Managing Risk in the Transportation Industry: The Role of Insurance

March 30, 2023

Getting a small parcel delivered is ordinarily easy: you specify delivery details, pay a shipping fee, and see it show up on your doorstep in a matter of days or weeks. Of course, behind the scenes, a massive logistics operation can be taking place, involving dozens of warehouse workers, drivers, and customs officials.

When the transportation of goods and people is examined on a macro scale (enterprise-level shipments or transport of thousands of people), it is easy to see how things can go wrong, and accordingly, how some protections should apply to the process.

Insurance plays a massive role in the transportation industry, featuring many layers, variations, and major considerations for anyone wishing to purchase or sell a policy. For the sake of clarity, this article will mostly focus on the transportation of goods (logistics) and not people (that’s closer to the travel industry).

Locale

In terms of insurance for transportation companies, getting a coverage plan connected to the locale is of paramount importance. Most policies are drafted on the level of a country to comply with its laws and regulations, but the policies can be both larger (e.g. international shipping) and smaller (state/province deliveries) in scope.

International (and intercontinental) shipping is particularly known for cumbersome insurance agreements covering very minute details and situations that could affect each delivery. Along with higher costs than average, single-country transportation. So any company looking at policies should definitely examine which regions the jurisdiction of the shipping company applies to.

Fleet size and composition

There is a big difference in costs and conditions for shipping regular items in small vans and specialized vehicles like freighters, boats, trains, etc. For long-term insurance agreements, the fleet size is also factored in, so a company can insure hundreds of trucks under a single agreement just as they would a single van with a sensitive payload.

On that note, the prices and conditions of the insurance can strongly vary if the goods being shipped are electronics, luxury items, environment-sensitive items, and other rare categories.

Liability

Though some people have a very basic notion of insurance as something that compensates you when some incident occurs, you should also see it as a potential shield against lawsuits and being held liable.

One area of liability included in the paperwork applies to the carriage of cargo. Who is responsible when a ship capsizes on stormy seas or a deer jumps in front of a truck? These are just two of hundreds of potential scenarios. Besides damage and loss, theft is a situation that tends to get lots of attention and stipulations in coverage agreements.

To complicate matters further, some arrangements feature not only a client and the company delivering their goods, but also a broker that took on the role of connecting the two parties and perhaps provided additional services. These brokers often have their own terms that are at least partially factored into coverage policies.

In conclusion

While it may be a lengthy and costly process to set up coverage for all of a company’s transport routes and shipments, it is a much-preferred alternative to paying exponentially more damages in the case of an incident, and potentially spending months in court. This is a great way to manage risk.

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Carlos Diaz
I believe in making the impossible possible because there’s no fun in giving up. Travel, design, fashion and current trends in the field of industrial construction are topics that I enjoy writing about.

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