Freight Rebates

A refund of a portion of previously paid transportation charges, usually in return for the shipper´s tendering a certain volume of freight to the carrier. This practice is illegal in some countries, such as US. This can have the unintended consequence of making legitimate claims against carriers difficult, since they must be fully documented to prove that they are not actually rebates in disguise.

The granting of a freight rebate to the shipper is not uncommon in the highly competitive transport industry. The grant can be legal or illegal.

The commission of the freight forwarder is about 2% to 5% in ocean freight and about 10% in air freight. It is legal for the forwarder in air freight to pay back the shipper portion of the commission it earns from the carrier, but such a payback may be deemed illegal in ocean freight. For example, if an airline quotes a freight rate of US$1,000 for a consignment and the commission of a forwarder is 10% (or US$100), the forwarder may quote the shipper US$950, the US$50 (or 5% of US$1,000) difference represents the payback by such forwarder.

In countries where exporters customarily deal directly with the shipping line in ocean freight instead of dealing with the forwarder, it is not surprising that most exporters prefer to deal with the forwarder in air freight instead of dealing directly with the airline, in order to take advantage of the payback.

Liner freight rebate systems or Loyalty arrangements are the means that have been devised to secure the continued and exclusive patronage of shipper to the conference lines. The purpose is to eliminate competition.

The rebate systems in operation are

Deferred Rebate

The rebate is calculated on the freight cost during a designated period called the shipment period of usually 3 to 6 months, but is paid after the same period of time (deferred period) following the shipment period on the condition that the shipper will continue to use the conference line for all his shipments during the shipment period and deferred period.

Dual rate system

If the shippers sign a contract with conference for exclusive patronage, they get the benefit of rates which are lower than the rates applicable to non-contract shippers.

Immediate rebate system

Under this system the contract shippers are given immediate rebate on the freight on shipment of their cargoes. So shippers get their money rebate without any deferment.