Freight Forwarding Insurance Basics Every Shipper Should Know

 When you import or export goods across the world, you are aware of the risks associated with it, but you do it anyway, right? Your container might fall overboard during a fierce storm, goods could be damaged during transit, or a warehouse mishap such as a fire or building collapse might destroy your inventory. Is there any way to skip the risk? No, you cannot really avoid these mishaps as they are unpredictable, but you can definitely make sure you are equipped to handle any situation so you bear the minimum loss. This can be done by opting for freight forwarding insurance that protects your business interests.

What is Freight Forwarding Insurance?

Similar to medical or vehicle insurance, businesses that transport goods through waterways can opt for freight forwarding insurance. It offers specialized coverage that protects goods during international or domestic transportation. Unlike standard coverage, it provides comprehensive protection that covers your cargo from the moment it leaves your warehouse until it reaches its final destination.

Understand it this way: if you are a furniture manufacturer shipping goods worth $50,000 from India to New York, your freight forwarder’s basic liability might only cover $500 if something goes wrong. However, freight forwarding insurance covers your cargo for its actual value and secures you from heavy losses.

Why Standard Carrier Liability Isn’t Enough

People with limited knowledge still mistakenly believe that a freight forwarder’s liability is enough for their shipment, but this isn’t true. Carrier liability is intentionally limited by international conventions. For ocean freight, the Carriage of Goods by Sea Act (COGSA) limits liability to just $500 per package. For air freight, the Montreal Convention caps it at approximately $20 per kilogram.

Let’s understand this with an example. If you are shipping 1,000 laptops valued at $1,000 each, and they are lost due to any reason, natural calamity or transit mishap, the freight forwarder would only be liable to cover $500 under COGSA. However, freight forwarding insurance will secure 100% of the cost.

Types of Coverage Available

Like any other insurance, freight forwarding insurance offers several coverage options. All-risk coverage is the umbrella insurance coverage that offers comprehensive protection against most causes of loss or damage. But, there are some exceptions to this coverage such as war or inherent vice of the goods.

All-risk freight forwarding insurance is the most preferred by most businesses as it offers a broader protection against damages and mishaps. Insurance gives you a piece of mind especially when transporting high-value goods.

What Does Freight Forwarding Insurance Cover?

Freight forwarding insurance offers general coverage such as physical loss or damage during transit. It also covers damage from accidents or natural disasters, theft or improper handling, and contamination. Besides these, standard insurance coverage handles costs incurred during maritime claims, such as surveys, salvage charges, and general average contributions.

However, certain exclusions are always present in any insurance policy. These policies do not cover poor packaging, inherent defects in goods, or delays. It is advised to read the insurance documents carefully and discuss them with a professional to understand your insurance policy better.

How Much Does It Cost?

There are numerous things that affect the cost of freight forwarding insurance. The standard premium is between 0.3% and 1.5% of the value of the cargo. If your package is worth $50,000, for instance, the insurance could cost you between $150 and $750.

However, the premium is not fixed as it changes based on several factors. High-value goods such as jewelry and electronics might cost more to insure than other everyday objects such as utensils, or textiles. The second factor that affects the premium is the shipping route, a route passing through a pirate-prone area might cost more than a standard route.

How to Obtain Freight Forwarding Insurance

Today, buying freight forwarding insurance is as simple as getting medical insurance. You can obtain this insurance from your freight forwarder, who will handle all the paperwork for you. Alternatively, you can buy it directly from a cargo insurance broker.

A few tips before buying freight forwarding insurance: declare the accurate value of your goods, including product cost, freight charges, and expected profit margin. Avoid underinsuring your goods to save money on premiums; otherwise, you may face losses in case of any mishap.

Best Practices for Shippers

Secure your goods before sending them into battle; in simple words, buy insurance before dispatching the goods for transportation. You will not be able to get insurance once the shipment is in the water.

Keep documents safe. Maintain proper records of all invoices, fee receipts, and photographs of the goods. In case your shipment faces any mishap, you may need this evidence to claim insurance.

Hire a professional to guide you with your policy, or review the policy carefully yourself to avoid any confusion. Choose a policy that offers maximum benefits as per the value of your goods.

The Bottom Line

According to market research, freight forwarding insurance isn’t just an optional protection but an important safeguard for your goods and business. You not only save your goods but also protect your finances from major losses. While it may add to your shipping costs, it is still far less expensive than the loss you might face due to a mishap.

Having in-depth knowledge of freight forwarding insurance is vital for businesses of any size that transport goods through international waters. An informed business will make wiser choices and secure maximum coverage at lower premiums.

Remember, in the shipping industry, it's not about whether something might go wrong, but when the difficult time is there you should be safe from its impact before it is too late. Being prepared in advance is the right choice to ensure your business's reputation and money.