Every industry has unique jargon; terminology, sayings and short-hand specific to that space alone. Over time, as individuals become “insiders,” these terms and phrases become second nature — an indistinguishable piece of their vocabulary.
For the most part, learning your industry’s preferred jargon is non-negotiable as serious problems can occur when information is miscommunicated or something important is misunderstood.
Transportation, like many other industries, is home to plenty of district phrases, acronyms and abbreviations used to denote certain things. That said, to those who don’t work in it every day — like shippers and consignees, who have plenty of other tasks on their plate — this terminology can quickly get confusing.
One of the most common things that shippers and consignees struggle to understand, in relation to their freight costs, are the phrases “freight prepaid” and “freight collect.”
However, when it comes to the transportation of your cargo, confusion about what these phrases — phrases that indicate which party is responsible for paying for and overseeing the transportation of a load — mean is the last thing you need.
Here at Anderson Trucking Service (ATS), we’ve been helping companies manage their supply chain logistics since 1955. During this time, questions about these phrases have come up regularly.
Although “freight collect” and “freight prepaid” have relatively simplistic definitions, they can make a large impact on your transportation supply chain and budget. So let’s make sure you understand exactly what’s expected of you when these phrases appear in your shipping contracts.
What Does Freight Collect Mean?
The term “freight collect,” when listed on a transportation agreement, indicates that the receiver (or consignee) of the cargo is responsible for paying for its transportation. Also commonly referred to as “collect upon delivery” all charges (including any supporting/additional fees) must be borne by the consignee of shipments that are given a “freight collect” denotation.
What Are The Advantages of Freight Collect for Consignees and Shippers?
As the consignee of a shipment, operating under freight collect, gives you a bit more control over your final costs by limiting a shipper’s (your product’s seller’s) ability to build margin into multiple points of this transaction. Instead of having the shipper arrange your freight’s transport, and trusting their ability to do so cost-effectively, as the consignee, you’ll gain more cost control through freight collect terms of sale.
For shippers, the advantage of freight collect is fairly obvious: the shipper is not responsible for paying any charges associated with transporting their goods – which can become a major expense, requiring additional resources and investment (i.e., hiring an employee, purchasing technology, managing outbound freight, etc.).
What Does Freight Prepaid Mean?
When “freight prepaid” is listed on a shipping agreement, all charges associated with its transport, including its freight bill and ancillary fees, are the responsibility of the shipper. In some instances, the term “freight prepaid” is exchanged for “prepaid & add” but these have identical meanings.
What Are The Advantages of Freight Prepaid for Consignees and Shippers?
As a consignee, having your shipper handle the costs of getting freight to your door removes this debit from your balance sheet. In turn, the sunk costs associated with purchasing a product, or moving your cargo, decline — allowing you to save money, especially if transportation isn’t your expertise.
For shippers, paying for cargo transportation costs can be an excellent way to add value to every transaction. Not only does this make their consignee’s lives easier — increasing the likelihood of repeat business — but this is also another way to ensure revenue targets are met on each transaction.
What Other Freight Payment Terms Should You Know?
Although you came to this article to learn specifically about freight prepaid and freight collect, here are some related terms that you should also be aware of as they’re commonly used in reference to freight payments.
Third-Party Freight:
This term is used when the party responsible for paying the freight bill is neither the shipper nor the consignee. Usually, this term is applied when a logistics company pays to move goods from a supplier to its final destination.
Cash On Delivery (COD):
Cash on delivery is a term, and acronym, used to signify that a driver will collect payment for a shipment — usually a previously-specified amount — when it delivers. COD is used when a shipping contract denotes “freight collect” but is becoming less common due to the risks associated with this process.
Free On Board (FOB):
Free on board is the terminology used to indicate at which point the risks, obligations and costs associated with a shipment shift from the shipper (or seller) to the buyer (or consignee). In relation to freight prepaid and collect, FOB shipping point (origin), and FOB destination point are used.
FOB Shipping Point (Origin), Freight Prepaid:
The buyer (consignee) assumes the responsibility, liability and ownership of the shipment at its point of origin. The shipper pays for the transportation of all goods.
FOB Shipping Point (Origin), Freight Collect:
The buyer (consignee) assumes the responsibility, liability and ownership of the shipment at its point of origin and pays for the transportation of all goods.
FOB Destination Point, Freight Prepaid:
The shipper (seller) of the freight is responsible for and retains ownership of all goods until they deliver and pays for all fees/charges associated with their transport.
FOB Destination Point, Freight Collect:
The shipper (seller) of the freight is responsible for and retains ownership of all goods until delivery. Upon delivery, the consignee (buyer) pays for the transportation of the freight.
Related Content: Trucking Terminology: A Glossary of Common Shipping Terms
Wondering About International Commercial (Inco) Terms? Let’s Go There Next
Now that you understand where your responsibilities lie, should you run into the terms “freight prepaid” and “freight collect” in the future, and some things to think about when deciding how to structure your own contracts, let’s take this a step further.
You see, as freight shipments get more complex — with additional touchpoints to consider and arrangements to oversee — so too must the terms outlining the expectations for all parties.
And, although the terms outlined below cover the majority of domestic shipments, they fail to cover the intricacies of international transport.
This is where International Commercial Terms, commonly called “Incoterms” come into play. Incoterms are a central piece of the international transportation marketplace, ensuring all risks, liabilities and costs are doled out correctly.
As such, it’s important to understand the eleven terms that govern international freight movement as you’ll likely encounter them in the future. Luckily, we’ve compiled a tool outlining each of them here.
Finally, if you have any questions about the terminology you just learned, or would like clarity on the terms used for a specific shipment you have coming up, don’t hesitate to reach out to us here at ATS. We’re always happy to help you in any way you need.
