Domestic Freight Broker’s moving freight through third party trucking, rail carriers and airlines have financial exposures that are truly unique from any other industry. A thorough and complete understanding of financial exposure is critical to the long term success of a Freight Broker or Freight Forwarder.
It is important to first understand the risks and financial exposures then design a program with the support of knowledgeable professionals dedicated to the logistics industry. The ultimate goal should be to design a Risk Management, Claims Control and Insurance Program that responds to the exposures that are unique to your firm and the customers you represent.
Unique Exposures for Domestic Freight Brokers:
A company staying within the box of domestic freight brokerage is known as an asset free company. This means they do not move freight with their own equipment but rather use third parties (trucking operations, rail carriers and airlines). As a result, they never take cargo they are hired to move into their care, custody or control. The Carmack Amendment implies that the Freight Broker’s don’t actually assume liability to the cargo they move. This does not, however, guarantee they won’t be dragged into a claim when one arises which means the cost associated with defending themselves and responding to cargo claims can not necessarily be avoided.
Methods of addressing exposures:
1) Contracts – The trading terms and conditions in which you operate under should communicate the extent of your liability should something go wrong. The Transportation Intermediaries Association (TIA) has a recommended format and it would be advisable to become a member.
- A Shipper/Broker Contract establishes an understanding on the extent of broker’s liability to the freight he is moving.
- A Carrier/Shipper/Broker Contract establishes the extent of liability a carrier (trucker, rail carrier or airline) has to the cargo being moved.
Be aware that most major shipper’s will ask you to sign their format of shipper broker contracts. These contracts should be reviewed with the support of an attorney dedicated to the logistic industry. These contracts should also be reviewed with your insurance agent as your signature could potentially impact the coverage you have in place. Your insurance carriers, in many cases, can invalidate your coverage if you unwittingly increase your legal liability without giving them the opportunity to review and approve of the contract.
2) Technology and Procedures – This can help your firm minimize human error and the exposures that could result from these errors. Technology has been developed specifically to assist freight broker’s track shipments and monitor the insurance coverage a carrier has in place. Written procedures that all employees are required to follow might also help in reducing exposures.
3) Work with Professionals knowledgeable and dedicated to the logistics industry – Attorneys and Insurance Agents have areas of expertise, therefore, you should try to work with professional who are knowledgeable in your industry.
Attorney’s experienced in the risks associated with logistics can help you interpret your exposures, set up a corporation to protect your private assets and provide council on legal issues relating to transportation.
Insurance Agents dedicated to the logistics industry will provide you with insurance carriers and coverage that are unique to this industry. They will also be able to help you evaluate your exposures after better understanding the full extent of the services you offer.
An insurance program can then be designed around the services you offer, the nature of clients you have, the contracts you have in place and the cargo that is moved by your firm.
4) Professional Claims and Recovery Firms – Professional claims adjusters and recovery experts can help freight brokers collect difficult claims from carriers and third parties. Their services are typically offered on a no cure, no pay basis. Fees can range from 30%, to as low as 10% of the amount recovered depending on the size of the claim.
5) Insurance programs designed to address the intricacies of your operation – An insurance policy is a contract that transfers some of the financial risks and exposures inherit in your business to an insurance company willing to accept these exposures. Understanding what is and what is not covered is critical. For that reason, you should request a sample policy, prior to binding coverage, and make sure you read and thoroughly understand your policy. Your insurance agent should be able to help you interpret the policies put in place for your firm. It is a good idea to pose any questions you may have to your insurance agent with a request that underwriters review and respond back in writing. It is important to note that when questions arise that the insurance carrier responds back in writing.
Your policy is the contract in place between you and your insurance carrier therefore it is very important that you have a clear understanding of the coverage it will provide.
Typical Insurance Policies in place for a Freight Broker or Domestic Freight Forwarder include:
- Contingent Cargo Policy
- Contingent Cargo/Contingent Auto Liability Policy
- Shipper’s Interest Cargo program
- Excess spot Cargo Insurance Program (when Truckers Motor Truck Policy limit isn’t high enough to match value of cargo being shipped)
- Cargo Legal/Errors & Omissions Policy
- Comprehensive General Liability Policy
- Crime and Employee Dishonest coverage
- Property Insurance – Covering owned building and/or contents
- Business Auto – Non owned and hired coverage (if employees use their vehicles for company related work)
- Umbrella policy – Increasing the limit of your GL, Auto Liability or Employee Liability
- Workmen’s Compensations with employee liability coverage
Small things are often overlooked which can result in serious problems later on. It is important to take the time to be diligent in evaluating the exposures your company will incur. Utilize the support of professionals dedicated to your industry as this will put you in the best position to design your Risk Management, Claims Control and Insurance program to address the exposures your firm could incur moving freight.