Freight Collect is a shipping term used in logistics and supply chain management to indicate that the buyer is responsible for paying the freight charges. The payment is made upon the delivery of the goods. This term is commonly used in international trade agreements and shipping contracts to clarify the financial responsibilities of each party involved.
Definition
Freight Collect means that the consignee, or the recipient of goods, is required to pay the shipping charges at the time of delivery. This contrasts with Freight Prepaid, where the shipper assumes responsibility for the shipping costs before dispatching the goods.
Types of Freight Collect
Standard Freight Collect
In this arrangement, the freight charges are paid by the consignee upon receipt of the shipment. The shipping company or carrier collects the payment before unloading the goods.
Collect on Delivery (COD)
This is a type of freight collect where the consignee not only pays for the freight but also for the goods upon delivery. It is commonly used in e-commerce and retail businesses.
Historical Context
The concept of freight collect has been in use for centuries, especially in international trade where it helps delineate the responsibilities and risks between exporters and importers. Traditionally, this term facilitated transactions where the buyer was more familiar with local shipping logistics.
Applicability
Freight collect is applicable in various shipping scenarios including:
- International trade
- Domestic shipments
- E-commerce transactions
- Business-to-business (B2B) sales
Comparisons
Freight Collect vs. Freight Prepaid
- Freight Collect: The consignee pays shipping charges upon delivery.
- Freight Prepaid: The shipper pays shipping charges before sending the goods.
Freight Collect vs. Ex Works (EXW)
- Freight Collect: The buyer pays for the freight upon delivery.
- Ex Works (EXW): The buyer takes responsibility for shipment and costs starting from the seller’s premises.
Special Considerations
- Risk Transfer: In freight collect arrangements, the risk of loss or damage during transit often remains with the seller until the goods are handed over to the buyer.
- Credit Worthiness: Since the shipping company extends credit until delivery, the consignee’s creditworthiness can impact the willingness of carriers to offer freight collect terms.
- Documentation: Accurate shipping documents are essential to ensure correct billing and payment processes.
Examples
- International Shipping: A company based in the USA orders electronics from a manufacturer in China. The shipping terms are Freight Collect, so the American company pays the freight charges upon delivery of goods at a US port.
- Domestic Trade: A retailer orders a bulk supply of goods from a local distributor. Upon receipt of goods at their warehouse, the retailer pays the freight charges as stipulated by the Freight Collect terms.
Related Terms
- Bill of Lading: A document issued by a carrier to acknowledge receipt of cargo for shipment.
- FOB (Free On Board): Indicates that the seller fulfills delivery obligations when the goods pass the ship’s rail at the port of shipment.
- CIF (Cost, Insurance, and Freight): The seller pays the costs, insurance, and freight necessary to bring the goods to the port of destination.
FAQs
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Q: Is Freight Collect more expensive than Freight Prepaid?
- A: Not necessarily. The overall cost depends on the negotiated terms and the respective shipping rates offered by carriers.
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Q: Can Freight Collect be used for international shipments?
- A: Yes, it is commonly used in international trade to delineate payment responsibilities.
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Q: What happens if the consignee refuses to pay the freight charges?
- A: If the consignee refuses to pay, the shipping company may retain the goods until payment is made or may return the shipment to the sender.
References
- International Chamber of Commerce (ICC) - Incoterms® 2020
- “The Legal Environment of Shipping Agreements,” Journal of Transportation and Logistics
Summary
Freight Collect is a critical term in shipping and logistics, denoting that the buyer is responsible for payment upon delivery. This term helps allocate financial responsibility between parties, ensuring clarity in transaction terms. Understanding Freight Collect and its implications can significantly benefit businesses engaged in domestic and international trade.
