The TRUTH behind Cargo Liability in Cross-Border Shipments
Often, U.S. and Canadian companies doing business in Mexico question, and even fear, the liability of Mexican Motor Carriers for cargo loss or damage. Most of the time the challenge is the inability of Carriers to purchase the same level of cargo liability coverage for shipments traveling in Mexico, there is almost no market to do so. It’s important to arrange additional cargo insurance for the Mexican portion of the journey, which you can usually do through your logistics service provider.
While Carriers in the U.S. and Canada are required by law to carry cargo insurance, Carriers in Mexico follow a very different law landscape. Despite this, not offering any coverage for loss and damage in Mexico is generally not a viable legal option, commonly US Carriers offering door-to-door service have limited or no liability coverage for shipments once they cross the border into Mexico.
Under the North American Free Trade Agreement, cross-border shipments between the United States, Canada, and Mexico were intended to be subjected to the cargo liability requirements of the nation of origin. Here is a comparison of coverages between countries, note the inequality of liability between them.
- For shipments originating in Canada have a maximum cargo loss or damage value of $2.00 CAD per pound.
- For shipments originating in Mexico have a maximum cargo loss or damage value of $0.025 USD per pound.
- For shipments originating in the United States, Carmack applies, and unless shippers otherwise have limited your cargo exposure lawfully, carriers could be liable for a $1 million cargo loss if an expensive machine originating in the United States was damaged beyond repair.
So, you can now see the existing imbalance; let’s take a closer look at what happens in Mexico.
Mexican Law Background
Article 66 of the Mexican Law provides that: “…When the user of the service does not declare the value of the goods, liability will be limited to an amount equivalent to 15 days of the minimum daily wage in force in Mexico City per ton or the corresponding proportionate part of a metric ton that was damaged or lost…”
At the current U.S. Dollar/Mexican Peso exchange rates, this amount is the equivalent of about USD $0.025 per pound. Obviously, shippers should be concerned about such a low liability limitation in the event of damage, theft, pilferage or hijacking of trucks carrying their goods. Unfortunately, U.S. Dollar/Mexican Peso exchange rates have made an impact since the Mexican Peso has been devalued significantly during the last 5 years.
Under the Law of Roads, Bridges, and Federal Motor Transportation, if the shipper chooses to declare the value of the goods, it must agree to pay an additional charge so that the carrier may secure insurance coverage for the goods. If the shipper exercises the option to declare the value of the goods (and pays the higher rate), the carrier will be liable for the loss or damage up to the value declared, even when the cause is due to force majeure or fortuitous cause. Article 67 establishes the value declaration requirement, but it does not specify where or how the declaration needs to be done.
Options to consider:
Although some Mexican carriers believe that the value of goods must be declared on the bill of lading itself, a blanket declaration of value in a contract between the parties is sufficient to hold a carrier liable for the higher amount.
The FIRST option is to negotiate a transportation agreement with a logistics provider with a footprint in Mexico, where their carriers provide either full liability or a more acceptable limitation related to the value of the goods, such as $25 per pound or $100,000 per trailer or container.
SECOND option is for the shipper to obtain its own inland marine (cargo) insurance. Most U.S. policies do not cover transit loss or damage in Mexico, but it is possible to obtain an endorsement for this coverage. In order to cover for the value of freight while it’s in Mexico, many shippers add a separate endorsement to their global insurance policy for cargo coverage.
THIRD option is to arrange additional cargo insurance for your cross-border shipments as a whole or even only for the Mexican portion of the journey, with your logistics provider.
Third-party logistics companies, freight brokers, freight forwarders and/or customs brokers can manage more coverage options than your common Carrier, and better still if they have a footprint in all three areas.
Key considerations by service type and transport mode:
- Shortages within pallets, missing pallets, and damages can remain hidden until the product is unloaded at its destination when using Direct Services (same trailer all the way), therefore, it is quite complicated, and lengthy, to prove where the OS&D incident originated.
- When using Transloading Services (different trailers), shortages within pallets, missing pallets, and damages can be discovered at the border by the company performing the unloading/loading, which can be the Carrier (if they offer those services), or a warehouse or a freight forwarder, but more often, this occurs at customs broker facilities. The condition of the cargo should be documented and reported immediately to the shipper for claims before the cargo crosses the border.
- Shortages within pallets, missing pallets, and damages should be discovered by the freight forwarding or customs broker company that receives the cargo before crossing the border. If there is any OS&D incident, it has to be reported immediately to the LTL Carrier, so they can send an adjuster in order to recognize the event. If you cross it, shipper loses the ability to file a claim.
When the unexpected happens within Mexican territory:
- The Mexican Carrier’s Legal Representative files a police report immediately for its trailer and tractor. The police report stays open indefinitely until they find it; they may find the tractor but not the trailer.
- The owner of the cargo can file a claim to the Carrier for total theft including cargo cost, weight, and dimensions.
- With this claim, the Carrier has the obligation to pay the limited liability dictated by Mexican Law.
- Remain calm and contact your logistics provider immediately after an incident notification.
- Open a dialogue with your logistics provider to have the facts straight.
- Learn about their procedures; most carriers have a special team to handle unexpected situations.
- Talk to them about expectations.
- Check your own insurance coverage and theirs.
- Be patient until the police finds the trailer and cargo, keep in mind GPS trackers are for tractors, not for trailers, if only the trailer is stolen, it’s going to be more difficult to find your cargo.
- Set a contingency plan, you don’t know how long it will take to find your cargo or when there will be a final resolution.
EP America can work with your company to set a plan to mitigate as much as possible the risk of shipping freight to/from/within Mexico. Some of our cargo coverage solutions for your Truck & Rail Shipments to/from/within Mexico are very affordable with premiums as low as 35.00 USD minimum for new general merchandise.