Thousands of ships, planes, trucks and even trains are used to deliver cargo from one place to another. The movement of cargo is a process that occurs worldwide and is a crucial part of the supply chain and economic growth. Cargo could be anything from small parts to fully assembled cars.
When a company wants to move cargo from one country to another or city to city – it must contact a freight forwarder. Freight forwarders are companies that help organise and coordinate cargo transport for individuals or businesses through road, rail, sea, or air.
A freight forwarder’s duty is far from easy; they are liable for the cargo through the journey and have to take some financial responsibility if anything goes wrong. Freight forwarders’ liability can bring many risks that can affect the business with financial loss, fines, and lawsuits.
Most freight forwarder companies purchase freight forwarder liability (FFL) insurance to protect and help them deal with unpredictable risks and situations. In some countries, the insurance is mandatory. The article will explain these freight forwarders’ liability risks and why FFL insurance is crucial in the industry.
What is Freight Forwarder Liability Insurance?
Freight Forwarder Liability (FFL) insurance covers carrier liability, errors & omissions, breaches of regulations and third-party liability claims. It helps freight forwarders reduce financial loss and the risks involved if something goes wrong during the journey.
Sudden uncontrollable factors can test the freight forwarders’ liability throughout the journey, and the company must be prepared to face them.
What Is Covered by Freight Forwarder Liability Insurance?
Carrier’s Liability
When a carrier takes charge of cargo, they acknowledge taking over the cargo in good condition and therefore has a presumption of liability. Then, as soon as the cargo might be damaged or the voyage has an issue generating a general average, the carrier will have to engage its liability.
However, even if the carrier claims to be responsible for the goods entrusted, it is very important to consider the extent of that responsibility. Because, in practice, the carrier’s liability in case of disaster is regulated and limited by international conventions.
Transport costs and the pricing of freight are based on the weight and volume of goods transported, and then the limited liability of the carrier is based on the method of pricing of international transport as well (Ratio weight/volume):
- For ground transportation: 1T / 3m3.
- For air transport: 1T / 6m3.
- For shipping: 1T / 1m3.
In other words, if the carrier is found liable, the refund will be based on the weight of the damaged goods and not on the actual value of the goods. (Reason why you can’t rely only on this liability and needs to get Cargo Insurance based on the value of goods).
Error and Omissions
When transporting cargo, it is more than loading and unloading cargo on a mode of transport. There is a large amount of paperwork, agreements, and back-end agreements between freight forwarders and clients. These forms, papers and contracts are crucial to the freight’s liability and duty. Any freight forwarder error can result in lawsuits, fines, or compensation payments.
An error and omission can include wrong routes, incorrect paperwork, loading and unloading negligence. Clients trust freight forwarders and have paid for the cargo to reach point B from A and on an agreed time. A claim can occur when the freight forwarder liability error causes financial loss to clients.
For example, a freight forwarder accidently left the products at the handover location and moved with only a portion of the total cargo. The cargo was severely delayed in this situation, causing the receiving clients financial and trust loss. Hence, the cargo company will have the right to sue, or the freight forwarding company will have to pay compensation due to the error. Many errors and omissions like this can significantly cost the freight forwarder and damage the reputation.
Third-Party Liability
Accidents can happen at any point of a journey, mainly when travelling through sea or land. These accidents can occur through collisions with other vehicles or property. The outcome can be costly and surprising when it is due to a freight forwarder’s mistake. The affected third party may sue the freight forwarder for the cost of damage or injuries.
These accidents are more common when travelling on the road due to the number of vehicles and truck size. Routes can be narrow, and driving a huge truck through roads requires great skills and precision. One wrong turn or minor mistake can easily result in a disaster that damages or injures a third party.
For example, there have been several cases of third-party injuries and accidents in a cargo port in Bangladesh. There have been 15 accidents in the cargo port in the past two years that seriously injured many people. In this case, the injured third parties have the right to sue the freight forwarder for third-party damage and injury.
The freight forwarders’ liability includes them having to pay legal, medical and compensation costs due to the third-party claim. These costs will add up to a large amount for the company and may affect future deals.
General Average
Like any other industry, the freight forwarder industry must follow certain regulations. These regulations can include laws, custom and country requirements. It is the freight forwarders’ lability to do their part in following all rules and laws to make the process easier and smooth for carriers. Breaching a regulation or disturbing a country can result in massive fines, general average and lawsuits against everyone involved.
Even if a vehicle or vehicle company breaches regulations, the freight forwarder will still be liable for a portion if there is a fine. Therefore, the most minor breach can result in costly fines or bans.
The famous Egypt Canal blockage is an example of disturbing a country and breaching regulations. The enormous container ship accidently wedged itself across Egypt’s Suez Canal, blocking one of the world’s busiest trade routes. The situation disturbed many other ships and the marine supply chain. As a result, the government fined the ship owner $550 million.
In this case, the marine experts split the fine and ‘general average’ between ship owners, freight forwarders and cargo owners. A general average is a cost declared to help recover from the situation and make all involved share the losses. The cost can add up to a large amount in millions for a situation they had no control over.
Why Is Freight Forwarders’ Liability Insurance Crucial?
As you can tell, a freight forwarder’s liability is always on edge, and things can go wrong at any point. However, it’s not just the journey that comes with risks; it all starts from the point they sign a deal and fill out paperwork till the final receiving signature.
These freight forwarders’ liability risks can take a toll on any freight forwarder company and result in substantial financial losses. Thankfully freight forwarder liability (FFL) insurance is the perfect cover for the above risks. The insurance provides financial protection, so the company doesn’t have to pay from their own pocket. These risks come with no warning, and there is no point in worrying about something out of their control.
Additionally, FFL insurance covers legal costs if one of the risks leads to a lawsuit. In many situations, claims may be unjustified, and freight forwarders must be prepared to prove themself. The insurance will assist the company in defending itself through industry experts, including lawyer expenses and possible settlement costs.
Freight forwarder liability (FFL) insurance covers freight forwarders’ liability to help the business recover quickly and keep growing. Although when purchasing the insurance, communication with the insurer is crucial to get the best cover for your exact requirements.
To Learn More about freight forwarders’ liability insurance and cover freight forwarders’ risks, contact Red Asia Insurance.
