From the buyer’s perspective, if you only had two options to choose from, you would almost always choose FOB (Free on Board) term; From the seller’s perspective, if you only had two options, you would almost always choose FCA (Free Carrier) INCOTERM. We draw this conclusion because we opined that the seller will always try to transfer the risk of transportation sooner whereas the buyer will always try to transfer the risk of transportation later (in the transportation stage).
The answer above is the primary thesis of this article, but if you need further clarification, do continue to read below. We will describe in detail what is the difference between FOB and FCA, when is the best circumstance to use which INCOTERM.
FCA INCOTERM Explained
The International Chamber of Commerce (ICC) has tabled out clearly what are the seller’s responsibilities in an FCA Shipment. For further clarification, always refer to the ICC handbooks for the most updated INCOTERM details, due to the changing landscape of global trade, these INCOTERMs are updated once every 10 years. This is the latest outlines as of 2020.
Deliver what you sell
Firstly, the seller will always be obligated to manufacture or to make avail of the exact cargo that is described in the commercial invoice. The catalog’s descriptions must match the cargo. This is a given fact, but it is spelled out concisely just to avoid ambiguities.
The seller is responsible for local custom clearance procedures as well.
In any instance or occurrence where the export clearance is delayed that may hinder and affect the buyer’s planning, the buyer and the seller has to state who is responsible for the measurable losses due to that delay. Because the INCOTERM does not explicitly mention who is responsible for monetary losses due to customs delay.
The seller is also responsible for any duty or taxes liable for the export clearance procedure.
Additional Supporting Documentation
Any further documentation that would assist the deliverance of the cargo must be provided by the seller. This is the case provided that the requirements are spelled out before executing the delivery order. Those documents that we are referring to are non-exhaustively listed below: –
- Certificate of Origin
- Phytosanitary Certification
- Certificate of Conformity
- Material Safety Data Sheet
- Ingredient List
Delivery to a Named Location
The FCA INCOTERM has an open-ended element when it comes to naming a location of delivery.
The buyer and seller will negotiate for a delivery location at the seller’s country of export.
If the buyer does not specify clearly the delivery location, the seller has the right to choose the delivery location.
The Seller can choose the delivery location to be the seller’s premise, and if the buyer agrees. The shipment can proceed as an FCA term.
Who pays for Export Terminal Handling Charges in FCA?
According to the ICC handbook, the seller is responsible for any cost incurred to deliver the cargo to a named destination, if the destination happens to be a seaport or an airport. The seller is responsible for all port-related fees incurred at the port of loading, including Terminal Handling Charges.
Whether it is Air Freight, Sea Freight, Rail Freight, or Multimodal Transportation, the buyer is responsible for the freight arrangement, along with the terminal handling costs at the Port of Discharge.
The Buyer is also responsible for the cost of any document preparation from all stages of delivery, including the Bill of lading fees, telex release fees, EDI fees, and other miscellaneous charges.
ICC clearly states that the buyer should purchase any form of insurance from when the transportation risk has been transferred.
Hence, for this instance, should the buyer choose to purchase insurance for the freight voyage, they are accountable for those charges.
Duty, tax, levy, permit costs are all the responsibility of the buyer.
Any form of inland transportation is the responsibility of the buyer as well.
FOB INCOTERM Explained
Every responsibility of the buyer and the seller are similar for both FCA and FOB apart from one detail – the named delivery location.
FOB named Delivery Location
As the name suggests, the seller is responsible for the cargo delivery up until the cargo is fully loaded onto the vessel. Whereas for FCA (Free Carrier) the seller has done its job once they had cleared relevant export customs and delivered to a named location.
The FOB INCOTERM imposes further responsibility to the seller in the sense that the transportation risk is not transferred to the buyer until the seller had notified that the cargo is on board the vessel.
Additional Reading: FOB vs FAS
The difference in Transportation Risk in FCA and FOB
To reiterate what we have touched upon above. Transportation arranged as FOB shipment places more responsibility for delivery onto the seller when compared to FCA shipment.
This subtle detail will effectively allocate to other transportation costs that may arise to either the buyer or the seller. For example: –
Detention and Demurrage with FCA and FOB
In truth, for both FCA and FOB shipments, there is no ambiguity when it comes to detention and demurrage cost incurred at the port of loading.
In an FCA shipment, the ICC has clearly stated that all costs that are incurred to make a delivery to the named location (in this case a seaport) are borne by the seller. Furthermore, since the seller is responsible for the customs clearance, any delays that happen during customs clearance is also the responsibility of the seller. Hence any detention and demurrage charges incurred from delivery of cargo to the seaport is the responsibility of the seller
In a FOB shipment, detention and demurrage charges at the port of loading are the responsibility of the seller too.
Vessel Delays with FCA and FOB
This is where the difference between FCA and FOB is more prominent.
With FCA shipment, the seller is not responsible for any consequential cost that arises from vessel delays or rollovers. Since the seller is only responsible for delivery to the named location only.
This cannot be said for FOB shipments, the seller could be responsible for any additional costs that occurred due to a vessel delay, such as warehouse storage charges.
How is FCA Different from Ex Work?
There can be some confusion between the FCA and Ex-Work shipment because both INCOTERM states that the delivery is to an agreed named location.
The difference is in an FCA shipment, the seller is responsible for the export customs clearance, whereas an Ex-Work shipment do not require the seller to perform export clearance. But the seller is responsible to provide sufficient information and documents that permit export customs clearance.
The difference between FCA and FOB may be minute, but both sellers and buyers are wise to be able to differentiate between FCA and FOB. In essence, the FCA is a favorable INCOTERM to the seller, whereas FOB is favorable to the buyer. Of course, other INCOTERMS are available for global traders to choose from.