All You Need to Know About Freight Charges

What Are Freight Charges?

There’s a lot to know about freight charges. Even the best freight forwarders will face challenges with freight charges in an industry like freight. There’s sure to be some misunderstanding when (at least) three parties are trying to coordinate and deliver cargo across hundreds (or thousands) of kilometers.

Working with a professional freight forwarder and obtaining good freight knowledge is the best way to avoid shipping complications. If you pay attention to the points we make in this article, you will be better equipped to approach your freight shipment and gain the knowledge you need to understand your freight charges and prevent any misunderstandings properly.

What Are Freight Charges?

Freight charges are the expenses charged by a carrier for shipping freight to a destination location. The individual who wants the goods carried from one place to another is responsible for paying the freight charges. The freight cost is determined by the form of transportation used to deliver the goods.

Ships, airplanes, trains, and trucks are some common transportation types that can be used. Additionally, freight forwarder companies charge various freight costs based on the cargo’s weight. For oversized cargoes, higher rates are applicable.

Factors Affecting Freight Charges

Freight is one of the most significant costs of doing business for companies that keep inventory. When transporting goods from the manufacturer’s facility to the customer’s warehouse, the freight charges may change based on different factors. The shipping cost might be billed before or after the goods are delivered. We also published a comprehensive blog post on factors affecting shipping rates.

The following are some of the factors that influence freight charges:

  • Fuel Cost

The freight cost pricing model of several shipping companies includes fuel costs. The fuel price determines the cost of road and sea shipping, and the final cost charged to the customer must include the fuel price at the time of shipment.

If fuel prices are low, road and sea transportation will be less expensive, and the savings will be passed on to the customer. However, if fuel prices rise, so will the price of land and sea freight, and the increased cost will be passed on to the customer.

  • Low/High Customer Demand

The demand for freight services has an impact on freight costs. During periods of high demand for shipping space, there will be enormous volumes of goods to ship, and users will compete for the limited capacity. As a result, shipping companies can charge higher prices for the limited space.

When demand for freight services is low, on the other hand, shipping companies will decrease their rates to compete with the fewer consumers looking to ship cargo.

  • Incidents

Emerging incidents like terrorism, piracy, and a rogue government can lead to higher freight charges as shipping companies try to cover their losses. Shippers may choose longer routes that provide better safety, raising costs. To cover the risks, higher insurance premiums are requested; to avoid pirate-prone shipping routes such as Somalia, longer shipping routes are chosen, increasing freight charges.
Shipping companies can charge a higher premium when moving cargo through areas prone to terrorism and criminal groups to increase cargo safety.

  • New Rules & Regulations

In some countries, the government may introduce laws that affect the shipping industry. For example, during particular times of the year, government officials may impose restrictions on truck drivers’ maximum driving hours. This means the shipment will take longer to arrive at its final destination.

To compensate for possible losses, shipping companies increase freight costs. Other government rules that may impact freight prices include a prohibition on night driving, emission tax legislation, and restrictions on the number of goods that trucks can move.

Different Types of Freight Charges

The following are full explanations of all the terms related to the freight charges.

Consignee Collects
The consignee is the one who receives the goods.
When the consignee or buyer receives the goods, he/she is responsible for all charges. He is responsible for customs declarations, which are statements that prove that products are imported. Also, he will have to fill out paperwork and pay taxes. If you confuse taxes, duties, and tariffs, tap here to learn more about them.

Prepay and Add Charges
In this case, the shipper is responsible for freight costs and collects them from customers afterward. If the customer-shipper relationship is excellent, this strategy will work. It will not be difficult for the shipper to obtain higher rates, which will be impossible for customers.

FOB Destination Charges
When the shipper’s title to the goods passes through the consignee’s dock, the shipper pays the freight costs. Before the goods are dispatched, the freight charges should be paid.

FOB Origin Charges
The term FOB (Free on Board) refers to the supplier paying for the freight costs up to a certain point, after which the customer is responsible. It is the buyer’s responsibility If the goods are damaged. For the consignee, the same regulation applies. He is in charge of the freight.

Freight Prepaid and FOB Origin Charges
This approach is similar to FOB Origins in that the consignee is responsible for the cargo, and the shipper is simply responsible for the applicable local expenses.

Freight Collect and FOB Destination Charges 
The consignee receives ownership of the goods and is responsible for any costs.

Cash on Delivery 
After the cargo is delivered, the carrier collects the freight costs, which the shipper reimburses after submitting it to him.

Allowed, FOB Destination, and Freight Collect
The consignee is responsible for paying the freight and local charges to the carriers once the goods arrive at their destination. The consignee bears the risk and obligation for paying and settling any costs at the destination.

FOB Origin, Pre-Paid Freight, and Chargeback
The consignee is responsible for the freight in this method, and the costs for the freight are paid by the consignee’s representative at the origin. The shipper then sends the consignee an invoice for the freight charges paid.

Points to Consider When Shipping:

The term “freight on board” does not indicate who owns the freight. It is an internationally recognized legal term that states that the consignor must transport the goods to the consignee by a vessel.

It refers to when the consignor’s responsibility for the freight ends, and the consignee is accountable for the shipping charges. In an ideal circumstance, the consignor pays to have the freight delivered to a specified location. The consignee subsequently covers the cost of carrying the freight from that place to the consignee’s location.

Who owns the freight is stated on the bill of lading (BOL). The conditions of sale specify who is responsible for freight charges.

To find more about documents needed for import customs clearance, we recommend you to read our blog post regarding this matter.

FAQs

Who should pay for the freight costs?

The buyer should pay for the freight costs. However, because the seller still owns the items during transit, the seller risks shipping them.

How can I calculate freight charges?

The total product quantity determines freight costs when computing freight charges by quantity.

Is freight different from shipping?

Shipping refers to the movement of commodities for commercial purposes, including land, air, and sea. Freight is the term used to describe the bulk transportation of goods.

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