When shipping a product, one could automatically assume that the carrier is completely liable for any damage or loss. Not so. Even with the greatest care and attention, cargo is subject to many risks during transport involving several factors. The goods may not be packaged appropriately for the mode of transportation, there could be an accident at the port or during transit, the cargo is lost at a terminal, or could even be jettisoned overboard to save the vessel or aircraft.

The risk of transporting cargo therefore is fair and square regardless of the mode, the owner’s risk and not the carrier’s. This principle is thousands of years old and holds true today.

Carriers do carry insurance however this is limited and not intended to transfer all risks to themselves. It is expected that importers and exporters undertake sufficient cargo insurance to cover damage, loss, war, acts of god and general averages although this is not mandatory.

Cargoes that have an inherent vice are normally uninsurable or subject to very high premiums, deductibles and restrictions as insurance companies do not insure risks that are likely to occur.

Companies and cargo owners are required to take the extra steps and all actions to reduce or minimize any loss or damage, whether by utilizing special containers, bracing, correct packing, or choice of route.

CARRIERS INSURANCE

• Limited Liability is a limit placed on any liability incurred by a carrier, NVOCC and freight forwarder.

– The limits are explained in print in the carrier’s conditions of carriage or standard trading conditions issued by the forwarder. You would normally find this in the small print at the back of their documents or if not, you can request a copy.

– The majority of forwarders adopt the CIFFA (Canadian Freight Forwarding Association ) trading conditions whose limit is two SDR per Kg. Airlines normally offer $20 per Kg.

– Steamship lines normally offer $500 per Customary Shipping Unit e.g. container. However as global conditions change, this is certainly not written in stone.

• Errors & Omissions or otherwise known as Professional Liability Insurance is carried by most freight forwarders and protects them and ultimately the client from risks of

– The expenses to reduce the damage

-  The expenses to complete the shipment

– The penalties

– The survey expenses

– Physical or financial damage or loss of the third party caused by the freight forwarder

– The damage or loss of the customers caused by the failure of the freight forwarder

A Flat fee per shipment file is normally charged by the forwarder. Forwarders elect to make a claim on this coverage when the loss is reasonably substantial and there is sufficient evidence of their internal error.

ALL RISKS AND WAR – OPEN CARGO POLICY

All Risks Open Cargo Policy is the broadest form of coverage available, protecting against all risk of physical loss or damage from any external cause. Loss or damage due to delay, inherent vice, pre-shipment condition, inadequate packaging, or loss of market is not covered but the following is included: General Average, War Risks , Civil Riot Clauses, Partial or Total Loss, Warehouse to Warehouse coverage, salvage and survey expenses.

Importers/Exporters could obtain an open cargo policy direct from an insurance provider written specifically for their own products, track record and mode of transport. Monthly reporting would be handled by purchaser of the cargo policy. Certificates would not be required in most cases but can be issued on an “as needed basis” such as documentary requirement in a letter of credit. This type of policy is used for those companies that have continuous movement.

Alternatively they could purchase All Risks insurance from the freight forwarder’s own open policy where they would handle administration and reporting. Premiums and Minimum charges would be higher in this case. Deductibles and exclusions would be on a broad, general basis however so it would be important to discuss with the forwarder any issue where your cargo is at higher risk than expected.

General Average

An Ancient principle of equity in which all parties in a sea adventure (ship, cargo, and freight) proportionately share losses.

The 3 required elements are :

1. A peril to the common venture – For example: A storm at sea, which threatens the vessel itself, cargo carried on board (some of which may be yours) as well as the lives of the passengers and crew. Together these constitute the “common venture “.

2. An extraordinary sacrifice or expenditure to avert the peril – This could involve jettisoning cargo to lighten the vessel, or engagement of a salvage tug to tow the damaged vessel, etc….

3. The successful preservation of the venture – If the vessel is not preserved, you may be presented with a conventional marine claim and not a General Average.

When the vessel owner declares a general average, the vessel owner and all of the cargo interests will share the expenses associated with the general average on a pro-rata basis. These expenses are covered under the Open Cargo Policy . The percentage of perils encountered by vessels is small compared to the actual global shipping volume, however it does occur. Between global warming affecting the oceans, climate and the increase of venture piracy, the more a cargo owner participates in transporting their goods around the world, the risk of general average being declared on that very crucial shipment in the supply chain.

INSURANCE

F.P.A. Free of Particular Average

• Marine insurance provision which limits the liability of an insurance company to only those losses that exceed a specified percentage of the value of the goods.

• It is similar to the deductible clause included in other types of insurance, but is not applicable where a cover for total loss is in force. FPA conditions are applied where the goods are extremely susceptible to damage, or are rendered almost worthless from exposure to water or heat.

• The usage differs in the UK (where it applies to partial loss caused directly or indirectly by mishaps such as burning, collision, sinking, or stranding of the ship) from its usage in the US (where it applies only to loss caused directly by such mishaps). FPA conditions have now largely been replaced by the world-wide standard 'Institute Cargo Clause C.' which is included in open cargo policy.

INSURANCE CLAIMS

No matter what the coverage is and when damage occurs, it is important to handle the reporting and claim properly. Reporting damage after it has been sitting in the warehouse for 3 weeks after receipt can well result in an unaccepted claim. Allowing product to continue spilling after noting the damage may also delay or reduce your claim. The following procedure may well ensure a successful and timely insurance result.

• Always inspect cargo on arrival and ensure apparent or suspected damage is noted on your delivery receipt. This is a vital component of your claim.

• In the case of water damage, if cargo arrives in a container, inspect the container, door and roof.

• Hold all carriers, forwarders and delivery companies responsible immediately. Be sure to indicate file numbers, airway bill and house bill of lading numbers so that the transaction can be identified easily and provide initial estimate of damage. Notify all parties by email or fax.

• Take pictures - it’s worth a thousand words.

• Ensure quick, preventative action is taken to prevent further loss, e.g. Leaking barrel,

• Contact the Surveyor – they may or may not determine whether the goods are to be inspected. The insurance company will provide a list of local surveyors /agents.

• Complete the claim form. This will be provided to you by your insurance provider.

Provide the shipment documentation.

* Bill of Lading / Air Waybill
* Commercial Invoice
* Insurance Certificate
* Copy of notice of claim lodged against carrier
* Documentation relating to out-turn / receipt of goods
* Local Carriers Waybill, where applicable
* Copy of temperature records, where available
* Invoices to confirm salvage / sale price, where applicable
* Copy of instructions to carrier regarding carriage temperature, where applicable

So when do you decide to insure your cargo?

Cargo owners that experience long transit times, high values, continuous trade, goods with an inherent vice e.g. cheese, chocolate or in fact anyone that simply cannot afford to lose the value of their cargo should insure.

Those with nothing or little to lose and those with a crystal ball, need not bother.  PDF and video format

This is an excerpt from Freight Matters Canada

Gloria Rubaine

Second Review Business Analysts