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Carrier liability is not insurance; it pays to know the difference

End claims headaches and save your bottom line

Photo credit: FreightWaves/Jim Allen

As supply chains endure the unpredictable disruptions of COVID-19 and recent tropical storms and hurricanes, it’s a wonder that most shipments arrive at their destinations without a hitch. Still, 92% of shippers1 experience some kind of damage, delay or loss event each year. Depending on mode of transportation, these incidents can affect 10%-15% of shipments1. When claims are filed, shippers can endure long battles just to see their claims denied or only partially honored. 

A Harris Poll study1 showed that 90% of business shippers rely on carrier liability or declared value as a risk-mitigation method, potentially exposing companies to lengthy claims battles. Herein lies the problem — carrier liability is not real insurance. Yet 40% of those surveyed said carrier liability is the same as shipping insurance, according to the study.  

Things you don’t know can hurt your company

Cargo insurance from a knowledgable and experienced partner can make the difference in getting shipping claims paid.  

JCR Distributors, a Dallas-based high-end residential kitchen and bath products manufacturer, relied on the carrier’s declared value to “insure” shipments before signing on with UPS Capital Insurance Agency Inc. (UPS Capital). Each time a loss or damage occurred, General Manager Brad Sledge spent valuable time and resources trying to prove the carrier’s liability, resulting in only 30% recovery of losses. 

“The only world I knew was fighting a losing battle,” Sledge remembers. “I didn’t know there was a better option. I just assumed that declared value was insurance.”

So how do so many shippers get it wrong? All carriers — whether ocean, air or over the road — are legally obligated to offer a liability program, which is the standard process offered by the carrier for a shipment that has been lost or damaged. 

For example, motor carriers may choose to cover up to $100 for small packages or $25 per pound for less than truckload (LTL). U.S. maritime law limits the ocean shipper’s recovery for damages to $500 per package, if the carrier is liable. Shippers can also choose to purchase excess liability, which offers more coverage than the standard carrier liability.  

But carrier liability cannot be considered insurance, as there are many exclusions based on the type of cargo and the terms and limits negotiated with each carrier. Carrier liability rarely pays claims instigated by acts of God (hurricanes, floods, fires, earthquakes, etc.), acts of war, the fault of the shipper, a defect in goods and government actions.

“In the event of loss or damage, you may quickly discover all the gaps and loopholes in — and limits of — carrier liability,” said Tom Turney, UPS Capital director of underwriting. “And even if you’re due compensation, you may only get pennies on the dollar.” 

A light at the end of the tunnel

When JCR was introduced to UPS Capital, Sledge learned the differences between carrier liability and UPS Capital’s “Flexible Parcel Insurance,” a type of cargo insurance that allows shippers to choose which packages to insure during the shipment booking process. Sledge says the cargo insurance policy covers them whenever they have a loss and pays for itself each year.

“Our deliveries are custom orders,” Sledge says. “But not every shipment gets opened the day of delivery. Packages can go unopened for more than a week until they’re needed. So any concealed damage isn’t reported until the box is opened.” 

The problem is that LTL carriers often require that concealed damage be reported within five days in order to file a claim. With the Flexible Parcel Insurance policy, JCR now had 90 days to file a claim.

“We were losing our hat on damages that were discovered weeks after delivery and there was nothing I could do about it,” says Sledge. “The best part [about the Flexible Parcel Insurance] is that we can reship a replacement product to a customer immediately because I know I’m going to get paid.” 

Cargo insurance through UPS Capital is real insurance coverage customized for each business’ needs, not a one-size-fits-all program like carrier liability. Shippers are covered up to the full sales value of goods, plus freight, in the event of loss or damage. It will likely cost less in the end than carrier liability and can be expanded to include warehoused inventory.

UPS Capital’s cargo insurance helps mitigate risk in the supply chain by safeguarding shippers’ reputations, protecting their bottom lines and valuing their time. 

Learn more about real shipping insurance and be sure you’re covered. 

1 Harris Poll Research Study, 2018. UPS Capital.

Corrie White

Corrie is fascinated how the supply chain is simultaneously ubiquitous and invisible. She covers freight technology, cross-border freight and the effects of consumer behavior on the freight industry. Alongside writing about transportation, her poetry has been published widely in literary magazines. She holds degrees in English and Creative Writing from UNC Chapel Hill and UNC Greensboro.