Cargo insurance & liability guide.

Insurance and rules — why it matters

Most companies mistakenly believe that their transportation and logistics company automatically assumes 100% responsibility for the full value of the cargo during transport—that is not the case. It may become a very costly misunderstanding if the rules governing international trade and the limits of liability governing international transport are overlooked.

It is important to understand the rules and regulations when assessing whether insurance is needed to avoid unforeseen costs if damage occurs.

• Incoterms — contract terms that share risk and costs
• CMR Law — international road transport
• Hague-Visby Rules — international sea transport
• CIM / SMGS — railway
• Montreal Convention — international air transport
• FIATA Model Rules — international standard forwarder conditions
• NSAB 2015 — Nordic forwarder conditions
• NSBS — Bulgarian forwarder conditions

Incoterms and risk transfer

Incoterms are international trade clauses drawn up by the International Chamber of Commerce and describe how risk, liability, and obligations are distributed between seller and buyer.

Terms such as Ex Works, FCA, FOB, CIF, and DDP do show who pays transport costs, but their main purpose is to define when risk transfers, who is responsible for damage or loss, and who is responsible for insurance.

Always pay attention to the chosen Incoterm and how it positions the business in relation to damage, loss, and insurance risk.

Responsibility during transport

The carrier is responsible for the goods during carriage according to the Incoterms agreed between seller and buyer.

International truck, sea, air, and rail transport is regulated by mandatory international rules. A written agreement that contradicts a mandatory convention may be void, leaving the international agreement to apply.

The applicable convention depends on the transport mode and establishes liability limits for cargo loss or damage.

Carrier liability limits by mode

• International road transport — CMR Law; CMR §§29–32; loss/damage limit 8.33 SDR per kilogram; delay capped at the agreed freight costs
• Sea freight — international sea law; 666.67 SDR per package or 2 SDR per kilogram, whichever is higher; delay capped at 2.5 times agreed freight costs
• Rail freight excluding CIS and China — CIM Convention, Article 30; 17 SDR per kilogram; delay capped at 2.5 times agreed freight costs
• Rail freight in CIS countries and China — SMGS Convention; no specified limitations for damage, loss, or delay

Forwarder liability: FIATA

Alongside the conventions governing the carrier, freight forwarders operate under standard trading conditions governing their own liability to the customer.

• FIATA Model Rules are a worldwide benchmark used by many national associations
• Loss or damage limit: 2 SDR per kilogram of affected goods
• Other unspecified loss: 50,000 SDR per incident unless a higher amount is recovered from a responsible party
• No liability for delay unless expressly agreed in writing

NSAB 2015 — Nordic conditions

• Applies in Denmark, Sweden, Norway, and Finland
• As contracting party: 8.33 SDR per kilogram for loss/damage; delay limited to freight; other loss limited to 100,000 SDR per assignment
• As intermediary: 50,000 SDR per assignment and 500,000 SDR per occurrence
• Storage: total liability limited to 500,000 SDR per occurrence
• Claims are time-barred after one year

NSBS — Bulgarian conditions

• The Bulgarian National Forwarders Association was founded in 1992 and represents the majority of the Bulgarian forwarding industry
• Its 2015 Standard Trading Conditions are reserved to insured NSBS members
• The conditions cross-reference the underlying carrier conventions, including CMR and Hague-Visby, for the actual transport leg

What is SDR?

SDR means Special Drawing Right, an international reserve asset defined and calculated by the International Monetary Fund. Its value is listed by many banks under the currency code XDR.

When and why you need cargo insurance

At a minimum, a transport customer should take out insurance when compensation available under liability limits per kilogram is lower than the actual value of the goods.

Carriers may also have grounds for discharge where an event could not have been avoided or prevented. In those situations, the carrier may have no responsibility at all—not even the limited liability under the relevant convention.

Determining liability can take time and will often be handled between the carrier’s insurer and the transport buyer’s insurer. With appropriate cargo insurance, a covered loss can usually be resolved more quickly. Without it, a company may be left without compensation.

All-risk cargo insurance

All-risk cargo insurance is the broadest form of cargo insurance, covering loss or damage in transit unless specifically excluded by the policy. It can protect high-value shipments across all transport modes against a wide range of perils.

• Accidents — collisions, dropping, or improper loading
• Theft — theft or pilferage during transit
• Natural disasters — storms, heavy rain, or flooding
• Handling and storage — rough handling or storage incidents
• Comprehensive protection and greater certainty for high-value shipments

Apparent loss or damage on receipt

• Examine the goods immediately on delivery
• Record a reservation on the Delivery Note or Consignment Note stating the nature and cause of loss or damage
• Follow the reservation with a written claim to the forwarding company
• Take clear photos or video of damage, outer packaging, and container seals before further unpacking
• Leave damaged goods and packaging untouched in case a surveyor needs to inspect them

Hidden loss or damage

• For container delivery, immediately check whether locks and seals are intact
• Record any container damage or broken or missing seals on the Delivery Note
• Check the contents promptly and give the carrier written notice stating cause and extent
• Where damage was not apparent at delivery, notify the carrier within: truck/rail — 7 days; vessel — 3 days; air — 14 days
• Take photos and preserve damaged goods and packaging
• If the deadline is exceeded, proving that damage occurred in the carrier’s custody becomes more difficult and the burden of proof falls on the insured

Duty of the insured

• Take all necessary measures to limit a claim
• Notify the insurer immediately so a survey can be arranged
• Report damage to refrigerated and frozen goods immediately, regardless of amount

Documents to send the insurer

• Claim letter describing the extent and value of the loss
• Commercial invoice
• Bill of Lading, CMR Waybill, or Air Waybill
• Survey report, if available
• Freight invoice
• Packing list
• Original insurance certificate—or a statement that no insurance is in place
• Photos of the damaged cargo

Liability limits and insurance responsibility

This is exactly the kind of case Human Intel OÜ supports on the ground through Damage Processing, Insurance Claims, and Carrier Liability Claims.

• Carrier and forwarder liability is limited by conventions and trading terms, not by the cargo’s actual value
• Compensation is usually capped per kilogram, which can be far below the real value of high-value or lightweight cargo
• Cargo is never automatically covered at 100% of its value through statutory carrier or forwarder liability
• The transport buyer is responsible for holding valid all-risk cargo insurance for the full value and duration of transport
• Without appropriate insurance, loss above the statutory limit may not be recoverable