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..
For 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 :
- 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..