Business is going digital. But even online operations still have prominent physical components to them. And that's true of any company that needs to move items out of town or across the city.
It could be delivering your product to customers, sending goods to clients and business partners, or moving materials from one of the company's locations to another. Whatever the reason behind it, you've got freight. And that means you need insurance (if you're sending cargo over sea, check out Commercial Marine Insurance 101).
Carrier Liability Insurance
Freight carriers are legally required to have carrier liability insurance to insure the goods they transport by van, truck, or rail. That policy will give you some financial protection even when the goods you're shipping are out of your hands.
But there are a few important things you need to know before you decide to rely solely on your carrier's insurance policy instead of purchasing some protection of your own.
One of the biggest problems with relying on your freight carrier's insurance is that the coverage is usually quite minimal. It's common for these policies to insure freight for about 10 cents per pound, and the better policies aren't much more generous.
I don't need to tell you that the majority of shipments are worth a whole lot more than 10 cents per pound.
Suppose, for instance, that you're shipping a $750 sofa to one of your customers. It gets damaged on the way to its destination, so you file a claim to recoup your loss. But you soon discover that you won't recoup much. The sofa you sent out weighed 250 lbs, so your carrier's 10 cents per pound coverage ends up refunding you all of $25. So even with a successful claim, you're still out $725.
Proof of Liability
You also a few hoops to jump through before you can collect on your carrier's insurance policy.
You'll need to show three things before you see any compensation:
- You delivered to goods to the carrier in good condition
- When the goods arrived at the point of delivery, they were short (i.e. some were stolen or lost), damaged, or unreasonably late
- The amount of damages
Even if you present all the relevant proof, the carrier still has five avenues of defense. To avoid being held at fault, they can demonstrate that the damage was caused by:
- The shipper
- An act of God (such as an earthquake)
- An act of war
- A public authority (such as damage caused during an inspection of the shipment by a government agent)
- The nature of the goods themselves (such as flammable materials that catch on fire due to exceptionally hot weather)
Making Sure You Can Collect
With those conditions in place, there are some basic steps you can follow to make sure your loss will be covered.
First, and most obviously, make sure that the items you're shipping are in good condition when the carrier picks them up.
Carriers can deny claims based on poor packaging. So, remember what your items will go through on their way to their destination when preparing them for delivery. Imagine the containers, crates, boxes being handled roughly and make sure you pack them to withstand the worst.
Sending multiple, separate packages increases the odds that some will be stolen or lost. If everything is headed to the same recipient, group the items in as few packages as possible, preferably a single one. Containers, large crates, and pallets that are wrapped with industrial-strength plastic wrap are more likely to arrive whole than a pile of small parcels.
If you're shipping to another one of your company's locations, inspect the goods before accepting the delivery. You don't have to unpack everything before signing the form, but take a close look at the containers, crates, and boxes to see if there is any visible damage. And count everything up to make sure nothing is missing. Unless the goods are a complete loss, you can still accept the package, but make sure you write a description of any damage or shortage when signing the receipt.
Immediately after receipt, unpack everything and inspect for any hidden damage or loss. If there are any problems, contact both the carrier and your insurer within 24 hours to notify them.
And finally, don't hesitate to take out the camera. Photographic documentation of the shipment before packing, after packing, upon receipt, and after being opened is recommended.
Brokers and Carriers
In many industries, it makes sense to deal with brokers instead of principals. Insurance is no different. Unless you're a very big shipper, a broker can almost always get you better rates than the carrier would offer you directly.
The best brokers will also do more than just find a carrier for your freight. If you need to file a claim due to loss or damage, they will work with you. Brokers tend to have more pull with carriers and can use it to have your claim processed more quickly and fairly.
When to Get Third Party Freight Insurance
If you're shipping items that are so inexpensive that 10 cent per pounds would cover your lost, or at least a good portion of it, then you might be fine with your carrier's coverage alone.
If your goods are worth more, however, or you simply don't want to deal with the burden of proof any time there's a loss, third party freight insurance is highly recommended.
Not only will freight insurance give you more coverage than the carrier's liability policy, it's often very cheap. You could find a policy that costs as little as $40 and yet insures your goods for $10,000.
The claims process is also smoother. You'll almost always get paid sooner when going through a third-party insurer. Often, the proof of liability will be waived. The insurer will usually play you directly and then deal with the carrier to determine whether the carrier is at fault.
The basic steps to ensure payment from a carrier's policy that we covered above apply with freight insurance, too. Put any claim of damage in writing on the delivery receipt, make a visual document of any claim damage, and have proof of the value of your shipped goods.
There's not much you can do to protect your freight when it's in transit. All you can do is keep your fingers crossed and hope the carrier gets it to its destination on time and intact. But with enough insurance in place, you can at least be confident that you'll recover quickly from any losses.
So take stock of your freigth's value and how much liability coverage your carrier has. Even though your goods are already insured by the carrier, you'll probably find that a purchasing your own freight policy makes a lot of financial sense.
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Whether you're just starting to look into life insurance coverage or you've carried a policy for years, there's always something to learn.