Freight terms explained: who pays, who owns the freight, and where each term shows up

Freight terms are shorthand, and shorthand causes arguments when two people read it differently. This guide explains the common terms in plain language: the payment terms on a bill of lading, FOB as it's used in US domestic sales, the Incoterms rules used in international trade, and the pricing words carriers and brokers use every day. For each, it shows where the term appears on paperwork, so you know where to look. It's a plain-language summary, not legal or accounting advice. We dispatch carriers and don't ship freight or quote rates; the terms are the same whichever side you're on.

Search or filter the chart below. Each term links to the guide that covers it in depth.

Freight terms that answer "who pays?"

The bill of lading has a box for freight charge terms, and it decides who the carrier bills.

• Prepaid means the shipper pays the freight charges.
• Collect means the consignee, the receiver, pays.
• Third-party billing means someone else pays, such as a parent company or a logistics provider, named on the BOL.

Our guide to freight collect vs prepaid explains when each makes sense and what goes wrong when the box is left blank. For a carrier, these terms matter because they tell you who to invoice on direct freight. On brokered freight, the broker pays the carrier under the rate con, whatever the BOL says.

FOB: where ownership and risk pass

FOB stands for free on board. In US domestic sales, it's used to say where title and the risk of loss pass from seller to buyer. Under the Uniform Commercial Code, FOB place of shipment means the seller bears the cost and risk of getting the goods into the carrier's possession, while FOB place of destination means the seller carries them to the destination at its own cost and risk. In practice, FOB origin means the buyer owns the freight in transit, and FOB destination means the seller does. That matters most when something goes wrong, because the owner is the one who files a claim.

Source: UCC 2-319(1), checked October 2026 The parties can agree otherwise; not legal advice.

Our guide to freight on board (coming soon) covers the variations, such as FOB origin, freight prepaid and add, and how FOB terms interact with who pays the freight. FOB terms live on purchase orders and sales invoices, not on the bill of lading.

Incoterms: the international rules

International sales usually use the Incoterms rules, published by the International Chamber of Commerce. The current version has 11 rules: EXW, FCA, CPT, CIP, DAP, DPU and DDP for any mode of transport, and FAS, FOB, CFR and CIF for sea and inland waterway transport. Each one sets where the seller delivers, who pays which part of the transport, who arranges insurance, and who handles export and import clearance. They apply when the sales contract adopts them, usually written like "FCA Chicago, Incoterms 2020".

Source: International Trade Administration (trade.gov), Know Your Incoterms; ICC Incoterms 2020, checked October 2026

• EXW (Ex Works): the seller makes the goods available; the buyer does nearly everything else.
• FCA (Free Carrier): the seller hands the goods, cleared for export, to the buyer's carrier at a named place.
• CPT (Carriage Paid To) and CIP (Carriage and Insurance Paid To): the seller pays carriage to the destination, and for CIP also insurance, but risk passes when the goods go to the first carrier.
• DAP (Delivered at Place) and DPU (Delivered at Place Unloaded): the seller delivers at the destination; under DPU the seller also unloads.
• DDP (Delivered Duty Paid): the seller delivers at the destination, cleared for import, duties paid.
• FAS, FOB, CFR, CIF: the sea and inland waterway rules, built around a named port.

The most common mistake is using a sea rule for a truck shipment. FOB in Incoterms means on board a ship at a port, so "FOB our warehouse" makes little sense for an international sale moving by truck or container. FCA is usually the better fit. And Incoterms FOB isn't the same thing as US domestic FOB, even though the letters are identical.

Choosing the right Incoterms rule

The right rule depends on what each side can actually do. A seller with no presence in the buyer's country usually can't handle import clearance, which rules out DDP. A buyer with no agent at the origin will struggle with EXW, because someone has to load the goods and clear them for export. That's why FCA, with the seller delivering cleared goods to the buyer's carrier, is so widely used for containers and trucks. DAP suits a seller who controls the transport but not the import. Whatever you choose, name the place precisely, down to the address or terminal, and state the version: "FCA 1200 Industrial Way, Laredo, Texas, Incoterms 2020" leaves far less room for argument than "FCA Laredo".

Incoterms also don't cover everything. They don't transfer title, set the price, or say how payment is made; the sales contract does that. They don't replace the bill of lading or the carrier's terms either. Two parties can agree on DAP and still have a dispute about detention at the delivery dock, because that's between the carrier and whoever hired it.

Pricing terms carriers and brokers use

• Linehaul: the base pay for moving the load, before accessorials.
• Flat rate: one price for the whole load. Our guide to flat rate freight shows how to compare it per mile.
• Freight zones: geographic areas some carriers use to set rates. See freight zones (coming soon).
• Fuel surcharge: an added charge that moves with diesel prices.
• Accessorials: charges beyond linehaul, like detention, layover and TONU.
• CWT: hundredweight, 100 pounds, common in LTL pricing.

Accounting and tax terms

Two more sets of terms show up away from the dock. Freight in vs freight out is an accounting distinction: freight on goods you buy is usually part of their cost, while freight on goods you sell is usually a selling expense. And whether a shipping charge is taxed depends on state sales tax rules and how the charge appears on the invoice; our guide to whether freight is taxable (coming soon) explains the common patterns. Both are questions for an accountant, but knowing the words helps you ask the right question.

Payment terms between broker and carrier

One more set of terms decides when a carrier is actually paid: the payment terms in the broker-carrier agreement. Common forms are net days, such as payment a set number of days after a complete invoice arrives, and quick-pay options that pay sooner for a fee. Read what starts the clock, what counts as a complete packet, and whether the broker can hold payment while a claim is open. These terms aren't on the bill of lading or the rate con, but they shape a carrier's cash flow more than any of the trade terms above, so new carriers should read them before signing their first broker packet.

Ocean and port charges

If your freight touches a port, you'll see charges that domestic trucking doesn't use, such as terminal handling charges for moving containers at the terminal. Our guide to THC freight charges (coming soon) explains who pays them under the common Incoterms rules. Drayage carriers who move containers to and from ports see these terms on the paperwork they pick up.

A worked example: one sale, three documents

These are EXAMPLE terms. The point is that each document answers a different question, and they have to agree with each other.

Common freight term mistakes

• Blank boxes. A BOL with no freight charge terms leaves the carrier guessing who to bill.
• FOB without a place. "FOB" alone says nothing about where risk passes.
• Sea rules on truck freight. Incoterms FOB, CFR and CIF are for ships, not trucks.
• Mixed signals. A purchase order that says FOB destination and a BOL that says collect can both be right, but they should be deliberate.
• Old versions. Contracts that cite an older Incoterms version use rules that have since changed, such as DAT, which became DPU.
• Assuming the BOL sets the price. On brokered freight, the rate con sets what the carrier is paid.

Freight terms and claims

When freight is lost or damaged, the freight terms help decide who files. Under FOB origin, the buyer owns the freight in transit and usually files the claim against the carrier. Under FOB destination, the seller still owns it and files. Under Incoterms, the rule's delivery point marks where risk passes. Carriers don't choose these terms, but they meet their effect when a claim arrives from a party they never dealt with directly.

Basic words that get mixed up

Some disagreements start with the most basic words. A shipper sends the freight; a carrier hauls it; a broker arranges the move between them without hauling it; the consignee receives it. Our guide to carrier vs shipper (coming soon) sorts out who's who and who's responsible for what. And freight vs shipping (coming soon) explains why a pallet of goods is freight and a small parcel usually isn't.

Where each term shows up on paperwork

If you're making a bill of lading, the bill of lading generator has a freight charge terms selector for prepaid, collect and third party.

What proves the terms

When two parties disagree about who pays or who owned the freight, the document that holds the term decides it. A blank freight terms box on a BOL, or an Incoterms rule without a named place, invites a dispute.

Freight terms meaning for small shippers

Small shippers often meet freight terms for the first time on a customer's purchase order. Before you agree, ask three questions. Who pays the freight, and how will it be billed? Where does ownership pass, and so who files a claim if something breaks? And what does the price include: liftgate, residential delivery, appointments? Put the answers on the purchase order and the bill of lading, the same way on both.

Freight terms for new carriers

New carriers meet freight terms on their first load and on every one after. The terms that matter most to a carrier are the ones that decide who pays you and when: the bill-to party on direct freight, the payment terms in the broker-carrier agreement, and every pricing and accessorial term on the rate con. Read them before you sign, and keep the signed copy with the load.

Our new authority dispatch desk walks through the terms on every rate con with you before you accept, and you approve every load. Send an application.