We understand the rate itself is important, which is why we covered the importance of negotiating and selecting the best freight rate structure that is most appropriate for the type of service requirement in Freight Contract Rates vs. Spot Rates - Comprehensive Guide and How-to Negotiate & Execute Best Freight Rates, but we also understand there is more to the story than the rate.
The story is insurance. Evaluating the insurance coverage of a freight servicec provider is a crucial step in vetting a service solution and should not be ignored. Too many times we have heard nightmare stories or losses companies have taken because they missed this step in the carrier approval process and did not find out the magnitude of the issue until it was time to file a claim.
Legally, all freight providers must carry a minimum amount of carrier liability insurance coverage, but is very limited in coverage hence the reasoning behind cargo insurance. The Federal Motor Carrier Safety Administration (FMCSA) site is a good place to start in the process of validating whether the motor carrier or freight broker is operating legally, but there is more to be done.
There are various types of cargo insurance policies and the types vary on whether the freight provider is an asset motor carrier, freight forwarder or freight broker / logistics service provider.
Cargo insurance is shipper’s interest policy that is also known as “all-risk” coverage.
This type of cargo coverage is fairly comprehensive, with fewer exclusions.
The policy covers the actual cargo, not the the carrier’s liability, which means during the shipment process the damage or loss of the goods is covered, although there are aspects of the coverage that may be denied or excluded. A list of a few of the exclusions include:
Motor freight carriers and freight forwarders carry shipper interest policies.
Contingency cargo insurance is insurance held by freight brokers to cover gaps that may present itself in the underlying motor carrier's insurance at the time the damage or loss occurred.
The “contingent” part implies the insurance only comes into effect if and when the motor carrier used on the load fails to cover the damage or loss sustained on the shipment. Factors that may fail in a motor carrier's shipper interest cargo liability coverage include: policy cancellation, loss or damage exclusions, refusal to cover, etc.
Contingency cargo insurance is used for essentially anything from loss to damage to theft that occurs while the motor carrier has legal liability for goods in its possession. Contingent cargo is used by freight brokers to cover every mode of transportation they service.
In summary, contingency cargo insurance has a wide reach when something goes awry in the shipping process. The continegency factor is simetimes a reason why shippers opt to use a freight broker to move thier freight, as it provides one more level of coverage.
Freight brokers and logistics service providers carry contingent cargo.
There are times where it makes sense to purchase additional cargo coverage, hence a specific cargo insurance policy.
Reasons to purchase a specific cargo policy inlcude:
Any freight provider can obtain a specific cargo insurance policy.
When talking cargo liability coverage one would be remiss if they did not bring up the Carmack Amendment.
Essentially, the Carmack Amendment gives carriers one path to avoid freight loss, which is they must prove that they were not negligent and one of the five exceptions listed below caused the damage:
We would highly recommend reading more on the Carmack Amendment because of its implications in the handling of cargo liability coverage.
The other insurance coverage freight providers should have include:
Last, but not least on the insurance front. LTL shippers need to pay close attention to the cargo coverage on their shipments because more times than not LTL provides cargo coverage on a price per pound, not the value of the cargo.
Additional Articles of Interest:
If you're ready to take the next step, at InTek Freight & Logistics, we can help. Just tell us what you need and we'll discuss how our expertise can help with the unique shipping challenges your business faces. Rather do a bit more research first? View our Freight Guides for comprehensive articles and eBooks on all things freight and logistics.