As a business owner who constantly ships out items, you probably know how common it is to get acargo damaged during transit. In fact, the National Cargo Security Council reported that at least $50 billion is lost from the global market per year due to loss and damages of goods.
That’s why you should consider getting cargo insurance for your goods. However, courier companies are obliged by law to provide a minimum amount of insurance to cover any goods they will deliver. With this in mind, you might be contemplating if you really need cargo insurance especially since it requires an additional fee.
Still not sure whether it’s worth it to pay for the safety and protection of your goods? Read on to know the importance of cargo insurance and the benefits it could give to your business.
Cargo Insurance Explained: Basic Facts You Need to Know
Cargo insurance is a type of insurance that refers to the coverage an individual or company can get in case of physical loss and damage to their cargo during shipment. Also known as freight insurance, it is extremely vital in international trade as it covers the transportation of goods via land, air, water.
The Importance of Cargo Insurance
All courier companies offer at least a small amount of cargo insurance known as limited carrier liability. However, as the name suggests, this only means limited coverage for your shipped goods. And even if you proved that a carrier (shipping line, airline, or a third-party logistics company) is legally liable for your damaged cargo, their accountability is probably less compared to the actual value of your goods.
In general, airlines provide a very small coverage limit for your cargo which would be entirely dependent on its weight. Meanwhile, ocean carriers are only responsible for about $500 (or ₱25,000) per container. Trucking companies’ provided amount of insurance is also minimal depending on the cargo’s total weight. All of these would just simply mean that the real cost of cargo loss or damage is comparatively higher compared to the amount of insurance coverage you’ll be getting.
So if you really want to ensure your packages stay safe and secure all throughout its transit—from storage to the actual movement, it’s important to consider getting cargo insurance. Having cargo insurance is really not required but paying for one is highly recommended especially if you’re shipping fragile and expensive items. This ultimately protects your freight from all kinds of mishaps that can happen during transit. These include loss or damage due to fire, explosion, earthquake, lightning, storm, riots or strikes, theft, and impact made by any rail or road vehicle.
3 Different Types of Cargo Insurance Coverage
Despite its importance in the freight forwarding process, cargo insurance is rarely straightforward. The amount and scope of the compensation would all depend on the type of shipment, mode of transportation, and the terms in between different insurance companies. But in general, there are three common types of cargo insurance coverage which ensure all shipments made via air, land, and water.
1. All Risk
The all-risk insurance policy covers any physical damage or loss caused by external factors but with some exclusions listed.
It ensures all cargo from collisions with any physical object, destruction, improper storage, natural calamities (earthquake, tsunami, storm), train derailment, truck overturning, and theft. However, this all-risk policy doesn’t include cargo abandonment, customs rejection, damage to goods as a result of negligence, and WSRCC (war, strikes, riots, and civil commotions).
2. Free of Particular Average (FPA)
Also known as Named Peril policy, this type of cargo insurance specifically lists down any risks that are not covered by the compensation.
As such, it’s generally more limited. For one, it does not cover the loss of goods due to theft. Other exclusions include any damage caused by inappropriate packing, employee dishonesty, infestation, and more. The insurance just covers any collision, derailment, fire, overturning, sinking, and some accidents caused by nature.
3. General Average
The general average policy is basically a maritime law stating that in an event of an emergency, the loss or damage to the cargo is proportionally shared by all the parties financially interested in it. In short, it is a basic requirement in all sea freight shipments in which everybody is responsible for the possible mishaps.
However, since it only covers any partial loss that occurred due to peril at the ocean, you’re better off with other types of cargo insurance coverage such as the all-risks policy.
Make sure to know all the information covered in each policy to ensure you’ll be getting your money’s worth. You should also clarify any doubts you may have with the logistics provider or an actual insurance company before signing the document.
4 Compelling Reasons Why You Need Cargo Insurance
Once you have decided on the right type of coverage for your goods, having cargo insurance can be extremely beneficial to both importers and exporters locally and internationally. Aside from protecting both parties when it comes to freight loss and damage, there are 4 more reasons to get cargo insurance.
1. Avoid Financial Loss
Since having cargo insurance protects your goods from loss and damage, you can reduce the chance of potential financial loss.
If problems did occur during the transport of your cargo, you’ll be ensured an acceptable amount of money for the said items depending on the type of insurance you paid for. This is in contrast to the small amount of compensation you’ll be getting if you did not avail of the cargo insurance.
2. Receive Your Cargo Faster
Cargo insurance not only covers the cost of freight loss or damage but also facilitates the release of cargo. By having this process financially insured, you’re entitled to faster claiming of your compensatory fee as well as the quick release of your items considering they are not lost.
3. Have Control Over Terms
While you can always opt to rely on the minimal amount of insurance the typical carrier can provide, availing cargo insurance provides a whole new level of security and peace of mind.
Doing so also gives you more control over insurance terms which includes the actual value of compensations and the limits provided by the insurer. Overall, having this kind of power can help your logistics processes adjust according to your business’ needs.
4. Gain Customers’ Trust
As a shipper (seller), by contract, you are obligated to provide an insurance contract for the goods your customers have bought. This is usually due to their natural instinct to protect their own and their own banks’ interests.
Fortunately, availing cargo insurance for your business can not only help you save money from potential mishaps (including legal problems with your customers!) during transportation but also lets your buyers know that you are just as concerned to protect their interests. This helps you gain their trust which ultimately results in higher sales in the long run.
ALSO READ: Cargo Damage: How Can You Prevent It?
While it’s not required for the shipment of your goods, cargo insurance is extremely important as it protects you from any potential loss or damage that can happen during transit. So if you really want to take care of your shipped goods, it’s best to get cargo insurance than suffer from financial loss.
Want to ensure your packages are safe and protected? Worklink Services Inc., one of the most reliable courier companies in the Philippines, can offer cargo insurance alongside their various DALIvery services. Contact us today to learn more!
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