International buyers and sellers face challenges in determining liability and responsibility throughout the shipment process. To simplify global trade, in 1933 the International Chamber of Commerce (ICC) standardized global shipping in 1933 by introducing Incoterms®.
Incoterms® are referred to as International Commercial Terms. They are a set of rules published by the International Chamber of Commerce (ICC) which relate to International Commercial Law. According to the ICC, Incoterms® rules provide internationally accepted definitions and rules of interpretation for most common commercial terms used in contracts for the sale of goods.
The FCA Incoterm® allows sellers to pass responsibility to buyers at a designated place, usually in the seller’s country before the products will be exported. In this article we look into how FCA works and its advantages for global transactions.
What does FCA mean in shipping terms?
FCA stands for “Free Carrier” and makes up 1 of the 11 Incoterms® currently used under Incoterm®2020 rules. This Incoterm® is designed to provide flexibility across various modes of transportation, including air, sea, or land, making it adaptable to a wide range of shipping needs.
A seller can deliver products using FCA as the agreed Incoterm®, where the goods will be delivered to a predetermined place, often within the seller’s country. When the goods are delivered to that specified location, the seller’s cost and risks are the transferred onto the buyer. The buyer or the buyer’s freight company will arrange the handling and transportation.
The FCA term can simplify complex shipping arrangements by clearly defining the point of handover and the transition of responsibilities. It allows buyers to have more control over the shipping process, particularly in managing costs and logistics from the agreed handover point.
Stating FCA Incoterm® on Documentation
To avoid any misunderstanding, buyers and sellers must clearly state the agreed Incoterm® on the relevant sales & purchasing contracts, and export documentation. It is imperative that buyers and sellers check sales contracts to ensure that the Incoterms® edition year is included. If there is no year stated then the following will apply:
- Up to 31st December 2019 – Incoterms® 2010
- From 1st January 2020 – Incoterms® 2020
- If a different year is stated (for example Incoterms® 1990), then the respective terms will apply
The below is the structure that should be used on sales contracts:
- [Incoterm® rule] [Named port of destination/place/point] Incoterms® 2020
- FCA Qingdao, Incoterms® 2020
What Does the FCA Incoterm® Include?
Under the FCA Incoterm®, besides transporting the goods to the agreed-upon location, the seller is also responsible for handling all necessary export formalities.
Seller’s Obligations
First and foremost, the seller is required to deliver the goods to named the place of delivery.
The seller must ensure the goods are properly packaged and ready for further handling or transportation. The seller’s responsibility includes the proper export packaging of goods, which involves adequately packing the items for shipment. The seller is responsible for loading the goods onto the carrier, and the seller covers the loading and transport process as the risk remains with the seller until the goods are delivered to the named location.
The seller must handle all export formalities and documentation. This includes obtaining any necessary export licenses and submitting the required information for exporting products, to ensure that the goods can be exported.
Once the goods are delivered to the location, the seller should provide applicable export documentation, including a commercial invoice, packing list and any other applicable documents.
Buyer’s Obligations
In FCA (Free Carrier) agreements, once the seller has delivered the goods to the named location, the buyer’s obligations begin. The buyer will then be responsible for all transportation charges from this point to the final destination.
This includes dealing with any potential losses or damages once the goods have been loaded onto their chosen carrier. The buyer also handles the sea or air carriage charges, including International freight and any subsequent fees incurred to deliver the shipment to the final location.
The buyer will also cover all of the costs involved in the import process, including arranging customs clearance, paying any applicable duties and taxes, and ensuring compliance with all rules and regulations in the destination country.
FCA Advantages and Disadvantages for the Buyer
The FCA shipping term has advantages for buyers in global trade. It gives buyers more control over the shipment and allows them to choose the best transportation option. With FCA, buyers have less reliance on sellers for the International logistics process.
Advantages:
- Control Over Shipping Costs: One significant advantage for the buyer under FCA terms is the increased control over the shipping process and costs. Since the buyer arranges for the transportation from the designated location, they can choose the most cost-effective and reliable shipping options available.
- Flexibility in Transport Choices: FCA is versatile, allowing use across various transport methods—whether air, sea, rail, or road. This flexibility lets the buyer select the mode that best suits their timing, budget, and logistical needs.
- Reduced Seller Interference: The buyer handles the major parts of the logistics process after the goods are loaded, which minimizes dependence on the seller. This arrangement can lead to smoother operations, especially when buyers have established relationships with reliable carriers or logistics providers.
Disadvantages:
- Increased Responsibility: With greater control comes more responsibility. The buyer must manage all aspects of transportation, customs clearance, and handling from the moment the goods are loaded. This can be a considerable burden, particularly for those without extensive experience in international shipping.
- Risk of Transport and Compliance Issues: Since the risk transfers to the buyer once the goods are delivered to the location, any damage or loss during transit falls on the buyer. Moreover, the buyer must ensure compliance with all import regulations and duties in the destination country, which can be complex and requires thorough understanding of customs processes.
- Potential Higher Costs: While FCA can provide opportunities to reduce shipping costs, it can also lead to higher expenses if not managed properly. Inefficient coordination or selecting unreliable carriers can result in delays and added costs.
When Should you use FCA in Sales Contracts?
Choosing when to use an FCA (Free Carrier) agreement depends on several factors that impact the efficiency and cost-effectiveness of shipping. FCA is most suitable when the buyer is certain that their provider can offer more competitive or reliable transport than those available through the seller.
Typically, this confidence is supported by the buyer’s strong, established relationships with freight forwarders, ensuring that the goods will be delivered efficiently and on time. Here are additional situations where FCA is useful:
- Buyer Has Reliable Transportation Contacts: If the buyer already has established relationships with reliable carriers or logistics providers, FCA can be more beneficial. This setup allows the buyer to leverage these relationships to manage transportation efficiently and potentially at a lower cost.
- Containerized Shipments: FCA is suitable for shipments that are containerized. This term allows the buyer to control the container once it has been loaded, reducing the risk of delays that might occur if the seller were to arrange further transportation.
- Detailed Control Over Shipping: Buyers who prefer to have detailed control over the logistics of their shipments might favor FCA. Since the buyer arranges for transportation from the named place, they can manage the timing, routing, and overall handling of the cargo more effectively.
- Clear Transfer of Responsibilities: FCA clearly defines the point at which responsibility and risk transfer from the seller to the buyer. This clarity is useful in planning and insurance, as the buyer knows exactly when they become responsible for the goods.
What Is The Difference Between FCA And FOB?
The difference between FCA (Free Carrier) and FOB (Free On Board) Incoterms® lies in the point at which the responsibility and risk transfer from the seller to the buyer.
FCA is more flexible regarding the point of delivery and is used across all transport modes, making it more adaptable to modern logistical practices, especially in container shipping. FCA does not cover any terminal charges or loading on carriage charges at origin.
FOB takes the process further, by the seller covering the terminal and loading on carriage charges, thus covering the risk and costs up to when the goods are ‘loaded on board’ the vessel for export.
FCA (Free Carrier):
- The seller fulfills their obligation when they deliver the goods, cleared for export, to the buyer or carrier at the named place. This place could be the seller’s premises or another location (e.g. a warehouse or terminal).
- The seller is responsible for loading the goods if the delivery occurs at the seller’s premises. If the delivery occurs at any other location, the buyer handles the loading.
- It is suitable for all modes of transport, including multi-modal.
FOB (Free On Board):
- The seller fulfills their obligation when the goods have passed the ship’s rail at the agreed port of shipment. This means the seller is responsible for goods until they are loaded ‘On Board’ the vessel. The buyer assumes the risk once the goods are on board the ship.
- FOB is only suitable for sea or inland waterway transport.
- The seller handles all the costs and risks involved in bringing the goods to the port and loading them onto the vessel.
Does FCA Include Customs Clearance?
In a FCA (Free Carrier) agreement the seller is responsible for the export customs clearance, whereas the buyer is responsible for the import customs clearance process:
- Seller’s Responsibility: The seller is required to handle all the export formalities. This includes preparing and submitting the necessary documents for exporting the goods from their country, paying any applicable export fees and ensuring that the goods clear customs on the export side.
- Buyer’s Responsibility: Once the goods have been handed over to the named place, the buyer is responsible for import customs clearance. This involves managing all the necessary documentation, paying any applicable import duties & taxes, and ensuring the goods comply with the regulations of the destination country.
This is general information for guidance purposes only. IncoSolutions Pty Ltd is not responsible for these contents nor do the contents listed above contain all details. For a full and complete description refer to the full version of Incoterms®2020 by the International Chamber of Commerce at the ICC website.
Resources
- Purchase the official Incoterms® 2020 book from the International Chamber of Commerce
- Incoterms® 2024: Guide, and changes of Incoterms® Explained
- Incoterms® 2020 Explained – The Complete Guide
- How the Electronic Bill of Lading Improves the Shipping Process
- Bill of Lading meaning and types used in Global Trade
