International trade relies on a shared understanding of responsibilities, costs, and risks between a buyer and a seller. This framework is established through International Commercial Terms (Incoterms), standardized rules published by the International Chamber of Commerce (ICC). These rules, currently updated under the Incoterms 2020 edition, define the obligations of parties in a sales contract regarding the delivery of goods. This article focuses specifically on the Free Carrier (FCA) rule, outlining its mechanisms and the division of duties.
Understanding the Free Carrier (FCA) Incoterm
The Free Carrier (FCA) Incoterm is a flexible rule used for any mode of transport, including multimodal shipments. Under FCA, the seller fulfills their obligation when they deliver the goods to the carrier or another person nominated by the buyer at a specified location within the seller’s country. This location marks the point where the seller’s responsibility for the goods ends.
The term “carrier” refers to any party that undertakes transport by rail, road, air, sea, or a combination of these modes. By designating the carrier, the buyer takes control of the main carriage from the specified delivery point onward.
Defining the Seller’s Core Responsibilities
The seller’s primary obligation under FCA is to deliver the goods, along with the commercial invoice, in conformity with the sales contract. This includes providing the necessary packaging and marking required for transport. Delivery must occur at the named place and time stipulated in the contract, handing the goods over to the buyer’s nominated carrier.
The seller is responsible for handling all necessary export clearance formalities. This includes obtaining required export licenses, security clearances, and completing all customs formalities in the country of export. The seller bears the costs and risks associated with these tasks until delivery. The seller must also provide the buyer with notice that the goods have been delivered, allowing the buyer to arrange for subsequent transport.
Defining the Buyer’s Core Responsibilities
The buyer assumes control and responsibility from the moment the seller delivers the goods to the nominated carrier at the named place. The buyer must arrange and pay for the main carriage of the goods from the delivery point to the final destination. The buyer is responsible for selecting the carrier and providing the seller with precise instructions regarding the delivery point, time, and mode of transport.
The buyer must also handle all import formalities in the destination country, including obtaining import licenses and authorizations. This involves covering associated costs such as duties, taxes, and customs clearance charges upon arrival. Any costs incurred by the seller for services requested by the buyer, such as assistance in obtaining import documents, must be reimbursed.
Key Considerations Regarding Risk and Cost Transfer
Under FCA, the transfer of both risk and cost occurs at the moment the goods are delivered to the buyer’s nominated carrier at the named place. Once the seller has completed delivery, any subsequent loss or damage to the goods becomes the buyer’s liability. The buyer assumes the costs of all carriage and other expenses from that point forward.
The sales contract must clearly define the “named place of delivery.” If the delivery point is ambiguous, it can lead to disputes over responsibility for losses during the initial transport phase. Once the goods are handed over to the carrier, the seller’s involvement in the physical journey generally concludes.
The Two Distinct Delivery Options under FCA
The FCA rule recognizes two distinct delivery scenarios, determined by whether the named place is the seller’s premises or another location. If the named place is the seller’s premises, delivery is completed when the goods are loaded onto the means of transport provided by the buyer’s carrier. In this scenario, the seller is responsible for the loading operation.
If the named place is a location other than the seller’s premises, such as a freight forwarder’s warehouse or a transport terminal, the delivery mechanism changes. The seller delivers the goods when they are placed at the disposal of the carrier or nominated person, ready for unloading from the seller’s arriving transport. The seller is not responsible for unloading the goods at the named place in this second option.
Strategic Application: When to Choose FCA
FCA is a preferred Incoterm for containerized cargo and multimodal transport, where goods are transferred between different modes of conveyance. It is considered a safer option than Free On Board (FOB) for container shipments because the risk transfer occurs inland at an early stage, rather than when the container is placed on the vessel. This aligns the risk transfer point with the common practice of handing over containerized goods at an inland terminal or forwarder’s facility.
FCA is often chosen over Ex Works (EXW) because it places the burden of export clearance on the seller, who is better positioned to handle local customs procedures. The Incoterms 2020 revision enhanced FCA’s appeal by addressing an issue related to letters of credit. Under the revised rule, the buyer can instruct its carrier to issue an on-board Bill of Lading to the seller. This allows the seller to satisfy letter of credit requirements for payment without altering the risk transfer point, making FCA a more robust rule for international transactions that rely on bank financing.