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When it comes to international trade, two of the most important international commercial terms you should be familiar with are FOB (Free on Board) and FCA (Free Carrier).
Understanding the difference between these two shipping terms is essential for any business engaged in international trade.
In this article, we break down the key differences between FOB and FCA and when to use each Incoterm.
What is Free on Board (FOB)?
Free on Board (FOB) is an important shipping term that establishes which party is responsible for transport costs.
FOB can be broken down into two arrangements: origin and destination.
With FOB origin, the for their goods' transportation until they reach the designated shipping point and then ownership passes to the buyer. The buyer then pays all transportation costs from that point forward.
Conversely, FOB destination mandates that the seller assumes responsibility from the start, paying all necessary transportation costs until delivery is made and ownership is transferred to the buyer.
What is Free Carrier (FCA)?
Free Carrier (FCA) is an invaluable Incoterm that offers great control and flexibility to exporters and importers alike. It defines what needs to be done by each party upon the transfer of goods across international borders.
Specifically, FCA requires the seller to deliver goods to a chosen place and unload them. Additionally, under the FCA agreement, the seller is responsible for export clearance and customs formalities.
Once the seller delivers and unloads the goods, all costs, risks, and responsibilities then fall on the buyer.
Key Differences Between FOB vs FCA
With FOB origin terms, the risk transfers to the buyer when they're loaded onto a vessel. Conversely, with FOB destination terms, the risk remains with the seller until the goods are delivered.
On the other hand, FCA terms outline that the risk transfer happens as soon as they are delivered to an agreed-upon place and unloaded.
With FOB, a designated port or place of shipment acts as the delivery point.
On the other hand, FCA requires goods to be delivered at a chosen place or carrier accepted by both the buyer and the seller.
Mode of Transport
While FCA shipments can be delivered via any transportation modes (e.g., air, land, sea), FOB delivery applies only to inland waterway or sea shipments.
When to Use FOB vs FCA
FOB is favorable to the buyer, as they take ownership of the goods upon loading and can control their transport costs. It is ideal for larger companies with the resources to manage their own shipping.
Meanwhile, FCA is advantageous to the seller as they are not required to take on any additional risks associated with transporting goods. This makes it an ideal choice for small- and medium-sized enterprises or high-value cargo that requires extra protection.
Ultimately, it is up to the buyer and seller to decide which shipping procedure works best for their unique circumstances. Although these guidelines may provide a general overview of what's available, each individual situation warrants its own consideration.
Is FOB or FCA the Right Choice?
Both FCA and FOB are formally recognized shipping terms that are used to designate title transfer, risk transfer and responsibility for transportation costs.
FCA is the optimal Incoterm for those who desire flexibility in delivering their goods, as it permits you to opt between different modes of transport. Additionally, you can choose where the risk transfer will occur, whether the seller's premises or another location.
On the other hand, FOB is more suitable for those looking for more control and transparency over their goods, as it requires buyers to take ownership of them once they reach the origin port or shipping terminal.
When deciding on shipping terms, it's essential to consider both the costs of transportation and risk management strategies. After all, your ultimate mission is ensuring that all items reach their desired recipient safely.
If you have any questions or concerns about choosing between FOB and FCA shipping, please don't hesitate to contact us – our logistics experts are happy to help.