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The Importance of Cargo Insurance

Whether you ship freight by truck, air or ocean, obtaining comprehensive cargo insurance coverage is a crucial aspect of global freight management.
The Importance of Cargo Insurance

In light of the recent loss of containers on the Maersk Shanghai, which experienced severe weather outside of Charleston, SC, we would like to stress the importance of cargo insurance.

The main benefit of purchasing cargo insurance for global freight is to protect the value of your goods. Your cargo may be exposed to a variety of risks while in transit, with damages or losses occurring during storage, handling or transport; all of which can have a serious impact on your company's profitability. In many cases, the liability of carriers regarding loss or damage to cargo while the goods are in their control is very small, usually pennies on the dollar. Therefore, it is extremely important that, as the owner of the goods, you seek coverage to protect your company against the potential loss or damage to your goods while in transit.

In the event of an emergency, a cargo ship may voluntarily sacrifice part of its cargo. This is a principle of maritime law termed ‘General Average’, according to which all parties in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole. In this example, the carrier will not be responsible for your share of General Average, only being responsible for any loss or damage to goods due to their own negligence while the goods are in their custody.

According to a survey by the World Shipping Council, an average of 1,390 containers are lost at sea every year. At very minimum, your company should seek insurance to protect itself from General Average liability where a small to medium size company could be required to post a significant bond which could threaten the organization’s cash flow and will be necessary prior to the carrier releasing your goods from their custody.

Summary of liability limitations

Indirect Air Carrier’s Legal Liability

The Montreal Convention governs the limits of liability for international carriers. An international air carrier’s liability for damage or loss of cargo is limited to 19 SDR per kilo (approx. $26/ kg) of the cargo’s gross weight. When moving your goods on a No Value Declared (NVD) or Value Declared for Carriage (VDC) basis you are not purchasing any type of insurance coverage for loss or damage to your goods. By not purchasing insurance you are simply accepting the standard carrier’s liability of 19 SDR (approx. $26/ kg).

NVOCC Legal Liability

The Hague/COGSA Act governs the limits of Liability for Non-Vessel Operating Common Carriers like DACHSER USA Air & Sea Logistics Inc. COGSA (The Carriage of Goods by Sea Act) limits vessel owner’s liability to $500 per shipping unit. By not purchasing insurance you are accepting the carrier’s standard liability of $500 per unit.

Warehouseman/Motor Carriers Liability

The responsibility of warehouseman is that of reasonable care and diligence as required by law. However, by not purchasing insurance you are accepting the carrier’s standard liability of $50 per shipment or $0.50 per pound/ piece, whichever is greater.

How to insure your freight

The best way to protect your financial interests in your cargo is to insure “All-Risk”. This relieves you of financial exposure from physical loss or damage to your goods in transit. It basically insures the cargo against all risks of physical loss or damage from external causes subject to specific policy terms, conditions and exclusions. This coverage applies to ocean, air and truck shipments.

Your local DACHSER contact can offer valuable assistance in helping you determine the most appropriate and comprehensive cargo insurance necessary to protect the value of your shipment.

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