How does an insurance policy provide financial protection during transportation or storage?
What financial risks are involved in the transportation and storage of goods? When is it advisable to take out insurance? And where does the responsibility lie in case of damage or loss? Our experts provide answers to these and other questions.
However, this argument is not accurate. Based on national and international laws or international conventions such as 'CMR' and 'Hague-Visby,' the liability of a freight forwarder is limited. Financial damages resulting from unforeseen events during transportation or storage could therefore fall entirely on the customer. To prevent this, our experts provide more insight into the core concepts of 'logistics insurance' in this article and explain the most common risks that your goods face during transportation and storage. When is it advisable to take out such insurance?
Incoterms and Liability
The initial clarity about insurance arises with the Incoterms. Incoterms are international rules that define the responsibilities of buyers and sellers in international trade transportation. This includes aspects like delivery, costs, risks, and insurances. They help prevent misunderstandings and provide clarity about who is responsible for various aspects of the transportation process.
Incoterms also determine who is liable in the event of damage or loss of goods during transportation. The carrier or freight forwarder is only liable if damage or loss occurs due to proven errors or negligence during the transportation. However, please be aware: There are limitations to the extent of liability for carriers or freight forwarders, as well as to the maximum amount of compensation they are obligated to pay in such situations.
Coverage during transportation or storage
If the value of your goods exceeds the maximum amount for which your freight forwarder can be held liable, it's always wise to inquire about the possibilities of transportation or storage insurance. This provides the assurance that if something goes wrong during transportation or storage, you will receive compensation based on the commercial invoice value. With transportation insurance, the incurred transportation costs and 10% notional profit are also covered.
The amount of the insurance premium depends on several factors, including:
- the value of the goods
- the type of goods
- the destination
Common risks during transportation and storage
Safe and efficient transportation and storage processes of your goods are crucial in your logistics operation. What are the most common risks in this regard?
Damage can be visibly physical on the goods. But even if everything seems fine at first glance, there might still be damage. For instance, this can occur due to high or rapid temperature fluctuations during transportation, or if the goods have come into contact with moisture. Initially, it's the shipper's responsibility to ensure that the cargo is properly packaged. If the cargo is already damaged or poorly packed when the carrier receives it, the carrier will document this in the transportation documentation.
For visible damage: if goods are visibly damaged upon receipt by the receiving party, the carrier is directly liable in the case of air or sea freight. For road transportation, a note on the transportation documents is sufficient. In all cases, immediate and written notification must be provided.
For damage that is not immediately visible: If the damage to the shipment is not immediately visible, the carrier, in the case of air or sea freight, must be notified within three working days that they are being held liable. In the case of road transportation, this period is seven days. In most cases of damage, the goods are still delivered to the receiving party, unless continuing the transport proves to be pointless or impossible.
Lost or stolen goods
These terms encompass the loss and/or theft of a part or the entire goods. In such situations, it's crucial to demonstrate that the loss or theft occurred during the transportation of the goods. In principle, a loss is indicated with a note on the transportation documentation specifying the contents and quantities of the shipment. The carrier signs the transportation documentation upon receiving the shipment. If the recipient discovers a loss upon receipt and notes it on the transportation documentation, this serves as evidence that the loss occurred during transportation.
Theft always needs to be proven, for example, with the help of surveillance footage. Every case of theft should be reported to the police, and the responsibility for this lies with the party in possession of the shipment at the time of the theft. If there is no concrete evidence of theft, the incident is treated as a loss.
If only a portion of the shipment is lost or stolen, the affected party is compensated on a proportional (pro rata) basis.
Delayed delivery of goods can lead to financial consequences, referred to as "consequential damages." Carriers and freight forwarders rarely accept liability for such resulting financial losses. At most, they might be obligated to reimburse the paid freight costs if errors or negligence can be proven. It's generally not possible to insure your goods against consequential damages because it's quite difficult to determine the exact financial extent of such losses.
This term applies only to goods transported by sea freight. In the Netherlands, the term "General average" is also known as "averij gross." What does the term mean? In short: "General average" is a legal principle in the maritime sector. When a ship is in distress due to factors like a storm or onboard fire, costs are incurred to save the ship, cargo, or crew. During a storm, for instance, it might be decided to lose cargo to stabilize the ship and save both the vessel and the remaining goods.
Costs incurred in such situations are then proportionally distributed among the shipowner, cargo owners, and insurance companies. The goal is to ensure a fair sharing of financial burdens among all parties involved in the ship's journey. In practice, this means that even the cargo owner bears a portion of the costs. However, it is possible to insure against such risks.
Submitting a claim for damage, loss, or theft
To hold a carrier liable, it is essential to file a claim for damage, loss, or theft as soon as possible.
If the shipment was insured, the insured party should immediately contact their insurance company to file a claim. The deadline for filing a claim varies from one company to another. If the claim is approved, the insurance company reimburses the full value based on the commercial invoice. If there is no commercial invoice, the market value is used to determine the amount.
In turn, the insurance company holds the carrier liable for reimbursement of the relevant costs.
When to insure and when not to insure? (header)
Purchasing insurance is almost always a wise choice because it's rare for the value of the goods to be lower than the amount for which the carrier or freight forwarder can be held liable.
When considering whether to take out cargo insurance for your goods, it's important to keep in mind the principle behind insurance: Insurance provides coverage against relatively significant damages that fortunately don't occur frequently.
If the value of your goods exceeds the amount for which the carrier or freight forwarder is liable, or if you are shipping to unfamiliar destinations with less organized infrastructure, it's strongly recommended to opt for the relatively low additional cost of insurance. This provides you with peace of mind and protection against unforeseen circumstances that might affect your goods. It can also safeguard you from significant financial losses and prove invaluable for your transportation activities.
To learn more about insuring your goods against the financial risk of loss or damage, explore DSV Cargo Insurance or DSV Storage Insurance.
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