The Incoterms® rules are a set of 11 terms, each three letters long, that define a set of established norms for international trade. They spell out whether the buyer or the seller is responsible for the cost and the risk of the various stages of an international delivery.
FCA is one of those terms, and in this article we’ll go deeper into explaining what it means. Click on the link above for a thorough overview on Incoterms® rules.
|Table of contents:|
Wise Business lets you send your money abroad at the mid-market rate and can be up to 19x cheaper than PayPal.
You can also hold a balance in 40+ currencies, get local bank details and integrate with Xero. Sign-up is free, so why not take a look today.
FCA is short for “free carrier.” Using this term, you should generally also specify the place of delivery – that’s the place where the seller hands over the goods to the carrier, before the main, international leg of the journey. (This place is sometimes referred to as the “named place.”)
FCA is primarily meant to be used for containerized freight.
Here’s an overview of how the responsibilities break down.² ³ ⁴ ⁶ ⁷
Under FCA, the seller is responsible for:
- Getting the goods to the agreed-upon place. This could be the seller’s own premises, a warehouse or terminal, or wherever else is agreed.
- Clearing the goods for export.
If the named place is the seller’s premises, the seller is also responsible for initially loading the goods onto the vehicle. If the named place is somewhere else, the seller doesn’t have that responsibility: in this case, the buyer is responsible for unloading and reloading at the named place.
The buyer is responsible for:
- Everything after delivery to the named place (except export clearance). That includes the main international journey the goods will make.
- The risk, from the same point in the process onwards.
- Import clearance.
The Incoterms® rules are updated once a decade, so Incoterms® 2016, 2017 and so on don’t exist – there’s just Incoterms® 2010 and 2020.
You’re under no obligation to use the latest set of rules. But when you draw up a contract, you should specify not just the Incoterms® rule you’re using, but also which edition of Incoterms® – 2010 or 2020 – you are referring to.
One of the biggest changes in the 2020 rules was to the FCA rule. There’s a new, optional provision.
If the buyer and seller want, they can agree that the carrier should give the seller a document that confirms that the goods have been properly loaded. This is known as an on-board bill of lading.
Providing this document has been fairly common practice for a long time, but not part of the formal FCA rule. The document is often requested by banks, which may need to have this confirmed in writing.¹ ⁵
There’s historically been some confusion between FCA and another rule which gives the buyer lots of responsibility: EXW. So let’s clear that up.
EXW stands for Ex Works, and it’s the Incoterms® rule that gives least responsibility to the seller. The buyer arranges transportation from the seller’s own premises, and handles the entire subsequent process, including export clearance.
EXW has the advantage that it sounds nice and unambiguous. However, it presents a lot of problems in practice. The seller is usually in a far better position than the buyer to sort things out in the export country, and to provide all the necessary documentation.
Remember that, under the FCA rule, the named location can be the seller’s premises. If that’s the case, then under FCA, the seller is responsible for loading the goods onto the transport. By contrast, under EXW, that’s the buyer’s responsibility.
Overall, FCA is considered a better term to use than EXW in most cases, with less potential for problems along the way.³ ⁴ ⁶
- Don’t be lured into thinking that just because the named place is the seller’s premises, you have to use EXW. You can also use FCA, and it may well be easier to do so.
- If the named place is not the seller’s premises, the whole of the reloading process is the buyer’s responsibility. That even includes unloading the goods from the seller’s vehicle.
- Check with your trading partners, and your bank, about whether you might require a bill of lading. Don’t forget to make sure the carrier knows about it, if so.
- If there’s any potential for ambiguity, discuss it as early as possible and clarify the situation. The Incoterms® rules are a great help, but rather than assuming everyone has perfect knowledge of them, it can be useful to spell things out to avoid any problems cropping up during transit.
1.ICC - What are the key changes in Incoterms® 2020?
2.Shipping Solutions - The Beginner's Introduction to Incoterms
3.Freightos - FCA Incoterms | FCA shipping
4.Incoterms Explained - Free Carrier
5.Incoterms Explained - Incoterms 2020 – FCA and the on-board bill of lading
6.Trade Finance Global - FCA Free Carrier - Incoterms® 2020 Rule
7.Shipping Solutions - Incoterms 2020 FCA: Spotlight on Free Carrier
All sources checked April 23, 2020
This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.
Cash flow problems can kill businesses. Learn more about the most common problems international businesses face and understand the solutions to avoid them!
Stripe international payments are great for growing your business globally, and accepting payments in different currencies. Find out if it is available for you.
Dropshipping is ever more popular these days, and the runaway success of sites like AliExpress is one key reason why. Online stores that use dropshipping can...
PayPal offers Business & Personal accounts, but which one to choose? In this PayPal Business vs Personal article, we'll show you the differences + pros & cons.
For eBay sellers, dropshipping might well seem like a tempting option – it lets you offer a huge range of products, without having to go through the hassle of...
Owners of small businesses might wonder – what is Square, and should they use it? Find out more about Square's features, plus pros & cons in this article.