Dirty Secret #1

Most companies do not understand international

transportation risk.

Many “blanket insurance policies” or “umbrella property policies” have a section on transportation or international cargo transport.  Unfortunately, the majority of these policies are inadequate, not only for the many hazards ocean and air cargo will face in transit, but also the complexities of a typical supply chain and the laws and regulations of the countries and industries that support your product’s safe arrival.

To compound the problem, in most organizations, the people who know all about international shipping are not the parties who buy and interpret cargo insurance, which creates an organizational barrier to responsible business analysis.  Think about it.  How could your CFO fully comprehend that 35% of all transportation losses occur simply from the rigors of cargo handling and transit?  Why would the CEO know that ocean cargo is subject to General Average, an ancient law that makes cargo owners liable for the vessel itself and other shippers’ cargo every time they venture out to sea?  Do any of us really understand the typical value of a steamship vessel and all her cargo?  Only insurance experts understand cargo insurance.

Dirty Secret #2

Steamships, airlines, truckers, NVOCCs, and ports

are not liable for much.

When you’re feeling brave, read the back of your bill of lading for international or domestic transportation. Rather than feeling reassured, you will quickly notice the lack of coverage. Liabilities are somewhat nebulously stated and are limited in ways that are even more vague.

In some cases, an entire ocean container is covered at only $500, and this is only if the carrier is held liable for the loss.  For the majority of international air shipments, liability is limited to 19 SDRs per kilogram, an amount that fluctuates based on a “basket” of international currencies. Based on recent data, that means that over 50% of air cargo shipments are insured for less than their actual value.  To add insult to injury, if the damage occurs during the domestic portion of the supply chain, the payout can be as little as $.50 per pound!  Yes, you read all of this correctly.

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