- The key differences between prepaid freight and collect freight
The payment time and responsible party differ.
Prepaid freight means the shipper pays the full freight to the airline or freight forwarder before or at the time of shipment. This payment is usually settled before the goods are handed over and the air waybill is obtained. Only after the shipper completes payment can the goods be shipped. With collect freight, the consignee pays the freight to the agent or airline at the destination port before the goods arrive and the consignee picks up the goods. The shipper does not bear the freight costs at the time of shipment and only needs to complete other procedures such as handing over the goods.
The cost structure and additional item burden vary. Prepaid freight has a relatively fixed structure, generally including the base freight, terminal charges at the port of departure, fuel surcharges, security fees, and other costs directly related to the shipment process, all of which are covered by the shipper in a lump sum. Collect freight, in addition to the base freight and applicable fuel surcharges, may also include additional charges such as destination port delivery fees, terminal charges, and storage fees (if the consignee is late picking up the goods). These charges must be paid by the consignee upon collection. Any additional costs incurred by the consignee (such as demurrage) are also the consignee’s responsibility.
Waybill markings differ from legal liability. The air waybill (AWB) clearly indicates the freight payment method: prepaid freight is marked “Freight Prepaid,” while collect freight is marked “Freight Collect.” This label has legal force and directly defines who is responsible for paying the freight. If it’s marked “prepaid,” the airline or agent has no right to demand additional freight from the consignee. If it’s marked “collect on delivery,” the shipper has no obligation to pay the freight. If the consignee refuses to pay, the airline has the right to detain the cargo.
Differences in Risk and Control: With prepaid freight, the shipper takes control of the shipment by paying the freight. They can independently confirm the start of the transportation process and don’t have to worry about the consignee rejecting the cargo due to cost issues (unless there’s a trade dispute). The risk primarily focuses on cost control at the shipper end. With collect on delivery, the risk is borne more by the consignee. If the consignee refuses to pay or abandons the cargo, the airline may pursue the freight from the shipper (although this is stipulated in the waybill, there is room for negotiation in practice). The shipper may also face additional costs from detaining, destroying, or returning the cargo, placing a high degree of reliance on the consignee’s credit.
- How to Choose: Key Considerations
Trade Terms and Cooperation Models: International trade pricing terms (Incoterms) directly determine how freight is paid. For example, under terms like “CIF (Cost, Insurance, and Freight)” and “DDP (Delivery Duty Paid),” freight is prepaid by the shipper and falls under the seller’s responsibility for door-to-door or port-to-port shipments. In contrast, under terms like “FOB (Free on Board)” and “EXW (Ex Works),” freight is typically paid by the consignee upon delivery, leaving the buyer to arrange transportation.
Credit and cooperative relationship between the two parties: If the shipper is unfamiliar with the consignee’s creditworthiness or this is a first-time collaboration, prepaying freight can mitigate risk by avoiding losses caused by the consignee’s refusal to pay after the goods arrive. If both parties have a long-term, stable partnership with a good credit history, flexible options can be negotiated: for example, having the consignee pay upon delivery can alleviate the shipper’s financial burden, or having the shipper prepay can simplify the consignee’s delivery process.
For high-value, fragile, or time-sensitive cargo (such as precision instruments and fresh produce), shippers may prefer prepaid freight. This proactive payment allows for more direct communication with freight forwarders or airlines, tracking the cargo’s status throughout the journey, and ensuring quality. For lower-value cargo with minimal transportation risk, the consignee can pay on delivery, shifting some of the cost burden.
From a capital flow and cost control perspective, pay-on-delivery is more advantageous for shippers. This eliminates the need to prepay freight, optimizing cash flow. For consignees, if prepaid freight offers a more favorable price (some airlines or forwarders offer discounts for prepaid orders) or if prepaying freight is necessary to secure space (common during peak season), shippers may negotiate a prepayment arrangement with the shipper, with settlement then offset against the cargo payment.
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