See how FCA Incoterms help to simplify the process of the international transportation business using shipping terms, providing the description of responsibilities and risks among buyers and sellers to formulate a non-problematic transaction. Discover how these International standard transportation terms constructed by the chamber of commerce, transport global common language to the trader throughout the world help worldwide traders to implement efficient and effective operations.
Understanding Incoterms
Incoterms are internationally accepted professional terms formulated specifically in relation to international commercial sale of goods, released initially in 1936 solely by the ICC. These terms are comprehended internationally and are installed in the international exchange contracts to determine actions of a buyer and a seller’s location relating to the delivery of products. They include such issues as transport, insurance, and customs formalities.
Incoterms are categorized into two main groups based on the mode of transport: codes in any transport means (EXW, FCA, CPT, CIP, DAP, DPU, DDP) as well as terms for sea and inland waterway transport (FAS, FOB, CFR, CIF). Each term defines particular duties of the buyer and the seller loads of the sales contract like transportation costs that are required to be borne by the buyer’s responsibility to a particular party, insurance risks of loss or damage to the goods.
The Essence of Free Carrier (FCA)
FCA (Freight to Carrier) is a trade term in Incoterms that defines the responsibilities of the seller and the buyer at a specific place of delivery. According to the term, the seller must clear the goods for export, package them, and deliver them to the carrier nominated by the buyer at an agreed place (e.g., warehouse, seaport, airport, or other depot).
Risk and responsibility for the goods pass from the seller to the buyer from the time of delivery. The buyer is responsible for arranging transportation and import customs clearance.FCA is usually applicable to sea, air, road, or intermodal transportation.
Advantages and disadvantages of FCA trade terms
FCA delivery terms offer several benefits, but they also come with a few drawbacks. The table below provides a clear overview of the key advantages and disadvantages of using FCA:
| Advantages | Disadvantages |
|---|---|
| The seller is responsible for export customs clearance, reducing legal and procedural burdens for both parties. | The seller assumes more risk, especially during packaging and delivery stages. |
| The buyer can freely choose the carrier, optimizing international transportation costs. | The buyer faces transportation and management risks after taking delivery of the goods. |
| Applicable to various modes of transport, including road, sea, and air. | If the place of receipt is unclear, it can easily cause confusion in cargo handling. |
| The seller can adjust the selling price based on costs incurred during the delivery stage. | The buyer needs to plan transportation carefully and insure the goods to avoid losses. |
Guidelines for Properly Understanding and Applying FCA under Incoterms 2020
The FCA clause under Incoterms 2020 offers flexibility and can be applied to various modes of transportation and international trade scenarios. However, to use it effectively, it’s essential to have a clear understanding of its principles and specific requirements:
Mode of Transportation
FCA does not restrict the mode of transportation. It applies to all modes of transport, including sea, road, rail, air, and even multimodal transport. This gives buyers and sellers the flexibility to choose the mode of transportation that best suits the characteristics of the goods and the route.
Additionally, FCA is commonly used in situations where goods need to pass through multiple stages of transportation via different modes. For example, the goods may first be transshipped from a truck to a ship and then transported by rail to the final destination. The choice of mode of transportation should be clearly agreed upon to avoid confusion or disputes.
Transfer of goods and risks
Depending on the place of delivery, the goods are transferred to the buyer in two ways:
- Method 1: If the place of delivery is the seller’s location, the seller is responsible for loading the goods onto the means of transportation designated by the buyer.
- Method 2: If the place of delivery is not at the seller’s location, the goods are placed at the carrier’s disposal at the named place and are delivered when ready for unloading.
In both cases, the place of delivery is the place where the risk passes from the seller to the buyer. Any additional costs or risk of damage to the goods are borne by the buyer from the date of delivery.
Specific place of shipment/delivery
Determining the place of delivery is an important requirement under the terms of the FCA. This place not only determines where the risk passes, but also relates to the responsibility and cost of transportation.
Once the place of delivery has been agreed upon, the seller’s responsibility comes to an end. The buyer needs to ensure that accurate location information is provided to avoid unnecessary risks. Additionally, any costs incurred after delivery, such as international freight or insurance, are the buyer’s responsibility.
Import and Export Clearance Obligations
Under the terms of the FCA, the seller is responsible for clearing the goods for export where necessary, including customs formalities, and for bearing any costs associated with the export.
However, the responsibility for import clearance or transit through a third country rests with the buyer. Any import duties or charges incurred in this process are also borne by the buyer. This helps to clearly delineate the obligations of each party in the supply chain.
Bills of Lading Marked “Loaded” Under FCA Terms
A new element of Incoterms 2020 is the requirement that a bill of lading be marked “loaded” when the FCA clause applies. That is, the carrier must provide the seller with a bill of lading marked “Loaded” if so designated by the buyer.
This provision solves the common problem of banks requiring payment of letters of credit against “shipped” bills of lading. It protects the seller’s interest in a letter of credit transaction while maintaining the flexibility of the FCA provisions.
This provision solves the common problem of banks requiring payment of letters of credit (L/C) against “loaded” bills of lading. It protects the seller’s interest in L/C transactions while maintaining the flexibility of the FCA clause.
Responsibilities and obligations of the parties under the terms of the FCA
Under the FCA provisions of Incoterms 2020, the responsibilities and obligations between seller and buyer are clearly delineated to ensure transparency and minimize disputes. The following will help you understand the roles of each party:
| Obligation | Seller | Buyer |
|---|---|---|
| Costs | Any costs incurred before delivering the goods to the agreed location.- Preparing documents, packaging, and marking goods.- Export duties and related fees.- If the delivery point is not the seller’s premises, pay for transporting the goods to the delivery point. | Transportation costs and import duties after receiving the goods.- Unloading at the destination.- Costs arising from delays or damage to goods after delivery. |
| Risk | Bear all risks related to the goods until they are delivered to the agreed point.- If requested by the buyer, provide necessary information to support insurance arrangements. | Purchase cargo insurance if needed.- Bear all risks from the time the goods are delivered at the agreed point or from the agreed delivery time. |
| Transport Contract | No obligation to arrange transportation, but provide necessary information if requested. | Arrange transportation and bear the cost from the delivery point onward. |
| Customs Clearance | Handle export clearance procedures and bear any export duties (if applicable). | Handle import clearance, pay import duties and related taxes. |
| Documents | Provide a commercial invoice and relevant documents, including proof of delivery (if needed). | Assist the seller in obtaining any documents required for export/import procedures. |
- Seller: Responsible for delivering the goods to the agreed place and time, carrying out export formalities, and providing the necessary information.
- buyer: assumes the main responsibility from the moment of receipt of the goods, including the risks, import costs, and subsequent transportation.
Contract value under FCA delivery terms
FCA clauses in international commercial contracts specify the responsibilities and risks of both the seller and the buyer at a particular stage of delivery, directly affecting the value of the contract and the allocation of costs between the parties. Below are the values to look out for in the contract:
- Rail transportation: The seller is responsible for loading the goods onto the railroad cars and ensuring that the goods are delivered to the railroad managers. Risks and liabilities terminate when the goods are accepted by the railroad managers.
- Road transportation: Delivery is completed when the goods are loaded onto the means of transportation and accepted by the buyer’s driver. The seller’s responsibility ends here.
- Inland waterway transportation: the seller’s obligations are fulfilled when the goods are loaded on the vessel specified by the buyer. Risk passes immediately after successful loading of the goods on the vessel.
- Sea transportation: For containerized goods (full container), the seller is responsible for transporting the container to the port area (terminal) and for customs clearance. After the goods are successfully cleared, the responsibility and risk will be transferred to the buyer.
Therefore, the FCA contract value includes both the value of the goods and the time of transfer of costs, obligations and risks between the parties, thus requiring the buyer and seller to clearly agree on the transportation conditions in the contract.
