There is often a lot of confusion when it comes to freight insurance and exactly what to do about it. Some see it as another cost on the top of your budget, some don’t move anything without it, and others are not entirely sure what coverage they should get. Being underinsured in the event of lost or damaged freight could cost hundreds, maybe thousands of pounds each year, of course it is best avoided. Here at Espace we deal with so many different types of freight and over the years we have seen the impact that underinsured cargo can have on a business.
The hidden risks of limited liability in freight insurance
If you are sending goods around the UK, to or from Europe or around the world, by road, sea or air you need to be aware of the different liability limits in place for each mode of transport. UK freight is covered under RHA conditions and equates up to £1.30 per kilo. European freight is covered under CMR conditions for up to £9 per kilo (this is an approximate rate based on 8.33 SDRs. Sea freight insurance provides approximately £2.20 per kilo (based on 2 SDRs) and air freight liability will be anywhere between £18 and £21 per kilo depending on the airline and which air freight convention they apply to.
Over the years we have handled and resolved many an insurance claim. Indemnity levels for lost or damaged cargo are always limited under their respective conditions. Underinsuring freight can not only result in financial losses for both the shipper and carrier but it can also lead to disputes, damage business relationships, and lead to potential legal liabilities. You can see why it is so important to understand the value of your product and insurance it correctly so that you aren’t caught out!
Understanding ‘SDR’s? (special drawing rights)
Under international law, a carrier’s liability for loss or damage to cargo is limited, and this limit is determined based on the weight of the cargo and the value of SDRs (special drawing rights). The amount of liability limit per unit weight of cargo can vary depending on the mode of transportation, but SDRs provide a uniform measure of value across countries. Standard UK freight insurance covers approximately £1.30 per kilo and EU freight under CMR conditions covers up to approximately £9 or 8.33 SDR’s. An SDR in simple terms is a currency unit. So, is 8.33 SDR’s per kilo a bad deal? Generally, £9 per kilo is enough to cover the loss or damage of a shipment of standard goods. If your shipment has a per kilo value greater than the above stated liability limits you will of course be underinsured in the event of loss or damage.
Where can I get advice on freight insurance?
A freight forwarder will assess the value and nature of your cargo in order to determine the appropriate level of coverage needed. They have competitive rates and options with the best insurers on the market. They will facilitate every part of the insurance process as well as handling your freight. In each case they will identify any potential risks and offer recommendations on exactly how to minimise them, highlighting relevant packaging requirements, appropriate labelling, and providing the right transport solution for your product. In essence a freight forwarder will always offer a comprehensive end to end supply chain solution
Fully covered is money saved
As with anything there are always options. You can insure your shipment to it’s full value on a case by case basis with your carrier, or take out your own annual goods in transit insurance policy to ensure that you are fully covered. Every business will be different and it is important to do what is right for you.
If you simply want to know the cost of insuring a one off shipment visit our quick quote freight insurance calculator to give you everything you need.
