If you thought that inland marine insurance is the policy equivalent of marine insurance, you’re not alone; these terms can often get confused with one another. While they share a common lineage in their names, their individual purposes and applications diverge significantly.
Marine insurance is rooted in safeguarding goods during ocean transport; after all, the sea voyage can be a perilous one. On the other hand, inland marine insurance has a more terrestrial component; it serves to protect products, materials, and equipment when they are being transported over land and navigable inland waterways such as rivers, canals and lakes. Inland marine insurance even goes as far as protecting goods that are being temporarily stored in warehouses.
Now that we’ve covered the distinctions between these two terms, we’re ready to dive into the risk exposures of inland marine insurance in particular.
Exporters and importers meticulously plan and orchestrate the logistics of transporting goods via trucks and trains. For this reason, we expect the goods to arrive at their destinations safely. But, what happens when a company hears from another company that “they never received the cargo?” or even, “The cargo is damaged?”
Despite careful measures, specialized packaging, and the use of modern technology, a surprising number of goods are lost and/or damaged during transportation, for various reasons. In this article, we dive into the many challenges of cargo transportation and how inland marine insurance mitigates risk exposures.
Transportation Risks: Cargo On The Move
In the dynamic world of commerce, the efficient and secure transportation of goods is essential for businesses to thrive. For short distances, the common form of transportation is by truck. Trucks play a pivotal role in moving cargo between different locations, such as warehouses, distribution centers, manufacturing facilities, retail stores, and more.
Trains, on the other hand, are a critical mode of transportation for long distances and are frequently used for moving large quantities of goods. Trains are an essential link in the supply chain because they connect various inland locations. They are also more cost-effective than transporting goods via planes and ships.
Whether it’s via trucks or trains, cargo can get lost and/or damaged en route due to the following:
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- Damage: Cargo can get damaged during transit because trucks and trains encounter road conditions that can lead to hazards and accidents. In addition, if the boxes are not properly secured, they can fall when a truck makes a dramatic swerve on the road.
- Theft: Cargo theft has made headline news in recent years and for good reason. In the United States alone, cargo theft represents a $15-35 billion dollar industry. Cargo theft often involves high-value goods such as pharmaceutical drugs, electronics, and other pricey household items. Because cargo thieves are targeting high-priced goods, this often results in significant financial losses for the cargo owners/businesses.
- Weather conditions: Trucks and trains are susceptible to severe weather conditions just like any other mode of transportation. In some cases, this can result in damage to the materials that are stored inside, and even damage to the vehicles. For example, some goods are highly sensitive to temperature such as perishable goods (e.g. fruits) and pharmaceutical drugs. Exposure to hot weather can cause foods to quickly decay and for pharmaceutical drugs to lose their potency. Other times, vehicles can get broken down en route. .
Warehouse Storage as Distribution Hubs
We don’t think of warehouses too often when it comes to cargo transportation — they’re stationary storage places after all. But, warehouses are important facilitators for making sure that the goods arrive at their destination on time.
As distribution hubs, warehouses allow for the efficient storage and handling of goods before they are sent out for delivery. Warehouses even serve as a place for consolidating smaller shipments into larger ones; goods from different sources are combined into a single shipment thereby reducing costs in shipping.
Despite stringent measures, warehouse storage facilities face the following risk exposures:
- Theft and vandalism: Warehouses often store valuable and high-priced items such as the latest computers, pharmaceutical drugs, and many brand name luxury items. Warehouses are a prime target for thefts and break-ins. Cargo theft related to warehouses totaled nearly $223 million in 2022.
- Inadequate inventory management: Poor inventory management can lead to overstocking, misplaced items, or under-stocking of crucial supplies. This can result in delays in fulfilling orders so that the cargo does not get sent out on time. Mistakes in inventory management can even lead to the wrong items being sent to their destinations.
- Weather conditions: Some warehouses are located in areas prone to severe weather patterns. These warehouses can be exposed to floods, hail, and storms which can further lead to damage to the property and even damage to the stored items inside.
Disruptions in Supply Chain
Disruption in supply chains can happen for a wide variety of reasons, and it’s one of the many challenges facing cargo transport. We can all recall when the pandemic took the world by storm; lockdowns, travel restrictions, and quarantine measures became the norm. The pandemic disrupted the flow of goods and materials and caused delays and shortages in many industries. In addition, factories closed down which reduced the production of goods.
The pandemic is the most prominent example of how world affairs disrupt supply chains. However, there are other reasons that the flow of goods and products gets interrupted in the realm of cargo transportation such as:
- Labor disputes: Labor strikes, work stoppages, or disputes in the transportation industry can halt cargo movement, leading to delays and financial losses for businesses.
- Fuel Shortages and Increasing Gas Prices: Fuel prices are susceptible to fluctuations, and in some cases, they can impact the operating costs of trucks and trains thereby leading to delays in shipment.
- Regulatory Changes: Changes in transportation regulations can lead to delays in cargo transportation. For example, our world is becoming increasingly eco-conscious as we strive towards a more sustainable future. Governments may impose strict emission standards on trains and trucks to control air pollution. In the future, transportation companies may need to invest in eco-friendly modes of transportation such as electric vehicles in order to comply with these standards; otherwise, it can lead to a delay in shipment.
The Value of Inland Marine Insurance
One of the most effective ways to mitigate the many risks exposures is to have inland marine insurance in place.
The risk exposures inherent to inland marine cargo shipping necessitate the need for a specialized insurance policy. By mitigating potential financial losses, inland marine insurance ensures the smooth flow of cargo trade thereby supporting the growth and stability of businesses.
Quaker Special Risk provides access to robust inland marine insurance coverage. If your client has a business that frequently ships items through trucks and trains, then they can benefit from our coverage. Businesses that provide warehouse storage solutions for cargo can benefit as well. Additionally, trucks and trains can benefit from our program. Our program provides:
- Auto Physical Damage: Coverage for vehicles that are damaged during cargo transport
- Bailee’s Customer Coverage: This protects cargo that is left in the care of your business (suitable for warehouses).
- Commodities Being Transported: Coverage for all types of commodities that are hauled which includes protection against:
- Damage: This coverage protects against physical damage to the goods while they are in transit.
- Loss: If the items were to get lost (such as thieves stealing the items), this policy financially compensates for any expenses incurred to replace those items.
- Delayed arrival: The delayed arrival of goods can result in financial penalties, storage charges, and even the loss of business opportunities.
- Extreme weather conditions: Uncontrollable weather events such as hurricanes can cause damage to the cargo, or the warehouses storing them.
As an insurance agent, you can help your client navigate these risk exposures by recommending the appropriate coverage solutions. Quaker Special Risk specializes in inland marine insurance. Contact us if you have any questions about marine cargo insurance today.