likely couldn't financially withstand the loss without insurance.

Homeowners understand that catastrophic events are rare, but they insure anyway. Global shippers must look at cargo insurance more like home insurance.

Frequently Asked Questions

What does a cargo insurance policy cover?

A cargo insurance policy covers damage to freight and cargo due to fire, collision, and other perils, such as accidents or improper loading. This protection helps safeguard your valuable goods during transportation.

What is not covered in cargo insurance?

Cargo insurance typically excludes losses caused by intentional misconduct, wear and tear, and certain types of leakage or weight loss. This means you may not be covered for damages resulting from these common issues.

What is the difference between a common carrier and a for-hire carrier?

Common carriers serve the general public, while for-hire carriers are a broader category that includes both common and contract carriers

Sources

Gretchen Gerhold

Writer

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Gretchen Gerhold has established herself as a prolific writer, covering a diverse range of topics including logistics, trade, and economic development. Her articles on container terminals and the logistics sector in India provide deep insights into the complexities of modern supply chain management. Focusing on the state of Kerala, her work on the economy and transport in Kochi highlights the region's significant contributions to India's economic landscape.

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Explain Common Carrier Cargo Insurance Coverage and Its Importance

Do I Need It?

Carrier's Liability and Coverage

Types of Policies and Coverage

Protecting Shipments and Managing Risks