Cargo insurance is one of the most proactive steps companies can take to protect their supply chain. Insurance safeguards shippers’ financial investments during domestic and international transit. While in transit, cargo is susceptible to natural disasters, severe weather, theft, pilferage, damage, fire and other challenges.
What characteristics cause cargo to fall under these three categories?
It’s important to note that for domestic over-the-road cargo, truckload shipments differ from less-than-truckload when exploring the need for additional insurance.
If a truckload shipment exceeds $100,000 in value, the carrier and the third-party logistics provider (3PL) need to be notified in advance as carriers will only be liable for up to $100,000 of cargo value. If a shipment will surpass this threshold, it is crucial to proactively work with your 3PL to obtain contingency cargo insurance to cover the remaining value beyond $100,000.
For cargo with a value of over $250,000, it is strongly encouraged to only utilize C-TPAT carriers due to the additional screening processes and security requirements associated with the C-TPAT designation.
When considering additional insurance for Less-than-Truckload freight, knowing the NMFC (National Motor Freight Classification) class is extremely important. The NMFC typically dictates the amount of payback from the carrier to the shipper in the event of damage or loss.
Carriers publish governing rules tariffs which state recovery rates for particular classes. Therefore, when considering additional cargo insurance, shippers must identify the threshold of carrier liability based upon the freight class.
For example, under general rules tariffs, a class 300 product has varying payback rates dependent on the carrier chosen. The carrier could be subject to liability ranging from $5.00 – $25.00 per pound. If the cost to produce the product is greater than the carrier’s coverage rate, then damage or complete loss of the product would be detrimental to the shipper.
In regards to liability, Ascent clients with pricing based on Ascent tariffs (between Ascent and the carrier) benefit from our expert carrier negotiation. Our team has negotiated higher liability standards, which are not based upon the classification. Of our preferred carriers, 98 percent are under contract for Liability Coverage of $25.00 per pound per package, up to $100,000 per shipment (regardless of class). The sole exception to our negotiated Liability Coverage is Used Equipment/Machinery.
Ascent clients with pricing that was negotiated by Ascent, but resides between the customer and the carrier, will carry the liability in the carrier’s rules tariffs, based upon whichever is the lowest:
Many LTL carriers will not offer or extend additional cargo insurance on Used Equipment/Machinery. Typical liability for Used Equipment/Machinery will range between $0.10 and $1.00 per pound. A shipper with Used Equipment/Machinery cargo should contact an outside cargo insurance provider to insure Used Equipment/Machinery.
Similar to domestic cargo insurance, additional coverage is available for international cargo. For international cargo, it is crucial to work with your freight forwarder well in advance of the shipment’s departure.
Typically, an insurance underwriter will require a questionnaire to be completed by the exporter before extending additional coverage. These questionnaires cover items such as:
When shipping High-Value cargo overseas, it is a best practice to send shipments on multiple different sailings to lower the overall risk.
Additionally, international shippers should be well aware of the insurance responsibilities outlined in the Incoterms and terms of sale. Another key reason shippers should insure their ocean freight shipments is the law of General Average.
Regardless of the mode, route or product, it is vital to work with the carrier, 3PL and insurance underwriter to guarantee you are covered in the case of damage or complete loss.
Ascent Global Logistics can help manage your insurance needs with efficiency and experience. Contact us to learn more about our comprehensive cargo insurance offerings.