Cargo and Freight Insurance
The supply chain is dependent on the shipment services of goods or products and accounts for a lot of revenue gained in most organizations. In the process of transportation, some goods may get damaged or even lost on deck. To counter such problems, insurance companies have come up with transportation mitigation measures that counter these problems.
They have introduced cargo insurance, freight insurance, marine cargo, and air cargo insurance. Cargo insurance is a method of protecting shipments against losses that may occur in air, sea, or land transportation. This also includes physical damage or theft and loss in the value of customers’ goods or products. The level of cargo that is necessary to insure is highly dependent on the value of the cargo.
However, freight insurance covers only the logistics provider or freight forwarder against claims arising from their negligence or mistakes. Even in a successful freight insurance claim, your recompense is greatly limited. The freight forwarding liability terms vary depending on the mode of transportation used and are set out in conventions. These conventions place a shade over the amount to be allocated to the shipper which is reflected in the freight insurance terms.
Cheap cargo insurance
In general, the insurance premium depends on the percentage of the value of the cargo. It will also be highly dependent on the following factors:
- Nature of the freight
- Dimensions of the freight
- The route the carrier will take from the point of departure to the point of destination
- The delivery location of the cargo
- From where the cargo shipped
There is a big difference between freight insurance and cargo insurance. In simple terms, freight insurance covers the freight forwarder while cargo insurance covers the customer. For us to understand the difference better, we first have to be familiar with incoterms.
The duration of risks and cost responsibility is entirely dependent on the following:
- Sales agreement governing the terms of transportation
- The buyer or seller
International Commercial Terms of 2020(incoterms) governs the rules for the sale of goods around the world, including shippers’ liabilities and responsibilities.
Incoterms refer to a widened used terms of sale which are 11 recognized international rules which define the roles of both the buyer and seller.
It defines who is responsible for all logistical activities including the following:
- Paying for and managing the shipment
- Customs clearance
For now, we will use three that are commonly applied and relate to international sales agreements, and how the responsibility for insurance fits into them.
How much cargo insurance do I need?
Ex-works (EXW) this incoterm states that the buyer bears all the risk and insurance cost. In addition, Free on board (FOB) the incoterm dictates that the seller bears all the risk and cost until the goods are loaded on the aircraft or cargo vessel. From there, the responsibility shifts to the buyer. Lastly, we have cost, insurance, and freight (CIF).
Under this agreement, the seller bears the risk to the point where the goods reach the warehouse or point of discharge. Thereafter, the buyer takes charge of the cost and risk from then onwards. All the aforementioned insurances are good but if you would want to take a safer approach, I would advise the customer to choose cargo insurance to secure their products for their full value.
We have marine cargo insurance.
This is a type of policy that covers the following:
- Loss or damages caused to the cargo
- Any loss caused due to delay in the voyage
- Ship accidents during transit
Air cargo insurance covers all damages and losses during transit of goods or products in the air.
Types of air cargo insurance
We can calculate cargo insurance by multiplying the insured value by the policy rate. When considering the insured value, we can calculate it by adding the cost of freight to the commercial value of the goods and then add ten percent to cover expenses. Furthermore, we can calculate Freight insurance as a percentage of the freight forwarders’ fees and the weight of the goods.
Generally, insurance companies use mathematical analysis, calculations, and statistics to calculate the number of insurance premiums they duly charge on their customers. The insurance premium to be paid is determined by many factors like the value of the product being insured and its size.