Insuring Your Shipment

When shipping to a foreign market, cargo insurance is strongly recommended. It is essential if the terms of sale require the exporter to arrange for insurance, for example a C.I.F contract (cost, insurance, freight). In any event, the cost of cargo insurance is nominal in most cases, amounting to less than 1% of the value of the shipment and the freight bill.

With the proper insurance policy, exporters can recover losses if their shipments are accidentally lost, stolen, damaged or delayed, although the extent of recovery will depend on the type of insurance purchased. Without insurance, an exporter could have no recourse. Unfortunately, insurance does not cover the possible loss of a customer, who may shift to another source of supply because the goods ordered do not arrive in a usable condition or are late in arriving.

When buying insurance, the exporter should consider several things, such as the amount of coverage (all risks or limited), time of year, route and destination port (the North Atlantic during the winter months can be treacherous; some ports can have higher than usual rates of pilferage), the loss and damage record of competing carriers, and cargo stowage and packing.

Insurance should be looked at as part of the total rate and service package that the carrier (or forwarder) offers, so don't look at insurance in isolation. Even though a carrier may have an impeccable record, there is always an element of risk and exporters should protect themselves against this risk.

Moreover, insurance coverage is part of a carrier's marketing strategy. It is more than likely that cost, coverage and the number of loss and damage claims will vary from carrier to carrier, so ask several and compare. Ask the carrier, whether it is a rail, motor, marine or intermodal carrier, what it charges for insurance, what the insurance covers, the deductible (if any) and how claims are handled.

This suggests that the first step in insurance selection is to ask the carrier about its loss and damage record. Ask other exporters or, if you are a member of an organization such as the Canadian Industrial Transportation Association, ask if it has any record on a particular carrier.

Before exporting, make sure that the terms of sale specify who is responsible for arranging insurance. For example, an exporter selling "C.I.F." will be responsible for arranging and paying for freight insurance. In many transactions, it is common for Canadian exporters, even those selling "F.O.B." or "F.A.S.", to control or arrange for marine insurance.

The insurance that the exporter should buy depends on the mode of transport selected, as legal requirements establish certain levels. Railway carriers are completely responsible for loss and damage to cargo. Motor carriers are

responsible for $2.00 per pound, but will provide full coverage for a fee of 1% of the value of the load. Ocean carriage is limited to $500 per package, which is frequently below the value of the shipment. Consequently, the exporter must arrange for coverage separately. Exporters should be aware that there certain are exceptions which override the carrier's liability, such as "Acts of God" or a defect in the goods.

Obviously, for highway/ocean shipments or intermodal shipments moving partly by a marine carrier, full coverage may require the purchase of separate insurance from each carrier. For shipments that involve ocean carriage, it is recommended that exporters include an "all risks" clause.

Insurance can be arranged directly with a carrier, an insurer, an insurance broker or agent or through a freight forwarder or customs broker. Whether you purchase from a carrier or a third party, make sure that the insurance purchased covers the entire journey, that is from the time it leaves your plant or warehouse until it is in the importer's warehouse. In some instances, a carrier will provide coverage only while it is handling the shipment.

It should be noted that this discussion is meant for shipments of general freight and for lost or damaged cargo. Insurance for products such as dangerous goods and hazardous wastes are covered by separate insurance regimes. Responsibility for issues such as cleanup costs in the event of an accident involving your goods is not covered.