Who pays freight charges for a shipment..??

Charges that are applicable for a shipment can be classified as

  • Ocean related charges
  • Landside charges

Who pays for these charges depends entirely on the terms of shipment agreed between the buyer and seller..

Majority of the buyers and sellers use the Incoterms or International Commercial terms which are a series of pre-defined commercial terms published by the International Chamber of Commerce to decide on what each others responsibilities and liabilities are in terms of this trade..

MoneyFor example on the CIF (Cost Insurance Freight) terms of sale which is one of the most common terms of sale, the shipper is responsible for the payment of freight to the carrier..

However, there could be a split in who pays these charges to the shipping line..

In a lot of the cases, the actual exporter or the shipper pays the Ocean Freight quantum of the charges which could include the Freight, BAF, ISPS, Oncarriage if any – basically all Ocean related charges whereas their Clearing Agent or Freight Forwarder will pay the landside charges such as THC, Bill of Lading Fee, Service Fees etc (of course to be claimed from the shipper)..

In the case of an FOB (Free on Board) shipment, the shipper is responsible for all charges upto FOB at the named port..

Here again, the shipper might directly pay the charges to the line or his Clearing Agent or Forwarding Agent will pay for it..

Charges covered under FOB charges may be (but not restricted to) as below :

  • THC
  • Bill of Lading Fee
  • Service Fee
  • Pre-Carriage if any organised by the carrier

In the case of Ex-Works, the buyer takes over from the shippers premises which means he is liable for all costs from pick up of the cargo at the shippers premises..

Irrespective of the case, it is very important that there is a clear understanding between the carrier and the client as to who pays what and where before the shipment takes place so that there is no ambiguity..

Generally, the shipping lines do not concern themselves with the Incoterms agreed between the buyer and seller and they expect that the Ocean and Landside charges are paid to them by the party that they have entered into a contract with..

It is in the carriers best interest to check whether these charges are Prepaid or Collect BEFORE the shipment takes place as there maybe some cases where Freight Collect is NOT accepted at certain destinations by the carrier due to foreign exchange regulations and such..

Have you had any unique or interesting experiences (or nightmares) relating to payment or receiving of freight charges whether you are a shipper or agent or shipping line..?? Do share..

What did you think of the above article..?? Comment below..

27 comments on “Who pays freight charges for a shipment..??

  1. Naveed Ahmed says:

    Hi, I need your help on one scenario,

    I imported goods from abroad through bill of lading bearing CY/CY with “Freight Prepaid”. once the vessel reached port of destination, charges in terms of TERMINAL HANDLING, LOADING/UNLOADING, WHARFAGE were claimed by the terminal operating company. (TOC)

    so who should actually pay those charges? me or shipper as it was freight prepaid…
    Secondly, whether Freight prepaid does not contain all such charges?
    Note: TOC is authorized to collected charges through one agreement with port authority.
    PLease guide

    1. Hi Naveed, FREIGHT PREPAID generally means that the freight plus the loading and discharging cost has been paid at the POL by the shipper.. If at bill is marked CY/CY then it means that all costs between the POL CY and POD CY has been prepaid.. THC is something that a client HAS TO PAY either to the shipping line who then pays the TOC or directly by the customer to the TOC depending on the port as each port around the world has its own methods of collecting the loading and unloading cost.. But the THC has to be paid by someone..

      As I have mentioned in my previous post “Who pays what charges for a shipment“, the division of charges and responsibilities depend on the Incoterms used.. Pls have a look at that article for further clarification..

  2. Diana says:

    I am selling my customer EXW but they’ve asked that I arrange the ocean freight pre-pay and bill on the invoice… should my invoice look like this:
    Subtotal $XXX.XX
    EXW town, state

    Ocean Freight $XXX.XX
    CFR Destination Port or FOB Departure Port

    Total: $$$

    Is it proper to have 2 incoterms? should I invoice the freight on a separate invoice?

    1. Mood2010 says:

      Your invoice terms should be C&F, if you as the seller paying for freight

  3. Muhammad Rafiq says:

    Hi

    I have a question related to terminal handling charges

    Recently we did shipment with our customer on FOB term, when we receive bill from clearing agent and forwarder we noticed that both of them charged us THC separately,

    So kindly help in above case that should shipper have to pay THC twice in FOB. By twice means to clearing agent and forwarder separately.

    Looking forward for your generous support and swift response. Thanks

    1. Hello Muhammad, if you read all the comments on this post, I have answered this question in my response to Tauqeer.. It is in incorrect to use FOB for container shipments.. The better term to use is FCA.. Please also read my section reg Incoterms for further on FCA..

  4. AlaZee says:

    Hello,

    I really need your help with below case:

    We agreed with forwarder to pickup our goods from shippers warehouse under EXW term. However, the shipper didn’t inform the forwarder of the required number of contaiers. Noting that number of pallets was mentioned in the packing list that was shared with our forwarder side prior to pick up. Our agent decided to use one 40 RF and was surprised at our shippers’ facility that the goods needs two 40 RF containers which has caused delays and extra charges.
    Now we have received from our forwarder that we have to pay inland cancellation / Failed transport and idle time charges.
    My question is who should pay the extra charges? and whose mistake is this? Shipper/Forwarder/ our us as buyers?

    Thanking you in advance for your help.

    Ala’

  5. hassan says:

    Dear Mr Hariesh

    you referred to some destinations that the carrier refuse collect freight in these destination , can we know the names of this destinations
    and why ?

    Thanks

    Hassan

    1. Hi Hassan, I don’t have any ready list available, but several countries don’t accept freight collect because of issues of remittance of the freight back to their principals due to the country’s financial policies..

  6. Krushan says:

    The fob value of goods imported from US by air is rs 10,00,000. Freight paid was rs. 2,00,000 and insurance paid rs.50,000. Freight paid rs. 3000 for transport of goods from Indian port to premises of importer. What will be the assessable value of imported goods?

  7. LeeAnn says:

    We bought something from someone on eBay. They shipped us the item in a large wooden box. The called us and told us they wanted the large box back. A shipping company showed up, and picked up the large box. Now the shipping company is calling us demanding payment for the shipment. We never agreed to pay for the shipment with either the seller nor the shipping company. We never placed the order for pickup. All we knew was to leave the large box in a certain place for pickup. The shipping company has left several nasty phone messages, and are insistent that we are liable for the charges. How do we get the shipping company off our backs, and have them collect from the person who placed the order with them? Thank you.

  8. Ryan says:

    Hello,

    I have an interesting situation that I would love to get your advice on. I shipped goods to a buyer and paid for the shipping. I intend to bill the shipping back to the buyer in full. Our sales terms and agreement say that all shipments are sent EX Works. Since I am billing the shipping back to the buyer and the contract terms are EX Works, does the buyer still take possession when the goods are shipped? Thanks for any insight you can give me on this matter.

    1. Hi Ryan, why did you as shipper get involved in the shipping when terms are EXW.. In EXW all charges from your warehouse should be for buyer..

    2. Ryan says:

      Hi Hariesh,
      In this scenario I am the seller. We use a third party agent for all of our shipping and customs for goods that we receive from China, and we also use them as a shipping agent when we send goods to customers in the states. In this scenario the buyer did not want to be bothered with arranging shipping to their facility, so we just had our shipping agent handle it. The shipping will be billed back to me the seller, and I will bill all of it back to the buyer when they are invoiced for the purchase.

  9. Deepak says:

    hey, i an started export business but i am not understanding who can pay ocean freight. Can you pls describe me

    1. Joana Lobos says:

      Hi Deepak, please advise the terms of shipment, from there, we can tell who will pay the charges. thanks

  10. Jaeger says:

    Hey, Sea shipping professionals!

    We are the Buyer and we have made a contract with our Supplier under CFR terms to the “port A”. Delivery charges were included in the Invoice, we have paid this invoice.

    LCL shipment was shipped out, we get the BOL (Telex Release) with these conditions: Port of Discharge “Port B” , Place of Delivery: The city where the “Port A” is located, Freight Prepaid, Freight and Charges payable by Shipper.

    Port A and port B are located in different countries.

    Shipper’s agent invoiced us for Port charges (overpriced about 10 times) and Customs brokerage charges for international transit documents (overpriced about twice). They don’t pay the port without our payment, the port does not release our goods. Demurrage costs going to be starting next days.

    Here is the nightmare: nobody works in shipper’s/carrier’s country due to 2 weeks holiday period. No people to contact. We have 2 choices – to pay unreal Landside charges or to pay demurrage of 2 weeks and then try to find a true.

    Would be very thankful for you comments about the carrier’s decision to discharge our goods in different port (despite of the fact, that our Port A is the normal sea route of the seagoing vessel) and about their agents ability to use “their own price list” for Landside charges.

    Cheers

    1. Aya says:

      Dear Jaeger,
      I think there was miscommunication from the very start of the transactions. if Port A and Port B are located on the different countries, then it is normal that the landside/port charges are expensive. Under the CFR, destination terminal/port charges will be paid by shipper or buyer depending on the contract of carriage. They charge these all to your account. Also before the carrier proceed to where is Port of Discharge and Delivery, shipper (or you) must have confirmed it already. Carrier will not proceed without confirmation from the shipper. Hope this help you understand the situation. Regards

  11. Shiran says:

    Hi Mannadiar !

    hi im kind ask as new small freight forwarder possible issu their own HBL or do they have register somwhare or have to to pay for that ? bz im going open small new freight forwarding company in uk ,

    Thanks

    Shiran

  12. Adhish says:

    Hi, not necessarily. I agree that this has been an age old practice before IT innovations to identify what freight is outstanding and how, when and where to collect. But this is only for the freight collection and representation on the bill of lading.
    My question was more related to the invoicing, and is there any specific reason why different charges have to be categorised as prepaid or collect ?
    With regards to the cargo release process, even if the bill of lading is tagged freight prepaid, it doesn’t mean that all charges related to that shipment has been paid. However the terms and condtions on a bill of lading says otherwise..

    Isn’t that quite a bit confusing ? 🙂

    Cheers

  13. Adhish says:

    Well, this one doesn’t still provide clarity on the “terms of payment” application. Why has it been an industry practice to classify the different charges into Prepaid / Collect all this while ? Is it just to distinguish for the Bill of LAding clause as to what terms the Ocean Freight is agreed between the client and the carrier ?

    Thanks to clarify

    1. Manaadiar says:

      Hi Adhish, not sure what is not clear on the “terms of payment”.. There has to be a classification of what charges are Prepaid and what is Collect.. This is the only way the shipping line will know what charges have been collected where.. This prepaid and collect term is an important part of the bill of lading and cargo release process..

  14. Tauqeer says:

    in case of FOB shipment, what kind of service charges shipper will pay to nominated forwarder as forwarder provides services on behalf of consignee, so he should collect service charges from consignee.

    1. Manaadiar says:

      Hi Tauqeer, under FOB terms, seller is responsible for ALL charges up until the cargo is shipped on board.. These charges can start with transportation from the sellers warehouse and end with the THC at the load port and will cover all charges in between including cargo dues (wharfage), customs clearance etc, ships agents service fee, bill of lading fee (well this bill of lading is under argument still – see http://shippingandfreightresource.com/2011/01/14/under-fob-terms-who-should-bear-the-charges-for-issuance-of-bl-shipper-or-consignee/)..

      The seller may or may not use a forwarder to do these activities as some sellers have their own in-house division to handle all these activities..

      If there is a forwarder involved and he provides services on behalf of the buyer, those charges will be on behalf of the buyer – example if the buyer arranges with his forwarder to test or sample the cargo, that will be on his account and not on the sellers account (unless it is expressly agreed between seller and buyer)..

  15. ebb says:

    Hey, good article and thank you for it. I was relatively new to this business when I moved to Saudi Arabia and I was looking for resources likes this one. Makes it easier to improve yourself step by step if you get an interesting article every some days.

    1. Manaadiar says:

      Thanks Eike.. I generally post a new article every Wednesday.. You can subscribe to receive this as and when updated.. Its free..

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