When entering a contract with a supplier or buyer, at some point in the negotiation, an agreement will need to be made as to who is arranging the transport of the goods from the supplier’s premises to the receiver. A common query that arises from this is: Which is best, freight prepaid or freight collect?
It’s important to note at this point, that the two terms are generic in nature. The ICC Incoterms provide the legal framework and responsibilities for each stage in the transport process and should be used instead of the simplified “prepaid” or “collect”.
There are several factors involved in making a final decision and there isn’t really a wrong, or right way to go about it. The question therefore is, what best suits your business and by extension, the business plan you have in place?
When considering freight prepaid vs. freight collect, I believe the decision is ultimately about choice.
If it‘s important to control how much you pay, the ability to monitor the shipment during transit, how long the cargo takes to arrive and how much risk you’re happy to accept, then an inco-term that supports freight collect would be best for a NZ importer (freight prepaid for NZ exporters).
Conversely, if the above factors are not of high importance, a freight prepaid position would be best with the responsibility for arranging freight placed on the supplier if you’re a NZ Importer (freight collect if a NZ exporter).
If less responsibility is desired, some of the factors can be controlled through dialogue. Eg. A supplier offering to arrange transport with freight costs included in the goods price may favour a cheaper freight cost and longer transit time. Compare that to the buyer being low on stock and favouring the faster, more expensive transit time. With variations in port to port transit times from the west coast of the US to NZ between 14 to 45 days, a significant time difference will affect the ability to supply your final client.
If you’re looking to what “others” do to help decide, New Zealand businesses generally choose to organise the transport themselves.
I’d conclude that regardless of the decision you make, the goods will invariably end up where they need to be.
The purpose of this article is to provide an insight into some of the considerations and help make an informed decision that works best for your business.
If you’re still undecided and want to discuss further, feel free to contact us.
