Should I Use Prepaid or Collect Shipping in Walmart?

In this article, learn about:

• Shipping Collect and Prepaid in Walmart

• The key differences between Prepaid and Collect freight terms

• How to choose the right freight term for your business

• The pros and cons of both Prepaid and Collect freight terms

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There are many options for freight in the modern retail space. Third-party logistics companies (3PLs) offer full truckload shipping, less than truckload, and a variety of complex mixes between the two. Some customers, such as Walmart and UNFI, can even arrange to come and pick up your orders from your warehouses because they have large enough fleets.

The National Motor Freight Classification (NMFC) breaks truck shipping down into two major categories of freight: “Prepaid” and “Collect”. These designations are expressions of transportation, not billing, indicating which entity in a business transaction is responsible for shipping the freight.

Prepaid freight does not imply that one of the party’s involved demands payment in advance of an order or shipment, and Collect shipments are not necessarily invoiced upon delivery. These terms simply indicate who is liable for the transportation of the freight in question.

Shipping Collect or Prepaid in Walmart

Suppliers working with Walmart face numerous logistical challenges, ranging from deductions to compliance with stringent shipping guidelines. Because of the size of Walmart's fleet, one of the first critical decisions a new supplier must make is: How should we fulfill Walmart purchase orders—Prepaid or Collect?

At first glance, this decision may seem straightforward. Who should cover the freight costs, Walmart or the supplier? However, several nuances make this choice more complex. Let's explore the differences between prepaid and collect freight terms and how they can impact your business.

Related Reading: Walmart's New Fuel Management Program

What's the Difference Between Prepaid and Collect Freight?

With prepaid freight terms, the supplier is responsible for choosing the carrier, handling all purchase order routing, and assuming the cost of transporting the goods. Conversely, with collect freight terms, Walmart is responsible for scheduling the carriers and transporting the product. Walmart is also responsible for the cost of transporting the goods.

How to Choose Between Prepaid and Collect?

Choosing between Collect and Prepaid might seem like an easy decision. After all, why would a supplier choose Prepaid Freight terms if it only means a higher cost and additional operational requirements? The answer lies in understanding Walmart's Freight Factor, a key metric used to estimate the transportation cost of a supplier's goods.

For Collect suppliers, the Freight Factor is typically absorbed by the supplier through a lower-cost quote. This means that while Walmart manages the shipping, the supplier still indirectly pays for transportation through reduced margins.

On the other hand, with Prepaid terms, suppliers handle and pay for the shipping themselves. Since the supplier directly incurs the transportation cost, they factor these expenses into their pricing, typically resulting in a higher quote to Walmart. Ultimately, the Freight Factor helps Walmart ensure transportation costs are accounted for, regardless of the chosen freight term.

When suppliers use Prepaid freight, they pay for the carrier or 3PL charges, sometimes incorporating those costs into their invoices and/or supplier agreements with the buyer or retailer. In addition to transportation charges, 3PLs and carriers may also charge for "accessorial services," for which the sellers will also be responsible.

Related Reading: Staying Calm and Collected with Walmart's Collect Pickup Program

Pros and Cons of Prepaid Freight

Pros:

• Full control over logistics: Manage carrier selection, routes, and shipping schedules for greater flexibility.

• Opportunity to negotiate: Choose from a wide range of carriers and renegotiate terms for cost savings.

• Leverage 3PL providers: Outsource logistics to third parties who compete for your business, ensuring competitive rates.

• Flexible pricing: Control shipping costs and pass them on to customers, potentially increasing profits.

Cons:

• Full responsibility: You are liable for missed delivery windows and any fines incurred.

• Strict management of MABDs: Ensuring carriers and 3PLs meet Walmart's Must Arrive By Dates is crucial to avoid penalties.

• Need for careful selection: Choosing the right carrier or 3PL requires extensive research and careful vetting.

• Ongoing performance monitoring: Constantly tracking logistics performance may require creating a dedicated department, increasing overhead, and reducing profits.

• Accessorial Service Fees: Sometimes 3PLs will charge accessorial service fees for Before the Fact and After the Fact services.

Pros and Cons of Collect Freight

Pros:

• No responsibility for delivery issues: Your only obligation is to have orders ready for shipment, reducing compliance risks and fines.

• Less workload and overhead: Shipping is handled by the customer, freeing up resources and reducing the need for additional employees.

• Stable transportation costs: Freight terms are often locked in annually, eliminating the need for constant negotiations and minimizing cost fluctuations.

Cons:

• Lack of control: You have no control over shipping costs, carriers, delivery times, or compliance, limiting your ability to negotiate better terms.

• Reduced payment: Transportation costs are deducted from what customers pay you, and you're typically locked into annual terms, even if cheaper options arise.

• You have no control over delivery timing: You can't ensure on-time delivery, which can affect in-stocks, shelf availability, and lead to lost sales.

• Limited supply chain visibility: Less insight into the logistics process, impacting overall supply chain management.

Related Reading: Should I Use Prepaid or Collect Freight?

Prepaid Freight: Requirements and Best Practices

Prepaid suppliers take on more "hands-on" responsibilities compared to Collect suppliers. They are fully accountable for choosing a carrier, negotiating transportation costs, and overseeing the entire lifecycle of purchase order fulfillment—from receiving the order to ensuring it arrives at Walmart's distribution centers.

These extra steps add to the supplier's operational workload, increasing their "soft costs," such as the additional labor required to manage Prepaid freight. This added human capital directly impacts the supplier's bottom line.

So, what are the best practices for Prepaid Suppliers? First and foremost, suppliers need to understand what is expected of them. Walmart has strict requirements for On-Time In-Full order fulfillment.

Related Reading: 2024 OTIF Performance Metrics

Prepaid suppliers are responsible for every aspect of the purchase order lifecycle, exposing them to more potential errors. To mitigate this risk and meet Walmart's OTIF requirements, suppliers should implement repeatable processes to streamline operations and reduce variability. Standardizing procedures can significantly improve efficiency and help ensure compliance.

Best practices for Prepaid suppliers include:

• Acknowledging receipt of purchase orders promptly

• Scheduling carrier pickups

• Picking and packing products accurately

• Ensuring carriers arrive during their scheduled pickup windows

• Monitoring delivery status and securing documentation (bill of lading, proof of delivery)

• Conducting lead time audits to ensure accurate lead times are in place

• Addressing any delivery exceptions internally and with external partners to continuously improve operations

The OTIF benchmarks that fall under a Prepaid supplier's responsibility include:

• Delivering orders "not in full"

• Early or late deliveries

• Deliveries without a DC appointment

Collect Freight: Requirements and Best Practices

In contrast, Collect suppliers only "own" the purchase order until Walmart's carrier picks up the goods. This may seem like a simpler, hands-off option, but Collect freight comes with its own set of challenges and responsibilities. Suppliers must still follow specific procedures to avoid OTIF fines, known as being "Collect Ready."

Some of the procedures and requirements for Collect suppliers are:

• Acknowledging receipt of a purchase order and submitting a request for routing from Walmart Transportation within 24 hours of PO receipt.

• Receiving routing instructions from Walmart Transportation and ensuring the orders are picked and packed before the scheduled pickup date.

• Communicating any late carrier arrivals with Walmart Transportation for resolution.

While Collect suppliers aren't directly responsible for early or late deliveries, these issues still impact the overall OTIF score. Even if you avoid fines, repeated delivery issues can strain relationships with Walmart's Buyers and Replenishment teams. Suppliers are still responsible for working with Walmart Transportation to resolve persistent delivery issues.

As with Prepaid terms, reducing variability and implementing consistent internal procedures is key to improving OTIF performance. Streamlined processes not only help reduce delivery fines but also ease the workload for fulfillment teams.

Related Reading: Shipper Load/Shipper Count (SLC) and Shortage Deductions at Walmart

Recapping Collect vs. Prepaid at Walmart

Walmart suppliers face numerous challenges, and selecting the right freight terms can significantly impact operational efficiency and help avoid OTIF fines. Whether you choose Prepaid or Collect terms, consistency in procedures, clear communication with Walmart, and a deep understanding of OTIF requirements are crucial to maintaining a successful partnership.

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