International trade has nearly doubled since 2015 and, with it, the need to understand different Incoterms.
Among the Incoterms that delineate responsibility between exporters and importers, Free Carrier (FCA) stands out.
Therefore in this article, we will explain what FCA is, the obligations of the exporter and importer under this term, as well as when the risk transfers from the buyer to the seller.
To help you grasp the concept, we will also provide an example of how FCA works and discuss the benefits and drawbacks of using this Incoterm.
What is Free Carrier (FCA)?
Free Carrier (FCA) is an Incoterm that defines the responsibilities of exporters and importers when trading goods across international borders.
Under FCA terms, the exporter is responsible for delivering goods to a named place or carrier at their own expense. Once goods are delivered by the seller and accepted by the shipping carrier or recipient, responsibility transfers to the buyer.
This shipping term functions under greater flexibility than other shipping options, allowing buyers and sellers to customize the agreement to reflect their respective obligations.
FCA Price Calculation: Product cost + packaging + loading charges + delivery to port/place + export customs charges + profit share
Obligations Under the FCA Incoterm
- Ensure goods are packaged and ready for export
- Arrange for transport to the agreed-upon destination
- Pay costs that occur until goods are delivered
- Export customs arrangements and clearance
- Pay for costs of shipping, including transport and insurance fees
- Arrange for import customs clearance at the destination and pay any associated fees
- Both origin and destination terminal fees
- Arrange delivery to the final destination and all the associated fees of transporting and unloading
FCA Point of Risk Transfer
The point of risk transfer occurs when the goods are handed off from the seller to the buyer's chosen carrier.
This means that once they have been successfully delivered, all risks associated with shipping, such as theft or damage in transit, become the responsibility of the importer.
A manufacturer based in China agrees to deliver 10,000 units of a product within eight weeks using ocean freight shipping methods through a shipping company chosen by a customer located in Germany.
Under the FCA shipping terms, the exporter will pay all costs related to shipping the goods until they are safely handed over to the importer's chosen carrier in China.
After the goods have been shipped via ocean freight, responsibility and risk are transferred from the seller to the buyer once the goods arrive at the port of entry in Germany.
Then the buyer becomes responsible for all related costs and risks until the goods are delivered.
Benefits and Drawbacks of FCA
FCA terms give exporters greater flexibility to choose the most economical and efficient shipping methods from their location. Additionally, they don't have to worry about import customs documentation and clearance.
Importers, on the other hand, have a lower degree of control since the exporter is responsible for selecting and paying for shipping. They also have to pay for the shipment from origin to destination, as well as any additional costs associated with transport and unloading.
Overall, FCA terms typically favor the buyer. However, both parties can benefit from the flexibility that FCA offers.
Is FCA the Right Choice for Your Business?
While the Free Carrier (FCA) Incoterm offers several benefits for exporters — such as not having to worry about transportation arrangements and reduced financial burden — it also carries certain risks related to liability exposure and required documentation procedures.
However, as with any business agreement involving multiple parties, make sure you read through all terms carefully before signing off on the contract so there are no surprises later down the line.
Ultimately, understanding both sides of this equation will help you make an informed decision about whether FCA is right for your organization's needs.
Cargoflip's team would be happy to answer any questions you may have about FCA or other shipping options. Contact us today to learn more.
Who pays for FCA shipping?
The exporter pays for all costs associated with shipping until the goods are successfully handed over to the buyer's chosen carrier.
Once this point is reached, responsibility and risk of loss or damage transfer from the seller to the buyer, who then pays for all costs related to getting the goods delivered to their final destination.
What is the difference between Free on Board (FOB) and Free Carrier( FCA)?
The main difference between FOB and FCA is when the risk and responsibility transfer from the seller to the buyer. In FOB shipping, the risk is transferred when the goods pass over the ship's rail at the port of loading. In contrast, with FCA terms, the risk is passed on to the buyer once the goods are handed off to their chosen carrier at the origin.
What is the difference between Delivered at Place (DAP) and Free Carrier (FCA)?
The main difference between DAP and FCA is who pays for the transportation costs. With FCA, the seller is responsible for all shipping costs until the goods are handed off to the buyer's chosen carrier at the origin. The buyer then pays for all associated costs until delivery at their final destination. In contrast, DAP terms require the seller to pay for all costs associated with transporting the goods from their origin to the buyer's desired location.
What is the difference between Delivery Duty Paid (DDP) and Free Carrier (FCA)?
The shipping costs with DDP terms are the responsibility of the seller all the way through to delivery at the buyer's final destination. In contrast, FCA only requires the seller to pay for shipping until they have successfully handed off their goods to the buyer's chosen carrier at the origin.
What is the difference between Ex Works (EXW) and Free Carrier (FCA)?
While EXW requires a seller to make its products available at their own facility, FCA obligates the seller to deliver goods to a named place and into the care of a carrier specified by the buyer.
What is the difference between Cost, Insurance, and Freight (CIF) and Free Carrier (FCA)?
CIF requires a seller to deliver goods to the destination port and pay for the transportation costs, which include loading charges, freight, and insurance. In contrast, FCA requires the seller to deliver goods to a named place and into the care of a carrier specified by the buyer but does not require the seller to pay for any of the transportation costs.