As your precious cargo travels to other parts of the world, many things can go wrong. And, while all carriers have some type of liability coverage, it’s not enough to safeguard your investment. This is why you need cargo insurance.
Shipping products and cargo across borders bears inherent risks.
With the booming of international trade, an average of 799 million containers are shipped annually over the past three years. Meanwhile, it’s estimated that roughly 1,382 containers are lost at sea each year.
Inevitably, shippers and buyers are often faced with financial bottlenecks and operational hurdles.
Between loading, unloading, drayage, and consolidation, goods can be damaged, lost, or stolen. Furthermore, unexpected events like severe weather, backlogs, and even acts of war can cause serious delays, impacting your business and bottom line.
Relying solely on carrier liability coverage is usually not enough. That’s why nearly every shipper purchases cargo insurance covering the value of the shipment and forgone revenue due to cargo loss, damage, or delays.
But what exactly is the difference between carrier liability and cargo insurance?
What Is Carrier Liability?
Carrier liability is the legal responsibility of a carrier (shipping company, freight forwarder, etc.) while cargo is in their care and control during transit. It defines the extent to which a carrier must compensate for loss, damage, or delays that occur when goods are in their custody.
Carrier liability is established by international conventions and national laws, and it’s described in detail in the carrier’s terms and conditions. In most cases, it’s calculated in the shipping costs by default.
What Does Carrier Liability Cover?
As stated by law, a carrier is liable for loss or damage to cargo caused by their fault or neglect.
However, this coverage is typically limited to a smaller amount than the actual cargo value and often doesn’t cover lost revenue or extra fees incurred due to delays, repairs, or replacements.
Furthermore, it goes without saying that carriers are not liable for damage or loss caused by things they can’t really control – for instance:
• Acts of God: severe weather or natural disasters.
• Acts of war or public enemy.
• Public authority actions: customs clearance delays or rejections.
• Acts of the shipper: improper packaging or loading.
• Inherent vice: damage due to the nature of the product itself
Carriers themselves don’t pay liability coverage out of their own pocket! They, too, have cargo liability coverage.
What Is Cargo Liability Insurance?
Cargo liability insurance (or cargo legal liability insurance) is a policy that protects the transportation company (the carrier) from financial losses when they are held legally responsible for damage or loss to cargo while it’s in their care, custody, or control.
What Is Cargo Insurance?
Cargo insurance is a type of coverage that protects goods while they are in transit. Depending on its type and agreed level of coverage, it typically compensates the full value of cargo that’s lost or damaged due to various unforeseen events, and may also cover additional expenses that arise.
What Does Cargo Insurance Cover?
Cargo coverage insures the full value of your shipment and, depending on the policy, it may also cover associated costs related to lost profit, extra shipping and customs fees, recovering lost items, and acquiring repair parts.
A key advantage is that cargo insurance provides coverage regardless of whether the carrier is at fault for the loss or damage.
Although there are various types of cargo insurance, most policies include risks such as fire, theft, water damage, natural disasters, acts of war, piracy, vessel accidents, cargo abandonment, and customs delays or rejection.
Who’s At Fault?
The question of fault is a key differentiator when talking about carrier liability vs. cargo insurance.
With carrier liability, shippers must prove that loss or damage was caused due to carrier negligence. If the carrier fault is not proven, there may be no compensation for the shipper.
In contrast, cargo insurance covers losses or damages that occur during transit, regardless of who is deemed responsible.
What’s Covered/Not Covered?
As discussed, carrier liability has specific exclusions mostly related to events outside the carrier’s direct control, like Acts of God, issues stemming from the shipper’s actions, inherent vice of the goods, etc.
Cargo insurance, depending on the type and policy, provides broader coverage but also has exclusions, such as damage caused by faulty products or inadequate packaging, deliberate actions, or gross negligence on the part of the insured party.
Every policy also has a specific coverage limit, and any financial losses above it are not covered.
Furthermore, when shipping hazardous goods (HAZMAT), delicate items, or highly valuable cargo, shippers need to have cargo-specific insurance policies to protect their investment and any forgone revenue.
Carrier Liability vs. Freight Insurance In The Claims Process
The claims process differs significantly between carrier liability and cargo insurance.
If relying solely on carrier liability:
- You must prove carrier negligence; in other words, you must provide sufficient evidence that the goods were picked up in good condition and proper packaging but were delivered damaged.
- You should submit proof of value and loss.
- You may have to file separate claims with each carrier involved in handling the cargo.
- Claim payments generally do not cover the actual cargo cost or the full financial loss of the shipper.
If your shipment’s covered by cargo insurance:
- You only need to prove that damage or loss occurred – not the carrier’s negligence.
- You must submit proof of cargo value and loss.
- You typically need to file a single claim that covers all carriers associated with your shipment.
- Claim payments cover any losses under the policy limit.
So, as a shipper, you should document literally everything, including pre-shipment condition, packaging and delivery condition, with photos, videos, email communications, etc.
Do I Always Need Cargo Insurance?
The short answer is, Yes! Relying solely on carrier liability is generally insufficient for protecting the full value of your cargo.
Cargo insurance provides peace of mind by covering a wider range of risks regardless of who’s fault it is and compensates based on the actual value of your goods. It does come with a price, but it’s a rather cost-effective extra when things go wrong.
Get The Best Cargo Insurance For Your Shipment
Ship4wd, in partnership with Loadsure®, offers all-risk cargo insurance services with comprehensive, door-to-door coverage up to $2M for international shipments. Simply sign up and add coverage digitally in under a minute during your shipment booking.
Our claims process is fast and digital, with settlements often completed within days or minutes. And the best part? You can do it all from a single dashboard! Get started today!