When you’re shipping goods internationally, you need to know who’s responsible for what. That’s where Incoterms come in. Incoterms (International Commercial Terms) are a set of rules created by the International Chamber of Commerce (ICC) that spell out the responsibilities of buyers and sellers in international trade. They clarify who pays for what, who carries the risk, and who handles each part of the shipping process.
One of the most flexible and widely used Incoterms is Free Carrier (FCA). Because FCA can be used with any mode of transport, it’s a great option for a variety of shipping situations.
This article will give you a complete understanding of the FCA incoterm meaning under the 2020 rules, including who’s responsible for what, when to use it, and what to keep in mind.
Understanding Free Carrier (FCA) Incoterms 2020
If you’re importing or exporting goods, it’s important to understand the terms of the deal. One of the most common Incoterms is Free Carrier, or FCA.
Defining FCA
Under FCA terms, the seller is responsible for delivering the goods, cleared for export, to the carrier that the buyer has chosen at a specific location. The “named place” is a key element of the agreement, because it determines exactly where the responsibility for the goods shifts from the seller to the buyer.
FCA is a flexible Incoterm because it can be used for any kind of transportation: air, sea, road, rail, or a combination of transportation methods.
Key concepts and terminology
The “named place” can be the seller’s business location, a freight forwarder’s warehouse, a port, or any other location that the buyer and seller agree on. For the agreement to be valid and to prevent any potential disagreements, the “named place” has to be clearly spelled out.
The “carrier” is the person or company that’s responsible for moving the goods from one place to another. Under FCA terms, the buyer chooses which carrier to use.
Responsibilities Under FCA: Seller vs. Buyer
With FCA, the responsibilities are divided between the seller (the exporter) and the buyer (the importer). Here’s a breakdown of who’s in charge of what:
Seller’s Responsibilities
- Packaging and Marking: The seller has to make sure the goods are packaged correctly for export and that all the boxes or containers are clearly marked.
- Delivery to the Named Place: The seller is responsible for getting the goods to the “Named Place” specified in the agreement, and they have to pay for that transport.
- Export Clearance: The seller needs to get all the export licenses in order and handle all the export customs paperwork. That also means paying any export duties or taxes.
- Loading the Goods (Depending on the Named Place): If the “Named Place” is the seller’s own location (their warehouse, for example), then the seller is also responsible for loading the goods onto the transport.
Buyer’s Responsibilities
- Carrier Selection and Nomination: The buyer gets to pick the carrier (the shipping company) and tell the seller who it is.
- Main Carriage Costs: The buyer pays for the main part of the shipping journey.
- Import Clearance: When the goods arrive in the buyer’s country, the buyer is responsible for handling all the import paperwork and paying any import duties and taxes.
- Unloading and Delivery at Destination: The buyer is responsible for unloading the goods when they reach their final destination.
- Insurance (Optional but Recommended): It’s up to the buyer to arrange insurance for the main part of the journey. It’s not required under FCA, but it’s generally a good idea.
Advantages and Disadvantages of FCA
Like all Incoterms, FCA has its pros and cons for both the buyer and the seller. Here’s a quick rundown of the advantages and disadvantages.
Advantages for the Buyer
- Greater Control Over Transportation: Under FCA, the buyer gets to call the shots when it comes to transportation. They can pick the carriers they want and negotiate rates to fit their budget.
- Potentially Lower Costs: Because the buyer is handling the logistics, they often have the chance to tap into their own network and snag better shipping rates than the seller might be able to get.
Disadvantages for the Buyer
- Increased Complexity: Managing the main transport and import steps can be a bit of a headache, especially if you’re not used to dealing with international logistics. You’ll need to be pretty organized and know your way around the process.
Disadvantages for the Seller
- Potential Difficulties with Letters of Credit: Getting an “on-board” bill of lading can be tricky with FCA. This can cause issues if you’re using letters of credit, which often require that specific document.
FCA and Bills of Lading: A Tricky Situation
One of the trickiest things about using FCA, especially when letters of credit are involved, is getting an “on-board” bill of lading. Traditionally, sellers need to provide this document as proof that the goods have actually been loaded onto the ship.
The problem is, with FCA, the buyer chooses the carrier. This means the seller might not have any direct control over getting that “on-board” stamp. They’re relying on a carrier they didn’t pick, which can be a headache.
To help with this, Incoterms 2020 introduced a change. Now, the buyer can tell the carrier to issue an “on-board” bill of lading to the seller. This is a step in the right direction, but it’s still important for everyone to be on the same page.
The buyer and seller must clearly agree on how the bill of lading will be obtained. Good communication is key to avoiding delays and disputes.
When does it make sense to use FCA?
FCA is a flexible Incoterm that works for all types of shipping, but it’s particularly useful when you’re shipping containerized goods. It works well whether you’re shipping a full container load (FCL) or less than a container load (LCL).
FCA is also a good choice when you, as the buyer, already have solid logistics connections in the seller’s country. If you’ve got a freight forwarder or 3PL provider you trust in their area, FCA can give you more control.
Many buyers prefer FCA to EXW because with FCA, the seller handles the export clearance, which simplifies things for the buyer.
However, if you’re shipping from China, you might want to consider alternatives like FOB. It’s a more common and understood Incoterm there, so it’s worth discussing with your seller to see what they prefer.
FCA vs. Other Incoterms
It can be helpful to see how FCA stacks up against other common Incoterms.
FCA vs. EXW (Ex Works)
With EXW, the seller just makes the goods available at their location. The buyer has to take care of everything else, including all export and import procedures. FCA is usually a better choice because the seller handles the export clearance, which makes things easier for the buyer.
FCA vs. FOB (Free on Board)
FOB only applies to sea shipments, and it means the seller is responsible for loading the goods onto the ship. FCA is more flexible because it can be used for any type of transportation.
FCA vs. DDP (Delivered Duty Paid)
DDP is the opposite of EXW. It puts the most responsibility on the seller, who has to handle everything, including import clearance and duties. So, while FCA requires the seller to get the goods to a specific location ready for export, DDP requires them to handle everything to final delivery.
Conclusion
The FCA incoterm offers flexibility and control, especially for the buyer. But it also demands careful planning and coordination between the parties involved. For an FCA transaction to succeed, both the buyer and seller must communicate clearly and precisely, especially when defining the “Named Place” of delivery.
It’s also essential to have a good understanding of international trade regulations and logistics. Buyers and sellers should be aware of export and import regulations, customs clearance procedures, and transportation requirements.
Before choosing FCA, take time to evaluate your specific needs and capabilities. Consider the circumstances of each transaction, your level of experience with international trade, and your ability to manage the associated risks and responsibilities. If you do your homework, FCA can be a valuable tool in your international trade toolkit.