An Intro to Shipping Terms and FCA Incoterms®

There are 11 different kinds of Incoterms® available for international businesses to use, and choosing the one that is most advantageous to your current import requires a keen understanding of what each term means along with the experience to recognize what makes the most sense in each situation. Today, we’re going to explore the broad concept of Incoterms® in general, with a particular focus on the FCA or “Free Carrier.” It’s an excellent place to start and a great one to compare against when attempting to understand the other ten. 

It’s common for new or even experienced importers to struggle with what an Incoterm® actually is, and even after the concept is well understood, it can be even harder to know which of these terms makes the most sense for your business and imports. One of the more common pitfalls we help importers avoid is the mistaken belief that Incoterms® are a one-size-fits-all selection. Many importers think that if you find a term that works for your current import, you simply apply it to all your dealings without considering the greater context, and that stems from a lack of knowledge of how these terms can help your business deals run more smoothly. 

What is an “Incoterm®?”

Short for “International Commercial Term,” an Incoterm® is a set of globally agreed upon three-letter shorthands for the logistical responsibilities and understandings between buyers and sellers. Devised and managed by the International Chamber of Commerce (ICC), they are updated every ten years, and they provide a common language for importers that can help dictate the rules and understandings in international trade contracts. Generally, Incoterms® cover: 

Delivery - Incoterms® create a mutual understanding around the manner in which goods are going to arrive where they need to arrive. This covers any necessary labeling or documentation that will be required for the goods to cross Customs, along with areas of potential confusion like who is responsible for the unloading and loading of goods at various locations along the import’s journey.

Costs - Incoterms® clearly lay out the the parties who are responsible for paying any fees, duties, taxes, insurance, or any other costs that may arise in the transport of the goods. 

Risks  - Incoterms® set out who is responsible if the goods being delivered become lost, damaged, or otherwise compromised. In a few notable cases, Incoterms® can also dictate who is responsible for insuring the goods during transport.

What Does an ‘FCA Incoterm®’ Mean? 

Popular and flexible, the ‘Free Carrier’ or FCA Incoterm® begins with the seller holding most of the responsibility but soon transitions that responsibility to the buyer. This Incoterms® makes the most sense for arrangements where the buyer has an existing carrier network or better control over their transportation than the seller. 

As is the case with all Incoterms®, it can be broken down into the seller’s responsibilities and the buyer’s responsibilities. 

Seller’s Responsibilities

FCA begins with an agreement of a named location, and under FCA Incoterms®, the seller is responsible for the delivery, costs, and risk associated with the transport of the purchased goods until they arrive at that named location. This includes any fees, duties, documentation, or processing required for clearing Customs en route to the named location.  

Buyer’s Responsibilities

The inverse is true for the buyer. The responsibilities of the two parties flip when the goods arrive at the named location. From the moment the goods are loaded onto the buyer’s collecting vehicle, all the costs and risks associated with delivering the goods fall to the buyer. 

Common Uses

In general, FCA is ideal for buyers who are larger and have more ingrained logistics elements. For example, a business that has its own internal carriers will get a lot of value out of FCA, and it works for the seller as well as the risk and costs associated with the transportation of goods are limited. 

FCA can also provide increased visibility, simplicity, and management over a shipment. Since the buyer is more in control over the shipment after its arrival, they can simply contact the carriers they know and work with for news on the shipment without having to contact the seller at all. 

For both the buyer and the seller, this term can also represent a cost-saving as the seller often needs to provide less in terms of transport and the buyer can avoid the markups on the goods that occasionally come when the seller has greater responsibility. 

Frequent Questions

As a global trade management company, we often get questions about Incoterms® and their application. Here are just a few of the specific questions we regularly get when it comes to FCA Incoterms®. If you have a question regarding FCA or any Incoterm®, please don’t hesitate to get in touch.

Who is Responsible for Loading and Unloading A Shipment?

It depends on the named place. If the named place is the seller’s premises, then it is the seller’s responsibility to load the goods onto the buyer’s transport. However, if the named place is anywhere else, then the seller is obligated to load the goods onto their own transport and bring the goods to the named place, with the buyer being responsible only for the unloading from the seller’s transport and the loading onto their own.

Who is Responsible for Packaging in Fca Incoterms®? 

Packaging, as it occurs before the product ships, is the seller's responsibility. It is also responsible for export Customs clearance and any additional duties, fees, or processes involved in the initial transfer from the seller to the buyer’s named location. However, it should be noted that while the seller is responsible for any export documentation and formalities, the buyer is responsible for import formalities. 

Who is Responsible for Insurance Under FCA Incoterms®?

This question is slightly more complicated. Technically, insurance is not covered in the language of the FCA Incoterm®. However, there are some assumptions that can be made based on who is responsible for risk at various points in the process. 

The seller takes on all the risks and responsibilities of the shipment prior to it arriving at the named location, and it may be in their best interest to get insurance for that trip. On the other side, the buyer is responsible for the risk after this drop-off, and the associated risk may warrant insurance. 

Who Issues the Bill of Lading?

In the past, this has been a point of friction between buyers and sellers. Once the seller passes control of the shipment, they lose access to some of the vital documentation and information related to that shipment. In general, carriers have no reason to provide the seller with the bill of lading necessary to make good on any letters of credit they may be using to facilitate this arrangement, and this has caused issues and delays as communication and process between both sides lacked a necessary framework.  

Fortunately, in the 2020 version, FCA tactfully covers this issue. If the two parties agree contractually, the buyer can, at their own cost and risk, instruct their carrier to provide the seller with a bill of lading with on-board notation to the seller, so they can fulfill the terms of their letters of credit. Once the seller has this document, it is their responsibility to provide the buyer with the bill of lading as well, as they will need it to discharge the goods from the carrier. 

It’s a somewhat complex way of ensuring that both parties have the documentation they need, but Incoterms® are designed to be robust and legally binding in their instruction and outcome, so this new process provides a formal way of resolving what was a point of some friction before this rules addition in 2020.

As you can see, the use case for FCA Incoterms® is at the same time incredibly broad in its potential application, but remarkably narrow in its practical and advantageous use. Any business transaction could conceivably put FCA to work on a transaction, but it only really is to the advantage of both parties in a very specific set of circumstances. It is why we constantly attempt to lead businesses away from the practice of a ‘one size fits all’ approach that many established companies tend to subscribe to. 

For more information about Incoterms®, we encourage you to download our Incoterms® guide, take advantage of our online webinar courses at the PCB Learning Center, and keep your eyes open for more focused breakdowns in the future along with those terms we’ve already written about. 

If you are seeking a more personalized approach that leverages our decades of experience with Incoterms®, please contact our Trade Advisory Team today. We’d be happy to help answer any questions and get your imports moving in the right direction.