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The carrier limit of liability determines the maximum amount of money that carriers can be held liable for in the event of damage or loss of cargo. The limits of liability vary between carriers and mode of transport, however, in most cases they do not reflect the value of the cargo. For example, in terms of ocean cargo, the limited liability is typically 2 SDR/KG. SDR or, more specifically, Special Drawing Right is an artificial currency instrument used by the International Monetary Fund (IMF). At present, the SDR value is $0.70 USD, so 2 SDR = $1.40. In the case of a shipment weighing 100 kgs, the limited liability value is $140.00 USD, no matter what the value of the cargo is. This can come as an unpleasant surprise to shippers, as many are under the impression the parties involved in a claim will provide them with complete reimbursement. To many, this is the first time they are made aware of limited liability, and the fact that the liability of the carrier is very low.
To be clear, carrier limit of liability covers damage or loss that occurred due to carrier negligence. To settle a claim, the responsibility to prove that the damage was the fault of the carrier is typically on the importer or exporter, which can be difficult to verify in many cases, affecting the ability to receive even minimal reimbursement under the terms of limited liability. There is also no official deadline to settle a claim, so the process could drag on for months. At the same time, for a carrier to be liable for loss or damage, importers have to prove that their cargo was in good condition when given to the carrier, but was delivered damaged, or not delivered, and they must prove the amount of the damage they are claiming.
As you can see, under limited liability terms shippers will have a difficult time recouping any monetary losses in the event of a claim and it could a very long time to settle such matters. The only way to protect your interests is to have cargo insurance in place for all of your shipments, especially for cargo you control, from a freight cost perspective. If you are responsible for the freight charges (we always recommend you control your freight), you would normally be responsible for ensuring your shipment has proper cargo insurance in place. As noted, even when carriers are liable, the liability is limited – either by contract in the bill of lading or by law. And, as outlined, in most cases shippers will only recover cents on the dollar from the carrier. Cargo insurance gives you total coverage, and ensures you receive full compensation in the event of loss or damage. At the same time, your cargo insurance provider will coordinate the claims process with all parties involved and expedite the settlement process. Typical cargo insurance coverage will cover the commercial invoice value of the cargo as well as the freight costs and add a 10% margin to this to cover any accessorial costs incurred. This is to ensure you are fully compensated in such instances.
In terms of cargo insurance, Universal Logistics can help you find the best match between your needs and the available coverage options, with the sole purpose of protecting your interests and limiting risks when shipping.
For more information, contact David Lychek, Director – Ocean & Air Services.
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