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. Let’s take a look.
What is freight collect?
Under freight collect incoterm, the buyer is responsible for finding a freight forwarder to book and arrange shipment. He also needs to pay for the freight when receiving cargo in his country.
Incoterms related to Freight Collect are EXW, FCA, FOB, and FAS.
For example, if you want to import from Shanghai Port to New York Port, and the bill of lading is marked “FOB Shipping Point, Freight Collect”, then you need to find a freight forwarder to help you handle all the things. When your goods arrive at New York Port, you need to pay him.
What is freight prepaid?
Freight prepaid is the charge paid in advance, which means that the seller will pay for the freight before shipping. In this case, the seller is responsible for finding a freight forwarder to transport the goods to the buyer’s country.
Incoterms related to Freight Prepaid are CFR, CIP, CPT, CIF, DAP, DPU, DDU and DDP.
In fact, when you pay the seller, you have already paid for the freight. Because the seller’s quotation includes the product cost, the freight cost, and other costs.
For example, if you buy a batch of toys worth $10,000 from Company A in Ningbo, China, and the freight to Los Angeles port is $2,500. Under “CIF Destination Point, Freight Prepaid”, your seller needs to find a forwarder to book and pay for the freight before shipping. The quotation he gave you includes freight worth $2,500.
What is the difference between collect and prepaid logistics?
Differences between freight collect and freight prepaid mainly lie in the following aspects.
Cost
Choosing which way depends on whether you can find a forwarder to help you arrange shipments. If you are an experienced importer and have your own reliable forwarders who can give you cheaper quotation freight than the Chinese agent, then you can choose “FOB, Freight Collect” or even EXW. Your forwarder will help you collect the goods and deliver them to your country, and you just need to pay the freight directly to the forwarder after the goods arrive.
If you are an importing newbie, you don’t have your own freight forwarder resources and can’t get a cheap price from them, you can choose “CIF, freight prepaid”, DDP or DDU, and ask the seller to find a forwarder and arrange shipments. Most Chinese sellers will have long-term cooperative forwarders and can get discounts from them.
You may be worried about whether the seller will make money from the freight. For example, the actual freight is $2,000, but he quotes you $2,500. Actually, the seller will give you the freight according to the facts, because they also want to maintain a good relationship with you and let you place more orders from them. Meanwhile, the freight price is quite open and transparent. You can know the rough figure on the freight charges from many channels.
Risk
Under freight collect cases (e.g. under FOB intercom), the buyer should pay for the freight when the cargo arrives. When goods are damaged in shipping, you need to contact the forwarder to compensate for the loss.
Under the freight prepaid case, the seller shall bear all costs and risks before the goods arrive at the buyer’s destination. If your goods are damaged in shipping, you can contact the seller and let him help you communicate with the forwarder for compensation.
Payment time
The biggest difference between prepaid and collect is the payment time. Under the freight prepaid case, the buyer should pay for the freight before shipping.
Under the freight collect case, the buyer needs to pay for this cost when his cargo arrives at the destination. For importers with a large order amount, such as $500,000, it takes 30 or 40 days to ship by sea. They can use this freight for capital turnover first. In this case, freight collect is very friendly to them.
Which is ideal: freight collect vs freight prepaid?
Whether freight collect or freight prepaid depends on the specific circumstances and needs of the buyer and the seller. Both options have advantages and disadvantages.
If you have a reliable freight forwarder, who can give you a cheaper freight rate than the seller quotes you, “Freight Collect” is a good choice.
If you are an importing newbie, you don’t bother to spend too much time and energy selecting the freight forwarders or worry that the agents you find are unreliable, you can choose “Freight Prepaid”. Because your supplier will help you arrange it.
In addition, you can directly contact your supplier if anything happens in shipping, which is very convenient. What’s more, your supplier has to bear the risk. Once your goods are damaged during shipping, he will help you communicate with forwarders and solve the problems.
We are JingSourcing, a leading sourcing company in China. We have many long-term cooperative forwarders, who can provide various transportation solutions. Freight collect or freight prepaid are all available.
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