Prepaid shipping means the shipper pays all transportation charges at the time of shipment — the sender covers the freight cost rather than billing the receiver. This is the most common payment arrangement for outbound commercial shipping: the seller (shipper) pays to deliver goods to the buyer (consignee). The shipper’s carrier account is billed for all charges including base rate, fuel surcharge, and applicable accessorials.
Prepaid vs. Freight Collect
Prepaid and freight collect are the two primary freight payment arrangements. Prepaid: the shipper’s account is charged — common when the seller bears shipping cost. Freight collect: the consignee’s account is charged upon delivery — used when the buyer has their own preferred carrier rates or when Incoterms allocate freight cost to the buyer. Third-party billing is a third option where a third party’s account is charged.
Prepaid Shipping and Carrier Contracts
When shipping prepaid, the carrier applies the negotiated discounts from the shipper’s carrier account. For shippers with well-negotiated carrier contracts, prepaid shipping typically produces lower net rates than freight collect — where the consignee’s rate structure (which may be less favorable) applies instead. Shippers with superior contract terms often prefer to ship prepaid and include freight cost in product pricing to capture their rate advantage.