Alliance, cargo insurance, limits

Many things have a limit. Transit speeds have a limit, technology has a limit, and even science must concede limits for the time period it is in. Of course limits do expand over time, but in general the environment we live in is saddled with limits for the time we are in.  As most of us know insurance coverage is no different.  There are two insurance limits some transportation professionals and shippers who utilize cargo insurance will be best served to pay attention to. The limits are the ‘limit per conveyance’ and ‘limit per location’ numbers on their cargo insurance policy.

Most forwarders policies have limits for ‘accumulated value’ the policy will cover on any one conveyance or location. The limit may be $1 Million, $2 Million, $3 Million, or even higher in some cases. The case for the needed diligence is more for the ‘per conveyance’ value accumulation limit but both mentioned limits need attention.  Using ocean transit as the example, the total combined value of all shipments covered by one policy cannot exceed the agreed per vessel limit. Due to the upcoming changes as a result of ocean carrier alliances, it is very likely there will be larger Triple E vessels calling major ports. The reasonable logic for the ocean carriers is less sailings, but more capacity per sailing. In the carrier’s eyes, one 18,000TEU vessel makes more economical sense than two Post-Panamax vessels.

In certain situations a transportation professional with forwarders policies could challenge their accumulation limits. As an example, a forwarder who is active in a particular major port area may have several larger, plus numerous smaller, customers all shipping out of the same major port. If things unfold as expected, the new Triple E sailing schedules may lend toward more insured value per vessel due to lesser sailings. Theoretically in the near future a forwarder can book shipments with several carriers and all those shipments can find their way to a single vessel.  In the event the accumulated value limit for the policy is $2 million and the accumulated value booked exceeds that number, it exposes the freight owner at risk and the forwarder to uninsured risk.

Steps you can take to avoid the risk are simple. First, know what your accumulated value limit is. It should be stated plainly on your policy. If it isn’t contact your provider to find out. Second, study the insured value total per week you are averaging currently regardless of carrier and vessel. If the average total insured is much less than your accumulation limit, there may not be a worry. If the total is even near your limit, third is take a look at your booking habits and how they compare to the new alliances.   If you find out your booking habits lend toward the same port and having the lion’s share of shipments directed at carriers in the same alliance, it may be time to talk with your insurance provider about your accumulation limits. Even better, examine your shipping options and using different alliances. Raising limits blindly may not be free. If overrun with requests for higher limits insurers would have to consider passing the cost of the additional risk on to policy holders.

It should be noted the planets have to align correctly for accumulation to be a concern.  Although the new ocean carrier alliances do increase the chance for busy forwarders, 3PL’s, Customs Brokers, and similar, who are ‘port centric’, and take advantage of their forwarders policies actively, of pressing the limits. If you fit the profile consider no alarm bell will sound, no red flashing screen will pop up on your computer, and there will likely be no phone call from the insurer if you end up over your limit. The due diligence I mentioned is free and not complex to assess if there will be reason for a closer look.  Now you know.