Logistics Insurance

Logistics is an important aspect of business. It refers to acquiring, transporting and storing the resources or material along the supply chain. Whenever goods are bought, imported, exported or transported domestically or internationally, the risk of damage to the cargo occurs due to natural disaster or other unpredictable accidents. Therefore, like any other type of insurance- like home insurance, auto insurance or health insurance- logistics insurance (sometimes also referred to as freight insurance or cargo insurance) give extra coverage against the unpredictable and unpreventable damages that might happen to the cargo when freight moves from one point to another. When talking of international logistics insurance (in the event of import or export of goods), the insurance cost is generally calculated by the total commercial value of the goods.

What is Cargo Insurance?

Cargo insurance, popularly called marine insurance, applies to all modes of transportation. The requirement for export cargo insurance (or import cargo insurance) usually vary among exporters, importers and consignment. The exporter or importer may decide not to insure the goods at own risk provided insurance is not mandatory in trade terms. According to the International commercial terms, logistics insurance can either be a seller insurance or buyer insurance which means either the seller or the buyer is responsible for insuring the cargo. Although it is on the choice of exporters or importers whether they go for cargo insurance or not, it is always advisable to insure cargo at the minimum of the “commercial invoice value” or “cost of goods and freight,” the CIF value. Most of the manufacturers and shippers insure their cargo for CIF value plus 10%. When international freight movement is involved, the terms of irrevocable Letter Of Credit (LOC) may decide the insured value. It is also advisable to insure international cargo at CIF plus 10 and the cost of freight.

When is Logistics Insurance Required?

There are many occasions when goods of any company, manufacturing units or their employees have to be transported from one point to another. All such freight movement requires logistics insurance. Some of the specific conditions calling for logistics insurance can be enumerated as below.

• Business operations in the international market (as against domestic market where one is aware of conditions) exposes the cargo to unique situations or accidents against which the goods should be insured.
• When the products of a company or other exhibits are transported for display at international trade shows or simply said trade show relocations too require logistics insurance en route.
• When goods are exported to other countries, it must have freight insurance.
• Manufacturing operations, meaning transportation of raw materials or finished goods to and from manufacturing sites too need freight movement and calls for logistics insurance. Similarly, sales office and distribution warehouse operations for products will also require a logistics insurance.
• Ocean cargo also requires a proper cargo insurance against any untoward happening as the whole traveling through ocean is a risky operation.

Logistics Insurance By Transportation Company

When the freight owner hires a transportation company to move the goods and if the insurance is provided by the transportation company, certain points should be considered.

• such freight insurance should be to the value of the shipment.
• company might have limitations on liability based on bill of lading or insurance maximums.
• consider insurance to cover difference between maximum and commercial insurance value.
• If a claim is made, the transportation bill of lading liability will be claimed up to their coverage limitations.
• insurance rates may be affected by the rules of the destination country and particular region of the world.

What Goods can have Logistics Insurance?

Almost all the products or commodities, moving from anywhere to any other point, can be insured. However, the insurance underwriter has the right to refuse granting of logistics insurance when the cargo is not properly packaged, packed, transported or when pertinent shipping documents are insufficient.

Conditions for Getting Logistics Insurance

The following conditions must be fulfilled for getting logistics insurance for any cargo.

• Cargo should be properly packaged and transported to the point from where it will move towards its new destination.
• Shipping document should be available and should not have missed.
• There should not be any trade embargo or other restrictions by Government in the country from where cargo is going or in country to which it is going.
• Cargo should be packed properly and should not be abandoned.
• Customs clearance is essential and the goods should not be rejected by the customs.
• There should not be any failure to pay or collect account.
• There should not be any inherent vice meaning infestation or loss due to nature of the product itself.
• There should not be any type of dishonesty (for example employee conversion).
• There should not be losses due to delay or market loss.
• Goods should not be subject to an on-deck bill of lading.
• There should not be any loss due to temperature or pressure.
• Used goods are not entitled for logistics insurance.