International trade is becoming increasingly complex, and a proper understanding of delivery terms can be a decisive factor in the success of your business. FCA is one of the most popular Incoterms. Over 40% of all international contracts are concluded under these terms. This is because FCA offers a convenient and flexible model for dividing responsibilities between the seller and the buyer.
In this article, we will take a detailed look at what the FCA term entails, how the responsibilities of the parties are divided, and in which situations its application is most effective.
- 1. FCA Incoterm Meaning
- 2. The Point of Transfer of Risk and Responsibility for the Goods
- 3. Responsibilities of the Parties Under the FCA Incoterms
- 4. Advantages and Disadvantages of FCA for the Buyer
- 5. Price of Goods Under the Free Carrier (FCA) Terms
- 6. When Are Deliveries Under FCA Terms Advantageous?
- 7. Conclusion: Key Aspects of Deliveries Under Free Carrier (FCA) Terms
According to the latest Incoterms 2020 edition, the term FCA (Free Carrier) means that the seller fully fulfills their contractual obligations when they deliver the goods, cleared for export, to the carrier or a designated person at a previously agreed location.
According to the FCA terms:
- The seller is obligated to deliver the goods to the carrier appointed by the buyer at the specified location. This could be a warehouse, transportation hub, or customs terminal. The seller is also responsible for export customs clearance, making FCA particularly convenient for transactions that require adherence to export procedures.
- The buyer assumes all subsequent risks and costs, including transportation, insurance, and import clearance.
The Free Carrier (FCA) terms apply to all modes of transport and are especially popular when the buyer wants to maintain control over transportation but prefers not to handle the initial stage of delivery. This term offers a flexible division of responsibilities, making it versatile and beneficial for both parties in the transaction.
When working with FCA Incoterms, special attention should be paid to the point of risk transfer. This is a key aspect that defines the parties’ responsibilities during the delivery process. Under FCA, the risk transfers from the seller to the buyer at the moment the goods are handed over to the carrier or a designated person. However, it is important to distinguish between two main scenarios:
- If the handover occurs on the seller’s premises: the risk transfers to the buyer once all loading operations onto the carrier’s vehicle, appointed by the buyer, are completed.
- If the handover occurs at another designated location: the seller’s responsibility ends as soon as the goods are delivered to the specified location and handed over to the carrier.
Until the moment of delivery, the seller is responsible for the safety of the goods. The seller will bear responsibility in the event of damage, loss, or deterioration of the cargo. After the transfer, all risks associated with further transportation fall on the buyer. If the buyer fails to collect the goods within the agreed timeframe or causes delays due to the absence of a designated carrier, the responsibility for such violations also lies with the buyer.
Successful execution of deliveries under the Free Carrier (FCA) terms requires a clear understanding of the duties and responsibilities of each party, from preparing the goods to delivering them to the final destination.
The seller is responsible for the goods until they are handed over to the carrier at the agreed-upon point, including the completion of export formalities. The buyer, in turn, assumes responsibility from the moment the goods are received, managing further transportation and handling procedures related to importation.
More specifically, the seller is obligated to:
- Provide the goods and a commercial invoice in accordance with the contract
- Package the goods for export and apply the necessary labeling
- Cover the costs associated with loading the goods onto the transport vehicle at the seller’s premises
- Complete export customs clearance
- Deliver the goods to the carrier at the agreed location and time
- Provide proof of delivery of the goods
- Notify the buyer of the transfer of the goods to the carrier
The buyer, in turn, is obligated to:
- Pay for the goods as per the contract
- Arrange transportation in the country of import and appoint the carrier
- Accept the goods after they are handed over by the seller
- Bear all costs and risks after receiving the goods
- Pay import duties and complete customs formalities after the goods cross the border
- Reimburse the seller for the costs of obtaining documents upon request
In the Incoterms 2020 edition, an important addition was introduced regarding FCA: the buyer is now required to instruct the carrier to issue a bill of lading to the seller.
Compared to EXW (Ex Works), where most of the responsibility falls on the buyer, FCA offers a more balanced distribution of tasks. The seller takes care of export formalities and the initial stage of delivery. This reduces risks for the buyer and simplifies the customs clearance process.
When discussing the advantages of FCA for the buyer, the key points include:
- Full control over transportation after export clearance: Under the Free Carrier (FCA) terms, the seller is required to deliver the goods to the specified location, but the responsibility for subsequent transportation rests with the buyer. This allows the buyer to control the quality and timing of delivery, which is crucial for maintaining a high level of customer service and ensuring timely stock replenishment.
- Freedom to choose the carrier and optimize transportation costs: The buyer has the flexibility to select the transport company, allowing them to optimize logistics and reduce transportation expenses.
- The possibility of consolidating shipments from different sellers in one vehicle: Since the buyer independently selects the carrier and organizes logistics, they can arrange for the delivery of multiple shipments from different sellers on the same route.
- Transparency in cost distribution between parties: The buyer gains the ability to plan their cash flow more effectively, as payment for transportation is made directly to the carrier. This helps avoid unnecessary fees and additional expenses related to paying the seller for organizing the delivery.
FCA is especially advantageous for companies that regularly make purchases and have reliable logistics partners. In such cases, the buyer gains the ability to effectively manage all aspects of the logistics process after the official export of the goods.
However, there are also significant drawbacks that need to be considered. The main risk is that the responsibility for the goods passes to the buyer at the very early stage in the seller’s country. This means that even if the vehicle is involved in an accident immediately after loading, the seller retains the right to receive full payment for the goods.
Additional complications may arise during export customs clearance, as the buyer needs to provide all necessary vehicle information in a timely manner. It should also be noted that the seller may include estimated costs for loading and export formalities in the price of the goods, which makes the final price less transparent until the payment is completed.
The formation of the price under FCA terms requires a careful analysis of all cost components. Unlike other delivery terms, the price structure under FCA has its own specific features that must be taken into account when drafting contracts.
The basic components of the FCA price include:
- The cost of the goods themselves
- Expenses for packaging and labeling
- Costs of loading the goods onto the transport vehicle
- Expenses for export customs clearance
- The cost of quality and quantity inspection of the goods
When forming the price, it is important to understand that the seller does not include costs for international transportation and cargo insurance in the price. This significantly differentiates FCA from terms like CIF or CFR, where transportation costs are part of the goods’ price.
The final cost is influenced by:
- The place of delivery (seller’s premises or another agreed location)
- Type of transport and loading requirements
- Packaging and labeling requirements
- The need for special inspections or certifications
When agreeing on the price, special attention should be given to clearly defining the place of delivery. If the transfer takes place at the seller’s premises, the cost of loading is typically included in the price. However, if the place of delivery is elsewhere, the cost of transportation to that location should also be accounted for in the FCA price.
It is important to note that the transparency of pricing under the Free Carrier (FCA) terms allows the buyer to better control overall logistics costs. This is especially relevant for companies that have the ability to arrange more favorable international transportation conditions on their own.
The flexibility of FCA makes it a versatile solution for various modes of transport, from sea to air. This is particularly important in today’s environment, where companies often use multimodal transport and require adaptive logistics solutions.
FCA is particularly advantageous in the following situations:
- When working with multiple suppliers, where consolidation of shipments from different manufacturers is required
- When the goods are transported in containers
- When the goods are directly transported to the export terminal
- When the buyer has established relationships with carriers, allowing them to arrange more favorable transportation terms
- When full control over the logistics process after receiving the goods is needed
FCA becomes especially effective for regular shipments, when a company already has established relationships with carriers and a clear understanding of logistics processes. In such cases, the advantages of independent control over transportation are fully realized.
- The seller is responsible for the goods until they are handed over to the carrier, at which point the buyer assumes all risks.
- If the place of delivery is at the seller’s premises, the seller is responsible for loading the goods onto the transport vehicle. However, if the goods are handed over at the carrier’s premises or another specified location, the seller is only responsible for delivering the goods to that point, without the obligation to load them.
- The seller pays for the transportation costs of the goods to the agreed delivery point. After that, all delivery costs under FCA, including freight and other logistical expenses, are borne by the buyer.
- Export formalities under FCA, including customs clearance and associated expenses, are the responsibility of the seller. Import procedures (including clearance, duties, and taxes) are fully borne by the buyer.
- The Free Carrier (FCA) terms do not require mandatory insurance of the goods. If the buyer wishes to insure the cargo during transportation, they do so at their own expense. The seller, in turn, is not obligated to arrange for an insurance policy after the goods have been handed over.
FCA allows the buyer to organize the delivery flexibly, including choosing the carrier and routes. The buyer can arrange transportation themselves or entrust the process to professionals.
If you want the delivery process to go smoothly without any unnecessary complications, Fulfillment-Box is here to help. We offer a full range of logistics services: we’ll select the optimal route, ensure timely and safe transportation, and provide access to our own warehouses in key locations around the world. With us, your cargo will be under reliable protection!
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