Insurance Proves Vital Against Supply Chain Mishaps

January 25th, 2018

Though loss and damage to cargo remains a relatively rare occurrence, freight forwarders stress the value of insurance against the far higher costs of accidents.

Consider it transport's lottery of terrible luck: the prospect of weather, mishandling, an accident or criminal act leading to the damage or loss of a freight shipment – and wiping the cargo's value from the sender's books. While statistics show suffering that kind of expensive transport misfortune remains a long shot, they also confirm that – just like lotteries – their unlikely odds become heavy reality for thousands of participants each year. To avoid the costs and administrative hassles that arise from such events, freight forwarders urge clients to make the relatively small, proactive investment of insuring goods as better business sense than taking a chance on unexpected risk.

Though individuals and businesses routinely contract insurance for homes, buildings, assets and people, they're hesitant to insure their transported merchandize. With companies across the world seeking to cut costs where they can, optional expenses like freight insurance are often among the first economies sought. That can seem to make even more sense against the relatively low percentage of cargo lost or damaged during shipping compared to the over nine billion tons transported annually. Besides, regulations require transporters to provide standard insurance coverage.

All those calculations, however, suddenly appear misguided once trouble arises.

For starters, maximum coverage by transporters is significantly restricted – €21 per kilo of damaged cargo in air travel, for example – and constitute ever smaller percentages of compensation as the value of broken or lost merchandize increases. Standard per-package reimbursement is just as low, meaning clients shoulder virtually all losses suffered.

Meanwhile, though the rate of accidents remains marginal – representing one out of 1,000 maritime shipments annually, for example – global numbers of affected goods are considerable. Several thousands of maritime containers are lost at sea each year, with most carrying consolidated cargo from many clients. Any major accident involving ships and airplanes claims additional freight. Inadvertent damage to goods during movement or handling in supply chains is even more common.

"If you think about all the distance, stops, transfers and processing of cargo between points of departure and arrival, you quickly realize there are few times merchandize is more vulnerable than during transport," notes Sylvain Mulliez, Insurance Director for Bolloré Transport & Logistics in Paris. "Obviously, every precaution is taken to prevent damage or loss, but given the enormous volumes of merchandize transported around the world, some degree of accident is unavoidable."

When that trouble arises, it's just as inevitably painful.

Costs from harmed or lost cargo can run from hundreds to millions of dollars – virtually all of which is suffered by exporting client unless they're insured. Those events can be catastrophic for small- and medium-sized companies that group shipments into several per year, with the loss of a single consignment representing 20%-40% of annual deliveries. The same is true for exporters of goods produced and sold during specific times of year.

"If problems during transport mean their merchandize can't get to market within the specified window, that market is gone, their sales are lost and their business plan is ruined," says Mr. Mulliez. "Even in situations involving big companies exporting all year round, the costs and time lost wrangling over damages and compensation are very unpleasant and bothersome for everyone involved."

Freight forwarders stress small upfront investment in insurance will avoid those headaches for customers. Mr. Mulliez says his team of 49 dedicated insurance experts work exclusively on resolving client cargo claims rapidly. Their global spread across the company's worldwide network is an additional value to insured customers.

"That wide implantation means we know differing local rules and practices and can navigate them quickly," he says. "Our full coverage insurance provides the same door-to-door coverage as our transport service."

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