Free Carrier – What is Free Carrier?
Free Carrier is a type of Incoterm that was, along with the other Incoterms developed by the International Chamber of Commerce in the 1930s. These terms were created in an attempt to simplify communicational shortfalls that surround international trade. These terms are a set of rules, which are internationally understood.
Unlike EXW, Free Carrier pushes the responsibility of delivering the goods to the buyers nominated premises onto the seller, so they have to organise shipping and various export documents.
ICC Definition of the Free Carrier Incoterm®
Free carrier is one of the most common incoterms used. It is a trade arrangement that depicts the seller holding liability of the goods packaging and the loading into the mode of transport at the port or truck hub. The buyer is therefore responsible for the following:
- Shipment of the goods
- Unloading the goods at the buyer’s port of choice
- Transporting the goods to the end destination.
To be clear, it is the liability of the seller which separates this trade arrangement from Ex Works.
Free Carrier is another type of International Commercial Term (Incoterm) as defined by the International Chamber of Commerce to standardise global shipping terms and responsibilities between the buyer and the seller.
Free Carrier is a common agreement where a seller (or shipper / supplier) of goods is responsible for packaging and loading goods onto a truck at their transport hub or port, different to Ex Works, where the seller is just responsible for getting the making the goods available at their own factory or place of manufacture. The seller is also responsible for export clearance of the goods at the port or terminal. The buyer (or consignee) is then responsible for everything else: shipping the goods, unloading the goods at the buyer’s port or terminal, transporting the goods to the end destination or warehouse
The Shift of Liability
As mentioned, the supplier / seller pays the costs for to produce the goods, package them and also organise transport to the port ready for export. It is worth noting that the seller is more than able to charge for this excess responsibility. As part of this process, the goods must also be cleared through customs, which allows the shipment to be ‘accepted’. Once the shipment’s status has updated to ‘accepted’, the responsibility now lies with the Buyer (and any co-signers they may have involved).
If, for example, the transaction is using sea freight transport, then the shift of liability and status of the shipment may occur in the container yard – the location of which should be clearly defined and agreed within the walls of the contract.
The strength and reason behind much of the demand for Free Carrier Arrangements are that they are applicable to any mode of transport. For instance, the transaction may involve sea, road, rail or even air.
Due to the fact that the seller is responsible for the goods clearing through customs, it is far less problematic than its counter-part – Exworks. Sellers are more likely to have the relevant licenses needed for export out of the country, and may also have better relationships with export carriers – meaning a potentially lower cost which may be beneficial to the buyer.
Table: Advantages and Disadvantages of Free Carrier (FCA)
Price of Free Carrier Arrangements
The price of a free carrier arrangement will vary depending on where the goods are being shipped from and too. However, there are a number of general costs involved with the arrangement:
- Contract fees (contract of sale)
- Shipping/ transport costs
- Warehouse Storage
- Unloading Fees
Free Carrier – What are the Critical Issues?
The moment when the delivery of the goods occurs in the named place i.e. :
• the “Seller’s premises “,: in this case of FCL – Full Container Loaded shipment , truck or wagon. The Seller shall therefore evaluate the suitability of the means of transport provided by the Buyer’s carrier before going on with loading.
• “somwhere else”, in case of LCL – Less Container Loaded or partial shipment. The Seller choose the means of transport and the journey to the carrier’s premises where the goods will be discharged.
– Andrea Frosinini
TFG were able to assist us with a receivables finance line so that we could manage cash flow and working capital at our business, but we also needed to work with their freight forwarders to decide the most cost effective option for delivery. Because our suppliers had the relevant export licenses and were based near Mumbai’s shipping port, we were able to agree an FCA delivery of our goods without being charged inflated shipping costs.
Ex Works EXW
Free Carrier FCA
Carriage Paid To CPT
Carriage and Insurance Paid To CPT
Delivery at Terminal DAT
Delivery at Place DAP
Delivery Duty Paid DDP
Free Alongside Ship FAS
Free on Board FOB
Cost and Freight CFR
Delivery Duty Unpaid DDU
Cost Insurance and Freight CIF