Megan: Hi I’m Megan with the content team here and we were sitting down with Fraser, the owner of Lifco, to talk about shipping. I wanted to just start off and ask what you wanted to talk about first since you see it all.
Fraser: Nobody cares about the details until something goes wrong. What goes wrong: lost package. So who is responsible for the shipment if it gets lost or damaged? It is important to clarify the three parties in shipping: the shipper, the shipping company, and the receiver. In the simplest and most common scenario, the shipper shipped something, the shipping company (like UPS or Fedex) lost it, and the receiver is an "injured party".
Whatever you state is the conditions of the agreement, those are the rules. If you did not state any terms, then whosever account it ships on is responsible for the package. It is advisable to make your terms very clear and concise. Don't put them on page 11 of a Terms & Conditions section on the bottom of your website. Put it right on the documents.
Megan: Once a package is lost, what is the first step?
Fraser: First, determine who was responsible for the package. They need to look at the purchase agreement and see if anyone guaranteed its delivery, or if anyone explicitly stated they were not responsible. This is where it gets a little annoying and detailed. Technically shipping companies offer you a "Declared Value" which is the cost of the goods in that shipment, say a $5000 pump. "Insurance" is something different and is offered by an insurance company, it could include things like delay penalties that your customer charged you. You have to check your commercial insurance terms to see what coverage you have.
Everyone usually just refers to "Declared Value" as "insurance". I'm just getting picky because it is the declared value that makes the shipping company responsible for the package. If you don't tell them a value, then they state it is worth a very small amount (for UPS and Fedex it is $100, for R and L Trucking it is 50 cents per lb). If you want UPS, DHL, or whoever to be responsible for your package then you need to declare a value and pay a premium for that declared value. Some of them are quite cheap, for instance UPS it is about 1.2%, same with freight companies, but someone like Purolator (the largest Canadian courier) it is about 4 times that high.
Tomas: I've never been asked about shipping insurance when shopping on Amazon or other online retailers, why is that? Do they have a different way of dealing with shipping problems?
Fraser: That's because, the likelihood of the Amazon package getting lost/stolen or damaged is calculated and added to the cost of the item. If half of all packages were to get stolen, you would be paying a significantly higher amount for the item.
Amazon has caused a lot of misunderstanding, because they don't explicitly say they are responsible for the package. But there is a general rule if nobody states any conditions or clarification: prepaid means the shipper pays for the shipping and is responsible for the package. Collect means the receiver pays for shipping and is responsible for the package. But that really only works for very low dollar value shipments. In expensive shipments, nobody wants to pay for declared value. So companies selling and shipping will ask "Do you want this insured/declared value?" If you don't buy it, then nobody is responsible for your package.
Megan: What does Lifco do when we are shipping something to us (buying) and shipping something out (selling)?
Fraser: When we buy things, we ask for a partial declared value. Remember: the math of whether this shipment will get lost is already built into the price of the insurance + profit. So we don't want to fully insure it or else we would be wasting money. All we want to do is declare enough of a value that if it gets lost in a UPS or DHL warehouse, that we made it worthwhile that UPS or DHL send someone to go looking for it. They are not going to look for a $100 claim, but they will go looking for a $4000 claim. And they will probably take better care of it too! We also try to consolidate so that things go freight. Freight has about 1/1000th chance of getting lost compared to couriers like DHL, Fedex, and UPS.
And when we sell, we give the best possible price and say right on the first line item of the quote: "ALL SHIPPING INSURANCE DECLINED, INCLUDING COURIER MINIMUMS - PLEASE INQUIRE IF YOU HAVE CONCERNS OR CHANGES. YOU ARE ENCOURAGED TO DECLARE VALUE OF GOODS, EVEN IF JUST PARTIALLY. NO INSURANCE MEANS YOU HAVE NO COMPENSATION IF IT GETS LOST OR DAMAGED. GET INSURANCE."
Adel: Ohh so we spell it right out for our buyers! Do people come back with questions, or totally ignore them?
Fraser: Out of 1000 shipments, we only get 1 or 2 who want insurance. Very few ask any questions.
Adel: Why doesn't Lifco force them to declare value?
Fraser: Many large companies have a policy of not paying for any declared value, because they have commercial insurance to cover things. On collect shipments it can be a problem if we put declared value and then customer said "I told you not to, and we are deducting the shipping amount from the bill.". On prepaid shipments, Lifco will often pay for $1000-$5000 of declared value anyways. Because it is a huge hassle for us dealing with an irate customer, who despite many warnings, did not insure. We will gladly eat some costs to avoid very awkward conversations with customers. We are doing this with more frequency, and will likely expand it.
Tomas: You mentioned courier minimums, why do they exist and are they the same across different companies?
Fraser: Likely a legal reason. If you ship something with UPS, you are entering an agreement with them to transport your goods. If they say it was worthless, then likely the agreement was worthless. So it is probably a legal issue, about contract law, etc. In practice, the courier minimums don't really exist. For the simple reason that it costs $200 of time dealing with the courier and paperwork just to get a $100 check. Because remember, it is a declared value: you have to still prove that what they lost has a cost of at least $100. So technically everyone pays for it, but it is not an economical option. Which is why we say "insurance declined, including courier minimums".
Tomas: How do you prove the declared value? What if I wanted to pay less for insurance, could I declare a lower value?
Fraser: You prove it with an invoice that it was bought or sold for. Nobody is forcing anyone to buy insurance. You can put whatever you want on there. If the item was just a $20 cost but you really really needed it to be there the next day for a big job, then you could put $1000. But if it got lost then you might struggle to get reimbursed because you would have to prove the value. Remember, an insurance company will do whatever it takes to not pay out. We explicitly encourage you to put a lower dollar value. All you are doing is making sure they actually care about your package! After a few grand, I don't think they are going to care an extra amount.
Adel: Yeah they would rather do the investigation and find your package before paying you.
Fraser: Absolutely.
Adel: I think people aren't educated enough on these "rules" so they don't bother with any of it.
Fraser: 99.99% of people in our industry don't declare a value. When asked explicitly, they decline. When followed up, they say "No, we have commercial insurance with our company". So everyone understands. Once it gets lost though, then the ugly human side takes over and that is a very selfish creature. And the rules and agreements don't really matter. They will say and do whatever is necessary to get paid.
One of the more interesting conversations I had was with someone from a commercial insurance provider, who reached out to me and tried to point to a bunch of technicalities about why Lifco was responsible for the shipment. But don't get me wrong, Lifco has no problem being 100% responsible for the shipments. In fact, it would make life easier. But customers don't want to pay for it, so our hands are tied.
Adel: How would we be responsible?
Fraser: When we ship something, we enter into an agreement with the courier. We say what service we want, based on the customer's wishes. This is called "prepaid and add" shipping, meaning we prepay it and then add it to the customer's invoice. If the customer says "Ship it Next Day Air" then we select the "NDA" option. If they say "Put $1000 declared value" then we do so. If they say "Don't ship it declared value" then we don't. The only difference here, against someone like Amazon or Wal-Mart, is that nobody wants declared value so we say "Declared Value set to $0, advise us if you want us to change it".
Adel: So how did we come up with the right ways to handle each different way of shipping? Or how long did it take? Seems we have it down pat.
Fraser: We just use stronger wording each time and encourage them to declare a value (ie. get insurance). We also add insurance and have Lifco pay for it for expensive orders, even if the customer declines to. Because regardless of responsibilities, it is not good for anyone to lose a package. I did want to point out one thing: if it goes to collect, it is still the shipper who enters into the agreement with the courier. If you think you are going to have a problem with anything the best course of action is to require the buyer to declare the value, or even better: have them supply the waybill. They can set any pickup that they want and just send the courier waybill. Not many people are aware of these distinctions and it is something I wish I had learned earlier.
Adel: Why does this seem to be a growing problem? I never heard about this years ago.
Fraser: The same reason why your candy bar is smaller now. Or there is less chips in a bag. Costs of gone up but consumers are very price sensitive. So they reduce the amount of goods or services that you recieve ("Shrinkflation"). In this case, they reduced the percentages of packages that can safely delivered. You don't have be an 'injured party' though, you can still get the same service you used to get, but you just have to put a declared value.
Adel: What about people who "self insure"?
Fraser: Self-insurance is simple someone who is aware of the risks and has made an economical decision to not buy insurance or declare a value. Ultimately this is the cheapest option because these are all for-profit services, meaning you pay more than the likelihood of it getting lost. The only issue with this is that a courier will take better care of an insured package. So the math on it is not so clear. I can't remember the last time a package got lost that had a declared value.
Megan: Okay, I think that's all the questions we had. Thanks for your time Fraser!