Freight Prepaid vs Freight Collect: What’s the Difference?

A lot of our clients will be confronted with such problems when importing from China: which types of freight charges should I choose, prepaid or collect freight?

Today’s post shows related information about these two ways: freight collect and freight prepaid. Let’s take a look.

Contents:

• What is freight collect?
• What is freight prepaid?
• What is the difference?
• Collect or prepaid: how to choose?

What is freight collect meaning?

Under the Freight Collect incoterm, the buyer is responsible for arranging shipment by finding a freight forwarder. The buyer is also responsible for paying the freight upon receiving the cargo in their country.

Incoterms related to Freight Collect include EXW, FCA, FOB, and FAS.

For instance, if you wish to import goods from Shanghai Port to New York Port and the bill of lading is marked “FOB Shipping Point, Freight Collect,” you must find a freight forwarder to handle the shipment. Upon arrival at New York Port, the buyer must pay the freight forwarder.

What is freight prepaid definition?

Freight prepaid is a charge paid in advance by the seller for the transportation of goods to the buyer’s country. This means that the seller is responsible for finding a freight forwarder to transport the goods.

Freight prepaid incoterms:

Incoterms related to Freight Prepaid include CFR, CIP, CPT, CIF, DAP, DPU, DDU, and DDP.

When you pay the seller, you have already paid for the freight. The seller’s quotation includes the product cost, the freight cost, and other costs. For instance, if you purchase $10,000 worth of toys from Company A in Ningbo, China and the freight to the Port of Los Angeles is $2,500, under “CIF Destination Point, Freight Prepaid”, your seller must find a forwarder to book and pay for the freight before shipping. The quotation that the seller gave you includes the freight cost of $2,500.

What is the Difference between Freight Prepaid and Freight Collect?

The distinctions between freight collect and freight prepaid primarily involve the following aspects.

• Cost

When deciding how to arrange shipments, your options vary depending on whether you have a forwarder to help you. If you’re an experienced importer with reliable forwarders who can quote you cheaper freight than a Chinese agent, then you can choose “FOB, Freight Collect” or even “EXW.” Your forwarder will collect the goods and deliver them to you, and you just need to pay the freight directly to the forwarder after the goods arrive.

If you’re new to importing and don’t have your own freight forwarder resources, you can choose “[CIF], freight prepaid”, DDP or DDU, and ask the seller to find a forwarder and arrange shipments. Most Chinese sellers have long-term relationships with forwarders and can get discounts from them.

You may be concerned about whether the seller is making money from the freight. For example, the actual freight may be $2,000, but the seller quotes you $2,500. In reality, the seller will give you a quote based on the actual freight, as they want to maintain a good relationship with you and receive future orders. Additionally, freight prices are generally transparent and easily available through multiple sources.

• Risk

When the agreement is for freight collect (e.g. under FOB intercom), the buyer is responsible for paying the freight upon arrival of the cargo. In the case of goods being damaged during shipping, the forwarder should be contacted to compensate for the loss.

When the agreement is for freight prepaid, the seller is responsible for all costs and risks until the goods arrive at the buyer’s destination. If the goods are damaged during shipping, the seller can be contacted and can assist in communicating with the forwarder for compensation.

• Payment time

The primary distinction between prepaid and collect is the timing of payment. In the case of prepaid freight, the buyer must pay for the freight prior to shipment. Conversely, with collect freight, the buyer is responsible for paying the freight when the cargo arrives at the destination. For importers with significant order amounts, such as $500,000, shipping by sea can take 30-40 days. In such cases, freight collect is advantageous as it allows importers to use their freight costs for capital turnover during the shipping period.

Which is ideal: Freight Prepaid vs Freight Collect?

The decision to use freight collect or freight prepaid depends on the specific needs and circumstances of the buyer and seller. Both options have their pros and cons.

If you have a reliable freight forwarder who can offer you a better freight rate than the seller, then “Freight Collect” may be the better choice for you.

On the other hand, if you are new to importing and don’t want to spend time and energy selecting freight forwarders or worry about unreliable agents, then “Freight Prepaid” may be the better option for you since your supplier will help you arrange it.

Moreover, choosing “Freight Prepaid” gives you the added convenience of being able to contact your supplier directly in case of any issues during shipping. Your supplier will be responsible for communicating with the forwarders and solving any problems.

At Onestopimport, we are a leading sourcing company in China with many long-term cooperative forwarders who can provide a variety of transportation solutions. Both freight collect and freight prepaid options are available.