Freight Collect on B/L: Who Pays When the Buyer Refuses?

You sell FOB. The buyer arranges shipping. You mark the Bill of Lading as "Freight Collect" so the carrier bills the buyer at destination. Simple enough.

Then the buyer refuses to pay freight. The carrier holds your cargo. And now they're looking at you for payment. This guide explains why Freight Collect doesn't guarantee the buyer will pay, and what you can do to protect yourself.

What do Freight Prepaid and Freight Collect actually mean?

These terms on a Bill of Lading indicate who the carrier will bill first for transportation charges. Freight Prepaid means the shipper pays before or at the time of shipment. Freight Collect means the consignee pays upon delivery at destination.

According to the National Motor Freight Classification (NMFC) and standard ocean carrier terms, these designations tell the carrier where to send the invoice. They do not, by themselves, create a binding payment guarantee from the party being billed.

The connection to Incoterms is straightforward:

• FOB, FCA, FAS → Buyer arranges freight → typically Freight Collect

• CFR, CIF, CPT, CIP → Seller arranges freight → typically Freight Prepaid

But here's where sellers get caught: the Incoterm defines who arranges and pays for freight under the sales contract. The B/L marking defines who the carrier will invoice. These are two different things.

What happens when the buyer refuses to pay Freight Collect charges?

The carrier exercises a lien on the cargo. This is a legal right that allows carriers to hold goods as security until freight charges are paid. The cargo sits at the port or terminal while storage fees accumulate daily.

According to Freightos and standard carrier terms, a carrier's lien applies to shipments covered by a Bill of Lading and comes from common law. The carrier can refuse to release the cargo to anyone until payment is made. In some cases, if charges remain unpaid long enough, the carrier may even sell the cargo to recover costs.

But it doesn't stop there. If the consignee won't pay, the carrier often turns to the shipper. Under U.S. transportation law, as established in Oak Harbor Freight Lines v. Sears Roebuck & Co. (9th Cir. 2008), both the shipper and consignee can be held liable for unpaid freight charges, regardless of whether the shipment was marked Prepaid or Collect.

The court stated what carriers consider a fundamental principle: "The bedrock rule of carriage is that, absent malfeasance, the carrier gets paid."

Why does the shipper remain liable even with Freight Collect?

Under standard Bill of Lading terms, the shipper is primarily liable for freight charges unless they specifically sign a "non-recourse" provision. This is often called Section 7 on the Uniform Bill of Lading in the United States.

According to transportation attorney Miles L. Kavaller, "If the bill of lading specifies nothing further, both the consignor and the consignee are liable for the payment of the carrier's freight charges. If the consignor does not pay, the carrier may collect from the consignee. And this is true, regardless of whether the freight charges are prepaid or collect."

The legal theory is that both parties benefit from the carrier's services. The shipper gets their goods transported. The consignee receives the goods. So both can be held responsible for paying for that service.

Key points on shipper liability:

• Marking "Freight Collect" tells the carrier who to bill first, not who is ultimately responsible

• Without signing Section 7 (non-recourse), the shipper remains liable as a backup

• Even if you paid a freight broker who then failed to pay the carrier, you may still owe the carrier directly

• Courts have consistently ruled that "payment to an intermediary is not payment to the carrier"

How can sellers protect themselves on Freight Collect shipments?

The sales contract, not the B/L, is where you establish payment security. Confirm freight payment terms explicitly before shipment and consider building in safeguards for Freight Collect arrangements.

Practical options include:

• Collect freight deposit upfront — Have the buyer deposit estimated freight costs with you or directly with the carrier before shipment

• Include freight in L/C terms — If using a Letter of Credit, structure it so freight charges are covered or guaranteed

• Use Freight Prepaid and add to invoice — Pay freight yourself, then bill the buyer. You control the payment instead of relying on them

• Sign Section 7 (non-recourse) — In the U.S., signing this provision on the B/L can release you from liability if the consignee doesn't pay. But carriers may not accept this for all shipments

For high-value or first-time buyers, Freight Prepaid with costs added to the commercial invoice is often safer than trusting a Freight Collect arrangement.

Quick reference: Freight Collect risk checklist

• Freight Collect means the carrier bills the consignee — it does not guarantee payment

• If the consignee refuses to pay, the carrier can hold cargo under a lien

• Storage and demurrage fees accumulate daily while cargo is held

• The carrier can pursue the shipper for unpaid charges under U.S. law

• Without signing Section 7 (non-recourse), shipper liability remains

• Confirm freight payment method in your sales contract, not just the Incoterm

• Consider collecting freight costs upfront for Freight Collect shipments