Should Freight-Forwarders sell insurance

One of the major topics of conversation I regularly hear from freight forwarders when sat having a chat in an industry setting is cargo insurance and who should take responsibility for ensuring that cargo being shipped is fully insured. It isn’t always the main topic of conversation but it is one which comes up over and over again. Normally when discussing some problem a forwarder has had with one of his customers or a youtube video of a ship in trouble.

There are many excellent reasons why freight forwarders and logistics providers should ensure that all staff understand cargo insurance and rules and responsibilities but in such an unregulated industry in the UK do all freight forwarders really get it.

Freight forwarders reasons for not checking on cargo insurance. :

  • We are not KPI’d on insurance so don’t sell it.
  • It is the shippers responsibility not ours.
  • It increases the price and shipper wants the “Best Rate”
  • I don’t really get it and it’s too complicated
  • It delays quoting our customer and he needs his price.
  • We are not responsible under our Trading terms & conditions.

Have you as a freight forwarding company really provided your customer with a full value added service if you do not mention cargo insurance and rely on your BIFA trading terms & Conditions or equivalent to tell your customer his goods are not insured. Do you really believe a brief line in an e-mail signature or hidden in the small print is enough to cover you in not discussing cargo insurance and the pitfalls for moving cargo without insurance.

Since January we have seen several prominent issues on sea freight

Container vessel alight
MV Hyundai Fortune

The Maersk Honam being arguably the most serious and the loss of life over-shadows the fact that the vessel still has not found a port to take it in and it could be many months before consignee’s are able to get release of their cargo.  Many more if cargo insurance has not been arranged whilst the insurance company works out the cash deposit and additional securities required.

The Maersk Kensington shows us this was not a one-off. The 6188 TEU ship’s fire may not have been fatal but will still have an impact on all cargo on board.

Couple that with the Hapag Lloyd container vessel Tolten hitting the APL vessel Hamburg Bay and losing 21 containers into the sea and the 76 containers Maersk lost from the Maersk Shanghai and you would be forgiven for thinking marine or cargo insurance would be at the forefront of everybody’s mind. It’s great to share a youtube video around the office and gasp at the containers falling into the sea but ask yourself, did it make you think do we do enough for our customers on ensuring they understand their responsibility. What would have happened if that had been our cargo on board that vessel? How much of my time would be devoted to handling a customer at a loss to understand why his cargo is not insured.

What many shippers do not realise is by not insuring their goods they are not just playing russian-roulette with their goods but also with a percentage cost for every single container on board the ship their container is on thanks to an old maritime law called “General Average”.

General Average and why freight forwarders need to understand it

Now I could go into General average in great deal put the link here to a document written by Allianz explains it much better than I can. Suffice it to say any shipper/consignee shipping by sea where a vessel runs into difficulty will see delays but if general average is called will end up with a bill which is based on the value of all cargo on board the ship and associated recovery costs, not just their cargo. No marine or cqrgo insurance, suddenly you have a major issue.

It cannot be stressed enough that insurance isn’t just a cost to be ignored in the quest to offer a customer the “Best Rate”, to be fair I have never understood what “Best Rate” means as it only ever seems to mean cheapest price rather than Best Value Service but that is a matter for another topic.

It isn’t just general average but normal business practice to have goods insured in transit

We hear of more and more instances where shippers believe that their goods are insured. Two boxes go missing from a shipment of clothes coming in from China. No worry the freight forwarder will take care of it as he has insured it. We will just deduct it from the freight forwarders bill. They will accept it as they will want our future business.

It makes it very difficult from a commercial perspective to argue that you shouldn’t accept it if the shipper/consignee believes that you are responsible for his goods whilst in your care if you, as his freight forwarder, haven’t regularly discussed marine or cargo insurance with him/her. One simple question, are your goods insured or would you like us to arrange this on your behalf with a Lloyds of London approved insurance company could save your relationship with your customer when Russian Roulette comes home to roost.

You never know, by asking the question and giving your customer a little guidance in relation to Cargo insurance within the supply chain you might find that you have differentiated yourself from the competition and strengthened your bond with your customers. Something which in this competitive world of “Best rate” wins all can be hard to do.

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