What Is Freight Prepaid?

Introduction

If you ever had the chance to lớn look at a bill of lading, you will see the phrase “Freight Collect” or “Freight Payable” and “Freight Prepaid” printed at the bottom. Freight charges generally refer to lớn a nominal amount of money charged for transporting cargo, or “freight”.

Generally speaking, “Freight Prepaid” refers to the notion where carriers collect the freight charges BEFORE performing the contract of carriage, usually from the shipper; Whereas “Freight Collect” refers to the notion where carriers collect the freight charges AFTER performing the contract of carriage, usually from the importers.

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Fromthe get-go, we think it is best to clarify that freight charges are one of manyother charge items that both shipper và importer are liable for. We have sầu the followingcharges: –

Documentation FeeTerminal Handling ChargesEDI Transmission FeeContainer Cleaning ChargesTelex Release FeesOcean Freight Charges

FreightCharges does not include all of the above sầu, but only refers khổng lồ the ocean freightcharges, the charge for the ACTUAL voyage journey of the cargo.

With that said, we have sầu lớn be mindful that both “Freight Collect” and “Freight Prepaid” only refers khổng lồ the relevant ocean freight charge only.


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Bill of Lading Noting Collection location of Freight

Straight forward as it is, we think that we can bởi vì better, by elaborating further on Freight Terms, explain the documents affect by the freight term, & study when it is best to lớn use either of those freight terms.

What is Freight Collect

Afreight term that is “Freight Collect” indicates that the importer is responsiblefor the payment of the carrier’s ocean freight.

Under this arrangement, the carrier will prepare an arrival notice as well as an invoice for freight charges và landside charges.

Insome circumstances, the freight forwarder or the forwarding agent will dulymake the payment on behalf of the importer. In other scenargame ios, the importerswill make the payment themselves.

Inexchange, the carrier will issue the delivery order to lớn the nominated các buổi tiệc nhỏ,albeit the freight forwarder, forwarding agent or the importer. The deliveryorder’s objective sầu is lớn signify that all due charges are settled & the billof lading is considered duly discharged.

Only when the importer or its nominated buổi tiệc nhỏ had finished these steps, where the cargo is released lớn them. Additionally, in this freight term arrangement, the carrier has the right to hold a lien over the goods until the freight payment is done.

A Freight Collect is closely tied to lớn the INCOTERM rule laid out by the International Chamber of Commerce (ICC).


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The INCOTERM delegates the costs và risks associated with the transportation of goods between the importer and exporter. They are notated with 3 letters according to lớn a well-maintained guideline by the ICC. The most updated guideline to date is the INCOTERM 20đôi mươi.

Theway that importers và exporters can easily & clearly communicate who isresponsible for the freight charges is via the INCOTERM

Fora freight collect term, the relevant INCOTERMs are: –

EXW – Ex WorkFOB – Free on BoardFCA – Free CarrierFAS – Free Alongside Ship (for non-containerized goods)

Allfour of the INCOTERMs above does not place the responsibility of handling thecontract of carriage on the seller.

What is Freight Prepaid

In a Freight Prepaid Arrangement, instead of the importer, the exporter is responsible for carrying out the contract of carriage and making the ocean freight payment.

All ofthe aforementioned procedures still apply for Freight Prepaid. Once the vesselarrives at the port of discharge, they will duly issue an arrival notice as wellas an invoice to lớn the nominated tiệc nhỏ or the importer themselves.

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Despitethe freight prepaid terms, the importer still has to lớn bear other documentationvà handling charges at the port of discharge.

The importer will be able to lớn collect the cargo after the releasing of the bill of lading và paying the due amount to lớn the carrier.

Similarly,this freight term follows the arrangement of INCOTERM, set out by the ICC.

 For a freight prepaid term, the relevantINCOTERMs are: –

DPU – Delivery Place Unloaded (20trăng tròn rule)DDP – Delivery Duty PaidDelivery at Place – DAPCFR – Cost and FreightCIF – Cost, Insurance and Freight

Additional Reading: What is an INCOTERM

When khổng lồ use Freight Collect or Freight Prepaid

INCOTERMsgo hand-in-h& with freight terms because it defines clearly who isresponsible for which section of cost & risk associated with the transport.

Nevertheless, correlation does not mean causation. It is NOT true that the shipment’s freight term has khổng lồ follow in accordance with the INCOTERM set forth.

For example, in a DDU/DDP/DAPhường shipment, the responsibility of the carriage of goods lies on the seller. So, what is stopping the seller from arranging a freight prepaid over a freight collect?

Itis a similar situation with an Ex-Work shipment, where the responsibility ofthe carriage of goods lies on the buyer. It is also up to lớn the buyer’s choice tochoose either a freight prepaid or freight collect.

Therefore, we can surmise that INCOTERMs are not the main reason for choosing a freight term, although in some cases such as CIF, CNF, and FOB where it is.

Currency Factor


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Thismay not be a very significant factor for the shipment of 1 or 2 containers, butif a bill of lading includes 200-300 containers, the currency factor plays animportant role.

Ocean Freights are largely quoted in USD and converted khổng lồ the local currency for billing purposes.

It iscomtháng for companies lớn have a currency hedge in order lớn mitigate the risks ofcurrency fluctuations.

For example, a large shipment has been arranged by Seller A from Port Los Angeles to Port Antwerp for 350 containers worth of sunflower oil to Importer B.

The INCOTERM arranged is an Ex-Work shipment, where importer B has lớn take care of all the shipping arrangements.

The oceanfreight rate importer B negotiated for is USD 280.00 per 20’ container, whichamounts to USD 98,000 in Ocean Freight.

In anticipation of this shipment on March 1st, importer B has purchased a currency future of USD 98,000 for 1.14 USD per EUR on February 26th.

On the day of the shipment, March 1st, Importer B realized that the current currency rate is 1.04 USD per EUR. Conclusively, The EUR value has increased over the USD.

Following the increase in EUR value, if the contract of carriage has been arranged as freight prepaid & is not negotiable khổng lồ change to freight collect, importer B can choose khổng lồ exercise the currency futures they previously purchased at 1.14 USD per EUR

The net savings he has made will be (1.14-1.04) x USD 98,000 = USD 9,800 from that shipment.

Letterof Credit Requirement

A letter of credit is a document of credit where financing the trade is undertaken by a ngân hàng. With a Letter of Credit, the bank guarantees payment of the transported goods but holds the bill of lading as a lien for payment from the importer.

Therefore, the bank can dictate the terms of the bill of lading, of course with consideration of the arrangement required by the importer and exporter too.

Should the terms of the letter of credit require a bill of lading lớn be arranged under freight prepaid or freight collect terms, the seller has khổng lồ prepare a booking with the carrier in accordance with the document requirements of the bank.

ADDITIONAL READING: To Order Bill of Lading

Conclusion

This concludes the post where we explain more about thefreight terms, Freight Prepaid và Freight Collect.

The ocean carrier provides this term for the seller và importeras an additional option for them lớn choose.

Stay tuned for more information about logistics and freightpreparation. We do welcome any questions you wish to ask us, vày let us acomment below if you have any questions!