How freight forwarder's liability insurance works and who needs it
Each cargo owner wants to have a guarantee that if a reasonable claim is made (most often as a result of cargo damage or loss), the freight forwarder will be able to compensate for the damage. It is difficult for market participants to understand how liability insurance works in practice, as Russian legislation in this area is confusing and contradictory. We will try to clarify the situation based on the experience gained by the ACROSS team.
Freight forwarder's liability consists of two parts:
- responsibility for freight forwarder's own mistakes;
- responsibility for damage caused by subcontractors.
The customer (or his insurance company) often claims damages directly from the forwarder because they are contracted: this is much easier than looking for the actual culprit. In addition, in case of domestic transportation, the freight forwarder has unlimited financial responsibility for the cargo accepted for transportation. It is not uncommon for a freight forwarder who does not have sufficient funds to compensate for tens or hundreds of thousands of dollars, which may be impossible to achieve and lead to bankruptcy. The client runs the risk of having difficulty compensating for damages and losing a reliable partner.
For forwarders who value their reputation and stable position in the market it is important to insure their liability in case of cargo loss of or damage, as well as other emergency situations that may occur during transportation. There are three main aspects to the advisability of liability insurance for freight forwarders:
- financial - protection of forwarder's own working capital.
- Image - creating the image of a sustainable, financially stable company, ready to take responsibility for the transportation of expensive cargoes.
- service - access to consulting, legal, survey, agency and other resources of the insurer.
Liability insurance policy that covers the majority of risks and has no pitfalls is an expensive product. Its cost can be estimated in millions of rubles a year, depending on the volume and type of transportation carried out by the forwarder.
- responsibility for freight forwarder's own mistakes;
- responsibility for damage caused by subcontractors.
The customer (or his insurance company) often claims damages directly from the forwarder because they are contracted: this is much easier than looking for the actual culprit. In addition, in case of domestic transportation, the freight forwarder has unlimited financial responsibility for the cargo accepted for transportation. It is not uncommon for a freight forwarder who does not have sufficient funds to compensate for tens or hundreds of thousands of dollars, which may be impossible to achieve and lead to bankruptcy. The client runs the risk of having difficulty compensating for damages and losing a reliable partner.
For forwarders who value their reputation and stable position in the market it is important to insure their liability in case of cargo loss of or damage, as well as other emergency situations that may occur during transportation. There are three main aspects to the advisability of liability insurance for freight forwarders:
- financial - protection of forwarder's own working capital.
- Image - creating the image of a sustainable, financially stable company, ready to take responsibility for the transportation of expensive cargoes.
- service - access to consulting, legal, survey, agency and other resources of the insurer.
Liability insurance policy that covers the majority of risks and has no pitfalls is an expensive product. Its cost can be estimated in millions of rubles a year, depending on the volume and type of transportation carried out by the forwarder.
Unfortunately, there are situations when the freight forwarder provides the client with an insurance policy for 30-50 million rubles, which in practice turns out to be a 'pacifier': expired validity term, franchise makes 90% of the policy amount, coverage extends to a very narrow list of cargoes, etc.
All these conditions are specified in the insurance contract and it is recommended to pay close attention to them.
Freight forwarder liability insurance is not a substitute for freight insurance. In particular, it applies to expensive cargoes transported internationally. In this case the freight forwarder's liability is limited to the amount of insurance recoveries, which is often lower than the value of lost or damaged cargo. In this case, the claimant has to prove not only the amount of his loss, but also the forwarder's direct fault. Therefore, it is recommended to insure cargoes in order to have a guarantee of full compensation in the event of their damage, loss or theft.
ACROSS has been operating in the market of transportation and forwarding services since 2009. For more details about our services see Rail Transportation, Sea Freight, Seaport Service, Road Transportation or Logistics for Industrial Construction.
Freight forwarder liability insurance is not a substitute for freight insurance. In particular, it applies to expensive cargoes transported internationally. In this case the freight forwarder's liability is limited to the amount of insurance recoveries, which is often lower than the value of lost or damaged cargo. In this case, the claimant has to prove not only the amount of his loss, but also the forwarder's direct fault. Therefore, it is recommended to insure cargoes in order to have a guarantee of full compensation in the event of their damage, loss or theft.
ACROSS has been operating in the market of transportation and forwarding services since 2009. For more details about our services see Rail Transportation, Sea Freight, Seaport Service, Road Transportation or Logistics for Industrial Construction.
