Hedging your bets: Marine insurance


When you entrust your valuable cargo to a common carrier, in any mode of transportation, you expect that the carrier will deliver each shipment complete, undamaged, on time, and to the right place.  Most of the time, cargo delivers as expected . . . but not always. 

The “perils of the sea” (and of the land, and the air) are still out there, waiting for an opportunity for something to go wrong.  And when things go wrong, shippers and consignees may find out that not only is their cargo lost or damaged, the carrier’s limitation of liability may allow the shipper or consignee to recover only “pennies on the dollar” – or even less.

Carrier limitations of liability vary according to the mode of transportation and the specific governing rules for each, but some common limits are:

  * 50 cents per pound, for domestic truck movement

  * $500 per package, for ocean freight (and a full marine container has, under some circumstances, been legally determined to be one package, with the carrier having only that $500 total legal liability for the entire container – even if the contents are worth $100,000 or more!)

  * Approximately $20 per kilogram, for air freight

Also, some transportation perils are outside the control of the carrier, in a manner that allows the carrier to entirely exempt itself from liability for cargo losses from those causes.

Some shippers and consignees may believe the odds in their favor, and that the cost of insuring their shipments exceeds their expected losses in the long term.  In other words, they are choosing to “self-insure”.  This can be a reasonable decision by someone whose financial resources are liquid enough to easily absorb the costs of complete loss of one (or more) shipments, but ruinous to anyone whose cash flow – and immediate cash reserves – cannot cover such large, unexpected amounts at any one time.

Freight forwarders (like Pilot Freight Services and Transmark Logistics) and customs brokers (like Transmark Customs Brokers) offer specialized marine insurance coverage – and corresponding peace of mind – to their clients at very modest rates.  This coverage is usually available for shipments moving either domestically or internationally, by ocean, air, truck, or rail, or any combination of these modes. 

Insurance premiums are normally calculated on the basis of “X” number of cents in insurance premiums for every $100 of coverage purchased.  Rates vary according to several factors, including:

  * commodity insured (taking into account its susceptibility to damage)

  * mode of transportation

* trade lane in which shipment is moving

Completeness of coverage can also vary, with “all risk” coverage being the most complete and cost-effective for most types of general commodities.  “With average” and “free of particular average” provide progressively less complete coverage.  Also, the starting and ending points of coverage can be extremely important; “warehouse to warehouse” is the most extensive, and recommended for most clients. 

Traditionally, marine insurance coverage is issued for at least 110% of shipment value, to ensure that coverage is sufficient to reimburse for the full value of the goods.  If the shipment invoice value does not include both freight charges (prepaid and/or collect), and any applicable customs duties, fees, and taxes in the destination country, these amounts should be added to the invoice value, and the insurance issued for 110% of that total. 

If a shipment is insured for less than its total actual value (including freight and duty), the insurers will pay the claim only up to the percentage of actual value insured.

Example: A shipment has a total actual value of $100,000, but is insured only for $80,000, a coverage level of 80%.  For a total loss, the insurers will pay a maximum of $80,000 against that claim.  For a partial loss of $20,000, they will pay only at that same 80% coverage level, which is just $16,000.

Your forwarder (like Pilot Freight Services and Transmark Logistics) and customs broker (like TCB) can help you identify the specific combination of coverage levels and specific provisions which can provide the most beneficial and cost-effective insurance coverage for your valuable shipments, and then place that coverage for you.  Whenever you’re ready to protect your cargo, we’re ready to help you make it happen.