Guide

Transport insurance

Liability insurance for freight forwarders

Many traders use freight forwarding companies. As well as transporting goods to and from specified locations, freight-forwarding includes booking the movement of goods, storage and customs clearance activity.

Freight forwarders, by applying their Standard Trading Conditions (STC), usually have limited liability for any claim for loss or damage to goods while in their care. When other parties (such as shipping lines, airlines or truck operators) are entrusted to complete all or part of the transportation movement and where a combined transport waybill or bill of lading is used, the exporter agrees in turn to accept these operators' STC, which override those set by the freight forwarder. So it is important that you read the STC of both the freight forwarder and the transport operator. Once you have chosen a freight forwarder, you should receive or ask for a copy of the British International Freight Association (BIFA) STC as soon as possible.

It's often difficult to prove that liability for a mishap lies with a freight forwarder (it could be the responsibility of any party across the supply chain) and, even if it does, the forwarder's liability will be limited. It is therefore advisable to arrange separate cargo insurance. Many forwarders will offer to act as a broker in obtaining this. They can be instructed to make insurance arrangements at any time, but preferably prior to booking the shipment.

Insurance Mediation Directive (IMD)

The Financial Services Authority (FSA) regulates the conduct of any company or individual who provides insurance brokerage services, through the IMD. An exemption from the IMD for freight forwarders or storage firms means that those conducting insurance mediation with commercial customers no longer need to be registered with the FSA.

The exemption does not apply if freight forwarders or storage firms conduct insurance business with individual or retail clients.

Advising the freight forwarder

You should provide clear instructions to the forwarder, including your terms of sale and delivery. Establish if you need special risk insurance if your goods are subject to specific or unusual risks, eg temperature-controlled commodities that require special trade clauses. You can instruct your freight forwarder by completing an Export Consignment Shipping Instruction (ECSI), or an equivalent such as a generic 'exporter's instructions' document.

Right of lien

If you're unhappy with the service provided by a freight forwarder, you may be unwilling to pay them. Be aware, however, that they're likely to have a right of lien - that is, a right to keep your goods until they receive payment. A forwarder who takes this action should inform their liability insurer and insure your goods against their potential liability. This may not be to the full value of the goods, so ensure you are aware of any potential risks.