{"id":5510,"date":"2019-03-27T10:35:05","date_gmt":"2019-03-27T14:35:05","guid":{"rendered":"https:\/\/www.letterofcredit.biz\/?p=5510"},"modified":"2023-03-23T04:15:00","modified_gmt":"2023-03-23T08:15:00","slug":"freight-notations-under-letters-of-credit-freight-prepaid-or-freight-collect","status":"publish","type":"post","link":"https:\/\/www.letterofcredit.biz\/index.php\/2019\/03\/27\/freight-notations-under-letters-of-credit-freight-prepaid-or-freight-collect\/","title":{"rendered":"Freight Notations Under Letters of Credit: Freight Prepaid or Freight Collect"},"content":{"rendered":"<p>The freight notation is a specific reference included in the transport document that indicates whether the shipper has already paid the freight costs in advance, labeled as &#8220;<strong>freight prepaid<\/strong>,&#8221; or if the consignee is responsible for paying the transport costs upon the goods&#8217; arrival at the destination, labeled as &#8220;<strong>freight collect<\/strong>,&#8221; or &#8220;<strong>freight payable at destination<\/strong>.&#8221;<\/p>\n<p>In the case of <strong>charter party contracts<\/strong>, the freight notation may indicate &#8220;<strong>freight payable as per charter party<\/strong>&#8221; instead of &#8220;freight collect,&#8221; or &#8220;freight payable at destination.&#8221;<\/p>\n<p><iframe title=\"Freight Collect and Freight Prepaid\" width=\"720\" height=\"405\" src=\"https:\/\/www.youtube.com\/embed\/62ETsW0oHME?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<h4><strong>Which Party Pays the Freight Costs? Exporter or Importer?<\/strong><\/h4>\n<p>Determining the party who arranges the transportation and pays for the transport cost is one of the major decisions in any international trade transaction.<\/p>\n<p>The agreed terms of delivery, also known as <a href=\"https:\/\/www.letterofcredit.biz\/index.php\/2018\/10\/25\/incoterms\/\">incoterms<\/a>, determines whether freight charges are to be paid by the exporter or the importer.<\/p>\n<p>If freight charges are to be paid by the exporter, then this must be indicated on the transport document with a freight notation such as <strong>Freight Prepaid<\/strong>.<\/p>\n<p>On the other hand, if freight charges are to be paid by the importer, then this must be indicated on the transport document with a freight notation such as <strong>Freight Collect<\/strong>.<\/p>\n<h4><strong>The Relationship Between Sales Contract, Contract of Carriage and Freight Charges<\/strong><\/h4>\n<p><a href=\"https:\/\/www.letterofcredit.biz\/index.php\/2018\/04\/27\/international-sales-contract\/\">Contract of Sale<\/a> is the main contract in international trade. It is signed between the exporter and the importer, and this contract defines each parties&#8217; roles and responsibilities.<\/p>\n<p>Once the sales contract is signed, the exporter and importer start signing additional contracts with third party service providers to complete the transaction.<\/p>\n<p>For example,<\/p>\n<ul>\n<li>contract of carriage should be signed with the carrier,<\/li>\n<li>insurance contract should be signed with the insurance company,<\/li>\n<li>inspection contract should be signed with the inspection company,<\/li>\n<li>a contract with customs broker should be signed in order to clear the goods from customs.<\/li>\n<\/ul>\n<p style=\"text-align: center;\"><span class=\"td_btn td_btn_md td_round_btn\">The contract of sale determines by whom, either the exporter or the importer, the above mentioned additional contracts should be signed.<\/span><\/p>\n<p><img decoding=\"async\" class=\"contracts in international trade aligncenter wp-image-5520 size-full\" title=\"contracts in international trade\" src=\"https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/contracts-in-international-trade.png\" alt=\"contracts in international trade\" width=\"1200\" height=\"900\" srcset=\"https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/contracts-in-international-trade.png 1200w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/contracts-in-international-trade-300x225.png 300w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/contracts-in-international-trade-768x576.png 768w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/contracts-in-international-trade-1024x768.png 1024w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/contracts-in-international-trade-80x60.png 80w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/contracts-in-international-trade-265x198.png 265w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/contracts-in-international-trade-696x522.png 696w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/contracts-in-international-trade-1068x801.png 1068w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/contracts-in-international-trade-560x420.png 560w\" sizes=\"(max-width: 1200px) 100vw, 1200px\" \/><\/p>\n<h4><strong>Incoterms and Freight Charges<\/strong><\/h4>\n<p>According to the Incoterms 2010 rules, the exporter must conclude the contract of carriage with the carrier and pay for the freight under CFR, CIF, CPT, CIP, DAT, DAP, DDP terms.<\/p>\n<p>Freight prepaid is the correct freight notation that should be used on transport documents under CFR, CIF, CPT, CIP, DAT, DAP, DDP trade terms.<\/p>\n<p>Incoterms 2010 rules also dictates that under EXW, FCA, FAS and FOB trade terms the importer must arrange the transportation and pay for the freight charges.<\/p>\n<p><img decoding=\"async\" class=\"aligncenter size-full wp-image-5539\" src=\"https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/freight-collect-freight-prepaid-incoterms-2010.png\" alt=\"Incoterms and Freight Notation on Transport Documents\" width=\"1200\" height=\"900\" srcset=\"https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/freight-collect-freight-prepaid-incoterms-2010.png 1200w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/freight-collect-freight-prepaid-incoterms-2010-300x225.png 300w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/freight-collect-freight-prepaid-incoterms-2010-768x576.png 768w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/freight-collect-freight-prepaid-incoterms-2010-1024x768.png 1024w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/freight-collect-freight-prepaid-incoterms-2010-80x60.png 80w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/freight-collect-freight-prepaid-incoterms-2010-265x198.png 265w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/freight-collect-freight-prepaid-incoterms-2010-696x522.png 696w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/freight-collect-freight-prepaid-incoterms-2010-1068x801.png 1068w, https:\/\/www.letterofcredit.biz\/wp-content\/uploads\/freight-collect-freight-prepaid-incoterms-2010-560x420.png 560w\" sizes=\"(max-width: 1200px) 100vw, 1200px\" \/><\/p>\n<h4><strong>Letter of Credit Example:<\/strong><\/h4>\n<p><span style=\"color: #ff6600;\">Introduction:<\/span><\/p>\n<p>An exporter from India signed a sales contract with a buyer from United Kingdom for the sales of turmeric.<\/p>\n<p>The sales contract states that the payment term is a <a href=\"https:\/\/www.letterofcredit.biz\/index.php\/2018\/11\/06\/confirmed-l-c-at-sight\/\">confirmed letter of credit payable at sight<\/a> and the transport document is a <a href=\"https:\/\/www.letterofcredit.biz\/index.php\/2018\/04\/02\/bill-of-lading\/\">marine bill of lading<\/a>.<\/p>\n<p>And the trade term is <a href=\"https:\/\/www.letterofcredit.biz\/index.php\/2018\/10\/25\/incoterms\/\">CFR Cost and Freight<\/a>. (CFR Port of Felixstowe, Incoterms 2010)<\/p>\n<p>According to the incoterms 2010 rules, under CFR trade terms, the seller must contract or procure a contract for the carriage of the goods from the agreed point of delivery, if any, at the place of delivery to the named port of destination or, if agreed, any point at that port.<\/p>\n<p>As a result the freight notation on the marine bill of lading must be &#8220;<strong>Freight Prepaid<\/strong>&#8220;.<\/p>\n<p><span style=\"color: #ff6600;\">Letter of Credit:\u00a0<\/span><\/p>\n<p>46A: Documents Required<\/p>\n<ol>\n<li>FULL SET OF ORIGINAL SHIPPING COMPANY SHIPPED ON BOARD MARINE\u00a0 BILL OF LADING TROUGH AN INTERNATIONAL UNIFORM SHIPPING LINES MADE OUT TO THE ORDER OF HSBC BANK, LONDON BRANCH, UK NOTIFY APPLICANT MARKED FREIGHT PREPAID.<\/li>\n<\/ol>\n<p><span style=\"color: #ff6600;\">Bill of Lading:<\/span><\/p>\n<ul>\n<li>Bill of lading indicates that &#8220;FREIGHT PREPAID&#8221;.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>The freight notation is a specific reference included in the transport document that indicates whether the shipper has already paid the freight costs in advance, labeled as &#8220;freight prepaid,&#8221; or if the consignee is responsible for paying the transport costs<\/p>\n","protected":false},"author":1,"featured_media":5538,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[209,22],"tags":[500,501],"class_list":["post-5510","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-how-to-work-with-a-letter-of-credit","category-basics","tag-freight-collect","tag-freight-prepaid"],"_links":{"self":[{"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/posts\/5510","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/comments?post=5510"}],"version-history":[{"count":0,"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/posts\/5510\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/media\/5538"}],"wp:attachment":[{"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/media?parent=5510"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/categories?post=5510"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.letterofcredit.biz\/index.php\/wp-json\/wp\/v2\/tags?post=5510"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}