Incoterms® 2020 is a roadmap that guides buyers and sellers to their responsibilities for the goods being shipped.
Though there are 11 Incoterms® to choose from, one of the more popular is Free Carrier (FCA), an agreement where the seller (exporter) agrees to deliver cargo to a specified destination known as the Named Place.
In FCA terms, the buyer (importer) becomes responsible for cargo once it arrives at the agreed export point and oversees its transfer to the shipping carrier and eventual destination.
This Incoterms® benefits both buyers and sellers. Buyers gains control of their goods once they are exported, while sellers appreciate that their responsibilities are limited.
Journey through an in-depth analysis of FCA and discover its advantages, the obligations of all parties involved, and best practices for implementation.
The Evolution of Incoterms®
Incoterms® is an abbreviation for International Commercial Terms. These rules, first published by International Chamber of Commerce (ICC) in 1936, govern and guide global commerce.
Incoterms® provide standard interpretations for contract terms and define the responsibility and liability for goods during transport. They detail when responsibility for goods shifts from sellers to buyers, and designate which party covers shipping costs, duties, and taxes.
ICC updates Incoterms® every 10 years, with the latest revisions in 2020. These modifications will be in effect until 2030.
The Incoterms® 2020 edition made minor changes that:
- Increased security requirements,
- Clarified cost allocation, and
- Tackled insurance concerns.
It is best to use the most recent update in sales contracts. Despite this, contracts referring to an earlier Incoterms® version will remain legally binding, as the version mentioned in the contract takes precedence.
What is FCA Incoterms®?
FCA is an important agreement in international trade that determines when responsibility and risk shift from the seller to the buyer.
FCA requires exporters to deliver goods, cleared for export, to a designated location referred to as the "Named Place," which could be an airport, shipping terminal, warehouse, or the seller's premises.
Once goods reach the Named Place, the buyer assumes all transportation costs and risks. This may enable the buyer to organize shipping at a potentially lower cost than what the seller might offer.
FCA is a versatile option suitable for any mode of transport (air, sea, road or rail). This results in standardized processes and heightened security, which is helpful when shipping containerized goods.
Key Responsibilities Under FCA Incoterms®
FCA assigns specific responsibilities to both buyers and sellers.
Under FCA, the seller:
- Packages cargo for export according to the exporting country's regulations.
- Pays loading costs on to the carrier.
- Arranges and pays for transport from their place of business to the Named Place.
- Takes care of duties, taxes, and Customs inspections and other clearance needs.
With FCA, the buyer:
- Covers costs and meets terminal requirements for loading cargo onto the vessel.
- Covers costs of unloading, transferring, and holding cargo once it arrives.
- Pays loading charges required by the shipping line.
- Covers freight charges from origin to destination port.
- Insures cargo as it moves from the Named Place to its destination.
- Transports goods to the destination and unloads them.
- Meets Customs obligations such exams, duties, taxes, or other requests from Customs authorities at the destination.
Benefits of Using FCA Incoterms
FCA benefits include flexibility, clarity, global recognition, and better cost management.
This Incoterm® is flexible, enabling parties to use various transportation modes and tailor terms to their needs for domestic and international shipping.
FCA ensures clarity in important matters such as goods delivery, risk transfer, and obligations of both the buyer and seller. FCA lets parties select a named transfer place, avoiding any ambiguity in risk transfer.
Incoterm®, a globally recognized standard, simplifies negotiations and works well for companies with less experience in international trade.
FCA also simplifies carrier cost management, as both buyers and sellers can select their own carrier and transportation method for their respective legs of the journey.
FAC vs. Other Incoterms®
EXW (Ex Works) and FCA are two commonly used Incoterms® that importers and exporters can select.
However, EXW only requires sellers to provide goods at their premises with necessary documentation. Once cargo is collected, the buyer assumes all other obligations and risks.
FCA offers a more balanced approach. The seller handles export clearance and delivers the goods to a designated location, where the buyer assumes responsibility. This strategy provides flexibility and simplifies shipping for the buyer, especially in countries with complex export regulations.
The choice between EXW and FCA depends on the buyer's logistics capabilities, control preferences, and cost factors. When buyers lack logistics knowledge and control in the country of origin, EXW becomes a risky choice.
Another option is Free on Board (FOB) where sellers are liable for all risks and costs, but buyers become responsible for containers and risk upon their arrival at the port of export.
The key distinction between FOB and FCA is when responsibility and risk shift from the seller to the buyer.
FOB is only for sea or inland waterway transport. Here, the seller delivers and loads goods onto a vessel at the named port of shipment. If it's FOB origin, the risk of loss or damage transfers to the buyer once goods are on the vessel. If it's FOB destination, ownership and risks transfer to the buyer when goods arrive at a specified location.
FCA is more flexible than FOB and can be used with any mode of transport. The seller delivers goods to a named place where risk passes to the buyer before goods are loaded onto a ship. FCA adapts well to modern logistics processes, especially with containerized cargo, where loading on to a vessel is handled by terminal operators, not the seller.
Carriage and Insurance Paid (CIP) is another option to consider.
Under CIP terms, sellers export and deliver goods to a buyer’s chosen carrier. The seller pays for carriage, but their risk ends at the place of shipment. The seller also acquires basic insurance for goods until they reach the named destination. The buyer assumes risk once the goods are received by the initial carrier, which can be an airline, ship, railcar or truck.
CIP has a notable disadvantage: it provides limited insurance coverage by the seller. This may require the buyer to obtain extra insurance coverage, increasing both complexity and expenses.
Another drawback is buyers must cover any extra costs after goods are delivered. This can include unloading, storage, and onward transportation expenses.
Practical Tips for Using FCA Incoterms®
FCA is a good option when buyers want to use their own carrier or gain control over transportation. It is also beneficial when buyers are unfamiliar with export clearance procedures. Still, buyers should only consider FCA when the following conditions are met:
- Cargo is packaged in containers.
- They understand logistics processes and requirements in the seller's country or use a shipping service.
- The seller prefers FCA to other Incoterms®.
- The cargo goes straight to the export terminal, versus a shipping provider's warehouse.
Successfully applying FCA also demands importers and exporters agree on the Named Place in advance and clearly define this location in a sales contract. Suitable transfer documentation, such as a document that confirms the goods transfer, a freight release that authorizes release to the buyer's carrier, and a receipt docket that is signed by the carrier, should also be used.
Why Understanding FCA Incoterms is Crucial for Your Business
FCA is among the most popular Incoterms® in use because it offers flexibility and control for both parties.
Under FCA, the seller delivers goods, cleared for export, to a pre-agreed location, after which the buyer assumes responsibility for further transportation costs and risks. FCA can be used for any mode of transport, making it highly adaptable to modern logistics processes, especially with containerized shipments.
It's important to recognize the right situations for using FCA. When importers and exporters use the Incoterm® incorrectly, they may expose themselves to undue risks that lead to disputes over who bears what cost.
AN Deringer can help importers and exporters weight whether FCA is right for them. AN Deringer has extensive expertise in providing comprehensive trade services, including Incoterm® selection.
Explore AN Deringer’s Services Page to learn more about the company’s Customs Brokerage, Logistics Solutions, Warehousing & Distribution capabilities, and more. AN Deringer provides critical support that can help companies navigate FCA Incoterms® and other trade-related challenges.
