There are thousands of products that are imported from one country to another. Sometimes we don’t notice the effort taken to import and export products. However, moving products comes with its own risks- there are hundreds of things that could go wrong on a flight, ship or road. These risks are why companies purchase cargo insurance to cover their products through the journey.
Cargo insurance is the best method to protect the value of the products from physical damage or theft. This case study will explain how cargo insurance reimbursed a freight forwarder company liable for transporting ice cream that was damaged on a flight.
Background of Client
The client is a freight forwarding company that transports products worldwide. Some of the products include food products. The mode of transport they use to transport their goods is air. When moving a product like ice cream, the transport has to be quick and keep the product cold; hence flights are the best choice.
Food products have a higher chance of risk of damage during the journey. The main risk is when the product is not being stored in a suitable condition. As a result, food can spoil quickly, especially on long flights. This is why cargo insurance is crucial for any food product freight.
The client was moving 95 large boxes of ice cream worth USD 97,000 from Switzerland to Dubai (around 7 hours flight). The boxes are stored in the cargo area of the flight, where the freezer box can be plugged in to keep the ice cream in good condition. First, the client had to bring the products to the airline, and after that, it was the airline’s duty to follow the instructions and keep the product safe from damage or theft.
Unfortunately, the airline staff did not understand the cargo instructions and forgot to plug in the freezer box. Therefore the ice cream was transported for 8 hours at the wrong temperature, causing them to melt. Additionally, the situation worsened when the flight landed; the airline left out the cargo in the Dubai heat, causing them to melt further and no way to recover.
The delicious ice cream was now just a messy liquid, and the worst outcome the freight forwarding company could have imagined. They will now be liable to refund the payment, pay for the damages, and disposing costs.
How Cargo Insurance Was A Solution?
The client is liable for taking care of the ice cream and taking it from one place to another in the best condition. The client thought of all possible risks when exporting goods; hence, they purchased cargo insurance.
Hence, Cargo insurance protects the business from financial loss due to damaged goods. The insurance will pay for most costs related to an unfortunate event to the freight. The premium paid provides peace of mind to logistics companies when the goods leave the warehouse and are not in their control. The insurance helped the logistics company provide the costs back to the ice cream brand and still be able to continue their future business. Such disasters can happen at any time, and cargo risks are unavoidable.
The cargo insurance provided the company following costs:
- Freight Charges: USD 1900
- Damaged Goods Costs: USD 97,000
- Storage Costs: USD 1000
- Packaging Costs: USD 10,000
- Disposal Costs: USD 600
Total Amount: USD 110,500 – (HKD 861,118)
Additionally, the insurance company also communicated with the airline company to discuss reimbursement of the cost paid out, as it was their fault.
Cargo insurance is the best cover for any company that deals with the movement of goods. Even if it is a short journey, it is crucial to be insured, as things can go wrong anytime. Cargo insurance allows a business to continue its activities and avoid business interruption due to financial loss of the failed freight. It is also one of the rare insurance products that will cover the goods even if the cargo is affected by natural disasters.
Although, it is essential to understand that cargo insurance will only cover the goods if the packaging and planning are adequate before freight. Therefore, the policyholder needs to pack with high-quality material/method.