Freight insurance
Freight insurance is a type of insurance which provides coverage against theft of, damage to, or complete loss of freight. Excluded from the coverage of freight insurance services is the insurance of the vehicles that are used to transport the goods [1].
In many cases, the owner of goods is bound to pay freight, under the terms of the contract, only when the goods are safely delivered at the port of destination. If the ship is lost on the way or the cargo is damaged or stolen, the shipping company loses the freight. Freight insurance is taken to guard against sich risks [2].
Owner of freight
There are basically three types of freight: ordinary freight or bill of landing freight: charactered freight; and owner's trading freight. Ordinary freight and chartered freight may be payable in advance, in which case it is called 'advance freight'. The moment a ship commences her voyage with cargo on board, not only both ship and cargo but also ordinary freight and chartered freight are at risk. If ship and cargo are prevented by any peril from arriving at the agreed port of destination, a loss of cargo and freight would occur. The earning of ordinary bill of laning freight, but not advance freight, is dependent upon the performance of the adventure and the arrival of the cargo, albeit in a damaged state, at its proper destination. Thus, should the cargo, by reason of a peril insured against, fail to arrive at its proper destination, a loss of ordinary freight would accrue [3].
Cases that are covered by insurance
Freight insurance cover is to provide coverage of expenses, costs and obligations that may arise, among others, as a result of events such as:
- loss of goods or cargo,
- ship collisions or other collisions (e.g. with quay),
- pollution,
- fines and penalties imposed by maritime organizations,
- damage to goods and cargo,
- damage to existing property on board the insured ship,
- shortage of goods or cargo.
Freight insurance service
Freight insurance service relate to insurance provided on goods that are in the process of being exported or imported, on basis that is consistent with the measurement of goods free on board and freight transportation. This means that freight insurance services should be included in the compiling economy when they relate to exports of goods beyond the customs frontier of the compiling economy and are supplied by resident insurers or relate to imports of goods to the compiling economy, beyond the customs frontier of the exporting economy when they are provided by nonresident insurers [4].
Examples of Freight insurance
- Marine Cargo Insurance: Marine Cargo Insurance is an insurance policy that provides coverage for goods while they are in transit by sea, air, or land. It covers losses resulting from damage or theft of the goods in transit, and also covers the legal liability of the insured for any injuries or deaths to third parties caused by their goods.
- Inland Marine Insurance: Inland Marine Insurance is a type of insurance coverage designed to protect goods in transit within a country. It covers goods that are transported over land, typically by truck. This type of insurance covers the cost of replacing damaged or stolen goods, as well as any liability for third-party injuries or property damage caused by the goods.
- Cargo Liability Insurance: Cargo Liability Insurance is a type of insurance that covers a business’s legal responsibility for its freight. This type of coverage can help protect a business from any potential financial losses that may arise from a third-party claim of liability. Additionally, Cargo Liability Insurance may also cover certain types of legal costs related to defending the business against a claim.
Advantages of Freight insurance
Freight insurance provides important benefits to both shippers and carriers. The following are some of the advantages of freight insurance:
- Freight insurance helps to protect goods in transit from damages or losses caused by accidents, weather, theft, and other unexpected events. This provides peace of mind to shippers, carriers and consignees, as goods are insured for their full value.
- Freight insurance helps to ensure that the goods are delivered to their destination on time and without any damages. This helps to reduce delays and costs associated with late deliveries or damaged goods.
- Freight insurance helps to cover the cost of repairs or replacements for damaged goods, allowing shippers and carriers to avoid substantial losses.
- Freight insurance helps to cover legal costs associated with disputes over damages or losses, ensuring that the parties involved are protected from financial liability.
Limitations of Freight insurance
Freight insurance can be limited in several ways. These limitations include:
- Coverage not being provided for vehicles used to transport the goods - Freight insurance does not cover the vehicles that are used to transport the goods, but only the goods themselves.
- Damage caused by natural disasters - Freight insurance typically does not cover damage caused by natural disasters such as floods, earthquakes, and hurricanes.
- Restrictions on the type of goods shipped - Some freight insurance policies may have restrictions on the type of goods that can be shipped, such as hazardous materials or valuable items.
- Limitations on the value of the goods shipped - Most policies will have a limit on the value of the goods that can be shipped, often ranging from $500 to $10,000.
- Limitations on the distance of the shipment - The distance of the shipment may be limited to a certain number of miles, or to a certain geographic region.
- Limitations on the type of transportation - The type of transportation used to ship the goods may be limited to certain types, such as ocean, air, or rail.
Freight insurance is a type of insurance which provides coverage against theft of, damage to, or complete loss of freight. There are several other approaches to freight insurance services, including:
- Alternative Risk Transfer (ART) - ART is a type of insurance which allows companies to transfer their risk to other parties, such as reinsurers, insurers, and captives. ART is often used by companies to lower their insurance premiums and limit their exposure to risk.
- Cargo Insurance - Cargo Insurance is a type of insurance which covers the loss or damage of goods in transit. It is typically used by companies that ship large shipments of goods overseas.
- Freight Forwarder Insurance - Freight Forwarder Insurance is a type of insurance which provides coverage against damages or losses that may occur during the shipping process. It is typically used by companies that ship large shipments of goods overseas.
- Marine Cargo Insurance - Marine Cargo Insurance is a type of insurance which covers the loss or damage of goods in transit by sea. It is typically used by companies that ship large shipments of goods overseas.
- Third Party Logistics (3PL) Insurance - Third Party Logistics (3PL) Insurance is a type of insurance which provides coverage against damages or losses that may occur during the shipping process of goods that are being handled by a third-party logistics provider.
In summary, freight insurance is a type of insurance which provides coverage against theft of, damage to, or complete loss of freight. There are several other approaches to freight insurance services, such as Alternative Risk Transfer, Cargo Insurance, Freight Forwarder Insurance, Marine Cargo Insurance and Third Party Logistics Insurance.
| Freight insurance — recommended articles |
| Freight prepaid — Institute cargo clauses — Contract of affreightment — Letter Of Indemnity — Container lease — FOB destination — Insured contract — Door to door service — Freight carrier |
References
- Gupta C. B., (2007), Business Studies Xi 6E Publishing house Tata McGraw-Hill Education, Delhi, p.187
- Hodges S., (2013), Law of Marine Insurance Publishing house Routledge, London, p.18
- United Nations (2002), A Manual on Statistics of International Trade in Services Publishing house Tata McGraw-Hill Education, New York, p.43
Footnotes
Author: Piotr Tarsa
