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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.
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.
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:
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.
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.
The shipping service includes loading charges, and the buyer will have to pay the price.
The importer pays freight charges to transfer commodities from the origin port (seaport or airport) to the mentioned place.
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.
All buyers are responsible for transporting imported goods from the destination port to other places of their choice, like a warehouse.
When the goods are delivered, the buyer has to bear any unloading cost.
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.
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.
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.
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.
Sellers or exporters are bound to several FCA obligations, such as:
According to FCA incoterms, buyers or importers have the following obligations:
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.
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.
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.
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:
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.
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.
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.