A Few Tips About Cross-Border Insurance
In yesterday’s blog post we talked about the risks associated with cross-border shipping into Mexico. If you haven’t had a chance to read that one yet, you can find it right here. While we discussed a few of the more common pain points in that article, there is one problem that deserved a blog post all its own! A problem that is so large in fact that if you don’t approach it properly, you could lose your ability to even do business in Mexico.
That’s right, we are talking about cross-border insurance.
Arguably the leading concern of shippers sending freight into Mexico is the threat of damage and theft. It is also assumed by many US-based shippers that their American insurance programs will cover freight into Mexico. Unfortunately, that is simply incorrect.
The truth is, shipping freight to Mexico is a calculated risk. There is no need for beating around the bush on that. The potential for theft is simply greater. Plus, the likelihood of freight damage due to poor road conditions, or unprofessional packaging and handling procedures is very high.
It is not impossible for shippers to retain insurance protection for their shipments into Mexico. As a matter of fact, it really isn’t that much of a different process from insuring any other shipments. The key is understanding what can and cannot be protected, what papers you need to fill out, and where to send them.
Facts About Shipping Insurance in Mexico
We all understand carriers that operate in the United States and Canada are required to carry liability cargo insurance. This is not optional, and therefore, is usually easy to acquire.
Carriers that operate in Mexico, on the other hand, do not have to comply with this standard.
In fact, some carriers simply remove the insurance coverage once the freight crosses the border. After all, it is just another expense that is running up the bill.
When the North American Free Trade Agreement (NAFTA) was established, one of the hot button topics was trying to establish a series of regulations for shipping freight between Canada, the United States, and Mexico. The consensus was that insurance coverage and protection were subject to the limited liability requirements of the nation of origin.
So, if you are an American-based company, US-based limited liability regulations would apply regardless of what country the freight was physically moving through.
However, the discrepancy between the United States, Canada, and Mexico insurance regulations is huge. In the United States, carriers can be liable for up to $1,000,000 in cargo loss. Canadian carriers have a maximum liability of $2 per pound of freight.
Mexico on the other hand; less than 2 cents per pound.
You may have heard recently that the United States, Canada, and Mexico have entered into an agreement on a new trade program. While this has been agreed to in principle it has not yet been ratified, mainly because one of the most important areas of discussion is trying to come up with a universal protection plan for limited liability insurance.
So, in a manner of speaking, they’re working on it.
How to Get Started With Cross-Border Shipping Insurance?
Negotiate an Agreement with a Mexico-based Logistics Company
The first step that many shippers take is to seek out and work with a Mexico-based logistics company. Generally, these logistics companies provide either full liability or limited liability protection for freight been moved through their network.
Some coverages can include $25 per pound, while others approach $100,000 per container load.
Arrange Cargo Insurance with the Carrier
The second step here is to work with your chosen carrier carriers to settle on an insurance agreement that benefits both parties. Make sure to ask questions about their rates, what basic liability covers, upgrade options, and how they generally hand damages and disputes.
By simply asking a few questions you can usually determine if they are going to be your best option.
Some of the logistics companies and carriers south of the border offer coverage while on either side of the border. This option tends to be rather expensive and can be risky if you don’t know what to look for in the agreement.
Declare the Value of Your Freight
One of the items that must be filled out for shipping products into Mexico is declaring the value of the freight. This value is something that you must include on the bill of lading. It is not optional.
Then, you must consider the tariff and tax reports, and other paperwork required to even cross the border into Mexico.
Some shippers choose to lowball the declared value to save money on tariffs or other duties that must be paid. However, doing so can significantly harm their ability to gain insurance coverage for anything they send into Mexico.
Never undervalue your freight!
The last and final step is to get your freight scheduled for shipping. To help the final steps of this process go over smoothly, many shippers choose to partner up with a well-rounded 3PL company. A third-party logistics company works with a large network of various types of shipping partners. Additionally, a good 3PL operates in a variety of supply chain areas. They can get you connected with the right carriers, handle the paperwork, and ensure that your freight makes it across the border in one piece!
Want to see how much good a 3PL can do for you? Contact the experts at Redwood Logistics today.