Logistics Insurance: Crucial Tool for Smooth Operation of Supply Chains
Logistics insurance, or transport insurance, is meant to offer financial support to businesses against the loss, damage, and theft of goods, machinery, raw materials, and other products while transportation, handling, or storing in the supply chain. This insurance is important to safeguard businesses and prevent potential losses resulting from unpredicted events such as natural disasters, thefts, and piracy, thus allowing efficient and smooth operation of logistics professionals and stakeholders.
The transport and logistics insurance policy provides coverage against damage caused by collision or vehicle overturning, lightning strike, accidents, mishandling of goods during loading and unloading, fire, and damage resulting from malicious intent. However, these policies do not cover losses caused by acts of war, delays in shipments, and market loss. They provide multiple benefits, such as offering protection for different types of cargo, ensuring compliance with international regulations, and safeguarding businesses from financial losses.
Understanding the Types of Logistics Insurance
Various types of logistics insurance include liability insurance, warehouse insurance, marine insurance, transit insurance, and cargo insurance. Liability insurance is designed for logistics companies to cover losses resulting from injuries, accidents, or property damage that take place during the handling of cargo or transportation, thereby protecting logistics companies from legal claims. It plays an essential role in covering third-party claims. On the other hand, in warehouse insurance, losses or damages incurred during the transportation of goods are covered. Beginning from the point of origin until the products are safely stored in a warehouse or distribution centre, it ensures shipments are preserved throughout the supply chain process, thereby offering end-to-end protection.
Contrarily, marine insurance provides coverage for products that are transported via inland waterways or sea.
It is particularly meant for international shipments, covering events like piracy, shipwrecks, and natural disasters that damage the cargos. Vessel sinking, jettison, and collision are also covered, thus safeguarding shipments from the risks of the open ocean. Alternatively, transit insurance is explicitly designed to cover losses that might occur during the entire journey of goods, which include all the stages of warehousing, transportation, and handling. On the contrary, cargo insurance covers damages caused by all three modes of transport, including air, marine, and land. Thus, all these logistics insurance policies play an important role in managing risks and safeguarding businesses from potential liabilities, thus facilitating business continuity.
According to Allied Market Research, the logistics insurance market is expected to cite a significant CAGR from 2023 to 2032. The revenue growth is anticipated to be driven by factors such as an increase in cross-border trade and online retail, as well as increasing transportation of high-value and perishable goods like pharmaceuticals, electronics, perishables, and luxury items. Furthermore, disruptions due to geopolitical tensions, natural disasters, labour strikes, pandemics, and port congestion have increased the need for insurance products that mitigate financial losses from delays and unforeseen events.
Evaluating Diverse Types of Coverage Policies
Single coverage, contingency policies, free from particular average, all-risk policy coverage, general coverage, and open coverage are types of cargo insurance policies that meet different shipping requirements. Single coverage policies are meant for businesses that ship goods occasionally, offering protection for individual shipments. Contingency policies shift the responsibility for insurance onto the customer or importer.
These policies can involve additional legal processes to determine who is liable in the event of damage.
Another type, known as free from particular average or named peril policies, covers specific major risks that are usually excluded from broader insurance plans. These can include unpredictable events such as natural disasters (force majeure), collisions, theft, piracy, and damage from rough weather or cargo sinking. In contrast, all-risk coverage policies offer more extensive protection by covering a wide range of external and uncontrollable factors. However, they still exclude events like war, riots, customs rejection, and losses due to negligence or abandonment.
General average policies are meant for marine shipments.
Under this policy, if some cargo is sacrificed or damaged to save the rest during a sea voyage, all cargo owners share the cost, even those whose goods were not affected. On the other hand, open coverage policies are suitable for businesses that ship frequently, as they provide blanket coverage over multiple shipments within a specified period or a year. As a result, businesses protect themselves against unpredictable events that could result in financial loss by opting for an appropriate logistics insurance to ensure smoother and more secure trade operations.
In a Nutshell
Logistics insurance has emerged as a key tool for operating safe and reliable businesses across the world. This is attributed to the fact that these policies play a crucial role in preventing businesses from damage, loss, and theft of goods. Although they do not cover damages resulting from acts of war, delays in shipments, and market loss, they offer strong coverage for events such as lightning strike, collision or vehicle overturning, mishandling of goods, accidents, fire, and losses caused by malicious intent. With a rapid increase in cross-border trade, the demand for logistics insurance is projected to rise considerably in the coming years.
? **??????? ??????: Akshata Tiwarkhede
Akshata Tiwarkhede is an experienced content editor with nearly 10 years in the field. Recently, she has expanded her expertise into business writing, applying her editorial skills to create clear, precise, and professional content. With a keen eye for detail and commitment to quality, she continues to refine and develop content that aligns with industry standards.
Effective supply chain management requires an organised, well-managed logistics operation to ensure parts, products, and services move from suppliers through the supply chain to the end user on time and in good condition. A logistics operation aims to provide better efficiency, reduce operational costs and promote service quality.
With such importance placed on successful logistics operations within the supply chain, at The Institute of Supply Chain Management (IoSCM) we offer a range of professional qualifications in logistics and transport, each carefully designed to match modern businesses’ needs and upskill professionals at all stages of their logistics careers.