Incortems (International Commercial Terms) are standardized trade rules published by the International Chamber of Commerce (ICC) that govern the global sale of goods. These terms provide a common language for traders, defining the obligations, costs, and risks assumed by the buyer and seller in an international transaction. Choosing one of the eleven Incoterms rules clarifies responsibility for each step of the shipping process, preventing misunderstandings and disputes. The Free Carrier (FCA) rule is a flexible and widely applicable option, particularly effective for modern containerized and multimodal transport.
Defining the Free Carrier Rule
FCA, or Free Carrier, is an Incoterms 2020 rule requiring the seller to deliver the goods to the buyer’s nominated carrier or another designated person at a named place. This rule is suitable for any mode of transport, including air, road, rail, sea freight, or a combination thereof. The contract must specify the exact named place of delivery, which defines the seller’s final obligation. This delivery point can be designated in two distinct ways, each carrying specific requirements for the seller.
One scenario involves delivery at the seller’s premises, such as their factory or warehouse. Here, the seller is responsible for loading the goods onto the buyer’s collecting vehicle. The second scenario designates a named place that is not the seller’s premises, such as a freight forwarder’s warehouse or a terminal. When delivery occurs at this non-seller location, the seller transports the goods and places them at the disposal of the buyer’s carrier. However, the seller is not responsible for unloading the goods at this location.
The Seller’s Core Responsibilities and Costs
The seller under an FCA agreement incurs all costs and manages tasks required to bring the goods to the named place of delivery. These expenses include preparing the goods for export, such as packaging, labeling, and marking the cargo to meet transport and customs requirements. The seller must also conduct any pre-shipment inspections or quality checks mandated by the contract or exporting country’s authorities. These obligations ensure the goods are fit for international transit and ready for the buyer’s carrier.
The seller is responsible for the export clearance process, which includes obtaining necessary export licenses, security clearances, and completing all customs formalities in the country of origin. The seller must also pay any export duties, taxes, or fees levied by the exporting country to secure the goods’ legal passage. The final cost for the seller is pre-carriage, which is the transportation expense incurred to move the goods from their warehouse to the agreed-upon named place of delivery.
If the delivery point is the seller’s facility, the seller bears the cost of loading the goods onto the buyer’s carrier vehicle. If the named place is a terminal or forwarder’s depot, the seller pays for transport to that location, but the cost of unloading is the buyer’s responsibility. The seller’s financial obligation ends precisely at the moment of delivery to the buyer’s nominated carrier. This clear demarcation ensures the seller’s costs are contained and predictable.
The Buyer’s Core Responsibilities and Costs
The buyer is responsible for the majority of shipping costs and logistical management from the moment the goods are delivered to their nominated carrier. The most substantial cost is the main carriage, which is the freight expense for transporting the goods from the named place of delivery to the final destination. The buyer selects the carrier and negotiates the freight rate, controlling the largest segment of the transport expense. This control allows the buyer to potentially secure better pricing or more favorable service terms.
All costs associated with the goods after the transfer point fall to the buyer, including terminal handling charges and the expense of unloading the goods at the final port or airport. Upon arrival in the destination country, the buyer must manage and pay for all import clearance procedures. This involves securing necessary import licenses and permits, completing all governmental security and customs formalities, and paying all applicable import duties, taxes, and fees, such as Value Added Tax (VAT).
The buyer is also responsible for the cost of on-carriage, which is the transportation from the destination port or terminal to the final delivery location, such as the buyer’s warehouse. While Incoterms do not mandate insurance under FCA, the buyer should obtain cargo insurance to cover the goods from the point of risk transfer until final arrival. The buyer manages and pays for the entire international leg of the journey, including all destination charges.
When Risk and Responsibility Transfer
The transfer of cost and the transfer of risk in an FCA transaction occur at the same precise moment. Risk transfers from the seller to the buyer at the exact moment the goods are delivered to the buyer’s nominated carrier at the agreed-upon named place. This physical hand-over defines the point where the seller’s liability ends.
Once the goods are placed in the custody of the carrier, the buyer assumes all risk of loss or damage. If the goods are lost, damaged, or destroyed during the main international transport, the financial burden falls entirely on the buyer. The seller is considered to have fulfilled their contract obligation at the moment of delivery, regardless of what happens to the cargo afterward. Even if the seller assists the buyer by arranging carriage past the delivery point, the risk remains with the buyer from the initial hand-over.
This immediate liability transfer makes specifying the named place of delivery important in the sales contract. If the buyer fails to nominate a carrier or the carrier fails to take the goods at the agreed time, the buyer bears the risk of any loss or damage from that agreed-upon date. The seller is then relieved of any further liability concerning the state of the goods.
Strategic Benefits of Choosing FCA
FCA is often the preferred Incoterm for transactions involving containerized freight, providing a practical alternative to traditional maritime rules. Unlike the Free On Board (FOB) rule, which mandates risk transfer only when goods pass the ship’s rail, FCA allows for an earlier transfer of risk at an inland location. This earlier transfer is appropriate for container shipments, as the goods are sealed long before they reach the vessel and cannot be inspected at the ship’s rail.
For the seller, a primary benefit is minimal responsibility after delivery to the carrier. The seller’s involvement is restricted to the pre-shipment phase and export formalities, simplifying logistics and cost management. The buyer gains advantages by controlling the selection of the main carrier and negotiating the freight contract. This control allows the buyer to consolidate shipments, select a preferred logistics partner, and achieve better transparency and cost savings on the international transport leg.
The flexibility of the delivery location is another strategic advantage, as the named place can be tailored to the specific logistics chain, such as the seller’s warehouse or a major transport hub. This adaptability makes FCA suitable for modern supply chains utilizing multiple transport modes. It offers a balanced allocation of duties, with the seller handling local export requirements and the buyer managing the entire international transport operation.
Required Documentation for FCA Shipments
A successful FCA transaction relies on the accurate and timely exchange of specific documents. The seller is obligated to provide the commercial invoice, which serves as the primary document for the sale and is necessary for customs clearance. The seller must also prepare all documentation required for export clearance, including export licenses and certificates of origin or conformity, proving the goods are legally clear to leave the country.
The buyer is responsible for providing the seller with complete shipping instructions, including the name of the nominated carrier, the mode of transport, and the exact time and place of delivery. The buyer’s nominated carrier or forwarder obtains the transport document, such as a Bill of Lading (B/L) for sea freight or an Air Waybill (AWB) for air freight. The buyer must ensure this proof of carriage is secured and passed to the seller if required by the terms of payment.
Incoterms 2020 introduced a specific provision addressing challenges related to Letters of Credit (LCs) in FCA transactions. If agreed upon in the sales contract, the buyer must instruct their nominated carrier to issue an on-board Bill of Lading to the seller. This document confirms the goods have been loaded onto the vessel and is often a prerequisite for the seller to be paid under an LC, facilitating trade finance.