FCA Incoterms: Business Guide

Navigating the complexities of international trade requires a clear understanding of international shipping regulations and customs policies. A crucial element in achieving this clarity is the correct use of Incoterms®, a set of standardized trade terms published by the International Chamber of Commerce (ICC). These terms define the obligations of buyers and sellers in international and domestic sales contracts, particularly concerning the delivery of goods.

This guide provides a comprehensive overview of one of the most versatile and widely used Incoterms: FCA (Free Carrier). Understanding FCA is essential for US businesses engaged in both importing and exporting, as it clearly delineates tasks, costs, and risks.

Disclaimer: This article provides a general overview of the FCA Incoterms and is for informational purposes only. It is not legal or professional advice. Parties should always refer to the official text of the Incoterms® 2020 rules published by the International Chamber of Commerce (ICC) and seek advice from legal and logistics services professionals when negotiating specific contract terms.

What Are Incoterms?

Before diving into FCA specifically, it’s important to grasp the overall purpose of Incoterms®. First published by the ICC in 1936, these rules are periodically revised to reflect evolving global trade practices, with the latest version being Incoterms® 2020. They provide a universal framework for interpreting common trade terms, helping to prevent misunderstandings between buyers and sellers in different countries. Each rule specifies:

• Obligations: Which party is responsible for tasks such as transport, loading, unloading, and customs clearance.
• Risk Transfer: The precise point at which the risk of loss or damage to the goods passes from the seller to the buyer.
• Cost Allocation: Which party bears specific costs associated with the shipment.

There are currently 11 Incoterms®, categorized by mode of transport.

What Is FCA?

FCA (Free Carrier) means that the seller delivers the goods, cleared for export, to the carrier nominated by the buyer at a specifically agreed-upon “named place.” Once the goods are delivered to this named place, the risk of loss or damage, as well as subsequent costs, transfers from the seller to the buyer.

FCA is known for its flexibility and can be used for any mode of transport, including multimodal transport (a combination of different transport modes like road (trucking), rail, air freight, or sea freight). This makes it a popular choice for various international trade scenarios, including those handled by international courier services; especially for containerized shipments, which might utilize LCL shipping for smaller consignments.

Key Obligations

Understanding the division of responsibilities is paramount when using FCA.

Seller’s Responsibilities

• Goods, Commercial Invoice, and Documentation: Provide the goods as per the sales contract, along with the commercial invoice and any other agreed-upon documentation.
• Export Packaging and Marking: Ensure goods are appropriately packaged and marked for export. This is critical for specialized cargo, including dangerous goods shipping.
• Export Licenses and Customs Formalities: Obtain all necessary export licenses and handle all export customs formalities and costs. This is a key difference from Ex Works (EXW), where the buyer handles export clearance.
• Pre-carriage to the Named Place: Arrange and pay for the transportation of goods to the agreed-upon “named place” of delivery.
• Delivery to the Nominated Carrier: Deliver the goods to the carrier or another person nominated by the buyer at the named place on the agreed date or within the agreed period.
  • If the named place is the seller’s premises: The seller is responsible for loading the goods onto the buyer’s collecting transport vehicle. Risk transfers once the goods are loaded. This might involve their own warehousing
  • If the named place is another location (e.g., a forwarder’s warehouse, port, or terminal): The seller is responsible for transporting the goods to that named place and making them available to the carrier, typically on the seller’s arriving means of transport, ready for unloading by the buyer’s nominated carrier. The seller is not responsible for unloading the goods. Risk transfers when the goods are placed at the disposal of the carrier at that named place, on the seller’s arriving vehicle.
• Proof of Delivery: Provide the buyer with the usual proof that the goods have been delivered to the nominated carrier (e.g., a transport document or forwarder’s cargo receipt). The importance of accurate documentation in customs clearance cannot be overstated.
• Costs: Bear all costs relating to the goods until they have been delivered to the carrier at the named place as described above.

Buyer’s Responsibilities

• Payment for Goods: Pay the price of the goods as stipulated in the sales contract.
• Nominate Carrier and Contract of Carriage: Nominate the carrier and contract for the main carriage of the goods from the named place of delivery to the final destination, and pay for these freight costs.
• Loading Charges (if applicable): If the named place is not the seller’s premises, the buyer (or their nominated carrier) is typically responsible for unloading the goods from the seller’s arriving vehicle and any subsequent loading onto the main carrier.
• Risk After Delivery: Assume all risks of loss or damage to the goods from the moment the seller has delivered them to the nominated carrier at the named place.
• Import Customs Formalities and Duties/Taxes: Handle and pay for all import customs clearance formalities, duties, taxes, and other charges in the country of import.
• Onward Carriage and Unloading: Arrange and pay for all transport and unloading costs from the named place of delivery to the final destination, potentially as part of a door-to-door shipping
• Notification to Seller: Provide the seller with sufficient notice of the nominated carrier’s name, the loading point, and the required delivery time.

The “Named Place”

The precise definition of the “named place” in an FCA contract is crucial and must be specified as clearly as possible to avoid ambiguity. The obligations, risk transfer point, and cost allocation can vary significantly depending on this location.

• Option 1: Seller’s Premises (e.g., FCA Seller’s Factory, Anytown, USA)
  • The seller is responsible for loading the goods onto the means of transport provided by the buyer (or the buyer’s nominated carrier).
  • Risk transfers to the buyer once the goods are loaded onto that collecting vehicle at the seller’s premises.
• Option 2: Another Named Place (e.g., FCA Forwarder’s Warehouse, Port of Long Beach, USA)
  • This could be a freight forwarder’s warehouse, a carrier’s terminal (air, sea, rail, or road), or any other point agreed by the parties.
  • The seller is responsible for transporting the goods to this named place.
  • The seller delivers the goods when they arrive at this named place on the seller’s means of transport and are made available to the buyer’s nominated carrier, ready for unloading. The seller is NOT responsible for unloading the goods from their vehicle at this other named place.
  • Risk transfers to the buyer once the goods arrive at the named place on the seller’s vehicle, ready for unloading.

Transfer of Risk

The point at which the risk of loss or damage to the goods passes from the seller to the buyer is a fundamental aspect of Incoterms®. Under FCA:

• If delivery is at the seller’s premises, risk transfers when the goods have been loaded onto the transport vehicle arranged by the buyer.
• If delivery is at another named place, risk transfers when the goods are placed at the disposal of the buyer’s nominated carrier on the seller’s arriving means of transport, ready for unloading.

From this point of risk transfer onwards, the buyer bears all risks.

Cost Allocation

Understanding the precise allocation of costs is fundamental when employing the FCA Incoterm. The seller is responsible for bearing all costs relating to the goods until they have been delivered to the buyer’s nominated carrier at the agreed named place. This typically includes expenses associated with checking operations, such as quality control, measuring, weighing, and counting, that are necessary before the goods can be handed over. The seller also pays for appropriate export packaging and any costs incurred in obtaining export licenses or other official authorizations required for the goods to leave their country, including export duties and taxes. Furthermore, if the delivery occurs at the seller’s premises, the seller bears the cost of loading the goods onto the buyer’s collecting vehicle. If delivery is at another named place, the seller covers the cost of transporting the goods to that location. Finally, the seller must pay for providing the buyer with the usual proof that delivery has been completed according to the agreement.

Conversely, the buyer assumes responsibility for all costs relating to the goods from the moment the seller has fulfilled their delivery obligation at the named place. A primary cost for the buyer is the contract of carriage for the main international transport of the goods. If the named place of delivery is not the seller’s own premises, the buyer (or their nominated carrier) is generally responsible for the costs of unloading the goods from the seller’s arriving vehicle and any subsequent loading onto the main carrier, unless specifically agreed otherwise. The buyer also covers all unloading costs at the final destination, as well as import duties, taxes, and the expenses related to customs clearance in the country of import. Should the buyer fail to nominate a carrier in a timely manner, or if the nominated carrier fails to take possession of the goods as agreed, any additional costs incurred as a result will fall to the buyer.

When Should You Use FCA?

The FCA Incoterm offers considerable versatility, making it a suitable choice in many international trade situations. It can be employed for any mode of transport, including road, rail, air, sea, or multimodal journeys that combine different transport types. This adaptability is a significant advantage. FCA is particularly favored when the buyer wishes to maintain control over the main carriage of the goods. Because the buyer nominates and contracts with the main carrier, they have direct influence over the selection of the transport provider, the routing, transit times, and the associated freight costs. This level of control is often desirable for businesses looking to optimize their supply chain logistics and expenses.

FCA is also considered especially appropriate for containerized shipments. In modern logistics, containers are frequently handed over to a carrier at a terminal or depot before being loaded onto a vessel or aircraft. FCA allows the transfer of risk to occur at this earlier point of handover to the first carrier, which more accurately reflects these common practices. This can even apply to goods requiring specialized transport like refrigerated trucking before the main carriage.

Comparison to EXW (Ex Works)

When compared to Ex Works (EXW), FCA often presents a more practical solution. Under EXW, the seller’s only obligation is to make the goods available at their premises; the buyer is then responsible for all subsequent risks and costs, crucially including export clearance and the loading of goods. FCA shifts the responsibility for export clearance to the seller, who is generally better positioned and more familiar with the procedures in their own country. Additionally, if the named place under FCA is the seller’s premises, the rule explicitly makes the seller responsible for loading the goods, clarifying a point that can be ambiguous or require separate agreement under EXW.

Comparison to FOB (Free On Board)

In relation to FOB (Free On Board), which is traditionally intended for non-containerized sea or inland waterway transport where risk historically passed when goods crossed the ship’s rail, FCA offers a more suitable alternative for containerized cargo. With FOB, if a container is damaged at the port terminal before being loaded onto the ship, a “grey area” of responsibility can arise. FCA (when the named place is the terminal) clarifies that risk transfers to the buyer when the goods are handed over to their nominated carrier at that terminal, providing a clearer and more appropriate risk transfer point for most containerized shipments.

Things To Consider

For US businesses engaging in international trade using FCA, several practical considerations warrant careful attention to ensure smooth transactions.

Firstly, the clarity of the “named place of delivery” in the sales contract is paramount. Ambiguity here can lead to disputes. Instead of a general location like “FCA Chicago,” the contract should specify the exact address, such as “FCA Seller’s Warehouse, 123 Main St, Chicago, IL, USA” or “FCA XYZ Forwarder’s Terminal, O’Hare Airport, Chicago, IL, USA.” This precision helps define exact responsibilities for both transport and risk.

Secondly, accurate documentation is crucial. One should ensure that the commercial invoice and other shipping documents accurately reflect the FCA term and the named place.

• Bill of Lading (BOL): A significant change in Incoterms® 2020 for FCA is an option for the buyer and seller to agree that the buyer will instruct its carrier to issue an on-board bill of lading to the seller after the goods have been loaded (e.g., on a vessel), particularly when a letter of credit is involved and requires an on-board BOL. However, the carrier is not obligated to comply unless agreed.

Effective and timely communication between the US business, its overseas trading partner, and all nominated carriers is indispensable. This includes sharing clear information about the readiness of goods for collection, precise pickup schedules, and any specific operational requirements or handling instructions at the named place of delivery.

Under FCA, the buyer is responsible for insuring the goods from the point the risk transfers to them (i.e., from the named place of delivery onwards). US buyers should arrange appropriate cargo insurance to cover the main transit. Sellers are not obligated to provide insurance beyond the delivery point.

Finally, the process of nominating a carrier is a key responsibility for one of the parties. US buyers who are importing goods under FCA terms must select and formally nominate a carrier or freight forwarder to take charge of the goods from the named place in the seller’s country. Conversely, for US exporters selling goods on FCA terms, it is their international buyer who will undertake the nomination of the carrier that will collect the goods from the agreed-upon named place within the US. While this guide focuses on commercial freight, similar considerations for nominating carriers apply in contexts like international relocation services or even specialized pet transport.

Examples

To illustrate how FCA functions in real-world scenarios, consider its application in trade between the US and ASEAN countries.

Imagine a US-based importer, a tech company, sourcing electronic components from a supplier in Penang, Malaysia, using the term “FCA Seller’s Factory, Penang, Malaysia, Incoterms® 2020.” This necessitates services for shipping from Malaysia to USA. In this instance, the Malaysian seller would be responsible for packaging the components appropriately for export, handling all Malaysian export customs formalities, and then loading the container onto the truck provided by the US buyer’s nominated freight forwarder directly at their factory premises in Penang. The moment that container is securely loaded onto the truck in Penang, the risk of loss or damage, along with the responsibility for subsequent costs, transfers from the Malaysian seller to the US buyer. The US buyer’s chosen freight forwarder, acting as the nominated carrier, would then manage the subsequent logistics. This could involve trucking the container to a Malaysian port like Port Klang, arranging the ocean freight to a suitable US port such as Los Angeles, and then handling US import customs clearance procedures and final delivery to the tech company’s warehouse in the United States. The US buyer would bear all costs and risks associated with these segments of the journey from the point of loading in Penang.

Alternatively, consider a US-based exporter, a machinery manufacturer, selling a piece of equipment to a buyer in Bangkok, Thailand, under the term “FCA Manufacturer’s Works, Chicago, IL, USA, Incoterms® 2020.” This requires services for shipping to Thailand. Here, the US manufacturer’s obligations would include preparing the machinery for international shipment, completing all necessary US export documentation and customs formalities, and loading the machinery onto the collecting vehicle sent by the Thai buyer’s nominated international freight forwarder at the manufacturer’s facility in Chicago. Once the machinery is loaded in Chicago, the transfer of risk and responsibility for ongoing costs passes to the Thai buyer. Consequently, the Thai buyer, typically through their designated freight forwarder, would be responsible for arranging and paying for the main international transport. This would encompass, for example, inland transport from Chicago to a US airport or seaport, the air or ocean freight to Thailand, as well as handling Thai import customs clearance, paying any applicable duties and taxes, and organizing the final delivery of the machinery to its destination in Bangkok.

The principles discussed in these US-ASEAN examples are broadly applicable to trade across the region. Whether your business involves:

• Shipping to Singapore or shipping from Singapore to USA
• Shipping to Indonesia or shipping from Indonesia to USA
• Shipping to Vietnam or
• Shipping to Philippines

A clear understanding of FCA Incoterms is beneficial.

Conclusion

Successfully navigating international trade hinges on a clear understanding of Incoterms, and FCA stands out for its versatility and suitability for modern containerized shipping. By clearly defining responsibilities for delivery, risk transfer, and costs, FCA empowers both buyers and sellers to manage their international transactions with greater confidence. However, applying these terms correctly requires careful attention to detail, especially concerning the “named place” and documentation.

At Express Freight Management, we understand the nuances of Incoterms and the critical role they play in your supply chain. Our experienced team is ready to provide expert guidance and comprehensive freight forwarding services tailored to your specific needs, whether you’re shipping to or from the USA, engaging in ASEAN trade, or require specialized logistics solutions. Don’t let the complexities of international shipping hinder your business growth. Contact us today to discuss how our freight forwarding expertise can help you leverage FCA and other Incoterms effectively, ensuring your cargo moves smoothly and efficiently across borders.

Streamline your logistics with Express Freight Management – your trusted partner for seamless global shipping solutions. As a leading international freight forwarder based in the United States, we have successfully managed trades between the United States and Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam for nearly two decades. With expert knowledge, advanced technology, and a commitment to reliability, we provide seamless logistics management that helps you focus on what matters most—growing your business.