What Is Freight Insurance and Why Is It Important?

Shipping goods across countries or long distances is an intricate process challenged by geographic, climatic, physical, human, and political risks. Freight insurance, also known as carrier insurance, protects the involved parties from financial losses and damages that may occur during transportation. Although you’re not legally obligated to purchase this policy, it may be worth investing in for your peace of mind as a business owner.

Freight Insurance vs. Carrier Liability

Freight insurance is another protection that covers your cargo should an unforeseen event occur. It’s a legally binding contract between a transport company and a shipper that indemnifies the shipper as long as the policy terms are met.

On the other hand, carrier liability is a protection offered by most carriers to protect cargo and act as compensation for transportation losses or damages due to their negligence. Depending on your carrier’s responsibility clause, they may cover physical loss or damage up to a certain amount. For example, if the shipping barrels need to be moved up and down a wooden staircase that is not strong enough, the carrier may be held responsible for the damages.

It’s important to note that carrier liability is limited. In fact, the coverage is often less than the actual value of the product being shipped. Moreover, if a natural disaster or acts of war occur during the shipping process, the carrier won’t be liable for damages.

Types of Freight Insurance

There are many types of freight insurance that you can buy, including the following:

1. Land cargo insurance

Land cargo insurance covers the freight when the goods are being transported by road or rail. It offers protection against incidents such as theft, collision damages, loss of perishable goods due to malfunctioning refrigeration systems and more.

2. Maritime cargo insurance

Maritime cargo insurance protects your goods against losses that may arise when in the hands of a water carrier such as a boat or container ship. It covers sea-borne hazards such as storms, vessel sinking, iceberg collisions and piracy. There could be additional coverage depending on the value and nature of the goods, like hazardous cargo insurance and reefer cargo insurance.

3. Air freight insurance

Air freight insurance covers the goods transported via air carriers. It’s an ideal option for those who need to get their goods delivered quickly or are transporting expensive items. This type of freight insurance protects against damages from loading and unloading bulk shipping boxes, air turbulence and bad weather. Like all other types, there are special provisions for perishable and hazardous goods.

Types of Freight Coverage

When looking to purchase freight insurance, consider the type of coverage you will need for your goods. For example, if you’re shipping fragile items, you may require additional coverage that a standard policy won’t offer. Here are some common types of freight coverage:

1. All-risk coverage

All-risk coverage is an extensive and comprehensive form of cargo insurance that offers protection against all kinds of losses or damages. However, contrary to its name, protection doesn’t include customs rejection, cargo abandonment, inherent vice, carelessness or negligence of employees, non-payment or failure to collect, and other force-majeure risk factors like pollution, war, earthquakes, and infestations.

2. Named perils coverage

A named perils coverage is narrower in scope compared to all-risk coverage. It offers protection against losses or damages that are specifically mentioned in the policy document. The list includes fire damage, lost packages due to theft, collisions and more. It’s less expensive than all-risk insurance, but it’s not as comprehensive.

What Is General Average?

General average is a maritime concept that essentially requires all parties involved in the shipping process to bear a proportionate amount of any losses or damages that occur during transportation. This is applicable when there’s an act of sacrifice by one of the parties for the benefit of all other cargo owners on board the vessel. For example, if goods are jettisoned overboard to prevent further damage and loss, a general average may apply.

It’s important to understand that the general average is not included in any type of freight insurance by default. It must be purchased separately as a special provision mentioned in the insurance policy.

While statistics show that general average claims occur once every eight years, it’s not something a cargo owner should ignore, especially if transporting highly valuable goods. If you purchase it, your insurance provider will pay for the general average costs and reimburse you for any losses or damages.

When To Get Freight Insurance

While booking a shipment with a carrier, you should first figure out the maximum liability coverage that your carrier provides. If this amount is lower than the value of the goods, consider getting additional insurance coverage.

Freight insurance also plays an important role in cross-border shipments because it can help in cases where foreign customs reject or seize a shipment or if there are conflicts between different countries’ laws and regulations. It’s an especially attractive option for international trade and air freight journeys that involve high-value cargo.

Essential Things To Do Before Shipping

Even if you have full-scale coverage for your freight, preparing for the shipment beforehand is still essential. This includes taking inventory of each item you are shipping and making sure it’s properly packed and labeled according to the carrier’s standards.

Giving accurate information about the goods being shipped is also important, as this will determine the cost and coverage of your insurance policy. Ensure that all details, such as weight, dimensions, origin, destination, the value of goods and type of packaging used, are provided accurately on the initial paperwork.

Finally, always read through your contract with a fine-tooth comb to ensure that all necessary clauses relating to cargo damage or loss have been included in the policy document before signing it off. If you like, take pictures of your freight before the transit as well, in case of a future claim.

Protect Your Shipments and Mitigate Risks

Freight insurance can be a great asset if you ship high-value, delicate or hazardous goods. But do your research and compare different carriers before settling on one that best fits your budget and needs. Don’t forget to look into the types of coverage available and consider adding additional protection for special freight, such as general average or air cargo insurance, if needed. Ultimately, relying on a good freight insurance broker can make a huge difference in getting the right policy for your shipment.