Shipping Service Agreement: Liability and Transit Insurance (Service Provider Guide)

In transportation and logistics, your contracts do more than set prices and pickup dates—they define who pays when cargo goes missing, gets damaged, or arrives late, and how claims are handled. For shipping companies and freight forwarders, the sections that most often decide whether a job is profitable (or a financial drain) are liability and transit insurance.

This guide explains how to structure and negotiate liability and insurance provisions in a shipping company contract—from limitation of liability and exclusions to shipper-declared value, claims procedures, and insurance responsibilities. It’s written from the service provider perspective and designed to help you implement terms that match how freight actually moves.

Along the way, you’ll also see how these clauses typically appear in a shipping service contract template, a freight agreement, or a freight forwarding agreement.

---

Why liability and transit insurance are the core of your shipping service agreement

A shipping service agreement is the “operating system” of the relationship: it sets expectations, allocates risk, and prevents disputes from turning into costly chargebacks, litigation, or lost customers. In practice, most disputes in a freight agreement come down to:

• What happened in transit (loss, damage, shortage, delay, temperature deviation, theft, misdelivery)
• Who had custody at the time
• Whether it was preventable
• What the contract says about liability caps, exclusions, and insurance
• Whether the claim was filed correctly and on time

If your contract does not clearly address these topics, you may end up “insuring the shipment” unintentionally—without collecting any premium for it.

---

Liability vs. insurance: the distinction that prevents expensive misunderstandings

Many shippers believe that if a carrier or forwarder is “liable,” that automatically means the cargo is “insured.” Your contract should draw a bright line:

• Liability = your legal responsibility to pay for loss/damage under defined rules and caps.
• Transit insurance = an insurance policy that pays (subject to its own terms) regardless of fault, often providing broader protection.

A well-drafted shipping company contract typically states that service provider liability is limited and that shipper is responsible for obtaining cargo/transit insurance unless the parties expressly agree otherwise in writing.

---

Common liability frameworks in shipping and freight forwarding

Your liability clause should align with your role (carrier vs. forwarder/broker vs. NVOCC) and the modes you use.

1) Carrier liability (motor, ocean, air, rail)

Depending on jurisdiction and mode, mandatory regimes may apply, such as:

• Road carriage regimes (varies by country)
• Ocean carriage conventions/rules and bill of lading terms
• Air conventions (e.g., Montreal Convention for international air)
• Rail regimes (varies)

Even if your master services agreement is robust, it must not conflict with non-waivable statutory rules.

2) Freight forwarder / logistics provider liability

Freight forwarders often act as agents arranging carriage, not always as the carrier. Your freight forwarding agreement should clarify:

• When you act as agent vs. principal
• When subcontractors are used and on what terms
• That subcontractors’ limitations and defenses flow through to you (“Himalaya clause” concept, where applicable)

If you sometimes issue your own house bill of lading or act as NVOCC, your agreement must address that operational reality and the liability regime you intend to apply.

---

Key liability clauses to include (and how to draft them as a service provider)

Below are the provisions that most often determine claim outcomes.

1) Standard of care and scope of services

Define what you do—and what you do not do. For example:

• Pickup, linehaul, customs coordination, warehousing, last-mile delivery
• “Value-added” services (packaging, labeling, kitting)
• Temperature-controlled handling (if applicable)

Why it matters: If your scope is vague, shippers may claim you guaranteed outcomes (e.g., “delivery by 10 AM” or “maintain 2–8°C at all times”) even if those were best-efforts.

2) Limitation of liability (the “cap”)

A limitation of liability is the heart of a protective shipping service contract template. Common cap structures include:

• A fixed amount per shipment (e.g., “$X per shipment”)
• A fixed amount per package or pallet
• A rate per pound/kilogram
• The maximum allowed under the applicable law/regime
• The amount recoverable from your subcontractor (pass-through cap)

Service provider tip: Make the cap consistent with what you can actually recover and what your insurance covers. A cap that exceeds your subcontractor’s cap can leave you paying the difference.

3) Exclusion of consequential, indirect, and special damages

This clause helps avoid exposure to business losses such as:

• Lost profits, lost contracts, loss of market, reputational harm
• Production shutdowns, line stoppages
• Penalties owed by the shipper to its customers

Even a small damaged shipment can trigger massive downstream claims; excluding consequential damages is often essential in a freight agreement.

4) Exclusions for shipper-caused loss/damage

A strong shipping company contract typically excludes liability where loss/damage arises from:

• Inadequate packaging, labeling, or marking by shipper
• Inherent vice (goods naturally deteriorate)
• Act of God, severe weather, force majeure events
• Government actions (inspections, seizures, holds)
• Strikes, riots, public authority interventions
• Shipper’s failure to provide accurate documentation, weights, dimensions, or handling instructions
• Improper loading by shipper (especially “shipper load and count” scenarios)

5) Declared value and “increased liability” option

If the shipper wants more protection than your standard cap provides, the contract should offer a declared value mechanism—but only if:

• It is requested in writing prior to shipment
• A surcharge is paid
• The declared value is not confused with “insurance”
• You can operationally enforce it (e.g., recorded on bill of lading, TMS, shipment order)

Important: Declared value increases your liability exposure; it is not a substitute for cargo insurance and may be limited by law.

6) Time limits and claims procedure (conditions precedent)

Claims frequently succeed or fail based on process. Your agreement should set:

• Notice requirements (e.g., visible damage at delivery; concealed damage within a set period)
• Claim submission deadline (e.g., within X days of delivery or scheduled delivery date)
• Required documentation (photos, delivery receipt notes, commercial invoice, packing list, weight tickets, temperature logs, inspection reports)
• Mitigation obligations (shipper must minimize loss, salvage, allow inspection)

Service provider tip: Make the claims process a condition precedent to recovery where legally enforceable. That helps prevent stale claims and missing evidence.

7) Setoff restrictions

Shippers sometimes offset freight invoices against unresolved claims. Consider language that:

• Prohibits setoff or chargebacks without your written approval
• Requires invoices to be paid on time regardless of disputes (with a dispute resolution process)

This protects cash flow—critical for forwarders and carriers.

8) Subcontracting and pass-through protections

Most providers rely on subcontractors (motor carriers, airlines, steamship lines, warehouses). Your agreement should:

• Permit subcontracting without shipper consent
• State that subcontractors’ terms, limitations, and defenses apply
• Limit your responsibility to selection/coordination (when acting as agent)
• Define when you assume “carrier-like” responsibility

9) Indemnities: keep them narrow and reciprocal where possible

Indemnity provisions should match the risk each party controls. Common provider-friendly positions:

• Shipper indemnifies you for losses arising from cargo nature, dangerous goods, misdeclared cargo, IP infringement in labels/packaging, customs penalties caused by inaccurate documents, and improper packing
• You indemnify shipper only for third-party claims to the extent caused by your negligence or willful misconduct (and subject to your caps)

Be careful: a broad indemnity can accidentally override your limitation of liability.

---

Transit insurance: what to include in your shipping service agreement

Liability clauses limit what you must pay; insurance clauses address how (and whether) the shipper can recover value beyond your liability.

1) Who is responsible for cargo/transit insurance?

Your contract should clearly state one of these models:

Model A (common): Shipper provides cargo insurance

• Shipper is responsible for insuring cargo for full value
• You do not provide cargo insurance unless separately agreed

Model B: Provider offers insurance procurement as an optional service

• You can arrange insurance upon request (often as agent)
• Shipper pays premium + admin fee
• Insurer’s terms govern coverage, not your service agreement

Model C: Provider includes limited insurance in the rate

• This is less common and must be priced carefully
• Define limits, exclusions, deductible, and claims process

For most forwarders, Model B is attractive: you can offer value while keeping your liability controlled—if the contract is crystal clear that you are procuring insurance, not providing it as the insurer.

2) Coverage basics shippers expect (and what you should clarify)

If you offer insurance procurement, clarify:

• Coverage type (e.g., “all risks” vs. named perils—subject to policy terms)
• Geographic scope and mode
• Warehouse-to-warehouse vs. port-to-port
• Exclusions (improper packing, delay, inherent vice, temperature variation unless endorsed, etc.)
• Deductible and valuation basis (invoice value, cost + freight, etc.)
• Claims notification timelines and required documentation

3) Service provider insurance vs. cargo insurance (don’t blur them)

Your agreement should also address your own insurance:

• General liability
• Auto liability (if applicable)
• Carrier legal liability / logistics liability / warehouse legal liability
• Workers’ comp
• Professional liability / E&O (often relevant for forwarders)

Clarify that your policies generally do not insure the shipper’s cargo for full value; they respond to covered liabilities subject to deductibles, exclusions, and limits.

4) Waiver of subrogation (use with care)

Some sophisticated shippers request waiver of subrogation. It can increase your exposure and may conflict with insurance requirements. If you consider it:

• Confirm insurer approval
• Limit it narrowly (specific shipments, specific policies, written endorsement)
• Ensure it doesn’t nullify your liability cap structure

---

Delay, service failures, and “time is of the essence” language

Many cargo disputes are about delay, not damage. Your contract should address:

• Whether delivery dates are estimates or guaranteed
• Whether “time is of the essence” applies (often you’ll want it not to, except for expressly guaranteed services)
• What remedies apply for late delivery (often limited to a portion of freight charges, if anything)

If you offer expedited or guaranteed services, define:

• Cutoff times
• What counts as a delay attributable to shipper, customs, weather, congestion
• Maximum credit/refund
• Requirement that shipper notify you promptly of time-sensitive nature

---

Temperature-controlled and high-value cargo: special terms you should add

If you handle pharma, food, electronics, or luxury goods, your freight forwarding agreement should contain “special commodity” provisions:

• Temperature setpoints and allowed excursions (if you’re accepting that responsibility)
• Data logger requirements and who provides them
• Pre-cool requirements and loading SOPs
• Security protocols (sealed trailers, team drivers, no-stop rules where feasible)
• High-value routing approvals and secure parking requirements
• Maximum value per vehicle/container unless pre-approved

These add operational clarity and help defend claims where the shipper’s own processes caused the loss.

---

Practical checklist: aligning your contract with your operations

A shipping services contract fails when it says one thing and your team does another. Before finalizing a shipping service contract template, verify:

• Do your shipment orders, BOLs, and emails mirror the same liability cap and claims timelines?
• Can you actually track custody handoffs and condition at handoff?
• Are exception events logged (weather, congestion, inspections, holds)?
• Do you have a consistent process for noting damage at delivery?
• Is your insurance broker aligned with the liability levels you accept?
• Are your subcontractor contracts consistent with your customer-facing terms?

Consistency across documents is what keeps a claim from becoming an argument about “which paper controls.”

---

Sample clause topics to include in your shipping service agreement template (outline)

If you’re building or updating a shipping company contract, consider a structure like:

1. Definitions (Shipment, Services, Shipper, Consignee, Loss, Damage, Delay)
2. Scope of Services and Service Levels
3. Customer Obligations (Packaging, Documentation, Dangerous Goods, Loading)
4. Rates, Accessorials, Payment Terms; No Setoff
5. Subcontracting; Third-Party Carriers; Pass-Through Limits
6. Liability Regime and Standard of Care
7. Limitation of Liability + Exclusion of Consequential Damages
8. Claims Process, Notice, Time Bars, Mitigation
9. Transit Insurance / Cargo Insurance Responsibilities
10. Indemnities (Shipper ↔ Provider)
11. Force Majeure and Excusable Delays
12. Compliance (Customs, Sanctions, Export Controls, Safety)
13. Dispute Resolution, Venue, Governing Law
14. Order of Precedence (MSA vs. BOL vs. shipment instructions)

This is the backbone of a workable freight agreement that protects margin while remaining commercially reasonable.

---

Common negotiation pressure points (and provider-friendly responses)

Pressure point: “Remove the liability cap—we need full invoice value.”
Provider-friendly approach: Keep the cap; offer an insurance procurement option or declared value with surcharge and operational controls.

Pressure point: “You’re responsible for any delay penalties we owe our customer.”
Approach: Exclude consequential damages; offer a narrow service credit for specific guaranteed services only.

Pressure point: “We won’t pay invoices while the claim is open.”
Approach: No setoff; implement a claims SLA and escalation path.

Pressure point: “You can’t subcontract without consent.”
Approach: Preserve subcontracting rights but commit to using reputable carriers and maintaining compliance standards.

---

Final thoughts: contract clarity is profit protection

A well-drafted shipping service agreement doesn’t just reduce legal risk—it prevents disputes from happening in the first place, speeds up claims handling, and helps you price lanes appropriately. If you operate with a modern freight forwarding agreement or shipping service contract template that clearly allocates liability and transit insurance responsibilities, you’ll spend less time firefighting and more time scaling.

If you want a faster way to generate and customize a provider-friendly shipping company contract or freight agreement with robust liability and transit insurance terms, you can build one using Contractable, an AI-powered contract generator: https://www.contractable.ai

---

Other questions readers ask (to keep learning)

• What is the difference between a freight forwarder and a carrier in terms of liability?
• How do limitation of liability clauses interact with mandatory laws and international conventions?
• What’s the best way to write a claims procedure clause that actually gets followed?
• Should a forwarder offer cargo insurance procurement, and how should it be disclosed?
• How do you handle “shipper load and count” and packaging disputes in the contract?
• What are typical liability caps per mode (truck, ocean, air) and how do you choose one?
• How can you prevent customers from using chargebacks and setoffs for cargo claims?
• What insurance policies should a logistics service provider carry (E&O, warehouse legal liability, carrier legal liability)?
• How should contracts address temperature excursions and data logger evidence?
• What contract terms help reduce theft exposure for high-value shipments?