FCA Incoterms: Free Carrier Agreements for International Trade

International shipping comes with several complications. Navigating through this world is quite challenging. Have you ever wondered how lines are defined for sharing responsibility between the buyer and the seller? What guidelines define these roles? The answer to these questions lies within the definitions of the FCA incoterm. 

Sometimes the seller will be responsible for the pre-carriage shipping, insurance, and export requirements. Such a practice is known as ‘free carrier’ (FCA) and it includes a bunch of different rules and regulations called the incoterms. These are simply crucial trade terms for the sale of goods. 

FCA is primarily used in international shipments and it complies with different modes of transportation. This blog details all there is to know about the FCA incoterms. It speaks of the basics, its usage through real-world examples, and more.

Free Carrier (FCA): Understanding the Basics

A term that dictates the responsibilities of a seller for the delivery of specific goods to a designated destination to a buyer is known as free carrier. The word “free” here represents that the seller is obligated to deliver goods to a specified place for the transfer of the goods to a carrier. The destination can be a shipping terminal, airport, warehouse, or any other location where the carrier operates. The delivery location can even be the seller’s location of business. 

The seller will need to include the transportation prices while also assuming the risk of loss until the carrier has received the goods. From that point forward, the buyer will assume all the responsibility.  

The incoterms were updated in the year 1980 by the International Chamber of Commerce to include this “free carrier” provision. This was then further simplified in 1990. 

Free Carrier (FCA): Operational Guide

Buyers and sellers who are involved in any form of economic trade can leverage the FCA shipping terms to describe transportation at any point. The FCA can be used regardless of the number of transportation modes involved in the entire shipping process. A location within the seller’s home nation must be chosen as the destination. The seller will be responsible for the safe delivery of goods to that facility. The carrier involved can be a truck, ship, plane, or train.

The merchandise liability is transferred from the seller to the carrier or customer purchasing the goods when the seller delivers the goods to the designated port or location. The seller will be responsible for the delivery as a portion of the liability transfer. The unloading of the goods is not an obligation; however, the seller might be responsible for making sure that the goods have been cleared for export.

The buyer will not have to deal with the export nitty-gritty under the FCA shipping terms. It is the responsibility of the seller. The buyer will only be responsible for the arrangement of transportation. Upon arrival of the goods to the carrier, the responsibilities are transferred to the buyer and the goods become an asset on the buyer’s balance sheet. 

Mastering FCA Incoterms: Insights for Trade

Any international transportation contract generally contains abbreviated trade terminologies. They can also be terms of sale that describe the particularities of a shipment. These can also include the time and place of delivery, payment obligations and terms, the risk bearer and responsibility, and the insurance cost bearer. 

To enable the facilitation of the delivery of such items, the most commonly known trade terms are the incoterms or simply the international commercial terms. These are recognised internationally and are standards published by the International Chamber of Commerce (ICC). They are very similar to domestic terms like the Uniform Commercial Code (UCC). 

The term “free-carrier” is one of the most commonly used incoterms. It has been internationally recognised as a standard practice to designate delivery terms and conditions. The FCA has been updated several times since 1980 and will be revised every ten years. 

FCA: Real-Life Examples 

Under the shipping obligations of the FCA, the seller will deliver the goods to the designated destination stated by the buyer. The seller and shipper will be responsible for the goods until they arrive at that destination. The buyer will be responsible for the loading and unloading processes from that point forward. 

Let us consider an example. Samuel ships goods to Jackson under the standard terms of the FCA. Jackson chooses to use his shipper who has already done business with him in the past. Samuel agrees to this proposition and it is his responsibility to deliver the goods to the shipper. At this instant, all the liability is transferred to Jackson.

Understanding Key Differences: FCA vs. FOB, FCA vs. DDP, and FCA vs. Ex Works

Let’s understand how FCA is different from FOB, DDP, and Ex Works. 

• FCA vs FOB:  FOB and FCA are different incoterms used in different transportation modes during shipping. When cargo is loaded onto a vessel in sea shipments, FOB particularities will apply. The loading will become the seller’s responsibility. 
  • The FCA is more versatile and flexible as it allows a greater number of transportation modes. The loading of goods into carriers under the FCA is the buyer’s responsibility. The seller will be obligated to issue an export declaration after the placement of the goods onto the buyer’s carrier.
• FCA vs DDP: Under the FCA obligations, the shipping terms are paid by the buyer as the carrier is chosen by the buyer. However, under the DDP obligations, the seller will pay for the transportation of the goods. They also bear the risk and responsibilities for the transportation of all goods until received by the buyer. 
• FCA vs Ex Works: Ex Works is a simple shipping rule that states the seller will only be obligated to ensure the availability of the goods. The buyer will be expected to pick up and manage the rest of the freight. FCA, on the other hand, has a more balanced approach and it also divides the risk equally between the two entities. 

Choosing FCA over EXW: Strategic Considerations 

FCA poses a more balanced solution. Ex-works are extremely rigid and dump the entire burden and responsibility on the buyer. The table below outlines why FCA is a better option when compared to EXW.

FCA (Free Carrier Agreements)	EXW (Ex Works)
The goods are delivered to the carrier by the seller. The location is decided by the buyer.	The goods are delivered by the seller to their own premises for the buyers to purchase and pick up.
The responsibilities are equally or fairly shared by both parties.	Highly inconvenient for the buyer as they bear the majority of the risk.
Buyer takes on the risk and cost of the goods upon delivery to the specified location.	The seller has almost no responsibility making it convenient for the seller.
Used mainly in international shipping contracts.	These types of contracts are mainly drawn in domestic trade.
Used in the transport of containers.	Used mainly by small businesses that do not possess the bandwidth to deal with shipping logistics.
Loading risk is borne by the seller.	Loading risk is borne by the buyer.
Delivery is only complete after loading of the goods into the carrier.	Delivery is complete when the seller presents the items to the buyer for collection.

Export Clearance Under FCA: Roles and Obligations

The obligations of the seller include the following:

• All documentation, invoicing, and goods provision
• Marking and packing based on the export standards
• Formalities of customs and provision of export licenses
• Pre-carriage charges to the terminal
• Delivery of the cargo to the designated destination named by the buyer
• Charges for pre-shipment inspection
• Proof of delivery documents

The obligations of the buyer are given below:

• Complete payment for the goods at the price agreed upon as per the sales contract
• Loading and unloading charges from the arrival transportation carrier
• Charges paid for the main carrier
• Import taxes, clearances, and duties
• Import clearance prices for pre-shipment inspection.

Understanding Buyer-Seller Responsibilities in FCA Agreements

The costs and responsibilities are shared by the buyer and the seller in FCA shipping. Let us see what costs are borne by the seller and what costs are the buyer’s responsibility:

Seller’s responsibilities are listed below:

• Export packing: Since the cargo must be packed for export, it must be done from the seller’s end. They must even include any special requirements based on the country it is being exported to. The seller must abide by all rules and regulations when it comes to export packing.
• Charges during loading: When the cargo leaves the seller’s location, it must be loaded onto a truck or any vehicle. The costs associated with transporting the goods to the designated destination are the seller’s responsibility. 
• Delivery to the designated destination: Most often, the destination is either a port or an airport for exports. The costs associated are to be borne by the seller.
• Duty and taxes incurred: The costs associated with the cargo while exporting them include pre-examination, customs, and any special clearance. These entirely fall under the seller’s responsibility. 

Buyer’s responsibilities include the following:

• Origin terminal charges: All needs and costs associated with the shipping terminal where the cargo is loaded onto the designated vessel for the majority of the transportation are borne by the buyer.
• Loading on the carrier: For the shipment to be loaded onto the carrier vessel, a charge is levied and this is the buyer’s responsibility.
• Carrier charges: The charges levied when moving the cargo from the port of the selling country to the destination port are to be paid by the buyer.
• Insurance: Insurance is not a compulsion. However, if the buyer chooses to buy insurance, it becomes their responsibility to pay for it. 
• Destination terminal charges and delivery to destination: Upon arrival of cargo at the destination port, all the charges associated with the unloading, transferring, holding, etc., must be handled by the buyer. The buyer must also pay the charges incurred during the transport of the cargo from the port to the desired locations.
• Duties and taxes during import: All the duties and taxes levied by the destination country during import must be cleared off by the buyer.

Pros and Cons of FCA Agreements for the Buyer

The benefits of the FCA Agreements for the buyer include the following:

The buyers describe the EXW incoterm as the worst incoterm there ever was. This is because EXW makes the buyer bear all the risk. With the FCA in place, the buyer gets to share some risks and responsibilities with the seller. Moreover, they gain some control as well. 

The buyer will have ultimate control over the transportation of their products after the cargo has been formally exported from the origin country. Buyers gain control over all the logistics processes through the FCA incoterm, making it more advantageous for them. 

When buyers have the habit of purchasing containerised goods, they will have a well-known third-party agent that controls the freight operations. In such cases, the FCA is more beneficial to the buyer as they can have added security about their consignments. The FCA is the best option when the buyer is confident that their shipping service provider can offer them better prices for logistics operations when compared to the seller-offered prices.

The cons of the FCA Agreements for the buyer include the following:

FCA entails additional steps at the port of origin. All of these are the buyer’s responsibilities. The costs included might not be a problem but the inefficiencies can result as a major issue. Any issue that arises during shipping is dependent on the seller’s country or the buyer’s country making it very complicated. 

The ICC suggests using the FCA only when containerised shipments are in the picture. In this case, the container shall move from the seller’s location to the terminal. Thus, the risk transfer occurs through the export procedures. If the destination is another location, the buyer will be in charge of covering all costs incurred during unloading and the export procedures. 

When to Opt for FCA Agreements in Trade?

Understanding when you must pick the FCA agreement plays a crucial role. The FCA agreement can be used when:

• The cargo is shipped via a container.
• They have prior knowledge of the entire process and its requirements.
• The seller also prefers the FCA mode.
• The cargo is directly transported to the terminal for export processes.

FCA for China Imports: Evaluating Suitability 

If you fall into the aforementioned categories, the FCA agreement is not the ideal match when goods are imported from China. China is a country where the factories export in mass and are capable of doing this extremely efficiently. As they mainly rely on the FOB incoterm, they are extremely well-versed. Unless there is a strong reason to state that the FOB method is not suited for a specific shipment, it is best to stick with the FOB incoterm. 

Understanding Incoterms 2020: Updates and Implications

A collection of shipping terms that appear on shipment contracts is known as Incoterms. These are guidelines that decide the time and location of delivery when the ownership of the shipment changes. Moreover, the associated costs and risk of shipping transfer from the seller to the buyer. These terms are upgraded every 10 years by the ICC. The latest update was made in the year 2020. The 11 incoterms incorporated in 2020 include the following:

• FAS: Free Alongside Ship
• FOB: Free on Board
• CFR: Cost and freight
• CIF: Cost, Insurance, and Freight
• CPT: Carriage Paid To
• EXW: Ex Works
• FCA: Free Carrier
• DPU: Delivered At Place Unloaded
• DAP: Delivered At Place
• CIP: Carriage and Insurance Paid To
• DDP: Delivered Duty Paid

Analysing Changes in Incoterms from 2010 to 2020

Before 2020, the buyer would hire a carrier. This meant that the carrier would not be obligated to the seller by any means. This created trouble for the seller who needed a Bill of Lading (BOL) from the carrier to receive the payment. 

The FCA agreement incorporated the greatest change in the incoterms in 2020. They included that the buyer might request the carrier partner to issue an onboard BOL. 

Incoterms Alternatives: Options Beyond FCA

The popular incoterms apart from FCA include the following:

• FOB (Free On Board): This incoterm refers to when the goods are being shipped only by sea or inland waterways. The cargo will be the responsibility of the seller until it is loaded onto the vessel and cleared for export. It is most suited for bulk shipping.
• EXW (Ex Works): In this incoterm, the seller’s only responsibility is to keep the goods in place when the buyer arrives to transport them from the seller’s location. All the burden falls upon the buyer. This incoterm is mainly used in domestic trade.
• Delivery Duty Paid (DDP): In this shipping incoterm, the seller will be assuming a huge chunk of the cost, risk, and responsibility. The arrangement of carriage, delivery of goods, and import clearance will be the seller’s responsibility. It can be used in all modes of transport.
• Cost, Insurance, and Freight (CIF): CIF is very similar to FOB. It makes the seller responsible for the management of costs of insurance for the goods until they reach the destination port. It is used only for waterway shipping. 

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Conclusion

To conclude, the FCA shipping incoterm makes the seller responsible for pre-carriage to the terminal, delivery of the cargo to the designated spot, and proof of delivery. The seller is also responsible for export packaging, licenses, and clearance from customs. The buyer, on the other, hand pays for the major transportation, loading, and unloading. They also cover import duties, taxes, and associated procedures. The ICC continuously upgrades these incidents every 10 years. The FCA enabled the sharing of responsibilities and costs between the buyer and seller. Hence, it is the more accepted norm in international trade.