Freight Prepaid

Freight Prepaid means the shipper pays the transportation charges before the goods leave the origin. The carrier collects payment from the sender, not the receiver. When a bill of lading or shipping document is marked “Freight Prepaid,” the party at the destination has no freight charges to settle upon delivery. The goods arrive, the receiver signs for them, and no money changes hands for the transport itself.

Freight Prepaid vs. Freight Collect

The opposite arrangement is Freight Collect, where the receiver pays the carrier upon delivery. Between these two, there is also a third option: Third Party Billing, where neither the shipper nor the receiver pays directly. Instead, a third party (often a freight broker, 3PL, or the buyer’s corporate logistics department) receives and pays the freight bill.

The choice between Prepaid and Collect depends on the Incoterms agreed upon in the sales contract. Under FOB Destination, the seller is responsible for freight costs until the goods reach the buyer’s dock, which typically means Freight Prepaid. Under FOB Origin, the buyer assumes freight costs from the point of shipment, which can be structured as either Freight Collect or Prepaid and Added (where the seller pays the carrier but adds the freight cost to the invoice).

How It Appears on Documentation

On a Bill of Lading (BOL), the freight payment terms are marked in a designated field. The notation is straightforward: “Prepaid,” “Collect,” or “Third Party.” Carriers require this designation before accepting the shipment because it determines who they will invoice. A carrier that picks up a shipment marked Prepaid will invoice the shipper’s account. If the shipper’s account does not have approved credit, the carrier may require payment before pickup.

For ocean freight, the payment terms appear on both the booking confirmation and the Bill of Lading. When a shipper books a container as Freight Prepaid, the ocean carrier or NVOCC (Non-Vessel Operating Common Carrier) invoices the shipper or their freight forwarder. The original Bill of Lading will not be released until the freight charges are settled, which means Prepaid ocean freight must be paid before the consignee can take delivery.

Financial Implications

Prepaid freight affects cash flow timing. The shipper pays transportation costs upfront, sometimes weeks before the goods reach the buyer and generate revenue. For a seller shipping a $50,000 container from Shanghai to Long Beach, the ocean freight might run $3,500 to $5,000. Paying this before the container even loads means the seller carries that cost for 30 to 45 days (the ocean transit plus inland delivery time) before the buyer’s payment arrives.

Sellers who absorb freight costs into their product pricing (common in e-commerce and B2B transactions with “free shipping” offers) always use Freight Prepaid. The customer sees a product price that includes delivery, and the seller manages the freight relationship with the carrier directly. This gives the seller more control over carrier selection, routing, and service levels.

When to Use Freight Prepaid

Freight Prepaid is the standard for most e-commerce and FBA shipments. When a seller sends inventory to Amazon fulfillment centers, the seller pays the carrier. Amazon does not accept Freight Collect shipments at its warehouses. Similarly, when sellers ship from a prep center to FBA, the freight is prepaid by the seller or managed through the prep center’s carrier accounts.

B2B sellers with strong carrier relationships and negotiated rates often prefer Prepaid because their rates are lower than what the buyer could obtain independently. A seller shipping 200 LTL shipments per month has more negotiating leverage with carriers than a buyer receiving 5 shipments per month. By handling freight as Prepaid, the seller locks in lower rates and can either pass the savings to the buyer or retain them as margin.

One practical consideration: Freight Prepaid shipments where the carrier damages the goods create a claims situation for the shipper, not the receiver. The shipper paid for the service, so the shipper files the freight claim. This can be advantageous because the shipper has the carrier relationship, but it also means the shipper must manage the claims process, which can take 30 to 120 days to resolve.