What Is Freight Insurance? Ultimate Guide to Freight Cargo Insurance

What is freight insurance? Freight insurance (also known as cargo insurance) is designed to cover owners of goods while in transit over water or land, excluding transportation within your own vehicles. Freight cargo insurance protects against potential financial losses from cargo that may be damaged, lost, or stolen during transport – whether by train, road, sea, or air. Freight insurance is an essential part of risk management for any business engaged in trucking operations in North America. This is particularly important given the vast distances involved and the diverse environmental and security risks associated with shipping in the region, making this aspect even more critical.

Contents:

1. Freight Cargo Insurance: An Important Asset in North American Trucking
2. Understanding Cargo Liability vs. Freight Cargo Insurance
3. What Does Freight Insurance Cover?
4. Key Factors Affecting Freight Insurance Cost and Coverage
5. When to Consider Freight Cargo Insurance?
6. Freight insurance Demand North America

Freight Cargo Insurance: An Important Asset in North American Trucking

The trucking industry is the backbone of the North American supply chain, pinning manufacturers, retailers, and consumers together from sea to shining sea in the United States, Canada, and Mexico. Every day hundreds of millions of dollars in cargo ships across the continent. The deliveries may be anything from raw materials to end-to-end products, and many of these deliveries can be high in value. But loss or damage is always a possibility of transportation and hence freight shipping insurance comes in.

Freight shipping insurance will be requested of any business that handles interstate or interdecadal trucking. Cross-border transport involves traversing different jurisdictions and requires considerations of various weathers and operational conditions. It becomes an isolated challenge, however, for shipping companies engaged in the movement of freight between the U.S., Canada, and Mexico: extended transit time, inconsistent roadway conditions, higher odds of theft or accident. Freight insurance gives a business protection against the financial ramifications that may ensue according to these risks above.

Understanding Cargo Liability vs. Freight Cargo Insurance

One of the biggest myths in transportation is freight insurance vs. freight liability and whether or not US law mandates a carrier must only provide minimum liability coverage.

What is cargo liability insurance?

• Cargo liability refers to the legal responsibility taken by the transporter over the goods while in transit. This insurance is normally limited, however, to a predetermined amount and is based mostly on the weight freight has or according to some set rules. A carrier is usually made to be liable in case of loss or damage, where it can be proven that there was negligence. For instance, in the event of any accident leading to cargo damage, which the carrier is responsible for, then they are obligated to pay claims on such loss. In any case, however, the amount they will pay may be way less than the actual value of the shipment.
• Freight insurance is broader than cargo liability insurance in that it simply provides a wider blanket of protection. It extends to full freight value if it were lost or damaged regardless of fault, covering the shipper for those instances where cargo liability insurance would not be substantial enough and would assure full value recovery of goods.

What Does Freight Insurance Cover?

For companies whose business relies on trucking to move their goods, the value of the cargo often involves a significant percentage of their capital investment. If there is an accident, theft, or any misfortune that may involve financial loss, it could be disastrous. Freight insurance mitigates these risks, ensuring the business is protected in case such situations arise.

North American shippers should be thinking about freight insurance for the following reasons:

1. Cargo coverage against financial loss: Goods-in-transit are subject to accidents, natural disasters, thefts, and, in some cases, are fully or partially destroyed. Freight insurance is useful for recovering the full value of these lost goods.
2. Inclement weather: With some parts of Canada experiencing damaging winters right down to Florida with its hurricane seasons, environmental conditions are favorable on the North American continent for weather-related events. Freight insurance will pay you damages covered by such natural disasters as storms, floods, and fire. Cargo Theft on the Rise: Cargo theft is perhaps one of the biggest problems and tends to take place where there is lots of heavy truck traffic.
3. Cargo theft: This is a serious issue and takes place in the high truck traffic zones. Freight insurance safeguards against theft, so your company will be able to bounce back in case it suffers a loss from one.
4. Compliance with contractual obligations: mostly, freight cargo insurance is an essential in complying with the contract obligations established between shippers and their clients. Secondly, it is a basic requirement for any business to comply with standards set forth by the industry, and insurance provides proof of much-needed coverage in case some loss arises, avoiding unnecessary disagreements.

Types of Cargo Coverage

There are several different kinds of freight insurance available that suit the numerous needs of a shipper. The major types of coverage include:

1. All-Risk Coverage: A class offering the widest scope of freight insurance coverage, all risks include any form of damage or loss while in transit other than those which may be excluded in the policy. Business enterprises avail this type of insurance when it comes to shipping high-value items or when sending fragile items that are easily and normally susceptible to damages.
2. Named Perils Coverage: Here, the insurance will be less comprehensive and usually covers only stated particular risks named within the policy. Examples may include fire, collision, theft, and natural disaster. Generally cheaper than all-risk coverage, with less protection and possibly excluding more common causes of damage.
3. Open Cargo Policy: The open cargo policy provides uninterrupted, unbroken coverage to the business concern that constantly sends goods within the year. This insurance policy is particularly beneficial for those companies involved in regular trucking because here, the goods are covered all the time, and therefore, there is no need to separately insure the shipment of goods.
4. Per Shipment Coverage: More affordable for companies that do not ship goods as regularly, this coverage allows businesses to insure their shipments when the need arises without necessarily creating an annual policy. It may thus be useful under ad hoc or one-time circumstances where comprehensive annual insurance would be overkill.

Key Factors Affecting Freight Insurance Cost and Coverage

Some of the key variables one considers when choosing freight insurance for trucking operations to procure the right level of cargo coverage include the following:

1. Value of Cargo: Basically, the value of cargo to be transported has a lot to do with the determining freight insurance cost. The value of cargo is to be correctly declared by the shippers in order to ensure that they are adequately compensated for a loss. While undervaluation may result in adequate coverage, on the contrary, correct compensation against a loss may result in an overestimation of its value that raises the premium.
2. Mode of Transit: There are some specific risks based on the mode of transit-road, rail, sea, or air. Thus, one has to think about the mode through which the goods are transported and select an insurance policy according to the specific risk of that mode of transit.
3. Deductibles: Most freight insurance contains deductibles, or the amount that the insured party must pay when a loss is claimed. Higher deductibles have the counterbalancing effects of reducing premiums but also forcing the shipper to take small losses out-of-pocket.
4. Exclusions: Most insurance policies have exclusions, which are situations wherein insurance is not covered. Common exclusion examples would include improper packing and handling by the shipper. Reviewing and understanding the exclusions is important for avoiding surprises when filing a claim.
5. Claims Process: The claims process should be quick, with minimal hassle. Shippers should ensure that their insurance company clearly outlines procedures for filing a claim and the efficiency in processing said claims. This is very important to businesses in which time is of essence and where delays in compensation may affect operations.

When to Consider Freight Cargo Insurance?

While freight insurance stands out for most shippers, there are instances of importance:

1. Fragile or High-Value Goods: If the goods are susceptible to being damaged, such as some electronics, glassware, or even works of art, then these have to get all-risk insurance. On the other hand, goods that belong to the high-value category, like machinery or jewelry, must be adequately covered so that loss from such objects can be limited.
2. Cross-Border Shipments: The risks for trucking across international borders further develop into one of delays, customs problems, and longer transit times. Freight insurance keeps your business covered down the road, no matter the destination.
3. Time-Sensitive Shipments: Most businesses, more so those involved in perishable goods or just-in-time manufacturing, have stringent time schedules where even loss or damage to shipment could prove disastrous. Freight insurance, therefore, comes as an assurance against financial loss that may arise due to a lost or damaged shipment.

Understanding the Incoterms in Freight Insurance

For companies with overseas shipments, Incoterms interpretation is a very essential matter. The Incoterm stands for the international commercial terms, which are tradeways that declare a responsibility of Seller and Buyer to deliver under certain conditions. This defines who will bear the costs and who will take the risks at each passage of the goods. For freight cargo insurance, Incoterms specify at which point in the supply chain one party gives responsibility to another for insuring the shipment.

Below are a few of the more popular use Incoterms:

• EXW (Ex Works): The seller is only responsible for the risk and insurance until the delivery of goods, after which these are on account of the buyer.
• FOB (Free On Board) points the responsibility of the goods to a seller until it is loaded onto transport Thereafter, the risk is on the buyer.
• CIF (Cost, Insurance, and Freight): The seller pays the insurance and freight for the goods to the port of destination; at this point, the buyer assumes liability.

Understanding what these terms refer to can allow the business to make an informed choice about when it is best to spend on freight insurance or who takes that risk.

Freight insurance Demand North America

Trucking companies in North America use freight insurance to transport freight. From accidents and bad weather to robbery and the complication of crossing international borders, putting goods on the road comes with many risks, but freight insurance is financial security no business can do without if they want their wheels turning smoothly. Whatever happens on the road, it ensures that a company will recover from any loss and continue doing its business of providing goods to its customers. Regardless of whether your shipping cargo is purely domestic in the United States or cross-border to Canada and Mexico, freight insurance is a critical component of any solid risk management program. Moreover, adequate freight insurance will protect your business, keep the customer's trust, and allow you to choose freedom from any unexpected situation.