Freight Terms

Understand Freight Terminology Important to Success

Few people realize the extent to which they are dependent on the trucking industry. Practically everything that we consume or use is brought to us by truck over hundreds or even thousands of miles. This includes the food we eat, the clothes we wear and our fuel. A special vocabulary of freight terms specifies the particulars of a freight agreement. A two-digit number is used to show which combination of payment, ownership and responsibility applies to the specific shipment. Buyers, sellers and shoppers all have a stake in what freight designation is decided upon.

Before freight can be moved it must first be determined who will pay bear the cost of shipping the freight and who will pay the shipping company. One party might pay the trucking company or owner operator with the understanding that the freight charges will be added to the price of the goods being received. All of these terms must be agreed upon before a shipment can be transported. Another question that might arise is who owns the goods while they are in transit as well as who will be able to file claims for damaged goods.

The first term to understand is F.O.B., which stands for Free On Board. The F.O.B. includes either the word destination or origin. There are four destination designations: Destination freight prepaid, Destination freight collect, Destination freight collect and allowed and Destination freight prepaid and charged back.

Freight prepaid (01) – The seller pays the freight charges with no reimbursement. The freight is owned while in transit by the seller who can if necessary file claims for any damage it incurred.

Freight collect (02) –The buyer assumes financial responsibility for the freight charges but the seller owns the load until it arrives. The seller has the right to file claims for damages.

Freight, collect and allowed (03) – The buyer pays the shipping costs but then subtract those costs from the price of the goods listed on the invoice before paying the seller. Therefore, the seller actually pays for the shipping. The seller owns the freight in transit and can collect if the freight is damaged.

Freight prepaid and charged back (07) – The seller initially pays the shipping costs but adds the amount to the invoice so it is actually the buyer ends up bearing the cost of the shipping. Again, the seller owns the goods until they arrive and have been signed for and has the right to file claims for damaged freight.

The common element in F.O.B. Destination freight is that the seller maintains ownership of the goods until they are accepted by the buyer and can claim damages, if necessary. With the F.O.B. Origin designation it is the buyer who legally owns the freight once it has left the seller and additionally it is the buyer who is eligible to claim compensation for any damages.

The following are the F.O.B. Origin designations.

Freight prepaid (04) – Seller pays freight charges and does not pass them along to the buyer. The buyer owns the goods while they are being transported and the buyer may file damage claims if necessary.

Freight collect (05) – The buyer both pays and ultimately bears the cost of the shipping. The buyer also owns the freight once it is in route and retains the right to claim compensation for damages.

Freight prepaid and charged back (06) – The seller pays the freight costs but then adds those costs to the buyer’s invoice. The buyer owns the freight in transit and can claim damages to the freight if necessary.

Determining the most advantageous freight solutions is important for both the buyer and the seller’s bottom line and the two parties must agree before freight can be shipped.

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