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Free Carrier (FCA) Incoterm: Meaning, benefits, example

Free Carrier (FCA) Incoterm states that the exporter is responsible for delivering goods to the destination specified by the importer. Learn more about it here.

International trade transactions can be complex and challenging with risk of delays, damage, and potential financial losses. To address these complexities, the International Chamber of Commerce (ICC) introduced Incoterms, a set of standardized rules that clarify the responsibilities of sellers and buyers. One such rule is the FCA (Free Carrier) Incoterm, which specifies that the seller is responsible for delivering the goods to a carrier or location chosen by the buyer. In this blog post, we discuss what FCA is, how it works, and the responsibilities it places on exporters and importers.

What is Free Carrier (FCA) Incoterm?

Free Carrier (FCA) Incoterm states that the exporter is responsible for delivering goods either to their own premises (loaded onto the vehicle) or to a destination specified by the importer, such as an airport, warehouse, office or port. The word ‘free’ signifies that the exporter assumes responsibility and liability of goods during transit, while the importer is free from these duties. The exporter typically includes transportation cost in the price and remains liable until the goods reach the agreed destination.¹

What are FCA shipping terms?

The FCA shipping terms outline the responsibilities of both the exporter and importer in the delivery process. Some key aspects are as follows:

• The exporter is responsible for delivering goods to a specified location, handling export formalities like documentation, customs clearance, packaging, and pre-shipment inspection costs. If the delivery location is the exporter’s premises, the seller is responsible for loading the goods onto the importer’s carrier.
• The importer assumes responsibility for the goods once delivered, paying for the goods, unloading them, covering transportation costs, and managing import formalities, including duties and taxes. Risk transfers to the buyer upon delivery.

What are the Free Carrier (FCA) Incoterms 2020 rules?

In 2020, the ICC published an updated version of the Incoterms. Here's a breakdown of some key updates to the Free Carrier (FCA) terms as per Incoterms 2020:

Bill of lading: Incoterms 2020 allows the exporter to request the carrier to issue an on-board bill of lading on the buyer’s behalf to simplify compliance with letters of credit.

Delivery location: Incoterms 2020 clarifies that the seller's responsibility ends either at their premises (after loading goods onto the vehicle) or at a terminal/location designated by the buyer.

How does Free Carrier (FCA) Incoterm work?

Exporters and importers engaged in international trade can use FCA shipping terms to highlight the nature of the transaction, terms, and to describe any transportation point. The number of transportation modes has no impact on the shipping process. The importer and exporter agree on the final delivery point for goods and the exporter is responsible for timely delivery. The importer is not expected to handle export licenses and transportation process.

Example of FCA Incoterm

Let’s explore an example of FCA Incoterm to understand how it works:

• Party A is responsible for preparing, packaging, and transporting the goods to XYZ's warehouse.
• Once the goods are delivered to XYZ, Party A’s responsibility ends.
• From that point, Party B assumes all risk and responsibility, even if the goods haven’t been loaded for shipping yet.
• Party B arranges and pays for the main transport to the final destination.

In this scenario, if any damage or loss occurs after Party A has delivered the goods to XYZ's warehouse, it would be Party B's responsibility, as the risk transferred to him at the FCA delivery point.

Documents required for FCA Incoterm

The following are some documents that are commonly required in FCA transactions:

Bill of lading

Bill of lading is a legal document issued by a carrier to a shipper, serving as proof of ownership, a receipt for the goods shipped, and a contract detailing the type, quantity, and destination of the cargo.

Commercial invoice

Commercial invoice is a document from the exporter to the importer that outlines details of the sold goods, their description, quantity, price, and terms of sale, and are primarily used for customs and payment processes.

Export license

It is an official document from the government that allows the export of specified goods, in defined quantities, to a particular destination for a designated purpose.

Insurance certificate

This is an official document that confirms the existence of valid insurance coverage for a person, entity, or business.

Industrial license

This is an official authorization granted by the government to an industrial unit, permitting it to manufacture specific products. It is a compulsory requirement for certain industries to operate legally in India.

Packing list

Packing list is a document prepared by the shipper that provides detailed information about a shipment, including the name, quantity, weight, dimensions of items, and any relevant shipping and handling details^.5

Exporter’s obligations under FCA Incoterms

These responsibilities clarify the exporter's obligations under the FCA Incoterms.

Goods packaging

The exporter is responsible for securely packaging the goods to ensure safe transport.

Compliance with terms

The exporter makes sure that the goods meet all contractual and export requirements.

Delivery location

The exporter must deliver the goods to a designated location, such as a port or transportation hub.

Loading responsibility

The exporter takes charge of loading the goods onto the importer’s carrier if the delivery takes place at the exporter’s premises.

Required documentation

The exporter provides essential documents, including invoices and packing lists.

Risk management

The exporter is accountable for the goods until they are delivered to the nominated place.

Shipping expenses

All transportation costs are covered by the exporter until the goods reach the agreed location.

Notification of delivery

The exporter must notify the importer of the estimated delivery date and location.

Importer’s obligations under FCA Incoterms

In the FCA Incoterms, these are the importer’s key responsibilities:

Receiving the goods

The buyer is responsible for being present to accept the delivery at the specified location.

Arranging transportation

The buyer organizes and finances the shipping from the agreed place to the final destination.

Managing import procedures

The buyer handles all customs clearance, documentation, and related costs.

Risk transfer

The buyer assumes risk once the goods are loaded onto their designated carrier at the delivery point.⁶

What are the benefits of FCA Incoterm?

Some benefits of FCA Incoterms are:

Versatility

FCA accommodates all transportation modes, making it suitable for both small domestic transactions and large-scale international shipments.

Clear responsibilities

It provides clear guidelines on delivery points, risk transfer, and the responsibilities of both the buyer and seller, assuring that there is no confusion in the contract.

Simplified carrier cost management

Both parties can choose their own carriers and transport methods for their respective portions of the journey, simplifying cost management.

What are the drawbacks of FCA Incoterm?

While there are several advantages, there are also a few drawbacks of FCA Incoterms that parties should be aware of:

Logistical challenges

Coordinating multi-modal transportation can be complex and costly for sellers, especially for those with limited experience in global shipping.

Regional discrepancies

Variations in local customs and practices can lead to different interpretations of FCA terms, which may complicate cross-border transactions.

When to use FCA Incoterm?

FCA Incoterm is highly flexible, making it suitable for various situations where both parties agree on its terms:

Multi-modal transport

FCA is ideal when goods are transported using multiple modes, such as truck, train, and ship, since it can be used across all transport methods.

Buyer-arranged shipping

When the buyer prefers to have control over the shipping process, including selecting their carrier, FCA works well as the seller's responsibility ends upon delivery to the agreed location or carrier.

Customs clearance by seller

FCA works for sellers who can efficiently handle export clearance at their location while allowing the buyer to manage subsequent logistics.

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More blogs on incoterms

1. What is Delivered at Terminal (DAT) incoterm?

2. What is a Cost and Freight (CFR) incoterm?

3. All you need to know about Free Alongside Ship (FAS) incoterm 2020

4. Guide to FCL shipping: Everything exporters need to know

5. What is Carriage Insurance Paid (CIP) in incoterms?

6. What is Freight on Board: How does it work in shipping?

7. What is a Container Freight Station (CFS) and its role in shipping?

8. What is Cost, Insurance and Freight (CIF) in shipping?

9. What are incoterms in exports: Here’s everything you need to know

10. What is EX Works (EXW) incoterm in international trade?

Frequently Asked Questions

What is the difference between FCA and DDP?

Under DDP (Delivered Duty Paid), the exporter is responsible for covering transportation, customs clearance, and delivery to the importer’s final location. However, under FCA, the exporter’s responsibility ends once the goods are delivered to the buyer’s carrier at a previously agreed-upon location.

Are FCA and EXW the same?

No. Ex Works or EXW requires the exporter to deliver the goods at their own premises, and the importer handles the rest. FCA states that the exporter must deliver goods to a specific location and the importer takes over from there.

Who pays freight in FCA Incoterms?

Under FCA Incoterms, freight cost is usually paid by the importer.

Who does customs clearance in FCA?

Under FCA, the exporter is responsible for export customs clearance while the importer handles import customs clearance at the destination.

What does FCA origin mean for shipping?

FCA origin means that the exporter can deliver goods at a decided place, which can be the exporter’s premises or any other named place.

What is the difference between FCA and FOB?

Under FCA, the seller is responsible for delivering goods to a designated location but is not responsible for loading them onto the importer’s carrier. Since FOB is mainly used for waterway transport, the seller is responsible for delivering goods to the designated port of shipment. Under FOB, the seller is also responsible for loading the goods onto the carrier.

Published on November 29, 2022.

Sources:
1. https://www.shippingsolutions.com/blog/Incoterms-2020-fca-spotlight-on-free-carrier.
2. https://www.tradefinanceglobal.com/Incoterms/fca-free-carrier/
3. https://www.investopedia.com/terms/f/fca.asp.
4. https://www.investopedia.com/terms/f/fca.asp
5. https://www.dripcapital.com/en-in/resources/blog/fca-Incoterms#5
6. https://www.johnpipe.co.uk/navigating-fca-Incoterms-understanding-free-carrier-shipping-terms/.
7. https://www.ecommercefulfilment.com/en/resources/shipping/fca-Incoterms/

What is an Importer of Record (IOR)?

What is a deferred payment letter of credit?

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