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In a research study last year, UPS Capital uncovered that one in 10 shipments (regardless of carrier) is delayed, lost or damaged. For small packages specifically, the risk is even higher. Roughly 15 percent of small package shipments experience a glitch.
Surprises are inevitable with logistics — every business deals with them. But preparing for those issues ahead of time can make all the difference in improving your bottom line, preserving your customer relationships or even helping you sleep better at night.
So how can you protect your business from logistics mishaps? Below are three common mistakes you should avoid if you want to manage your supply chain — and your risk — with more confidence.
1. Ignoring business risk
Given that damages and lost shipments are often unavoidable, neglecting to assess your shipping risk can lead to losses for your business.
UPS Capital’s study found that more than half of shippers worry that lost, damaged or delayed shipments can harm customer relationships and limit profits. It’s also worth remembering internal staff time and costs related to resolving these issues, as well as how these glitches could potentially damage your company's reputation.
The costs of logistical mishaps are high. Before you ship a package, consider how you can financially protect yourself. Evaluating insurance coverage for your shipments (excess liability coverage or cargo insurance, for example) can help you avoid post-shipment headaches.
2. Assuming you’re covered
About nine in 10 small businesses rely on carrier or excess liability coverage, also called “declared value.”
However, nearly 40 percent believe this coverage is the same as insurance. And of the more than 60 percent who recognized a difference between declared value and cargo insurance, few could accurately identify what each covers.
So, what’s the difference between the two?
Declared value is not insurance coverage. It is the maximum recoverable amount of money in the event of a problem, but the burden of proof is on the company shipping the goods. Put another way, it is the most a carrier will pay out in the event of damage or loss and generally subject to strict packing guidelines and regulations.
According to UPS Capital’s study, 80 percent of shippers who use declared value could misunderstand how the coverage actually works. And while declared value and cargo insurance can both apply to all shipping carriers and modes of transportation, there are a few key differences.
Insurance coverage reimburses up to the value of the goods in the event of loss or damage. It can cover a host of factors, including those beyond the shipper's control: acts of God, acts of war and government actions — all excluded from declared value.
Claims reimbursement is also much faster with cargo insurance than with carrier liability. In many cases, claims are resolved in days rather than weeks.
Is cargo insurance better than declared value? Simply put, yes. It offers customizable, multi-modal and multi-carrier shipment coverage with reimbursements up to the full retail value. Conversely, declared value is more limited in scope, with the burden of proof falling squarely on the shipper.
3. Rolling the dice without doing the math
You might be thinking: We’ve been shipping for years without a serious loss. Isn't insurance a waste of money?
In short, no. Insurance isn't a product you need when you can afford a significant loss … it's a product you need when you can't.
If you aren't covered, then you’ll need to make up the cost of your goods through new sales. That means if $50,000-worth of products is lost or damaged, you will need at least $1 million in new sales to make up that lost revenue, assuming a 5 percent margin.
When considering risk, think about what’s at stake:
Don’t forget to account for your time spent managing claims, as well as managing negative customer experiences and weigh that against the peace of mind you would have enjoyed with insurance coverage.
Now that you know about these mistakes, it’s time to avoid them. Small business owners can better protect themselves by reviewing and assessing their risk tolerance.
Sure, you can roll the dice with declared value, self-insurance or your business owner policy. Just make sure you know what’s covered and what’s not.
If rolling the dice isn’t right for your business, consider insurance solutions through UPS Capital.
Our licensed insurance specialists can help you expect the unexpected by taking the time to analyze your supply chain, fully understand your unique level of risk and customize a policy exclusively for the way you do business.
Don’t let surprises throw you off course — UPS Capital is here to help.
Photo by el pepe on Unsplash
Insurance is underwritten by an authorized insurance company and issued through licensed insurance producers affiliated with UPS Capital Insurance Agency, Inc. and other affiliated insurance agencies. UPS Capital Insurance Agency, Inc. and its licensed affiliates are wholly owned subsidiaries of UPS Capital Corporation. The insurance company, UPS Capital Insurance Agency, Inc., and its licensed affiliates reserve the right to change or cancel the insurance coverage at any time.
The insurance is governed by the terms, conditions, limitations and exclusions set forth in the applicable insurance policy and no warranty, guarantee or representation, either express or implied, is made as to the correctness or sufficiency of any information contained herein. Insurance coverage is not available in all jurisdictions.
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