What are Freight Collect and Freight Prepaid?

In today's world, the transportation of products and supply chain management are fundamental elements of a successful business. One of the terms encountered in this process is “Freight Collect” and “Freight Prepaid”.

Both methods play an important role in logistics processes and affect the transportation costs of businesses. Therefore, making the right choices to make supply chain management processes more efficient is important. In this article, we will take a closer look at the details and importance of the terms Freight Collect and Freight Prepaid for businesses. 

What is Freight Collect?

Briefly, this term means that payments are made by the consignee in the shipment of cargo. In other words, while the transportation fee for the product delivered to the buyer is paid, this fee is covered by the buyer. That is, the buyer is responsible for paying the transportation fee.

In this system, the sender does not pay the transportation fee when delivering the product to the shipping company; instead, the product delivered to the buyer is received with the buyer paying the transportation fee. In this case, the buyer pays the transportation fee to the shipping company and thus takes delivery of the product.
The Freight Collect term is often used in commercial transactions and regulates the payment responsibility between buyers and senders. In this system, since the buyer pays the transportation fee, they receive the product, and thus the shipping cost remains the responsibility of the buyer. 

What is Freight Prepaid?

The term Freight Prepaid refers to a situation where the seller pays for the transportation services of the products. This means that the seller bears the resulting costs, and these costs are not passed on to the buyer. In other words, the seller only covers the transportation costs, and these costs are not reflected to the buyer. This situation prevents the buyer from dealing with transportation costs and guarantees a single price payment.
Freight Prepaid is a service offered by sellers to customers and is often preferred in multimodal transportation models. The seller bears all the transportation costs necessary to send the product and does not pass these costs on to the buyer. This allows the buyer to obtain the product without encountering additional costs.

 In this way, sellers can offer more attractive prices to their customers and prevent the buyer from worrying about transportation costs. The term Freight Prepaid stands out as an effective method for sellers to manage costs and increase customer satisfaction.
 

Which Transport Documents Use the Terms Freight Collect and Freight Prepaid?

Both terms are written by carriers on transport documents such as the bill of lading, road transport document (CMR consignment note), air waybill, multimodal bill of lading. These terms are used to determine the type of payment and appear on the document during the transportation process. The Freight Collect phrase indicates that the buyer will pay the shipping fee, while the Prepaid phrase indicates that the sender will make the payment. These phrases must be correctly specified during transportation, and incorrect usage can lead to serious problems.

What Are the Differences Between Freight Collect and Freight Prepaid?

The differences between these terms mainly concern which party pays the costs. In Freight Collect, the recipient or the person receiving the cargo pays the shipping fee. However, in Freight Prepaid, the payment is made by the sender or exporter.

These differences play an important role in determining the financial responsibilities of the relevant parties during shipment. Clear agreement on which party will pay which costs is important to prevent disputes and to conduct transactions smoothly.

• Under Freight Collect, the buyer is required to pay the freight and transportation costs when the goods are delivered, whereas in ‘Freight Prepaid’, the seller covers the costs in advance and takes responsibility for the transportation services.
• In Freight Collect, the risks related to managing shipping and logistics processes are borne by the buyer. This allows the buyer more flexibility in choosing transportation services but also brings increased responsibilities and risks. Conversely, in ‘Freight Prepaid’, the seller takes on the risks and responsibilities of shipping and logistics processes, reducing the risk and responsibility level for the buyer.
• Under Freight Collect, the buyer directly pays the transportation and freight costs. In the ‘Freight Prepaid’ option, the seller adds these costs to the product price, so the buyer pays these expenses indirectly.

Which Delivery Methods Can Use Freight Collect and Freight Prepaid?

Freight Collect and Freight Prepaid are terms frequently used in international trade, indicating who will pay for the goods. Freight Collect means the buyer is responsible for freight, while Freight Prepaid indicates that the seller or exporter has already paid the freight. These concepts vary depending on the mode of delivery. For example, in delivery methods such as CIF (Cost Insurance and Freight), CIP (Carriage and Insurance Paid to), CFR (Cost and Freight), and CPT (Carriage Paid To), the Freight Prepaid phrase is usually required on the transport document.

In these delivery methods, it is expected that the freight is paid by the seller or exporter. This shows that the exporter has completed the main transportation responsibility and cost in the process of delivering goods to the buyer. When using the Freight Prepaid condition, the transport document must indicate that the freight has been paid.

On the other hand, in delivery methods such as DAP (Delivered At Place), DAT (Delivered At Terminal), and DDP (Delivered Duty Paid),