June 27, 2014 | Industry Insights

Inside the Intangible Benefits of Cargo Insurance

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Inside the Intangible Benefits of Cargo Insurance

Cargo insurance is a vital risk management tool for cargo owners and in some cases affords a degree of protection for transportation intermediaries as well. In addition to the potential profits associated with providing clients with Cargo insurance coverage, transportation intermediaries should also consider the intangible risk management benefits they can gain.

Transportation intermediaries are widely regarded as experts in their field. Cargo owners rely on them for their expertise and sound advice, particularly as it relates to risk of loss for cargo in transit. Some cargo owners are unaware of exposures such as General Average, carriers’ limitation of liability, or how terms of sale can impact their ability to collect on a claim. Failure to advise the cargo owner of these exposures could be interpreted as a breach of an intermediary’s professional responsibility and could lead to an errors and omissions claim. For this reason, it is strongly recommended that Shipper’s Interest Cargo insurance be offered to every client with a written documentation of his response maintained in the client’s file for future reference. Shippers Interest Cargo insurance can provide full coverage for a client’s cargo against physical loss or damage offering them a better option than just relying on the carrier’s liability insurance.

Providing access to Cargo insurance may also reduce the frequency of cargo legal liability claims against the intermediary. Many forwarders and brokers conduct related operations as Non-Vessel Operating Common Carriers (NVOCC) or indirect air carriers (IAC) and cargo is often moved under their house bills of lading. In these situations, the NVOCC or IAC typically has a limited responsibility for cargo loss or damage while in their care, custody or control. For example, if a cargo owner is uninsured and experiences a loss in transit, the only recourse is a claim against the carrier (NVOCC or IAC). However, if a cargo owner is insured, he will instead file a claim against the cargo insurer, which will then relieve the intermediary of potentially losing a client over an adverse claims negotiation.

Cargo insurance can also play an unintended role in protecting assets for the intermediary. This is specifically so when an intermediary extends credit terms to a client and they assume the role of an unsecured creditor. Even a credit-worthy cargo owner can be adversely affected by a large, uninsured loss, which could compromise the ability to settle debts. In a worst-case scenario, an uninsured loss could force a cargo owner into bankruptcy, leaving the intermediary little or no options for collection. This exposure is further exacerbated when the intermediary has “fronted” freight charges to underlying carriers on the shipper’s behalf. In this scenario, providing Cargo insurance can reduce the risks of unrecovered debts resulting from uninsured cargo loss.

Intermediaries are strongly encouraged to provide their clients with Cargo insurance not only as a potential revenue stream and added value service, but also as a formidable risk management tool. A formal practice to address Cargo insurance should be followed with each client prior to the routing of any freight. By following this practice the intermediary can benefit from tangible profits acquired through Cargo insurance sales and the less tangible benefits of respite from liability claims and lost receivables.

At Roanoke Trade, we specialize in providing transportation intermediaries with Cargo insurance and would be happy to discuss your specific needs. Please give us a call at 800.ROANOKE.

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