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- by Ivy
Free Carrier (FCA) is an Incoterm that determines the point of transfer of responsibilities and risks for goods in international trade. As with other Incoterm rules in 2020, FCA provides clarity for the distribution of responsibilities, allowing both trading parties to have a better understanding of their obligations and ensuring a smooth and efficient cargo transportation process.
It is crucial for both the buyer and seller to have a mutual understanding and agreement on the allocation of costs and obligations related to the freight under the FCA Incoterm. Keep reading, and here we will offer a comprehensive guide on the FCA Incoterm with the key aspects of Free Carrier explained in detail.
- 1. What Does FCA Mean in Incoterms?
- 2. When Should FCA Be Used?
- 3. Who Should Pay for FCA Freight?
- 4. FCA (Free Carrier): the Seller's Obligations
- 5. FCA (Free Carrier): the Buyer's Obligations
- 6. Pros and Cons of Using FCA
- 7. FCA (Free Carrier) vs. EXW (Ex Works): How Do They Differ?
- 8. FCA (Free Carrier) vs. FOB (Free on Board): What is the Difference?
1. What Does FCA Mean in Incoterms?
FCA, or Free Carrier, is an Incoterm used in international logistics and cross-border trade to describe that the seller should ship out the goods to a named carrier, a specified destination, or another designated party, as outlined in the sale of contract by the buyer. From this point onwards, the seller's responsibilities end here. And the buyer is the one who should assume risks and obligations.
2. When Should FCA Be Used?
The FCA Incoterm is a choice that can be taken into consideration when there is a need for multimodal transport. When the goods are shipped via various means, such as air, sea, and rail, it requires a high level of coordination and flexibility. And using FCA allows for flexible selection of carriers and adaptable arrangements of different modes of transportation.
When the buyer wants to gain more control over the supply chain, applying FCA Incoterm is a suitable option. Actually, the buyer has full control over the cargo transportation process under the FCA Incoterm.
When the buyer has a preferred shipping carrier in their mind, or, when the buyer is capable of arranging their own freight forwarders and shipping agents, utilizing FCA can work out well.
3. Who Should Pay for FCA Freight?
In the FCA Incoterm agreement, the buyer is the one who should be responsible for all the following shipping costs once the FCA freight has been delivered to the designated carrier/agent.
4. FCA (Free Carrier): the Seller's Obligations
As the seller's obligations are precisely outlined, we hope you reach a well-informed decision next time you need to ship internationally.
- ● Handle the required shipping documentation
- ● Pick and pack the goods so that they can be prepared for the subsequent transportation
- ● Conduct quality inspections or pre-shipment checks if there is a need
- ● Navigate the customs clearance for export
- ● Deliver the goods to a specified carrier or a named agent at the designated location
- ● Load the goodson
- ● Provide the proof of delivery
- ● Cover the costs of pre-carriage of the goods, the cargo loading charges, and export-related fees
5. FCA (Free Carrier): the Buyer's Obligations
- ● Purchase the cargo insurance (However, the insurance is not mandatory)
- ● Manage the rest shipping process till the final destination after the goods are handed over to the specified carrier
- ● Unload the goods when they arrive at the destination
- ● Clear the goods for the importing purposes
- ● Pay for the import duties and taxes
- ● Cover all the shipping costs incurred from the point when the pre-carriage of the goods is complete, including the origin terminal charges, destination terminal charges, cargo unloading fees, cargo transportation fees, customs-related fees, and more.
6. Pros and Cons for Buyers When Using FCA
Pros of Using FCA
The FCA Incoterm allows the buyer to gain control over the main carriage process. That is to say, the FCA agreement gives the buyer more control compared to other Incoterms 2020. And in the world of international logistics, greater control usually comes with increased transparency. The buyer will get the most recent updates about the delivery of goods with FCA. And there will be less misunderstanding in communicating because the buyer is the direct point of contact.
The FCA Incoterm puts the responsibility for handling export formalities upon the seller. With one burden relieved, the buyer is allowed to be more concentrated on the main carriage of the goods. Besides, only those who obtain export licenses can navigate the exporting procedures. Using FCA means the buyer does not have to worry about how to be authorized to get the permits.
Utilizing FCA allows for enough flexibility during the cargo transportation process. Buyers can select a preferred shipping carrier, and arrange the transportation in ways that suit their logistics needs and initial budgets.
Cons of Using FCA
As we mentioned earlier, greater control comes with increased transparency. However, the coin has two sides. Another thing that comes with greater control is greater risk during transit. From the point when the goods reach the designated place of delivery, the liability for the goods transfers from the seller to the buyer. When the events of cargo damage or cargo loss occur, the buyer is legally obligated to claim compensation from the insurance provider. Or the buyer should bear the financial losses.
The FCA agreement has set out that the buyer has to be involved in tasks at the port of origin. And thus, the buyer should cover origin terminal charges and cargo loading charges. If the seller's premises or the seller's place of business is the designated location of delivery, it is the seller who becomes responsible for loading the goods. Otherwise, the responsibilities for loading the goods will fall upon the buyer.
Buyers using FCA (Free Carrier) have to be involved in customs clearance procedures for import. In order to get the goods cleared in a smooth way, the buyer must ensure compliance with customs regulations and import restrictions in different countries. It calls for documentation preparation, compliance verification, and coverage of applicable import duties and taxes.
7. FCA (Free Carrier) vs. EXW (Ex Works): How Do They Differ?
EXW (Ex Works) is one of the Incoterms used in international transactions and global shipping. The EXW term has made it clear that the buyer needs to assume all liabilities for the goods from the point when the goods are made available and ready for the next delivery.
To be more specific, the buyer has to obtain cargo insurance, handle the loading and unloading of the cargo, manage customs clearance for both import and export, and arrange the main cargo transportation process.
It can be concluded that the EXW puts the maximum of responsibilities and risks on the buyer. In contrast, the FCA (Free Carrier) Incoterm has split the responsibilities for the goods between the buyer and the seller. Under FCA, the seller should deliver the goods from the premises or warehouses to the designated location.
8. FCA (Free Carrier) vs. FOB (Free on Board): What is the Difference?
FOB or Free on Board is another Incoterm rule used to allocate the risks and responsibilities between the two trading parties in international shipping. The FOB term has described what the seller is responsible for from the first mile at the point of origin. With FOB, the seller must take up all responsibilities for the goods until they get on board the shipping vessel. From there, the obligations and risks transfer from the seller to the buyer.
Compared to FCA (Free Carrier), the FOB Incoterm means a higher level of responsibilities and risks on the part of sellers. When using FCA (Free Carrier), the responsibilities and risks transfer from the seller to the buyer as soon as the goods are delivered to a specified carrier. While under FOB, the transfer will take place once the goods are on board the vessel.