The Dangers of Cargo Transportation. Cargo Insurance – Insurer Assumes the Risk

2019 August 20

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Today the growth of economy is certainly tied to cargo transportation. In the context of indicators for European leaders in transportation processes, such as Germany, followed by Poland and Luxembourg, Lithuania is not far behind.

According to the Official Statistics Portal (OSP), transportation by all means of transport has seen a 7.2% increase throughout the first quarter of 2019 compared to that same period last year. Together with the growing transport flows and the expanding geography of logistics, the demand for services that ensure the safety of the cargo and the compensation for damages inflicted during its transportation is growing as well.

One of the main expectations for a cargo transportation company is fast, secure and high-quality cargo delivery. However, regardless of the chosen transportation company’s professionalism or ability to come up with optimal solutions for transportation routes, the transportation of any cargo can become a real challenge for the client.

According to Justas Kairys, the CEO of our company “Tarptautinės logistikos centras”, a considerable part of cargo transportation risks is associated with the means of transportation or its geography as well as the specificities of the cargo itself, and the only way to manage these risks and avoid losses is cargo insurance.

The Advantages and Risks of Different Transportation Modes

The most reliable, the fastest and the safest cargo transportation mode today is air. However, the prices associated with this option can be discouraging. A very popular way of transportation within the EU borders is transportation by road transport, which is attractive due to the well-developed infrastructure and constant maintenance and renewal of truck fleets. The railroad is not the most expensive means of transportation, moreover, trains can cover significant distances.

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However, not one way of transportation can offer absolute cargo safety. Planes are operated by people, which inevitably involves major mistakes that can cause damage to the cargo and consequently significant losses to the client. There are different types of dangers when it comes to road transport – various road accidents and rollovers as well as thefts from cargo covered by tent. Upon choosing to transport cargo by railroad, you should consider the risk of poor weather conditions, which can cause the cargo to become wet and damaged, the risk of physical drops or damages done to the cargo while loading as well as possible damages to cargo packaging during transportation. Accidents and thefts also aren’t an exception.

The Indicators of Sea Transportation Are Growing

OSP announces that this year, the indicators of sea transportation have increased a considerable amount. The biggest appeal of sea transportation originates in its low transportation cost. Moreover, the cargo travels continuously and independently of the weather conditions or seasons. However, this means of transportation is associated with certain risks, therefore we suggest additional cargo insurance to the clients.

Damages done to containers or while loading, various ship malfunctions, fires, rollovers, accidents, stranding, drowning, dangerous air conditions, cargo becoming wet, cargo being washed off the deck or being forcedly thrown overboard are the main risks of sea transportation. There is also the risk of pirating or the ship being hijacked.

For the clients who decide to choose sea transportation, we recommend to consider the relevant legal aspects of maritime law. For instance, in case of a General Average declaration (link-the definition of general average), the owner of the ship pays only for saving the ship. In the meantime, the fate of the cargo is the responsibility of the owner, and saving it can amount to around 20% of the total cargo value.

Our CEO J. Kairys points out:

“Throughout my years of working experience I encountered the declaration of General Average twice. Both cases brought significant financial losses to the clients whose cargo wasn’t insured. Saving the cargo cost anywhere from 17 to 20 % of the total cargo value. The General Average is an insurable event, so if the cargo is insured, the client needs to worry only about contacting their insurance company”.

Geographical Risk Factors

The damage, disappearance or loss of cargo is closely related to the geographical aspects of transportation.

“If it is indeed safe to transport within the EU, Scandinavia or the USA, it is difficult to say the same about certain non-EU countries or the developing world. For example, transporting cargos by land in South America or Africa is truly risky. In countries such as Russia or Belarus, cargo confiscation can occur and cause a lot of issues”, shares J. Kairys.

The risk is also increased by the time consumed transporting the cargo. The longer it takes for the cargo to reach its destination, the more possibilities there are to encounter unexpected threats and experience losses. For instance, cargo transportation to Japan takes 45 days, thus the owner of such cargo is under more risk than the one transporting cargo to the EU countries.

Cargo Specificities Are Important

The type of cargo is of great importance when evaluating the risks of damages or losses. According to J. Kairys, some cargo requires specific temperature range. In that case, some unforeseen malfunctioning of the equipment can cause not partial damage, but irreversible loss of the entire cargo.

It is especially important to understand all risks associated with transporting such cargo by sea. In ships, there is no possibility to fix equipment, thus upon reaching the destination, the cargo that requires a specific temperature range can be completely destroyed.

J. Kairys suggests that cargo which is considered as dangerous, as well as project and heavy cargo, should unquestionably end up on the list of forbidden cargo.

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“Cargo of this nature needs certain conditions of transportation, strict safety standards, however, mistakes and miscalculations always remain as a possibility. There was a case where due to mistakes made during the transportation procedures, an entire ship caught fire and was damaged by fireworks”, explains J. Kairys.

Project and heavy cargo mostly suffer from mistakes during loading, unloading, and lashing. The transportation itself is also more difficult with such cargo.

Solution – Cargo Insurance

Most logistics companies seek to properly meet their obligations to the clients and get Transporters’ Civil Liability Insurance (liet. Vežėjų civilinės atsakomybės draudimas). However, upon thoroughly evaluating the risks of transportation, the clients should not count solely on the warranties offered by this insurance. Civil Liability Insurance does not always cover expenses related to cargo damage or loss: in this type of insurance, the consequences of improper packing or damages caused by incorrect loading or lashing do not qualify as insurable events, and those that do are covered only partially. The only reliable way to prevent possible losses is additional cargo insurance.

The possibilities of insuring cargo should interest not only those transporting highly valuable, important cargo, cargo that requires specific transportation conditions or is being transported by sea.

“Today insuring cargo is a well-known practice. Clients, especially those who transport highly valuable cargo, aren’t interested in saving money when it comes to insurance. However, I still recommend cargo insurance for everyone. The insurance costs are not high, the insurance procedure is carried out through email, which is exceedingly fast, and in case of emergency, the client will save a lot of time and money”, claims J. Kairys.

With the hopes of ensuring quality services and offering an optimal cargo transportation service package, on top of loading and transportation services our company “Tarptautinės logistikos centras” offers cargo insurance under ICC (A, B, C,) conditions. It is a reliable solution that ensures complete coverage from unpredicted or suddenly occurring events.

ICC (A, B, C) insurance covers all means of transportation, the compensation is calculated based on the total cargo value, and the insurance compensations can also be expected in cases of partial damage or loss of the cargo.

“On top of that, the company that offers logistics services is more equipped to choose the right insurance solution for the client. In that way we save the clients time that would otherwise be spent on searching for an insurance company and the insurance process – we have all the necessary documents in place and ready”, emphasizes J. Kairys.

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Our company “Tarptautinės logistikos centras”, which unites many field experts, was founded in 2008. Throughout a period of one year, we provide services to approximately 100 ships and transport around 800 000 tonnes of cargo. Speed and professionalism are the defining qualities of our company. The membership at Klaipeda Terminal Group helps us ensure freight forwarding that is smooth and well-thought-out as well as guarantee high standards of cargo transportation procedures. Our location is our biggest advantage. We are situated within the territory of The Port of Klaipeda, and thus we can offer faster and more operative services to our clients.