Question from one of the readers of this blog relating to Freight in Master Bill of Lading and House Bill of Lading..
Hello, First of all, thank you so much for building such a wonderful and valuable educational Website. I work in the Freight Forwarding Industry but I’m always confused about below:
If the Shipper pays the Ocean Freight, it’s Freight Prepaid and if the Importer pays the Ocean Freight, it’s Freight Collect. (I understand this part) and it’s up to Shipper and Importer themselves to decide on who will be paying the Ocean Freight.
However, How does Freight Prepaid and Freight Collect which I’ve just mentioned affect the following?
- Master Collect and House Collect
- Master Collect and House Prepaid
- Master Prepaid and House Prepaid
- Master Prepaid and House Collect
Please advise in simple terms as in who pays what to whom (Just like how your Website explains).
Thank you so much.
In order to get a better understanding about Master (MBL) and House (HBL) Bill of Lading, please read my article Difference between House bill of lading & Master bill of lading..
Freight Prepaid (FP*) (whether MBL or HBL) means that the freight has been paid at origin to the shipping line or forwarder (respectively) and they issue a bill of lading (MBL or HBL respectively) claused Freight Prepaid.. So there is no freight to be paid at the destination by the forwarder or consignees agents respectively and release can be obtained without freight payment..
Freight Collect (FC*) (whether MBL or HBL) means that the freight has NOT been paid at origin to the shipping line or forwarder (respectively) and is expected to be paid at the destination port, so they issue a bill of lading (MBL or HBL respectively) claused Freight Collect.. The freight has to be paid at the destination by the forwarder or consignees agents respectively in order to secure release..
MBL’s and HBL’s are issued as FP or FC for a few reasons.. Lets examine them :
1. Master Collect and House Collect this is usually done
- if the client requires the freight to be paid at the destination, so the forwarder ships both MBL and HBL as Collect and the destination agent collect the freight from the client and pay the line before release is given
- if the booking is made by the agent at the destination and they don’t want to disclose the freight arrangements with the line and the client to the origin agent – Example – cargo from Durban to Antwerp booked at Antwerp by the agent in Antwerp.. The agent in Durban only does the shipping upto FOB Durban and consigns the bill to the Antwerp agent with both bills as FC..
2. Master Collect and House Prepaid this is occasionally done
- if the forwarders agent at destination has a better relationship with the shipping line and they negotiate the rate with them, but the actual client could be a client nominated by the origin agent
- the destination agent may not want the origin agent to know the rate agreement they have with the shipping line.. The destination agent pays the shipping line and invoices the origin agent for them to reimburse
- it could be the requirement of the actual client that the freight should be prepaid – based on their terms of sale with their consignee
3. Master Prepaid and House Prepaid
- Converse of No.1 where the origin agent has the controlling hand – Example – cargo from Durban to Antwerp booked at Durban by the agent in Durban.. The agent in Durban does the shipping and consigns the bill to the Antwerp agent with both bills as FP..
- Also done if the origin agent doesn’t want the destination agent to know the rate agreements with the line and client..
4. Master Prepaid and House Collect
- Converse of No.2 where the origin agent has the controlling hand and the actual client could be a client nominated by the destination agent, but the origin agent has a better relationship and rate agreement with the shipping line which they don’t want the destination agent to know about..
- it could be the requirement of the actual client that the freight should be collect – based on their terms of sale with their consignee..
EXPORT FROM PAKISTAN.
MBL PREPAID HBL COLLECT. To obtain OBL from Shipping Line they does require FORM E CERTIFICATE but they don’t have it because the FORM E was filled against FOB shipment. According to rules & regulation by the STATE BANK OF PAKISTAN Form does not issue in FOB shipment,
Please advise which document should be submit to the Shipping LIne in the absence of FORM E certificate?
Just a quick question. If I choose the payment term PREPAID when submitting SI, does it automatically mean that charges need to be paid immediately? I mean how much time does the shipping line usually give for payment when the payment term is PREPAID? Can I pay let’s say when the vessel arrives POD?
Hi Sam, how long you take to pay the freight/charges depends on any agreed terms you may have with the shipping line.. Some line offer customers credit terms of 30,60,90 days etc.. Technically, the freight can be paid any time before it is released at POD.. However, most lines will charge you late payment fee if you wait that long as they need to release the bill of lading and close the manifest for the sailing..
Best to discuss with your shipping line how much time you need to pay the charges..
It’s really helpful thanks..
Found your above article very helpful
Based on your above article is it possible to carry out shipment on ”Direct MBL prepaid basis” where the terms of
shipment are FOB. can we interpretate it as freight paid by the buyer at loading port .Do shipper in this case would have any problem as the contract is on FOB basis.
Please advise on above.
I have one case. If we issue wrong freight on the HB/L what happened? Let’s say HBL is supposed to be FC, but it was issued as FP. No one notice until the cargo is almost arriving the destination. What it will happen for the freight forwarder who issue the b/l?
Do I need a copy of the Master BL to get cargo at the destination port, or can I use my House only?
Hi Georgina, that would depend on how the MBL and HBL are consigned.. Are you the consignee on the MBL or HBL and which is the negotiable document that has been issued..??
CAN I KNOW WHICH IS THE FRONT & BACKSIDE OF A BILL OF LADING
Hi Robin, the side that has the Terms & Conditions is termed as Page 1 of the bill of lading..
Hi Manaadiar. Thank you so much for clear and thorough explanation of the difference between each.
Manaadiar, Your blog is great, but in the future, it would be helpful if you refer to standard International Chamber of Commerce (ICC) “Incoterms”.
As you are aware, Incoterms 2010, which went into effect on January 1, 2011 and replace Incoterms 2000. Incoterms are the standardized international terms used in the shipping industry in order to avoid confusion. Even so, there is much confusion regarding Incoterms, mostly because people do not read them, or read only the headnotes. Nobody in the shipping industry should be without a copy of Incoterms 2010 and unless older contracts specify an earlier version of Incoterms, these terms should be used, understood and followed.
An example of the misuse of terms is to ship EXW in export situations. Incoterms 2010 specifically states that EXW should be used only in domestic shipment and that FCA is the more appropriate term to use for international trade, yet many make this mistake only to encounter problems. Likewise, the ICC in Incoterms 2010 warns not to use FOB in international sea cargo shipment. There are good reasons for these admontions which can only be explained in an in-depth analysis of Incoterms.
Incoterms are not law, but in the absence to a written agreement otherwise, will be used to define terms in the event of a dispute. Therefore, they must be understood and used properly in order to achieve the true intentions of the seller and the buyer.
Incoterms 2010 can be purchased from the ICC at: http://www.iccwbo.org/products-and-services/trade-facilitation/incoterms-2010/
Where do you get these terms “FP” and “FC”? Is this specific to South Africa? Is not Incoterms the international standard for terms of who pays what and when?
Hi David, FP/FC are not internationally recognised terms.. I shortened it for my writing convenience.. Incoterms is the international standard for terms of sale..