Essential Terminology for the Auto Transport Industry

What is Freight Prepaid?

Freight prepaid is an agreement whereby the seller bears the cost of transporting the goods, that is, the shipper of the cargo. This means the shipper provides the carrier funds to move the goods before transportation. The term “freight prepaid” is usually placed on the bills of lading and the invoices.

Understanding Freight Prepaid

The shipment that includes the label “freight prepaid” means that the recipient or consignee will not be required to pay any extra fees on the cargo delivery. They are built into the price charged for the products or services purchased, including shipment costs. This arrangement also benefits the receiver because they do not have to bear payment for the logistics movement.

Benefits of Freight Prepaid

• Convenience for the Receiver: The receiver pays no extra charges upon receiving the shipments, which makes the delivery process very convenient for the consignee.
• Predictable Costs: The shipper gains control of the shipping expenses. Hence, the financial aspect of the costs is well monitored.
• Stronger Business Relationships: This can help establish a good relationship between the shippers and customers and improve their confidence in having their freight prepaid.

Freight Prepaid and Incoterms

Nevertheless, the idea of prepaid freight is related to Incoterms, a specifically designated term for international business transactions that indicate the obligations of the buyer and the seller. Freight prepaid conditions frequently accompany terms such as FOB and EXW.

• FOB Shipping Point (Freight Prepaid): The seller bears the transportation cost up to the delivery point called the ‘named place,’ and the risk in the goods remains with the seller until the goods are handed over to the carrier for shipment.
• EXW (Ex Works) (Freight Prepaid): The buyer must bear all transport costs on the goods from the seller’s location through bearing export procedures.

As for the payment conditions, although prepaid freight is standard, there can be cases when freight collection is applied. Freight prepaid or freight collection is most often determined by the character of the merchandise, the shipper’s business relationship with the consignee, and the provisions of the sales contract.

The following paper aims to provide an understanding of the concept of prepaid freight to help businesses make the right choices concerning shipping and improve the efficiency of their supply chain.

Are you interested in knowing more about the distinctions between prepaid freight and freight collection?