Freight Terms
Also known as: Shipping Terms, Payment Terms, Delivery Terms
Definition
Freight terms are standardized commercial terms that define responsibilities for shipping costs, insurance, and risk of loss between buyers and sellers. They specify who pays for what and when ownership transfers during the shipping process.
Common Freight Terms
Prepaid (Seller Pays)
- Prepaid - Seller pays freight to destination
- Prepaid and Add - Seller pays, adds to invoice
- Freight Allowed - Seller pays up to certain amount
Collect (Buyer Pays)
- Collect - Buyer pays carrier at delivery
- Third Party - Someone else pays (not buyer or seller)
Incoterms (International)
| Term | Seller Responsibility | Risk Transfer |
|---|---|---|
| EXW | None | At seller’s premises |
| FOB | To port of loading | When on vessel |
| CIF | Freight + insurance to port | When on vessel |
| DAP | To destination (not cleared) | At destination |
| DDP | All costs including duties | At destination |
Domestic Terms (US)
| Term | Who Pays Freight | Who Bears Risk |
|---|---|---|
| FOB Origin | Buyer | Buyer (from origin) |
| FOB Destination | Seller | Seller (until delivery) |
| FOB Origin, Freight Prepaid | Seller | Buyer |
| FOB Origin, Freight Collect | Buyer | Buyer |
Why Terms Matter
Cost Allocation
- Determines who pays shipping
- Affects landed cost calculations
- Impacts product pricing
Risk Assignment
- Who files claims for damage
- Insurance responsibility
- Liability during transit
Customs Responsibility
- Who handles import clearance
- Duty payment obligation
- Documentation requirements
Choosing Freight Terms
Consider:
- Buyer/seller relationship
- Shipping expertise
- Risk tolerance
- Negotiating leverage
- Standard industry practice
- Import/export regulations
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