Mistakes can occur anywhere in a supply chain, and your company can be held liable for claims that may arise as a result of the transportation of your products, says Kevin Forbes, sales executive with ECBM. The solution is cargo coverage to insure your products while they are in transit.
“You need to make sure the cargo policy is broad, and that it doesn’t have certain restrictions,” he says.
Smart Business spoke with Forbes about how to avoid costly losses and claims from the transportation of your product.
What do business owners need to know about transporting products?
First, there are different ways a company can move their product throughout the U.S. and North America. Depending on the method chosen, there are different issues that may come about. If a company chooses to move its own goods with its own equipment, there is more control associated with transportation of goods and services. The company controls the hiring of drivers, vehicle maintenance and the delivery routes. All of that has a significant effect on potential claims and damage to the product.
However, because of the expenses associated with owning your own fleet, many companies hire a common carrier, rail freight or airfreight company. Obviously, when hiring a third party to transport your freight, there are many other questions and precautionary measures that need to be addressed.
What are the consequences of failing to properly insure your products in transit?
Without having adequate insurance in place, there is nothing to make sure that your business is made whole in the event of a claim that may arise, whether you use your own equipment or a third-party transportation provider. At a minimum, a company wants to make sure that it is able to recoup the costs associated with the manufacturing, remanufacturing or repurchasing of the product involved in the claim.
There are also many consequential damages that can occur other than the direct loss to the product: the increased cost associated with having to rush manufacturing or purchasing of new product so you can ship it to your customers; expedited delivery charges that can arise to make sure your customer gets their goods in time; or lost revenue to your customer to whom you may be contractually liable.
There could be a potential for environmental claims, even if your company did not cause the contamination. As the owner of the product there is the potential for your company to be responsible for the cost associated with a cleanup and potential bodily injury or property damages.
How can business owners ensure their product is effectively insured?
Companies can always choose to insure their product in transit themselves, whether they are moving their goods or a third party is involved. But when dealing with a third party — as most companies do — the most common way to insure your product is to require the company providing the transportation to have some sort of cargo coverage.
A company can request a certificate of insurance to provide proof of coverage at the appropriate limits, depending on the value of the product. But when obtaining the certificate of insurance, there are many more questions and coverage enhancements that need to be addressed other than just the limits provided. This is where most companies fall short in their risk management approach.
What are some additional precautionary measures?
Cargo policies for motor carriers have specific exclusions that could result in a product not being covered for certain losses. For instance, you’re required to carry perishable food products at a certain temperature, so you want to make sure the motor carrier has refrigeration breakdown coverage, which is an extension to a standard cargo policy. It’s not typically included.
Some cargo policies have certain warranties that the motor carrier needs to follow to ensure that the product is covered. These include requiring that the trailer be attached to the power unit at the time of the claim, and that the vehicle be locked — things which, as a shipper, you really have no control over. So you want to make sure the cargo policy does not have those restrictions.
Many people don’t know that if an employee of the motor carrier is involved in the theft of the freight, the cargo policy will deny coverage. The company should make it a priority to review the motor carrier’s coverages to ensure they do not have these restrictions and provides crime coverage in the event that there is an employee theft.
How can companies be sure they are getting the right coverage for their products in transit?
The first thing to do is make sure you’re dealing with a reputable company. As far as trucking firms are concerned, you can go to a Web site, www.safersys.org, and check a company’s safety rating with the Department of Transportation. You can review their driver and vehicle out-of-service ratios. You want to make sure those ratios are in line with the national averages and, of course, you want to make sure the carrier has the necessary insurance coverages in place.
Kevin Forbes is a sales executive with ECBM. Reach him at (610) 668-7100 or [email protected].
