The term “freight” can cause some confusion, as it can have different definitions in different contexts.
Freight Definitions
In the UK, “freight” can refer to the transport of goods by any means, whether it is road, rail, air, or sea. In the US, “freight” often refers particularly to the transport of goods across land, usually by trucks. The term “sea freight” or “ocean freight” might be used to specify the transport of goods over water.
Beyond this, there is a unique definition of “freight” used in certain marine insurance contracts.
In this post we will specify exactly what “freight” might mean in an insurance context, and explain why this distinction matters.
Freight and Marine Insurance
A marine insurance policy will typically include Hull and Machinery cover. This will cover a vessel, including its hull and machinery, for losses resulting from collisions, grounding, fire, and other risks.
In a Hull and Machinery Insurance policy, the term “freight” does not refer to the ship’s cargo, or to the cost of moving goods. Instead, “freight” refers to the earnings a shipowner expects to receive for transporting the goods. If the ship is lost or damaged, the shipowner could lose the ability to earn this freight.
Though Hull and Machinery Insurance policies will often cover freight, it is often necessary for shipowners to take out separate Freight Interest Insurance. In the event of an accident at sea, a dedicated policy will ensure that shipowners are covered not just for any damages to their vessel, but also for any loss of freight income.
Definition of ‘Freight’ in Insurance vs Logistics
In Hull and Machinery Insurance, the term “freight” refers to a shipowner’s anticipated earnings from the carriage of goods, rather than the goods themselves.
In the world of logistics, the term “freight” often refers to the cargo or the transport charges.
To avoid underinsurance and gaps in cover, it is important to understand this distinction. Check the wording of your Hull and Machinery Insurance policy carefully, to ensure that it covers you for “freight”. Otherwise, you could face significant financial losses if an incident at sea prevents the completion of a voyage.
The Importance of Maritime Insurance for Sea Freight
Freight insurance covers the risk of losing the right to collect freight charges due to insured perils such as total loss of the vessel or cargo, or circumstances preventing delivery.
Freight remains a vital component of marine insurance because:
- It protects carriers and freight forwarders against loss of income.
- It supports contractual obligations under trade terms like CFR and CIF, where freight is part of the sale price.
- It reflects the historical principle that marine insurance should safeguard all maritime interests—ship, cargo, and earnings.
Everard Insurance Brokers are the specialist marine trading division of accredited Lloyd’s brokers James Hallam Limited.
We can help you ensure you have the insurance you need to cover you for sea freight, whether you use an FCL, a LCL, or a RORO system.
Find out more about our dedicated marine insurance services.