Negotiating a contract of carriage is a bit of a chess game. You took one wrong step and lost the whole game. One of these “”wrong moves”” is agreeing to shipping terms that you don’t actually understand. Unfortunately, this is a fairly common occurrence and one of the biggest mistakes we see every day.
Collect and Prepaid Shipping: What’s the Difference?
Prepaid and collect are two terms used to define who pays for a particular shipment, but they are often paired with another term that defines who owns the shipment until delivery.
freight prepaid
In a freight prepaid arrangement, the exporter is responsible for fulfilling the contract of carriage and paying the ocean freight on behalf of the importer.
All of the above procedures still apply to freight prepaid. Once the vessel arrives at the port of discharge, they will promptly issue an arrival notice and invoice to the nominated party or the importer himself.
Notwithstanding the freight prepaid clause, the importer is still responsible for additional documentation and handling charges at the port of discharge.
The importer can pick up the goods after issuing the bill of lading and paying the carrier due.
Again, this shipping term follows the INCOTERM arrangement specified by the International Chamber of Commerce.
For freight prepaid terms, the relevant INCOTERM is:
DPU – Delivery Location Unloaded (2020 Rules)
DDP – Delivery Duty Paid
On-Site Delivery – DAP
CFR – Cost and Freight
CIF – Cost, Insurance and Freight
freight collect
Under this arrangement, the carrier will prepare a notice of arrival and an invoice for freight and overland charges.
In some cases, freight forwarders or freight forwarders make timely payments on behalf of importers. In other cases, the importer will pay for itself.
In exchange, the carrier will issue a delivery note to the named party, be it a freight forwarder, freight forwarder or importer. The purpose of the delivery note is to show that all charges due have been settled and the bill of lading is deemed to have been discharged on time.
Only when the importer or its nominated party has completed these steps will the goods be released to them. In addition, under this freight terms arrangement, the carrier has the right to retain a lien on the goods until payment of freight is completed.
INCOTERM delegates the costs and risks associated with the transport of goods between importers and exporters. They are marked with 3 letters according to the ICC’s well-maintained guidelines. The latest guide to date is INCOTERM 2020.
Importers and exporters can easily and clearly communicate who is responsible for freight and how with INCOTERM
For freight collect terms, the relevant INCOTERM is:
EXW – Factory
FOB – Free on board
FCA – Free Carrier
FAS – Free on board (for non-contained cargo)
All four of the above INCOTERM do not place responsibility for handling the contract of carriage on the seller
Send a waybill or bill of lading
In the end, these charges are paid by a party associated with the shipper or consignee on their behalf. This is often abbreviated as SFB. A bill of lading is an official document emphasizing the type of item and the quantity of the item being shipped.
So there you have it! Now you know what to say when asked if you want to send something prepaid, and you know what happens if you order something “”collected””
