What Are FCA Incoterms Rules? Meaning for Buyers and Sellers

Today’s ecommerce landscape is more globally interconnected than ever. With just a few clicks, the average consumer can purchase a product made in Korea from a Canadian retailer and have it delivered to their US doorstep within days.

For ecommerce business owners, understanding and mastering international shipping can make the difference between scaling successfully across national boundaries and drowning in unexpected shipping costs and logistics. Explore one of the more popular and versatile methods used in international trade, known as Free Carrier (FCA).

What are FCA Incoterms rules?

FCA (Free Carrier) is one of 11 standardized International Commercial Terms—known as Incoterms—developed by the International Chamber of Commerce (ICC) to define a variety of shipping agreements between buyers and sellers.

The 10 other Incoterms are:

• CFR (Cost and Freight)

• CIF (Cost, Insurance, and Freight)

• CIP (Carriage and Insurance Paid To)

• CPT (Carriage Paid To)

• DAP (Delivered at Place)

• DDP (Delivered Duty Paid)

• DPU (Delivered at Place Unloaded)

• EXW (Ex Works)

• FAS (Free Alongside Ship)

• FOB (Free on Board)

The various Incoterms, established in the 1930s, clarify who is responsible for shipping costs and risks in international commerce. Buyers and sellers negotiate which Incoterms apply in their contract, often with the help of trade attorneys.

Under FCA shipping terms, the seller is responsible for delivering goods that have been cleared for export to a carrier picked by the buyer at a named place, such as a cargo port, airport, or rail depot. (The named place, in some cases, also can be the seller’s premises or warehouse before the cargo is loaded.) Once the seller delivers goods to the carrier, the risk of damage or loss transfers to the buyer, who then assumes responsibility for the rest of the journey.

Incoterms are often defined by the mode of carriage—an old-fashioned term for transportation. FCA Incoterms apply to goods shipped by boat, air, rail, or truck, while others—like FAS or FOB—are used only for sea or inland waterway shipments.

Sellers and FCA

Under FCA Incoterms, the seller’s responsibilities are:

• Goods and documentation. The seller must provide the goods as described in the sales contract, along with a commercial invoice. The seller must also obtain and provide any export licenses or authorization required by the export country, as well as any documentation needed for verification or pre-shipment inspection of goods.

• Pre-carriage. The seller is responsible for delivering the goods to the carrier at the named place. If the location is the seller’s warehouse, the seller is responsible for loading the goods onto the carrier’s means of transport. If the named place is an export terminal, the seller is responsible for arranging transport there.

• Proof of delivery to the carrier. The seller must provide the buyer with proof that the goods were handed off to the designated carrier.

• Export costs and clearance. The seller covers all costs associated with export customs clearance, including export packaging, export duties, taxes, and other fees charged by the export terminal and country of origin.

Under some Incoterms, the seller, buyer, or both are required to carry insurance to cover the portion of the shipping journey over which they assume risk. Under an FCA agreement, there is no such requirement on either the seller or the buyer, but either may elect to do so for the segment over which they bear the shipping risk.

Advantages

A seller enjoys several advantages under an FCA agreement, including:

• Limited liability. The seller’s responsibilities end once the goods are delivered to the carrier at the named place.

• Reduced shipping costs. The seller does not pay for the main carriage—often the single greatest expense in a transaction—beyond the cost of the goods themselves.

• Export control. The seller maintains control over the export clearance, usually in the seller’s country, where they’re familiar with local export requirements, regulations, and processes.

Disadvantages

FCA poses a few disadvantages for sellers, including:

• Reduced control. Once goods are handed off to the carrier, the seller has little say over how they’re handled or transported.

• Some loading charges. The seller remains liable for the cost of loading the goods if the named place is the seller’s own place of business.

• Administrative burden. Because the seller must handle all export clearances and associated paperwork, they can incur significant administrative costs.

Buyers and FCA

Under an FCA agreement, the buyer’s obligations are as follows:

• Carrier selection. The buyer chooses the carrier that accepts the goods from the seller at the named place and transports them to the final destination.

• Carriage, transportation, and terminal costs. The buyer pays the carrier to pick up the goods from the named place and deliver them to the buyer’s premises, whether that’s a warehouse or storefront.

• Transport from seller’s premises (if applicable). If the named place is the seller’s place of business, the buyer must cover the costs of transporting the goods from the named place to the export terminal and any loading charges there.

• Import clearance. The buyer is responsible for covering costs for all import customs formalities, including import duties, taxes, and terminal charges.

• Transport from the import terminal to the buyer’s premises. The buyer pays to unload the goods at the destination port, and is responsible for arranging local transport to their premises.

Advantages

From a cost standpoint, FCA agreements tend to favor sellers, but there are a few advantages for buyers too, including:

• Carrier control. The buyer chooses the carrier or shipping line, and usually can more easily track and manage scheduling. This control also enables buyers to consolidate shipments from multiple nearby suppliers into a single load, improving efficiency.

• Optimized shipping costs. Because buyers select the carriers and are responsible for a bigger portion of the shipping costs, they can negotiate freight rates and potentially obtain better pricing than a seller.

• Customs efficiency. Because sellers manage export clearance in their own country, where they’re familiar with local regulations, buyers can defer to the seller’s existing knowledge and avoid navigating foreign export formalities.

Disadvantages

The buyer’s disadvantages under an FCA agreement might include:

• Carriage and transport costs. The buyer arranges and pays for all the main transportation logistics, from the named place onward. And because the named place is often the seller’s place of business, the buyer can wind up covering nearly all transport costs throughout the shipping journey.

• Earlier assumption of risk. The buyer assumes responsibility over the goods the moment they’re handed over to the carrier at the named place—often early in the shipping process, sometimes even at the seller’s own premises.

• Administrative burden. Import clearance is the buyer’s responsibility, as are the costs for inspections, duties, and taxes.

When are FCA agreements used?

FCA agreements are commonly used when buyers order bulk quantities delivered by containerized cargo and want greater control over the shipment. They might want greater control of the shipping logistics process for various reasons, such as when goods are high in value, fragile, or tied to time-sensitive commitments with their customers.

An experienced buyer of certain goods might also have established relationships with carriers, enabling them to secure more favorable freight rates. High volume buyers, in particular, are often well-positioned to negotiate discounts.