INSURING SMALL PARCEL SHIPMENTS

We are frequently asked whether we recommend insuring small parcel shipments made via UPS, FDX, or the U.S. Postal Service. The answer to this question depends upon a number of factors, including the value of what you’re shipping, your loss experience, your degree of risk tolerance; and, to a degree, which carrier you select.

Each carrier has its own track record regarding the incidence of loss and damage, and opinions vary from client to client regarding which carrier does a better job protecting the integrity of shipments while they are in their care and custody.

For shipments made via UPS or FDX, these carriers automatically insure the first $100 of shipment value (i.e., the carrier includes this insurance in the shipping rate that you pay. The U.S. Postal Service only provides insurance if you purchase this insurance for an additional fee). Further, the U.S. Postal Service, UPS and FDX charge slightly different fees for the insurance that they offer. There are other commercially available insurances that you can purchase, and their rates are somewhat better than the rates UPS or FDX charge; however, there is slightly more administrative work to perform when using these commercial insurance services.

We performed a break even analysis on the question of whether to insure small parcel shipments for one of our clients. This analysis took into account the cost of the insurance, the value of the merchandise shipped, and the incidence of loss or damage. From this analysis, we developed a chart indicating the break even point for when it made sense to insure shipments (i.e., at what value threshold it made sense to purchase the carrier’s insurance, based upon loss/damage experience).

Additional factors could be included in this break even analysis (such as the cost to file claims and follow up on claims, etc); however, the analysis provided our client guidance for when it made economic sense to insure their small parcel shipments.

Do you need help with a distribution problem? Contact us, and we will work with you to find a solution for your problem.

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