FCA is one of many important Incoterms. Free Carrier (FCA) means that the seller delivers the goods to a carrier or another person nominated by the buyer, at the seller’s premises or another named place. The point within the designated place of delivery should be specified by the parties as clearly as possible when using FCA shipping terms because that is the point at which the buyer assumes the risk.
Especially for containerized freight, FCA is a flexible Incoterm that can be used for intermodal transportation as well as any other mode of transportation. It can also be used for air, ocean, and rail transportation.
In this article, you can learn more about FCA.
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Table of Contents
What Is Free Carrier (FCA)?
A trade term known as “free carrier” states that the seller of goods is in charge of delivering those goods to the buyer’s specified location. When used in a commercial context, the term “free” denotes a seller’s duty to deliver goods to a specified location for transfer to a carrier. The destination is typically a warehouse, shipping terminal, airport, or another place where the carrier conducts business. Even the seller’s place of business might be there.
The seller takes on the risk of loss up until the time the carrier receives the goods and includes transportation costs in the price. The buyer now bears full responsibility.
How Does Free Carrier (FCA) Work?
No matter how many transportation modes are used in the shipping process, buyers and sellers engaged in economic trade that necessitates the shipment of goods may refer to any transportation point using FCA shipping terms. However, the point must be a location on the seller’s home territory. It is the seller’s responsibility to deliver the goods to that facility in a secure manner. A truck, train, boat, or airplane are just a few examples of possible carriers.
When the goods are delivered to the designated port or location, responsibility for the goods shifts from the seller to the carrier or the buyer. Only delivery to the designated destination is the seller’s responsibility as part of the liability transfer. Although it isn’t required, if the final destination is the seller’s property, the seller may be in charge of making sure the goods have been approved for export outside of the United States.
The seller is in charge of handling the export details and licenses under FCA shipping terms, so the buyer is not required to deal with them. Transport, however, is something the buyer must arrange. Once the goods reach the carrier and the buyer receives the title, they are recorded as an asset on the buyer’s balance sheet.
Example Of FCA
The seller delivers the goods to the location that the buyer specifies under FCA shipping terms. When the goods get there, the shipper takes ownership of them. The goods must be loaded for transportation, and this is the buyer’s responsibility.
As an illustration, Joe Seller transports goods to Bob Buyer in accordance with an FCA shipping term contract. Bob decides to use the shipper he has previously done business with. Joe acknowledges his agreement, and it is his duty to deliver the cargo to the shipper. All responsibility now belongs to Bob.
What Obligations Do Buyers And Sellers Have Under FCA?
Let’s look at what the buyer and seller are expected to do in an FCA agreement.
Sellers Responsibilities
According to FCA Incoterms, the seller is responsible for managing the entire export process for the goods they are selling. The buyer is now responsible for the cargo once it is prepared to be loaded onto the vessel. Below, we have listed the full responsibilities of the seller.
- Cargo must be packaged for export. Some nations have particular rules governing how goods must be exported. This may involve specific packaging markings or packaging design. The person in charge of this aspect must make sure the packaging complies with export laws.
- Loading Fees: These are any expenses related to loading the cargo onto the first carrier to move the goods to the export location as it leaves the seller’s location.
- Delivery to Port or Location These are the costs related to shipping the goods from the seller’s location to the specified port or location where the cargo will be exported after it has been loaded onto the truck. The port or location would typically be a seaport, an airport, or a rail port.
- Customs clearance and export taxes: the expenses and obligations related to formally exporting the cargo from the country of origin. Depending on the special clearance needed to export the cargo, this may involve customs inspections, pre-shipment inspections, or both.
When transacting under the FCA Incoterm, the seller is solely responsible for the aforementioned duties. Any request by a Seller for reimbursement for any of the above obligations shall be deemed a material breach of the Purchase Agreement. The costs for the seller to carry out the aforementioned obligations will be included in the price that the seller quotes the buyer.
Once these obligations are fulfilled, the cargo can be given to the buyer. The buyer will be entirely responsible for any risks connected to the subsequent logistics steps.
Buyers Responsibilities
The risk passes to the buyer once the cargo clears customs and arrives at the Named Place. The buyer then has the obligations listed below to complete the logistics process.
- Origin Terminal Fees: Any fees or necessities related to the port where the cargo is loaded for the main transportation phase of the process onto the chosen vessel.
- Loading on Carriage: The shipping line charges a loading fee to load the cargo onto the carriage.
- Carriage Charges: The freight cost for transporting the cargo from the port of origin to the port of destination is included here.
- Insurance: Although it is not required, it is the buyer’s responsibility to decide if they want to buy an insurance policy.
- Terminal charges at destination: Any terminal fees related to unloading, shifting, and holding the load while it waits for the official import procedure after the cargo has arrived at the port of destination.
- Distribution to Destination: delivering the goods to the buyer’s specified delivery location after being transported from the destination port.
- Destination Unloading any charges for unloading the cargo at the buyer’s specified delivery location.
- Customs clearance, import taxes, and duties: The buyer is responsible for all import-related expenses and liabilities. Duty, taxes, and any other requests from customs authorities must be complied with or paid for by the buyer in the event of inspections.
Advantages And Disadvantages For Buyers Under FCA
Advantages
EXW is the worst Incoterm for a buyer because all risk is on them, say international traders and shipping companies. With FCA, the buyer regains some control as the seller is responsible for the export formalities. FCA is significantly better than EXW when compared.
After the cargo has been formally exported from the country of origin, FCA enables a buyer to exercise complete control over the product’s transportation. The ability to manage all moving parts of the logistics process gives some buyers the impression that they can profit from this Incoterm.
An advantageous Incoterm is FCA when buyers frequently buy containerized goods and they have a reliable third-party logistics provider or freight forwarder they can rely on. With FCA, the buyer is in complete control of all logistics-related expenses following the official export. As a result, they can rely on their shipping service provider to find the most affordable option for moving their cargo from the port of origin to the final destination.
The FCA Incoterm will be chosen by buyers when they are certain that their shipping service provider can outbid the loading prices put forth by the seller.
Disadvantages
For ocean shipments, there is a reason FCA is less popular than FOB. The buyer must take additional steps at the port of origin under FCA, and as a result, the buyer is responsible for terminal and loading expenses. Although the buyer has no problems paying these costs, there is inefficiency if there is a problem. The best party to handle a problem that arises during shipping depends on whether the cargo is in the country of the seller or the buyer.
There is a reason why the International Chamber of Commerce only advises using this Incoterm with containerized shipments. In the majority of containerized shipment transactions, the container will be transported from the seller’s warehouse to the terminal. In this instance, the terminal is the Named Place, and as a result, the risk transfer occurs after the cargo has completed the export procedures. The transfer of risk, however, happens once the truck reaches the destination if FCA is a quoted Incoterm and the buyer requests that the cargo be shipped to a Named Place other than the port, like a forwarder’s warehouse. In this case, the buyer would be responsible for paying the costs associated with unloading the shipment at the warehouse of their forwarder in addition to paying the associated costs associated with export documentation, terminal fees, and carriage loading fees.
There isn’t much of a difference between FCA and EXW shipping if the cargo isn’t transported from the factory to the vessel directly.
FCA challenges the status quo in some nations, including China. The majority of sellers will agree with buyers who are adamant about buying under FCA terms, but there is an interesting trend among Chinese sellers to quote under FOB terms. Therefore, even though FCA is not significantly different, using it may have the drawback that sellers may not be as familiar with the procedure. Where both the buyer and seller have the most experience is frequently where the best Incoterm is used when exporting goods from any nation.
When Should A FCA Agreement Be Used?
If most of the following criteria can be satisfied, that is the only situation in which a buyer would want to take FCA into account:
- The cargo they are shipping is containerized
- They have existing knowledge of the logistics process and requirements in the sellers country, or they are using a shipping service
- Their seller values FCA just as highly as FAS or FOB.
- Instead of going to the shipping service provider’s warehouse, the cargo is transported directly to the export terminal.
The Incoterm FCA is a viable choice if the aforementioned four requirements can be met.
FCA Vs. FOB
Shipment terms FCA and FOB are utilized in various forms of transportation. Only sea shipments fall under the purview of FOB delivery, which takes place when the cargo is loaded onto a ship. The seller is in charge of the goods that are delivered from a warehouse to the watercraft. Many more forms of transportation are permitted under FCA. Once the goods have been loaded onto a buyer’s vehicle, the supplier is typically required to issue an export declaration.
FCA Vs. DDP
The cost of transportation is the vendor’s responsibility under DDP shipping terms. Additionally, until the goods are delivered to the buyer, the vendor typically assumes all risks and liabilities related to their transportation. Since they choose the carrier, buyers typically foot the bill for FCA shipping terms.
Are FCA Agreements for China Importing Good?
The FCA agreement is generally not the best one to use when importing from China unless you fall into the above category. Because they primarily rely on one important Incoterm, FOB, factories in China are able to export goods so frequently and effectively. Therefore, it is best to stick with what works rather than trying out other terms to see if there is a valid reason why FOB is not the best option for your shipment unless there is a good reason why it is not.
We can suggest this if you are an importer looking to try FCA for your upcoming shipment from China. First, find out if your factory feels comfortable quoting FCA. Second, get in touch with your China freight forwarder or a China third-party logistics provider and ask them to assist you in comparing FCA and FOB.
Additionally, China freight insurance is always a smart investment, regardless of which incoterm you ultimately choose to use. It is a small price to pay to prevent catastrophic loss or supply chain disruption.
Final Thoughts
Free carrier is a commercial term that mandates the delivery of goods by the seller to a named airport, shipping terminal, warehouse, or other carrier location that the buyer has specified.
The seller takes on the risk of loss up until the time the carrier receives the goods and includes transportation costs in the price.
Contrarily, in FCA shipments, the buyer is in charge of the main mode of transportation, the payment for the goods, and the loading fees. Import taxes, duties, and formalities are all paid for by the buyer.
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