Choosing your freight contract can be a headache that can often cause unnecessary expense in your operations.
So that you don’t incur unnecessary expenses due to such mismanagement again, at the CST Group we are going to dedicate the following post to differentiate the different modalities that you can find in your contract of transport or Bill of Lading (BL).
Freight prepaid and freight collect are two terms that are often confused. We will now explain these two terminologies to better understand your shipment.
We also invite you to contact us to help you as experts to simplify your shipping processes and reduce your costs.
Freight prepaid vs. collect. Which is better?
Normally this terminology is used to indicate whether the specific freight is paid at destination or at origin. But usually, these terms are indicated next to another attribute that indicates who is responsible for the shipment until delivery, the Incoterm.
Prepaid
This mode indicates that the cost of maritime or air transport related to the freight is paid at origin by the shipping company or airline.
Collect
If the shipment follows the mode of freight collect in the case of a ship, it is at the destination that the shipping company or airline takes care of costs and possible additional charges.
Incoterms within freight operations
We should take a moment to differentiate what an Incoterm is within these freight operations so as not to confuse it with responsibility for the condition of the goods.
A common mistake is to confuse the responsibilities of the condition of the goods with the payment in the agreement between buyer and seller, which are the Incoterms. Incoterms define these agreements and they run parallel to whether the freight is prepaid or collected
For example, if we’re doing a sea import of a 20′ container. The agents involved in this operation are the sending seller/recipient, buyer/destination and shipping company (who performs the maritime transport). The conditions of sale are incoterm CFR (Cost and Freight) and is prepaid. This means that the seller will pay the costs of transport from its factory door to the port of destination and the buyer will pay the rest of the costs to its door. Since the freight is prepaid, the shipping company will collect the carge in the country of origin (to whom it is charged depends on whether the seller in the example hired the shipping company directly or had a freight forwarder involved)
Now, if we take the same example but with collect modality, the shipping company will go to collect the ocean freight in the country of destination. How can the shipping company charge the freight collect if being CFR is the responsibility of the seller? Because there is usually a freight forwarder in the country of destination hired by the seller of the country of origin.
Let CST take care of your freight optimization
At CST we are aware that it can be difficult to get hold of all the words commonly used in the logistics sector, so we offer to cover the service of organization and logistics management. Count on our team of professionals to achieve maximum efficiency in your transport and save costs and time by having industry professionals to manage your shipments.
Want to know more? Contact us to get a free quote customized to the particularities of your shipment.