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The Importance of Cargo Insurance

Even with all the advancements of modern civilization, transporting goods across the globe remains a risky endeavor. Ships, planes, trains, and trucks are all susceptible to a variety of challenges that can result in damage or loss of their precious cargo. Shipments that don’t arrive on time, in good condition or at all, can cause carriers and shippers alike to suffer greatly. While carriers are protected by limited liability, shippers’ only protection from damaged or lost goods is cargo insurance.

Limited Carrier Liability

There are a variety of protections that carriers have under laws that govern different modes of transportation.

Ocean Freight Carrier Liability

When it comes to ocean freight, carriers operate under the protections of the Carriage of Goods by Sea Act (COGSA). Recovery of damaged or lost cargo that occurs as a result of carrier negligence is capped at $500 per customary freight unit (CFU). The definition of a CFU can vary depending on a large number of factors, the history of which is discussed at length in this Pace International Law Review article. Ultimately, the bill of lading is used to determine the exact definition of a CFU on a case by case basis during litigation.

Air Freight Carrier Liability

Air carriers that ship cargo to/from the United States are covered by the Montreal Convention which limits carrier liability to 22 SDRs (Special Drawing Rights), which is equivalent to roughly $30 per kilogram of cargo. Outside of the United States, the Warsaw Convention limits carrier liability to even less: ~$9 per pound or $20 per kilogram.

Domestic Carrier Liability

Domestic freight is generally limited to $0.50 per pound or $50 per shipment. The Carmack Amendment covers interstate truckers and dictates that carriers may be liable for the full value of the cargo. However, the Carmack Amendment allows carriers to reduce their liabilities through contractual agreements with the shipper.

In all cases of carrier liability, the carrier must be deemed to have been the cause of the damage or loss of the cargo through negligence or intentional acts of mishandling. And even if the courts hold the carriers liable, there’s no guarantee the carrier will have adequate liability insurance or the funds necessary to cover the shipper’s losses.

Cargo Insurance Coverage

Cargo insurance covers the gaps left by carrier liability limitations while also helping shippers to avoid expensive and time-consuming litigation. Different levels of coverage are available to shippers to help them mitigate losses or avoid them altogether. Choosing the right level of insurance coverage requires careful consideration, but some form of cargo insurance is always recommended to help insulate shippers from the myriad of problems that can arise during the transportation of their cargo.

In a world where we expect the unexpected it makes sense to be prepared for all possible outcomes. Contact the experts at Clear Freight to learn more about cargo insurance and what the right level of protection is best for your goods.

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