Cargo vs. Freight insurance: what’s the difference?
Did you know that of the 130 million shipping containers shipped around the world every year, an average of 1390 are lost? And we’ve probably all had goods delivered to our door that have been damaged en-route.
Where loss or damage occur, the end customer will look to the sender for compensation. The owner of the shipment will look either to their insurance provider (where they ship their own goods) or to the freight forwarder for compensation. And the freight forwarder will look to their insurance provider. All roads lead to an insurance claim – but depending on where you and your business is in the food chain, and what type of policy is in place, the compensation available can differ massively.
‘Cargo Insurance’ and ‘Freight Insurance’ are terms bandied around liberally and often, wrongly, interchangeably.
So what exactly do these different policies cover? And which one should you consider for your business as a seller, manufacturer or freight forwarder?
Confused? Cargo insurance and freight insurance explained
As terms, ‘Cargo’ and ‘Freight’ are often interchangeably used, it’s no wonder ‘Cargo Insurance’ and ‘Freight Insurance’ (freight forwarder insurance) are similarly confused. Afterall, they are both insurance policies intended to protect goods that are transported in the event that they are lost or damaged.
Both insurance types can cover goods transported both domestically and internationally and by all transport methods. The key difference between these two types of insurance relates to who they are meant to protect and the method used to value the claim. Put simply:
Freight insurance protects the freight forwarder or carrier who has a legal responsibility for the goods. In the event of a claim, the value is often calculated on the basis of weight.
Cargo insurance is designed to protect the sender of the goods – so the manufacturers, wholesalers and retailers. Here, the value of the goods is based on their commercial value.
What do these insurance policies cover?
As a manufacturer, wholesaler or retailer, you could be forgiven for thinking that you are fully protected in case the shipped goods are lost or damaged. But you may not be because this insurance policy is not designed for that.
Freight Insurance is designed to protect the freight forwarder or carrier from any liability for the financial loss sustained by the sender because of the damage or loss of the shipment. For a claim to be payable to the sender, the loss or damage of the goods must be proven to be caused by the freight forwarder’s negligence or errors.
With a Freight Insurance policy, the amount paid out is based on the weight of the goods instead of the cargo’s full value. So, a kilo of lost gold will likely receive the same pay out as a kilo of lost cotton, which is unlikely to be welcome news if it’s your gold!
Cargo Insurance is essential if you, as the owner of the goods, want to be covered for the full value of the goods in the event of loss or damage. Here, a claims event may not be triggered by errors or negligence by the freight forwarder. Rather, Cargo Insurance can provide financial protection in a whole range of events from faulty loading/unloading and accidents, through to a fire or theft.