Today, I will talk about Freight Prepaid and Freight Collect for global logistics.
This Freight Prepaid and Collect are very important. If you’re an apprentice in the logistics section, you may wonder what these term mean.
In addition, if you are a freight forwarder, you will use these terms in communicating with the forwarders in other countries.
Why are they so important? Because it is about money. Well, let’s take a closer look.
You can understand these term easier by English words.
Firstly, Freight. This means fare.
Prepaid. This means to pay money in advance.
And Collect. This literally means to collect something.
From these three words,
You will understand that Freight Prepaid is to pay the freight in advance, and that Freight Collect is to collect the freight.
Let me explain in more detail. You can find these terms in B/L and Air Waybill. Therefore, Freight refers to sea and air fares. So, it means to pay or to collect sea and air freight.
This Freight Prepaid and Collect is also related to Incoterms.
Incoterms are the terms of a trade, Clarifying who would pay for transportation fee from where to where.
So, Prepaid in advance means to be paid the sea or air freight at the exporting side.
Collect means to collect sea or air freight at the importing side.
This list will help you to understand it. Freight Collect is Ex-Works or FOB, which an importer pays ocean freight. And Freight Prepaid is CFR, C I F, DAP and DDP, which an exporter pays ocean freight.
For Incoterms, I’ve put a link on the description of this video, so please watch it. I think it will help for your understanding.
As I explained, Freight Prepaid and Collect are written in B/L and Air Waybill. They are listed on both House B/L and Master B/L as well.I also put the link to a video explaining House B/L and Master B/L.
About Freight Prepaid and Collect of House B/L and Master B/L, I’ll explain in more detail with examples.
Generally, in FOB, which an importer pays ocean freight, Master B/L shows Freight Collect, and House B/L also shows Freight Collect.
And in CFR, which an exporter pays sea freight. Master B/L shows Freight Prepaid, and House B/L also shows Freight Prepaid. There should be no problem so far.
However, there are the cases that Freights of Master and House B/L can be different. Here is an actual case study that happened in our company.
Our customer in Thailand started a new business with an importer in India. Initially, they discussed CFR terms with each other. We, the forwarders, also talked to shipping lines as CFR and Freight Prepaid.
However, just before the shipment was dispatched, our customer and the Indian importer changed it to Ex-Works.
Since we proceeded as Freight prepaid with Shipping line, the term between Shipping Line and us is Freight prepaid.And Freight Collect was chosen between the Thai customer and the Indian importer.
In this case, Freight Prepaid is shown on Master B/L. Freight Collect is shown on House B/L. At this time, I only had a bad premonition.
Because between the shipping line and us, Freight was Prepaid, so we had to pay the freight to the shipping line in advance at the Thailand side. This is not a problem.
The problem is that we, as a Thai forwarder, had to collect money from the Indian importer.
Since we were in Thailand, Indian agent helped us to deal with the problem. As we imagined, the Indian company’s payment was so late. It was very difficult to control the collect money from Indian company.
We had a hard time collecting the payment from India, even though we had paid the shipping line in advance. Of course, this depends on the company.
If Freight is different for Master and House, you can get into this kind of trouble.
Again, Freight Prepaid and Collect are very important trade terms because it refers to the payment of money.
As a forwarder, if you don’t understand these terms well, you’ll go through the work without knowing who will pay the freight. This can never happen.
They are frequently used in the jobs among foreign forwarders, so please try to understand it well.