What does FCA Mean in shipping terms?
“FCA,” or “Free Carrier,” is a vital term in shipping agreements, especially within the Incoterms framework. Essentially, FCA means the seller must deliver goods to a specified location, known as the “Named Place.” Before this, the seller handles all export tasks.
What makes FCA unique is its suitability for various transport modes: air, sea, road, or rail freight. This flexibility gives buyers significant autonomy to arrange carriage, often securing better rates than sellers offer.
Once goods reach the designated export point, buyers assume full responsibility. However, FCA empowers buyers to simplify the post-export process, which can be complex for many.
What are the Buyers and Sellers Responsibilities with FCA Agreements?
Let’s explore the duties of both buyers and sellers in an FCA agreement.
Seller’s Responsibilities:
In FCA Incoterms, sellers manage the export process for their goods. After preparing the cargo for carrier loading, responsibility shifts to the buyer. Here’s what sellers must do:
1. Export Packaging: Ensure proper packaging according to each country’s requirements.
2. Loading Charges: Cover costs for loading cargo onto the initial carrier.
3. Delivery to Port/Place: Arrange and pay for transporting goods to the export location.
4. Export Duty, Taxes, & Customs Clearance: Manage expenses and tasks for formal cargo export, including customs procedures.
Under FCA Incoterms, only sellers handle these duties. Seeking compensation for these tasks breaches the purchase agreement. Sellers include these costs when quoting prices to buyers.
Once sellers fulfill their duties, the cargo becomes the buyer’s responsibility, along with all subsequent logistics risks.
Buyer’s Responsibilities:
Upon customs clearance and arrival at the Named Place, buyers assume responsibility for:
1. Origin Terminal Charges: Covering costs at the shipping terminal where cargo is loaded.
2. Loading on Carriage: Paying charges to load cargo onto the carriage.
3. Carriage Charges: Bearing freight costs from origin to destination ports.
4. Insurance: Deciding whether to obtain insurance for the goods.
5. Destination Terminal Charges: Covering terminal fees at the destination port.
6. Delivery to Destination: Arranging and funding transportation to the specified delivery location.
7. Unloading at Destination: Covering expenses for unloading at the chosen delivery spot.
8. Import Duty, Taxes & Customs Clearance: Handling costs and tasks for importing goods, including duties and taxes.
Buyers become accountable for the import process upon cargo arrival at the destination port, ensuring compliance with regulations.
In summary, buyers manage the import process once cargo arrives, adhering to all relevant rules and procedures.
Advantages and Disadvantages for the Buyer
Advantages:
Many international traders and shipping firms tout FCA as a better choice than EXW for buyers. Unlike EXW, where buyers bear all risks, FCA gives buyers some control as sellers handle export processes. Comparatively, FCA is highly advantageous.
FCA grants buyers ultimate control over product transportation post-formal export from the origin country. This Incoterm proves beneficial to buyers, allowing them to supervise every logistics aspect.
Buyers frequently purchasing containerized goods with established third-party logistics or freight forwarders find FCA advantageous. Under FCA, buyers manage all logistics costs post-formal export, relying on their shipping service provider for the best price and solution from origin port to final destination.
Buyers opt for FCA when confident their shipping service provider can offer better loading costs than sellers.
Disadvantages:
FCA is less common than FOB for ocean shipments due to additional steps at the origin port, making buyers responsible for terminal and loading costs. While manageable, shipping problems may lead to inefficiencies, with resolution depending on cargo location—whether in the seller’s or buyer’s country.
The International Chamber of Commerce recommends FCA primarily for containerized shipments due to risk transfer at the terminal. However, if buyers request shipment to a different Named Place, such as a forwarder’s warehouse, they assume risk upon truck arrival, covering unloading, terminal, and loading charges.
When cargo isn’t directly transported from factory to vessel, FCA offers minimal distinction from EXW.
In countries like China, FCA differs from the norm, with sellers often quoting under FOB terms. Although sellers may agree to FCA, their unfamiliarity can disadvantage buyers. Optimal Incoterm choice aligns with both buyer and seller experience in exporting products from any country.
When to Use an FCA Agreement?
An FCA (Free Carrier) agreement proves advantageous in several scenarios:
- Buyer’s Control Preference: If the buyer wishes to oversee goods transportation after export, FCA offers the ideal solution. It empowers buyers to manage logistics post-export.
- Regular Container Shipments: Buyers frequently dealing with containerized goods and having established relationships with logistics providers benefit from FCA. It lets them supervise all logistics costs post-export, relying on their chosen shipping service provider for efficient transportation.
- Better Shipping Provider Rates: Opting for FCA is beneficial if the buyer’s shipping service provider offers more competitive loading costs than those from the seller.
- Transportation Flexibility: FCA accommodates various transportation modes like air, sea, road, or rail freight. This versatility allows buyers to select the most suitable and cost-effective transport method.
- Comfort with Export Formalities: FCA suits buyers comfortable with handling export formalities and assuming responsibility for goods once they’re ready for carrier loading.
In conclusion, FCA agreements are ideal when buyers seek transportation control, regularly handle containerized shipments, prefer transportation flexibility, and are comfortable with export formalities and post-export responsibilities.
Example of FCA
The main contrast between FCA (Free Carrier) and DDP (Delivered Duty Paid) lies in the seller’s role and the scope of services provided.
Under FCA terms, the seller delivers goods to the buyer’s specified destination. The seller is responsible for the goods until they reach this destination. However, the buyer is in charge of loading the goods for transport.
For example, if Joe Seller ships goods to Bob Buyer using FCA terms, Joe is responsible for delivering the goods to Bob’s chosen destination. Bob decides to use his preferred shipper, and Joe agrees. At this point, Joe’s responsibility ends, and Bob assumes liability as the buyer.
FCA Tips And Tricks
If the named place isn’t a seaport or airport but a forwarder’s warehouse or another terminal, the seller loads the truck at their premises, and the carrier unloads it at the named place. This makes the buyer liable for some export country tasks, like transportation and terminal charges.
Alternatively, if the named place is the supplier’s factory, similar to EXW, the supplier loads the truck, making the buyer responsible for tasks such as transportation and terminal charges in the export country.
Regardless of the named place, the seller handles all export and documentation tasks. There’s one exception, relevant only for letter of credit payments: the buyer can instruct the carrier to add the word “aboard” onto the Bill of Lading.
What is the difference between FCA and FOB?
The key difference between FCA (Free Carrier) and FOB (Free On Board) is where the seller’s responsibility ends and the buyer’s begins in the transportation process.
With FCA, the seller delivers the goods to a set location, often the carrier’s premises or another agreed-upon spot. After this, the buyer takes over, handling transportation and any risks that follow.
In contrast, under FOB, the seller delivers the goods to the named port of shipment and loads them onto the vessel. The seller’s duty ends once the goods are on the vessel, leaving the buyer responsible for transportation and risks thereafter.
In summary, while both FCA and FOB start with the seller delivering goods to a specific point, FCA offers more flexibility in choosing the delivery spot, whereas FOB specifies delivery to the named port of shipment.
What Is the Difference Between FCA and DDP?
The key difference between FCA (Free Carrier) and DDP (Delivered Duty Paid) lies in the seller’s role and the level of service provided.
With FCA, the seller delivers the goods to a specified location, often the carrier’s premises. After delivery, the buyer takes over responsibility for transportation, customs clearance, and import duties.
In contrast, under DDP, the seller delivers the goods to the buyer’s location, typically their premises. The seller manages all aspects of transportation, including freight payment and customs clearance. Essentially, DDP places more responsibility on the seller compared to FCA.
In summary, while both involve the seller handling transportation and customs duties, DDP requires the seller to provide a more comprehensive service by delivering the goods directly to the buyer’s location and managing all associated tasks.
Does FCA include customs clearance?
Yes, FCA (Free Carrier) does not include customs clearance in its obligations. Under FCA, the seller’s responsibility typically ends once the goods are delivered to the agreed-upon location, often the carrier’s premises or another specified point. After delivery, the buyer assumes responsibility for customs clearance and any related procedures, including import duties, taxes, and customs formalities in the destination country. Therefore, it’s crucial for buyers to ensure they have arrangements in place for customs clearance when using the FCA Incoterm.
The Bottom Line
Under FCA shipping terms, the seller takes on several responsibilities. They handle pre-carriage to a terminal, deliver the goods to the agreed-upon destination, and provide proof of delivery. Additionally, the seller is accountable for export packaging, licenses, and customs formalities.
Conversely, in FCA shipments, the buyer has their own set of obligations. They pay for the goods, manage the main means of transportation, and cover loading charges. Furthermore, the buyer is responsible for import duties, taxes, and formalities.
