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Import and export can be profitable businesses. But first, you should know the ins and outs of shipping. One of the important things you must learn is the rules and regulations of transporting products from one place to another, using various shipping methods.
In the shipping line, these regulations are called incoterms. While many types exist, FCA incoterms are used widely by many buyers and sellers. So if you’re wondering what FCA incoterms are? And what restrictions these terms have for buyers and sellers along with their advantages and disadvantages. You will get all the answers here.
What is FCA Incoterms?
The complete form of FCA is “Free Carrier” according to ICC.
In typical FCA shipping, the seller delivers the goods from their warehouse (in the origin country) to the origin port. The origin port is also formally called the “Named Place” by the buyer. Therefore, this “named place” could be a specific terminal at the seaport, an airport, or any other location mentioned in an FCA agreement by the importer.
The seller is also accountable for arranging a pre-carriage service to transfer the goods from their premises to the named destination.
Furthermore, they are responsible for obtaining the export license and clearing all the monetary charges related to exportation.
On the other hand, the buyer loads the container on the carrier (for example, a cargo ship) arranged by themselves. As well as transfer goods to their warehouse after unloading them on the import port of the destination country. And bear all the risks and costs during the shipping.
This signifies that buyers have to pay the major part of the cost than the seller.
How FCA Works in Shipping?
First things first, both buyers and sellers are free to decide the mode of shipping. Therefore, in FCA incoterms, if the importer wants goods to be sent via airfreight, they are free to arrange this type of carrier if they can afford the transportation charges associated with it.
Although insurance is not mandatory for both buyers and sellers using FCA shipping, they have the free will to decide that whether or not they would like to get an insurance policy.
So, assuming that both parties clear all export and import formalities. And “sea freight” is chosen as the main transportation, then this is how goods are sent from the seller’s country to the buyer’s country in FCA shipping terms:
Steps on Sellers’ Side under FCA
- Step 1
- Goods uploaded by the seller on a local carriage (truck, van, etc.)
- Step 2
- Seller brings the carriage to the export port
- Step 3
- Exporter/seller keeps items on the port of export
Steps on Buyers’ Side under FCA
- Step 1
- Importer’s appointed person or the shipping company comes to unload the goods from the truck (the same carriage arranged by the seller)
- Step 2
- After unloading, the goods are loaded on the cargo vessel at the origin port under the buyer’s supervision, and the shipping process begins
- Step 3
- Once the goods reach the destination port (import port), the buyer transfers all the goods from the vessel to the local carriage
- Step 4
- The local carriage (truck in most cases) moves to the buyer’s premises (warehouse, factory, or any other place)
- Step 5
- Once commodities reach, the buyer unloads them from the truck and keep them on their premises As you can see, sellers are accountable for minimum steps, whereas buyers have more duties to fulfill in FCA incoterms.
Example of FCA Incoterms
Let’s learn about FCA incoterms with an example.
“Ali the Seller” from China had a business contract with “John the Buyer” in Canada to ship 10,000 denim shirts.
Both parties agreed on FCA incoterms. So, when Ali the Seller completes all the export documentation and receives clearance from the authorities, he will deliver the goods to a port in China (origin port).
“Ali the Seller” will be responsible for the entire consignment’s safety and delivery until he hands it over to the agent or transporter by John the Buyer (who will be there at the port of origin).
Now, the transporter or the agent will be responsible for delivering the goods from the origin port to the destination port so that John can get the shipment.
So, as you can see in the above example, the seller’s duty will remain active until the goods are delivered to the port of origin. And then, the buyer will take responsibility for transporting goods from the port of origin to the destination port.
While the seller is not obligated to arrange main transportation and pay for its charges from the port of origin to the port of destination, they can still organize it if requested by the buyer. However, even in that case, the buyer will bear all the main freight expenses.
Buyers or Importer Responsibilities under FCA
1. Origin Charges on Terminal
The buyer will pay the cost of the shipping terminal. It is the point where the cargo is loaded on a designated ship or vessel for further transportation to the point of destination.
2. Loading Charges
The shipping service includes loading charges, and the buyer will have to pay the price.
3. Carriage Charges
The importer pays freight charges to transfer commodities from the origin port (seaport or airport) to the mentioned place.
4. Destination Charges on Terminal
A buyer also makes payments for the terminal charges when the shipment reaches the destination port. These charges include unloading, holding, and transferring the load as it remains there until all the import formalities are completed.
5. Delivering Goods to the Destination
All buyers are responsible for transporting imported goods from the destination port to other places of their choice, like a warehouse.
6. Unloading Goods at the Destination
When the goods are delivered, the buyer has to bear any unloading cost.
7. Import Duty and Customs Clearance
All the duties and taxes related to import and customs clearance are the buyer’s responsibilities. In case of any inspection by the authorities, the buyer will have to obey the orders.
Sellers or Exporters Responsibilities under FCA
1. Export Standard Packaging
Some countries demand unique packaging of the export goods. A seller must pack goods in a way that meets the importer’s country packaging criterion to make export successful.
2. Export Duty and Customs Clearance
The seller is responsible for expenses related to export taxes and duties required in their country. They must also ensure customs clearance and prepare to handle any special clearance or shipment inspection if the officials require it.
3. Arranging Pre-Carriagee
As a seller, you have the responsibility to organize a pre-carriage in order to take the products from your warehouse to the named place (origin port). In this entire process, you have to bear the expenses for loading goods from your storage facility or warehouse on the pre-carriage, such as a truck. As well as, you will also pay for the pre-carriage transportation charges from your warehouse to the port of origin.
What Sellers Have to Do under FCA
Sellers or exporters are bound to several FCA obligations, such as:
- With the deliverance of goods, the seller must also deliver the evidence of conformity and commercial invoice
- Must deliver all the goods at the agreed location (origin port under most cases) within the specified date or period. In case the time isn’t mentioned, all the goods shall be handed over to the carrier
- Until the delivery on the origin port, the seller is responsible for any kind of damage or loss of the goods
- Must give the proof of delivery with any other transportation documents in case arranged by the buyer itself
- Bear all clearance expenses (inspection, security, license, etc.) needed for the export process, as well as provide assistance with the import clearance
- Obligated to check, weight, mark, count, and pack goods
- Notify the buyer about the delivery of goods or if the carrier fails to receive goods
What Buyers Have to Do under FCA
According to FCA incoterms, buyers or importers have the following obligations:
- Pay the agreed price for goods
- Responsible for any damage or loss after receiving the goods from the seller. If the buyer is unable to arrange a carrier. Or if the carrier fails to pick the goods, such risks are also under the buyer
- Contacting carriage service for transportation
- Instruct for goods safety and take transport documents from the carrier
Pros and Cons of FCA Incoterms
Advantages of FCA for Sellers
- FCA incoterms are cost-effective for sellers because the majority of expenses are on the buyers
- The buyer is always bound to the terms made with the seller and cannot refuse from fulfilling responsibilities
- Minimum chances of the goods being damaged or lost
- Only needs to arrange and pay for the pre-carriage to make the goods available at the origin port
- Don’t have to pay for the main transportation or terminal charges
- It saves insurance money as the seller is not obligated to purchase it
Advantages of FCA for Buyers
- It is simple to track the shipment
- Purchasing an insurance policy is not compulsory in an FCA agreement
Disadvantages of FCA for Sellers
- Required to pay for pre-carriage transportation, loading goods on it, transporting them to the origin port, and export formalities
Disadvantages of FCA for Buyers
- Responsibility for loading and delivering commodities from the seller’s country port to the designated location
- Any loss or damage during the delivery from the origin port to the named place (in the destination country) is upon the buyer
- Have to bear the total freight charges for the main carrier to transport commodities from the origin port to the destination port
- Shipping responsibilities are more for buyers
What is the Meaning of Risk Transfer in FCA Incoterms?
Remember that FCA terms give exporters the duty for hiring a pre-carriage service to deliver goods from their warehouse to the origin port (named place). When the pre-carriage reaches the origin port, and the goods are received by the importer’s nominated party or a shipping company, the risk automatically transfers from the selling party to the buying party.
Who Pays for the Customs Clearance in FCA Incoterms?
As a seller, you are charged with the taxes and duties related to the export. You are also obligated to pay for the pre-carriage. Besides, you are also responsible for collecting important exports documents.
Contrarily, the importer is also charged with main transportation expenses until the goods reach the destination port. Buyers also pay for the pre-carriage to transport the goods from the destination port to their respective warehouse or facility. Similarly, the buyer is obligated to pay for the import customs clearance at their customs office.
Who Should Use FCA Incoterms?
FCA mostly favors the seller. The reason is that they are not accountable once they have delivered the goods at the origin port to a nominated shipping company or a person by the buyer.
Contrarily, being a buyer, these incoterms are costly and risky, as most of the time, the importer has to pay the amount for the losses and damages due to the long shipping duration.
FCA for Importing Goods from China
China is a leader when it comes to the exportation of various goods. Chinese exporters rely more on FOB compared to FCA. However, if you still want to import from China under Free Carrier Incoterms, here are a few tips for you:
- Ask the exporter if they are comfortable with the FCA incoterms.
- Find a reliable sourcing company in China, like Jingsourcing, so you can get all the information about the Chinese exporters willing to work on an FCA China
FCA vs EXW vs DAP
FCA vs EXW
EXW or Ex-Works is a popular incoterm. However, the only difference between FCA and EXW is the insurance policy.
While the FCA agreement frees both buyers and sellers from buying an insurance policy, and it is up to them to get their products insured. But in EXW, the buyer is obligated to arrange an insurance policy.
FCA vs DAP
In DAP (Delivered At Place), the seller delivers the goods at the buyer’s named places, usually in the destination country. Whereas, in Free Carrier, buyers arrange and pay for main shipping to receive goods.
However, in both incoterms, insurance is not an obligation for both parties.
Final Words
FCA incoterms divide the responsibilities between the buyer and seller, permitting them to share the import and export process burden. Although buyers have a few more obligations than sellers, these terms are still beneficial for both parties to successful shipping.
