In everything that I have done personally, it seems that the buyer always pays the shipping. I’m curious to know if this works between businesses as well. For example, if you were to sell a product to Wal-Mart, QVC, etc, would the seller charge the buyer for shipping? Or does the seller absorb that as part of the cost of getting their products on to the shelves of other stores? I realize there is no blanket answer for this question, because relationships can vary between businesses. I guess I am trying to find out what the typical expectations are for shipping costs between businesses. Maybe there are no expectations, and it is negotiable on every transaction? Any insight or personal experiences would be appreciated. Thanks!
It depends. Shipping prices can often be a significant part of the negotiation, especially if you’re talking a Wal-Mart sized order.
Most wholesalers have a certain minimum order after which they’ll pay for the shipping. Often, that minimum is a case, pallet, container or some other lot size that makes the shipping per unit more feasible.
International shipping is sometimes split - the domestic wholesaler might ship to a foreign customer’s domestic receiver. The receiver then bundles up multiple orders for a big shipment overseas. The wholesaler probably pays the shipping to the receiver and the final customer pays for the overseas leg of the trip.
But there are plenty of businesses making orders where the buyer pays for the shipping just like a typical consumer would.
It varies, but generally the buyer pays for the shipping. Of course, it is negotiable, everything is.
It would really depend on the relationship between the companies, the cost of the shipping, etc. As a business owner, if I needed to get something from Amazon, I’d probably pay the shipping unless it qualified for free shipping. But really, since these all just translate into costs for an item, the buyer is going to pay for it in the end, even if it is not explicitly called out on the invoice.
The shipping agreements can be as tricky and as complicated negotiations as price and terms are. I know that for our company (distribution of some heavy stuff) we require that smaller items must use our UPS account, because we have negotiated a good price with UPS. Big stuff (like cargo loads from asia) we try to bundle with sister companies and share the cost.
Say it with me, INCOTERMS!
The buyer pays for the shipping, whether it is explicitly paid for as a line item, or implicitly imbedded in the price of the goods (i.e. a delivered price) the buyer pays for the shipping. You get nothing for free.
Industrial ordering of small quantities of parts, materials, instruments, and the like generally involves the buyer paying shipping, but buyers may special deals with some shippers. Also, in smallish quantities, credit cards are common, often replacing the traditional “purchase order” or “PO”.
We buy a lot from suppliers. We always pay the shipping, whether it’s itemized separately on the invoice or not.
While this is true in the big picture, the issue of who pays shipping can make a big difference in how the cost is distributed among the buyers.
It isn’t unusual for large purchasers like Wal-Mart or Amazon to demand terms and shipping discounts that smaller outfits can’t; looking at it the way you have, the mom-and-pop stores are actually subsidizing their competition.
As Dracoi says, it depends.
The shipping terms are usually described by the F.O.B. point. FOB is a freight term used in the industry that means Free On Board. That is to say, the point up to which the freight has been paid by the supplier.
A contract with terms that are FOB destination means that the freight is paid up to the point of delivery at the customer.
FOB source means that the price is for pick up at the manufacturer using your own prefered shipping method, or if you want the manufacturer to ship and show the freight cost as a separate line item on the billing.
There are pros and cons for using each kind of agreement.
With an FOB destination contract a buyer can rely upon the steady freight price of the commodity over the period of the contract. Shipping costs to the bottom line are .10/lb and will remain that over the course of the contract, for example. If shipping costs rise it cuts into the supplier’s or shipper’s profit, not the buyer’s. If a truck shipment has cost $3000 per trip for years, the trucking company may build in $3300 as the contract price, and maybe make a few dollars. But if the trip cost goes to $4000 before the conract can be renegotiated, well the shipper will either lose money or break even. The shipper/supplier must budget the cost over time and the receiver is paying a higher average price in order to buffer against possible cost increases. But the buyers price remains steady.
Or you could negotiate a FOB supplier contract. Meaning you pay whatever freight gets billed to you and suffer not only the rise and fall of your personal product line’s cost, but the shipping market too. You will be at the mercy of the freight and fuel market on your own. But you might save some money if shipping costs go down. And you can show that a rise in shipping costs is affecting profitability.
In practice it tends toward sales/marketing/budgetary suicide to go with anything other than a FOB delivered cost. You want to have a predictable freight cost for your product. Let the shipping companies worry about their costs.
I believe the FOB point is even more important, as it determines who is responsible for the shipment (in the event of loss/damage).
Thanks for the replies and links. It seems to be much more complicated than I expected.
I frequently see items offered online with Free Shipping! And stories I have seen recently indicate that this holiday season, offering free or discounted shipping will be a major item for online sellers, competing with brick-and-mortar businesses. Looking at NewEgg.com today, they have 3 pages of deals – all with free shipping.
That’s true but that’s e-com which is generally considered to be to consumer not to business.
I think the OP was asking more about when a company buys from a mfg/wholesaler/distributor.
I work in electronic component distribution, and as said above, it varies.
From our suppliers - If the parts are shipping as part of a standards weekly, bi-weekly, monthly, etc. shipment, then the transportation costs are usually not a seperate cost. If we need to have the parts shipped rush, or shipped air instead of ground freight, then we pay the shipping costs. Usually it is billed directly to our Fedex/UPS account.
To our customers - Standard is customer is billed for shipping. It’s not uncommon for the larger customers to negotiate that freight costs are included in our piece cost (not billed seperately). In these cases, if the customer decides that they need to have the parts faster then standard shipping (say they forgot to order a part), then we bill them for the overnight charges.
Maybe I’m misunderstanding you, but it sounds like you’re seeing only the tip of the iceberg if you think e-commerce only refers to consumer purchases. Businesses were implementing EDI/EFT (Electronic Data Interchange and Electronic Funds Transfer) long before the web made electronic purchasing feasible for consumers. I have heard many conflicting figures, but B2B transactions dominate e-commerce.
It may be that FOB is used this way in your experience, I don’t know. But ""FOB destination is an oxymoron and a perversion of INCOTERMS.
FOB means Free on Board and it refers to a contract in which (simplifying greatly) the seller pays the charges to get the goods to the primary transport (historically, a ship) but not for their transportation after that point, or anything further. It is to distinguish from CFR or CIF or similar, where the seller doesn’t merely get the goods on board the transport, but organises and pays the freight for the transport.
It’s how the term is typically used in the industry. Sure, you could use it in a broader sense, but most people don’t, just like most people will look at you funny if you say you do EDI but in reality it’s ftp of a csv file that doesn’t follow one of the edi document standards (e.g. ansi x12).
I know, I’ve been writing those systems (as well as to consumer systems) for a long time.
Before the web we used phone automated-order entry systems (in addition to human order takers). After the user would punch in their account and the product they wanted (limited products available this way), the system would transmit the orders to the automated credit card processing system which would then spit out pick tickets in the dc once the auth came back. That was a fun project.
FOB destination is a term I’m familiar with also, so I just looked at wiki and it looks like it’s a North American thing.
I have worked in B2B for many years (HK, UK, Ireland, US) and the buyer has always paid shipping in my experience.