In the FCA Incoterm, the seller is accountable for the bulk or all export information at the point of origin. At the same time, the buyer is accountable for the destination operation and specific origin-related operations.
The term can be interpreted in various ways and implies sellers are accountable for the goods until they reach an agreed-upon location, typically the airport or the sea. However, it can also be the forwarder's warehouse or the seller's factory.
Today's article highlights the responsibilities of the buyers and sellers under the FCA agreements, explaining the circumstances when one may need FCA Incoterm.
Did You Know?
Experts suggest that any party taking part in international trade must consult with an ideal legal professional before you use any trade term mentioned in a contract. This can be a trade attorney.
What Are FCA Shipping Terms?
Free carrier in shipping is a type of Incoterm used in international trade. FCA Incoterm specifies that the seller is responsible for the shipment's export to a certain port. The seller is also responsible for the steps before the shipment is loaded onto the carrier. Once the goods are ready for shipment, the buyer assumes responsibility for them.
It is convenient to share the transportation costs between buyers and sellers. The seller delivers goods to a designated place, and this is known as the "named place of delivery." Once the goods are delivered to the carrier, the risk of loss and damage passes to the buyer.
The buyer must complete import and export formalities before the goods are considered delivered. The seller usually carries the cost of these procedures. However, the buyer may be responsible for paying these fees. This type of agreement is common when goods are shipped to overseas destinations.
FCA Incoterm is also used when air cargo is shipped. With this type of agreement, the seller makes the goods available at the buyer's facility. However, in FCL and LCL cargo, the seller must deliver the goods to a designated warehouse for consolidation.
The carrier can take delivery of the goods of numerous different types. Road carriers, freight forwarders and ocean carriers take delivery of the goods, which can include a Bill of Lading. If the seller isn't willing to accept FCA Incoterms, he or she may opt for an EXW.
Also Read: Container Freight Station: Meaning, Functions and Importance
With FCA Agreements, Which Responsibilities Buyers and Sellers Must Consider?
Now that you know FCA's meaning in shipping, you must know the responsibilities as a buyer/seller as well.
Sellers Responsibilities
A common example is when Joe Seller ships goods to Bob Buyer and Bob elects to ship the goods using a particular shipper. The seller agrees to deliver the goods, and he is responsible for paying the costs of loading and transporting them to the specified destination.
After delivery, the liability for the goods passes to Bob. However, the seller can request additional compensation if he feels he has done something incorrectly in shipping.
Here are some common issues to consider when selling goods under free carrier shipping.
- Before selling, consider how the transaction will affect the shipping and transportation costs.
- The seller is responsible for export clearance and shipping documents.
- The seller should ensure that the buyer understands what FCA stands for. The buyer pays the carrier, loading charges and forwarding charges in the FCA shipping term.
- Sellers should also be aware of the risks and costs associated with transporting goods.
- The cost and responsibilities come when formally exporting the cargo out of the source country. This could include customs exams and pre-shipment inspections and any other special authorisation required for the export of the cargo.
- The seller should avoid this situation and ensure that all relevant costs are covered before signing a contract. Otherwise, it will be difficult to make the sale and make the buyer happy.
- When the cargo is loaded onto the truck, the costs that are incurred in transporting the items from the place of sale to the designated port or the location from which the cargo is exported are upon the seller.
Buyers Responsibilities
- Origin Terminal Charges: All costs and requirements related to the shipping terminal from which the cargo is loaded onto the vessel.
- Carriage charges: These are the freight charges for moving cargo from the port at origin to the port at the destination.
- Cargo Loading: The shipping company will charge a loading fee to load cargo onto the carriage.
- Insurance: Although insurance is not an obligation, it is up to the buyer to decide if they want to purchase insurance.
- Delivery to Destination: The cargo transport from the port at the destination to the buyer's desired delivery destination.
- Destination Terminal Fees: Any terminal charges associated with unloading, transferring and holding the cargo while waiting for formal import procedures are paid once the cargo arrives at the destination port.
- Unloading at Destination: Any charges associated with loading the cargo at the buyer's delivery address.
- Import Duty, Taxes and Customs Clearance: The buyer is responsible for all costs and responsibilities incurred in importing goods. The buyer must comply with any customs requests or pay duty or taxes if there are any inspections.
Advantages and Disadvantages Of FCA Incoterms
After Looking at FCA terms, let’s understand what the benefits & drawbacks of FCA Incoterms are:
Advantages
FCA's use of FCA Incoterms allows buyers to have greater control and frees the documentation burden. Buyers can choose the preferred carrier or transportation method. This could help delay delays and also save money. Additionally, the buyer does not need to handle the formalities involved in exporting. This is because these are the seller's obligations under the FCA agreement.
The arrangement can also be beneficial to the seller. The transportation of the merchandise will limit the seller's responsibility to the specified location of the buyer in his own country. In terms of price, the seller's obligation is very limited. He's only responsible for the transportation costs for getting the merchandise to the agreed place for shipment to the shipping company/shipper. That's all there is to his obligation and expense.
Another important factor is the payment process, favouring buyers in this instance. The time frame for payment can begin when the goods have been delivered to the customer's address. In case it's not possible, the seller will have to wait until the goods arrive at their final destination.
Disadvantages
In terms of drawbacks, the important disadvantage is that the purchaser is still a participant at the point of origin. This means that there are charges for loading and terminals to the purchaser. Because of this process, it could result in a delay in the delivery if there are issues. In this case, the buyer would need to wait for the seller to resolve the matter.
The International Chamber of Commerce (ICC), which is the responsible party for Incoterms, suggests that you use FCA only in containers used for shipments. The reason for this is that the containerised item will be moved from the place of sale directly to the destination. Thus, by default, the location agreed upon is the terminal. Moreover, the risk shifts to the buyer when all export formalities are completed.
If the location of the agreement is not the terminal that is the terminal, then the risk to the buyer is only transferred after the goods have arrived at that place. In the meantime, the buyer will have to pay for the expense of unloading the goods at the designated location. In addition, the buyer must also complete the formalities to export and pay costs for loading the carriage and transporting it up to the destination.
Another issue is that in a few nations (such as China), FCA Incoterms is not very popular or, in some cases, the parties aren't aware of the law. In case an outside party insists on FCA and the other party isn't at ease with it, there could be confusion. Therefore, it's always recommended to choose Incoterms, which both sides can agree on.
Also Read: The Meaning of a Shipping Bill and Its Relevance in Customs Clearance
When to Use an FCA Agreement?
The application of FCA is the most beneficial in the following circumstances:
- If a buyer frequently purchases containers with a highly reliable logistical company, then the use of FCA can be extremely helpful.
- Buyers are required to make use of FCA only when they have an extensive understanding of the process and the documentation of the seller's country.
- When the purchaser is certain that their logistics company will be able to provide a better offer over what the seller could cost.
- If the seller is also a fan of FCA Incoterms, this shipping arrangement is beneficial for both parties.
Conclusion
A Free Carrier, also known as FCA, is one of the most popular Incoterms which can be used for any type of transport, including intermodal (air ocean, air and railway). Additionally, it is adaptable as it provides buyers more options in arranging for transportation and makes it easier to negotiate the freight price.
Furthermore, it is suitable for all scenarios where the buyer is responsible for the transportation logistics. The seller is not required to dedicate his time and effort to further processing or ensuring that the merchandise arrives at the place of destination for the customer.
The shipping business requires a lot of online payment transactions, and keeping a record of all of those transactions becomes hard.
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