Who pays for shipping is a factor in all freight shipments. There are several different ways that those freight charges can be billed such as freight on board or free on board (FOB), shipping terms like FOB destination, freight prepaid & added, collect freight, etc. Freight on board is typically the cheaper option when compared to CIF (cost, insurance, and freight). The terms associated with these dictate who pays the shipping charges. The two most common are freight prepaid & add, as well as freight collect. The specifics of the shipping terms should be noted on the freight bill and bill of lading. So what is the difference between these two freight terms? Let’s take a closer look.
Definition of Prepaid & Added
Prepaid freight is commercial trucking terminology for when the shipper pays the carrier for the cost of shipping the goods. Point of origin payment terms on the other hand means the buyer pays and is at risk once the pick-up takes place for shipping. This is generally done at the time of booking and is added to the invoice.
Added freight, on the other hand, is commercial trucking terminology for when the seller pays the carrier for the cost of shipping the goods after the shipment has been delivered. Most shippers and brokers use the added freight method, which means carriers invoice the shipper or broker after delivery. Whether a shipper chooses prepaid or add freight depends on their commercial arrangement with the carrier. Some carriers may offer a discount for prepaid freight, while others may charge a higher rate for added freight. Ultimately, it is up to the shipper to decide which FOB terms are best for their needs.
Definition of Collect
Collect freight is commercial trucking terminology for a truckload where the brokerage or carrier collects payment for the shipment from the shipper, then pays the driver after delivery is made. This is also known as “prepaid freight”. It is the opposite of “collect on delivery” or “COD,” where the driver collects payment from the consignee at the time of delivery. In most cases, commercial trucking companies prefer to work on a collect freight basis because it minimizes their risk and ensures that they will receive payment for their freight service.
Key Differences Between the Two
With prepaid freight, the shipper prepays for the entire freight costs of the shipment upfront. This includes the cost of the freight itself, as well as any additional fees associated with the shipment, such as fuel surcharges or accessorial charges. Collect freight, on the other hand, is when the shipper only pays for the cost of the freight itself and the carrier is responsible for paying any additional fees. In most cases, carriers will add a surcharge to shipments that are paid on a collect basis in order to cover their costs. Ultimately, whether you choose to ship on a prepaid or collect basis will depend on your specific shipping needs.
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