A Common Misconception: Carrier Liability Does Not Provide Full Coverage

One of the costliest misconceptions in global trade is the belief that a carrier's liability coverage will fully reimburse a shipper if cargo is lost, damaged, or destroyed. Unfortunately for many shippers, the reality is that this coverage is very limited, and that discovery is usually made only after a claim occurs.

The confusion is understandable. After all, shippers pay carriers, freight forwarders, and logistics providers to safely move their goods from origin to destination. Many assume that if something goes wrong, the transportation provider's liability coverage will make them whole. However, carrier liability is often limited by a variety of factors, including contractual restrictions and something called per package limitations, which limits, by law, a carrier’s liability to $500 per package, even if they are responsible. As a result, a shipment worth tens or even hundreds of thousands of dollars may qualify for far less compensation than its true commercial value.

These risks become even more significant in maritime shipping because of a principle many importers and exporters know little about: General Average. General Average is a centuries-old concept of maritime law that remains in effect today. Under this principle, when cargo or vessel property is sacrificed or expenses are incurred to preserve the vessel, voyage, or remaining cargo, those costs may be shared among all cargo owners aboard the vessel – not just the carrier. As a result, even if a shipper’s cargo arrives safely and undamaged, the shipper may still be required to contribute financially to the incident.

"Many shippers are shocked to learn they can be held responsible for accidents under General Average, even when their cargo arrives in perfect condition," said Anthony Fullbrook, President of OEC Group’s North American Region. "However, cargo insurance typically covers these obligations, while carrier liability generally does not. Shippers who assume any accident is covered under carrier liability are often surprised to discover they are financially responsible for an incident they did not cause."

What makes every loss particularly frustrating is that the financial setback could often have been avoided. Cargo insurance is remarkably affordable when compared to the potential financial exposure associated with a major shipment loss. For a relatively small premium, shippers can secure coverage that protects the full value of their cargo against a wide range of risks, including physical damage, theft, loss, and General Average events. As the post-COVID years have demonstrated, global supply chains remain highly vulnerable to disruption from extreme weather, public health emergencies, geopolitical tensions, and significant policy shifts. In an environment where unexpected events can occur with little warning, cargo insurance offers a cost-effective safeguard against potentially devastating financial consequences.

"Carrier liability was never designed to serve as comprehensive cargo insurance, and relying on it as your primary form of protection can leave your business exposed to substantial losses," said Joe Klobus, OEC Group’s Regional Insurance and Claims Manager. "A modest investment in cargo insurance today could prevent a major financial setback tomorrow. In an industry where uncertainty is unavoidable, cargo insurance remains one of the most valuable tools available to protect both your freight and your business."