Understanding the Different Freight Charges

Trucks in queue at shipping terminal, Port of Los Angeles, California, United States — Tom Paiva Photography/Blend Images/Getty Images

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Updated on 01/07/20

In a global economy, companies can gain a lot by doing business with firms outside of the United States. When doing so, you need to know what your shipping costs will be. When sending products across the country or overseas, familiarity with certain documents and types of charges can prevent confusion and losses for your company. All documents related to shipping costs and records should be recorded and stored for several years in case of a future issue.

Bills of Lading and Freight Bill

All shippers provide clients with two important documents: the bill of lading and the freight bill. A freight bill is essentially an invoice and is a useful tool for record-keeping and bill paying. A bill of lading, however, is an important legal document.

Bills of lading are official documents, sometimes used in the court of law, that names the type of item and the number of items being transported. The shipping company or a third-party logistics company provides these documents. Bills of lading accurately reflect the weight, value, and description of every item. They must also include information about when the units will be shipped and delivered. A bill of lading represents an agreement between you and the shipper.

Below are common charges that may be outlined in bills of lading or freight bills.

01

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Consignee Collects

The consignee, typically the buyer to whom the freight will be delivered, pays all freight charges upon receipt. The consignee is considered responsible for customs declarations and filing any taxes or forms.

02

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Prepay and Add

The shipper pays for freight and then charges the customer. It is a good option when the shipper and carrier have a positive relationship resulting in good rates. The shipper can often negotiate better deals than the customer could do on his own.

03

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Third Party

A third party, typically a professional logistics company, pays all freight charges rather than the shipper or consignee. This option is valuable when the order is more complicated or the consignee—the person or business receiving the shipment—is new to the business.

04

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Cash on Delivery (COD)

The carrier collects payment at the time of delivery and then forwards the payment to the shipper to be reimbursed. The carrier usually charges an additional fee for this service.

05

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Free-on-Board (FOB) Origin

The FOB is the moment during an exchange when the seller gives up its rights to the merchandise, and the buyer accepts ownership. In a FOB charging situation, the freight becomes the responsibility of the consignees at the shipper's dock, and the consignee pays all of the associated costs.

06

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FOB Origin, Freight Prepaid

The freight becomes the responsibility of the consignee at the shipper's dock. The shipper pays all freight charges.

07

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FOB Origin, Freight Prepaid and Charged Back

The freight becomes the responsibility of the consignee at the shipper's dock. The shipper pays all freight charges and then invoices the consignee for the freight charges.

08

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FOB Destination

The title for goods passes at the consignee's dock, and the shipper pays all freight charges. The freight is shipped prepaid.

09

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FOB Destination, Freight Collect

The title for goods passes at the consignee dock, and the consignee pays all freight charges.

10

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FOB Destination, Freight Collect and Allowed

The title for goods passes at the consignee dock. The consignee pays the carrier's freight charges and then deducts the freight charges from the seller's invoice for the goods.