Free Carrier (FCA): Incoterm in International Trade

August 31, 2024 5 min read International Trade Logistics Incoterms Trade Supply Chain Shipping Risk Management

The term Free Carrier (FCA) is an International Commercial Term (Incoterm) where the seller delivers goods to a terminal or another named place, covering initial transportation risks and costs.

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Free Carrier (FCA) is an International Commercial Term (Incoterm), established by the International Chamber of Commerce (ICC), used in international trade to specify the point at which the seller transfers the risks and responsibilities to the buyer. According to FCA terms, the seller is responsible for delivering goods, cleared for export, to the buyer’s carrier at a named place which could be a terminal, warehouse, or another specific location. The seller covers all costs and risks up to that named place, but no further.

Definition and Key Components

Meaning of Free Carrier (FCA)

Under the FCA incoterm, the seller fulfills their obligation when the goods are handed over to the carrier specified by the buyer at the agreed-upon location. Here’s a breakdown of the main components:

Delivery Point: The seller delivers the goods to a location specified by the buyer which could be a terminal, warehouse, or a specific location.
Cost and Risk Transfer: The seller bears all costs and risks of transportation up to the delivery point. After this, the buyer takes over the costs and risks.
Export Clearance: The seller is responsible for clearing the goods for export, which includes obtaining necessary export licenses and handling customs formalities.

Types

FCA can be applied in different contexts:

FCA at Seller’s Premises: The seller is responsible for loading the goods onto the buyer’s transport at the seller’s location.
FCA at Another Named Place: The seller delivers the goods to a terminal or another specific location named by the buyer.

Special Considerations

Responsibilities of Buyer and Seller

Seller’s Responsibilities:
1. Export packaging.
2. Loading the goods onto the buyer’s carrier if the place is at the seller’s premises.
3. Export customs clearance.
4. All costs and risks up to the place of delivery.
Buyer’s Responsibilities:
1. Unloading costs and risks after the named place.
2. Import customs clearance and duties.
3. Any further domestic transportation and handling.

Initial Transportation

Depending on where the FCA term is applied (seller’s premises or another named place), outlining the initial transportation arrangements clearly is crucial. Misunderstandings can lead to disputes over who is responsible for damage or loss during this phase.

Examples

To illustrate, assume a German machinery manufacturer sells a machine to a buyer in Japan under FCA terms. If the agreed delivery point is the Hamburg terminal:

The German seller must transport the machinery to the Hamburg terminal, load it onto the carrier arranged by the buyer, and cover the related costs and risks.
Once the machine is placed onto the carrier, the risk and cost responsibilities shift to the Japanese buyer, who then assumes all further transportation costs including those incurred in shipping from Hamburg to Japan.

Historical Context

The term Free Carrier (FCA) was introduced by the International Chamber of Commerce (ICC) in 1980 as part of a series of international trade terms known as Incoterms. The aim was to create a common understanding and reduce miscommunication in international trade transactions. Incoterms have since been updated periodically, with the most recent being Incoterms 2020.

Applicability in Modern Trade

FCA is commonly used in various industries, especially where initial transportation requires specific handling by the seller. It offers flexibility and cost-effective solutions for buyers looking for clear delineation of responsibilities.

Comparisons

FCA vs. FOB (Free On Board)

FOB (Free On Board): Also an Incoterm, where the seller’s responsibilities end once the goods are loaded onto the shipping vessel at a named port.
Key Difference: FCA requires the seller to deliver goods to a carrier at a specified place, while FOB involves the seller loading goods onto a vessel at a port.

FCA vs. EXW (Ex Works)

EXW (Ex Works): The seller makes the goods available at their premises, and the buyer bears all risks and costs from there.
Key Difference: EXW imposes minimal responsibility on the seller; the buyer arranges pickup and handles all export procedures.

Incoterm: A standardized set of international trade terms created by the ICC to define buyers’ and sellers’ responsibilities.
Carrier: The entity (e.g., transportation company) responsible for moving goods from the seller’s hand to the buyer.
Export Clearance: Process involving formalities and obtaining permits needed to move goods out of a country.

FAQs

What does FCA mean in shipping terms?

FCA in shipping terms means the seller delivers goods to a named place, covering transport risks and costs up to the point where the goods are handed to the buyer’s carrier.

Who arranges the transportation in FCA?

While the seller handles transportation to the delivery point, the buyer coordinates and arranges for the carrier from that point onward.

Is insurance covered under FCA terms?

No, FCA does not carry an obligation for any party to insure the goods. Insurance should be arranged separately by the party bearing the risk in transit.

References

International Chamber of Commerce (ICC). “Incoterms 2020.” ICC, 2020.
Jan Ramberg, “Incoterms 2020: PDF Handbook on Terms and Standards.” ICC Publishing, 2019.

Summary

Free Carrier (FCA) is a versatile and widely-used Incoterm in international trade, detailing a precise point of transfer for costs and risks from seller to buyer. With FCA terms, sellers are responsible for delivering goods to a specified location, taking on the initial transportation costs and risks, while buyers handle everything thereafter, making it ideal for various logistical scenarios in modern trade.