Freight Claims, Carrier Liability Limits & Freight InsuranceWritten by Neal Willis
The amount of carrier liability coverage a shipment moves under is typically determined based on the shipment’s commodity and measured in terms of dollars per pound ($/lb.) of commodity. Generally speaking, all LTL shipments that move with a common carrier are covered for a certain dollar amount per pound under a carrier’s freight liability insurance, and carrier freight liability limits can vary drastically depending on the commodity being shipped.
As a shipper, it’s important to know the freight liability limits of your carriers for the specific commodities you ship because often times there can be a gap between the actual value of a commodity and the amount for which the carrier can be held liable for in the event of damage, theft and/or loss of that commodity. It’s not uncommon for shippers to receive only partial reimbursement on some freight claims because of their carrier’s limited liability coverage. Two of the most common instances where shippers face liability limits risks are with 1) Volume Shipments and 2) FAK’s.
Most volume shipments are subject to a maximum released value, which is often only $1/lb. For example, let’s say you ship $20,000 worth of merchandise on a volume shipment comprised of 6 skids weighing a total of 6,000 lbs. If this should become lost or stolen while in the carrier’s possession, in all likelihood due to carrier freight liability limits of $1/lb. for volume moves, it would only be covered for $6,000 ($1/lb. x 6,000 lbs. = $6,000).
Check with your carrier to find out their liability limits before you implement an FAK structure. Like an FAK structure itself, carrier liability limits for FAK’s are usually calculated and assigned by class, and decreased carrier liability limits usually go hand in hand with FAK’s. You don’t want to sacrifice too much coverage, because any savings you might experience as a result of an FAK structure could be negated with just one issue.
Shippers generally have two options to fill the gap in coverage between maximum carrier liability and actual commodity value through 1) negotiating higher liability coverage with their carriers, or 2) purchasing freight insurance. Negotiating higher liability limits with your carriers can be a challenge, especially in today's market. Freight insurance is often the path of least resistance and most coverage.
You most likely don’t want to shoulder the costs of carrier negligence, especially if you ship a highly valued commodity. If you don’t have freight insurance or if you haven’t negotiated sufficient liability limits with your LTL carriers, you may be leaving yourself exposed.
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