Freight In vs. Freight Out – Simplified for Business Owners

Shipping costs affect more than your delivery budget. They also affect product costs and profit reports. If you are asking what is freight out, the answer starts with your role in the sale. Your business may pay to receive goods, deliver goods, or both.

What Is Freight Out

Freight out is the shipping cost a seller bears to deliver goods to a customer. Businesses also call it delivery expense or outward freight. For example, a wholesaler records freight out when it pays a carrier to send an order to a retailer.

The OpenStax explanation of freight costs describes freight out as a seller’s delivery cost. In a standard merchandising example, the seller records this cost as a selling expense in the current period (Franklin et al.).

What Is Freight In

Freight in is the transport cost a buyer bears to acquire goods for resale or production. For an importer, this may include shipping purchased stock from a supplier to its warehouse.

The IFRS Foundation’s IAS 2 standard includes directly related transport and handling in inventory purchase costs. These costs generally remain in inventory until the goods sell. They then become part of the cost of goods sold, or COGS (IFRS Foundation, pars. 11, 34).

A business sourcing products overseas can review Efan’s sea freight from China to the USA when planning this inbound stage. Its shipping budget should cover the agreed route and services.

How the Two Costs Compare

This table shows the common approach. Financial statement presentation can differ. IAS 2 allows distribution costs within cost of sales when the business’s circumstances support that presentation (IFRS Foundation, par. 38). Owners should separate inventory costing from the choice of expense heading.

Owners should not classify a charge only by the direction of a truck. The same journey is outbound for a supplier and inbound for its customer. The cost belongs in each company’s records according to its own obligations. A seller’s paid delivery charge does not automatically become a separate buyer expense.

A Simple Business Example

Consider a fictional importer that buys 100 identical lamps for $2,000. It also pays $300 to transport them to its warehouse. This example excludes taxes, duties, and other charges.

The importer records $2,300 in inventory. Each lamp therefore costs $23, including $3 of freight in. If the importer sells 40 lamps, it moves $920 into COGS. The remaining 60 lamps stay in inventory at $1,380, assuming no loss in value.

The importer then pays $80 to deliver the 40 sold lamps to a shop. That payment is freight out. Under the selling expense approach, the business records the $80 separately from the $920 product cost.

If those lamps sell for $1,400, gross profit is $480 under this approach. After outbound delivery, $400 remains before other expenses. This amount is not net profit.

How Owners Can Manage Freight Costs

Owners should check who bears each transport charge before confirming an order. A shipping invoice alone may not explain the full agreement. The purchase order and sales contract should state the delivery location and payment responsibilities.

Businesses should also keep inbound and outbound freight records separate. Each record should identify the order, shipment, carrier, and charge. This practice helps staff match bills to goods and compare actual spending with quotes.

Before comparing quotes, owners should ask whether fuel charges, handling, and delivery appointments are included. They should also check shipment weight, carton sizes, and the receiving address. A lower base rate does not necessarily mean a lower total transport bill.

For smaller customer shipments, owners can assess Efan’s LTL freight services. LTL means less than truckload. It allows shipments from different customers to share truck space. Owners should compare the full quote and service needs before choosing this option.

A useful monthly review compares inbound freight per unit and outbound freight per order. These figures help owners test prices and delivery offers. A free shipping offer still leaves a transport cost for someone to cover.