Packaging
Seller’s Responsibility
According to FCA terms, the seller must pay for all the cost bearing alternatives, from inspection to the verification of goods. The procedure may vary in terms of the quality/quantity of checking or measuring and weighting the goods necessary for the purpose of delivery. An inspection of goods has to be carried out before the shipment. The seller has to take into consideration that the goods have to be packaged in a manner which is appropriate for export.
Buyer’s Responsibility
There is absolutely no obligation for the buyer concerning checking, marking, verifying and packaging the goods in terms of quality and responsibility procedures.
FOB — Free On Board
FOB means that the seller ships the goods to the nearest port, and the seller is responsible for everything after that. The seller will drop this off at the port of shipment, and the buyer will either pick it up themselves or, more commonly, work with a freight forwarder to ship it for them. The seller is the one to clear the goods for export, and the buyer is responsible for the goods from the port onwards. So it’s vital when getting FOB quotes to ensure that you get the port’s name that they are dropping the goods off at.
One of the big reasons this is the most popular intercom term used is that the Export port is a good place to have a 3rd party inspection service inspect the goods. Further, the seller is responsible for all activities in the country of export. Simultaneously, the buyer is responsible for all activities once the goods leave the country, making things simple. Besides, most freight forwarders will have an office at or near the port, and it’s an easy spot for them to pick up the goods on your behalf.
EXW- Ex Works
EXW is the most basic shipping intercom term that a supplier can provide. The seller makes the item available to pick up at the factory and is not responsible for the product once it leaves the factory doors. Instead, the buyer is responsible for transporting it from the factory and covers all export and import clearances and insurance costs.
If you get initial quotes from a factory for the first time, they will almost always give you a quote for EXW unless you explicitly ask for a quote in another term. The reason factories and supplier quotes in EXW is simply because it’s the lowest price for them, and it looks good when comparing quotes, and you need the lowest price.
FAQs on FCA Incoterms
1. Who is responsible for the rules under FCA?
The term FCA is one of the commercial rules pubilished under Incoterms 2020, issued and governed by the International Chamber of commerce. The rules under FCA are regulated by ICC, but the buyer and seller can execute the trade deal as per their agreement. Hence, both buyer and seller hold responsibility for ensuring that their deal is executed as agreed.
3. What does FCA destination mean?
FCA destination is the ultimate place of delivery where the goods are delivered by the seller and the risk is transferred to the buyer.
5. How does FCA work?
Under FCA, the buyer arranges the main carriage. In an FCA transaction, the exporter is responsible for loading of goods at an agreed upon place in the exporter’s country and from that point onwards the entire shipping process and risk is on the buyer or importer.
6. Who is responsible for export clearance under FCA?
Responsibility for customs clearance process rests with the buyer, he has to take care of customs duty and procedure in both exporter’s country and his own. The seller or exporter has responsibility only till the place of delivery.
CIF — Cost Insurance and Freight
Effectively similar to the one above, except that the buyer will require the seller to take on the risk or obtain insurance on the good until the destination port. The seller bears all shipping costs and assumes the goods’ risk until the destination port. The seller is also responsible for clearing customs, but the buyer is responsible for paying the duty. Again this is effectively the same as CIP, except CIF is specifically for water.
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Ex Works (EXW) vs. Free on Board (FOB): An Overview
Ex Works (EXW) and Free on Board (FOB) are both international trade terms, known as Incoterms that dictate the responsibilities of buyers and sellers, including which parties are required to cover all costs and arrangements related to the shipping of goods.
With Ex Works, the seller is not obligated to load the goods on the buyer’s designated method of transport. Instead, the seller must make the product available at a selected location, and the buyer must incur transportation costs.
With Free on Board, the seller does have to load the goods on the buyer’s method of transport at the shipping point and may be responsible for them throughout the trip and to the final destination. Free on Board means the seller retains ownership and responsibility for the goods until they are loaded «on board» a shipping vessel. Once on the ship, all liability transfers to the buyer.
Key Takeaways
- Ex Works and Free on Board are both international shipping terms.
- They are types of incoterms.
- Incoterms specify the rules and terms used in international and domestic trade contracts.
- Ex Works requires that the seller make the product available at a designated location, and the buyer incurs transport costs.
- Free on Board has the seller responsible for the goods until they are loaded on a shipping vessel; at which point, all liability transfers to the buyer.
Costs
Seller’s Responsibility
FCA Price borne by the seller :-
- The seller must pay all costs relating to delivery of goods, which are incurred either till the goods are loaded at the exporter’s premises or the goods are delivered at the buyer’s nominated place.
- All the duty taxes paid for the export procedure.
- Costs of providing the documents to the buyer and all the costs incurred in the export customs clearance procedure.
Buyer’s Responsibility
FCA Price borne by the buyer :-
- All the costs after the goods are delivered are borne by the buyer
- This excludes any taxes or duties which are to be paid in the exporter’s country for exporting the goods, but includes any taxes or duties to be paid in the importer’s (or buyer’s) country for import procedure.
- The seller has to pay all costs incurred in providing document of proof for delivery of goods.
- Also with reference to Case 2, the buyer has to bear the cost for forwarding agent and vessel and the cost of delivering goods from the nominated place to the actual shipment port.
Ex Works
Shipping using the designation of Ex Works (EXW) indicates the seller has a responsibility to make sure the buyer can access and pick up the cargo at their place of business. Transportation costs and associated risks are no longer a burden for the seller under the EXW option, and this favors the shipper.
For example, say a seller of electronic products is located in San Francisco, CA. The buyer is located in New York, NY. The buyer and seller agree on the price for these products and sign an Ex Works trade agreement. The buyer wants to pick up the products in two weeks, and the seller must have the products ready for transport. However, the buyer is responsible for all of the further costs associated with delivering the goods to New York City. The buyer pays for all the transportation costs, and if the products get lost along the way, the seller is not liable.
EXW terms often result in cheaper goods; however, the supplier’s risk is increased as they maintain responsibility for the product for longer.
FCA Incoterms Process Flow
There are usually two types of cases which will arise in an FCA transaction:
Case 1: Seller (exporter) delivers at seller’s (exporter’s) premises
The exporter just loads the goods from his premises in the importer’s truck.
Seller’s place of delivery
- In this scenario, the place of delivering goods before shipment is decided by the buyer.
- The processing responsibility rests with the buyer.
- The seller loads the goods, in a vehicle arranged by the buyer.
- The goods are then transported to the place nominated by the buyer (even though it’s the seller’s place).
- Responsibility of unloading goods totally rests with the buyer.
Case 2 : Seller (exporter) delivers at buyer’s (importer’s) location in seller’s (exporter’s) country itself
Here, the exporter delivers the goods at the location nominated by the importer (terminal, transport hub, forwarding agent’s warehouse, etc.).
Agent’s place of delivery
- In (FCA) Free Carrier Incoterms, the place of delivering goods before shipment is decided by the buyer — nominating his own vessel, transport hub, forwarding agent, etc.
- The processing responsibility rests with the exporter, till the agent’s warehouse.
- The seller loads the goods & transports it till the warehouse.
- Once the goods are transported to the agent’s warehouse, their responsibility shifts from the seller to the buyer.
- The unloading of goods is also the responsibility of the buyer.
Insurance
Seller’s Responsibility
There is no risk beyond the loading of goods, so there is no obligation of insurance in a free carrier contract. However at the buyer’s request, the seller may also arrange for insurance.
Buyer’s Responsibility
All the risk and cost responsibilities from the point of delivery are transferred to the buyer as per FCA incoterm, hence there is no obligation on the seller to arrange for insurance. He may assist the buyer with getting insurance, as per the terms of agreement between them. It is the buyer’s responsibility to insure the goods while in transit. If the goods are damaged while they are being transported, and the seller refuses to pay, then the buyer can claim insurance.
FCA Incoterms 2020 — Meaning
FCA stands for Free Carrier, where the buyer arranges the main carriage. As per the shipping terms under the free carrier system, the exporter is responsible for loading of goods at an agreed upon place in the exporter’s country and from that point onwards, the importer is in charge of all the risks and costs bearing factors.
FCA is known as a flexible rule which can be used for any transport mode, or where there is more than one transport mode. FCA is also considered a better rule for a buyer as compared to EXW (Ex Works), which requires the seller to organise the export documents and follow necessary procedures as per the rules of the exporter’s country, which a buyer from another country might not be aware of.
Special Considerations
Contracts involving international transportation often contain abbreviated trade terms that describe conditions such as the time and place of delivery, payment, when the risk of loss shifts from the seller to the buyer. Other items include who pays the costs of freight and insurance considerations. The more common terms are called Incoterms, which the International Chamber of Commerce (ICC) publishes.
However, companies that ship goods in the United States must also follow the Uniform Commercial Code (UCC). Due to there being more than one set of rules, the parties in a contract must specify which governing laws they used for a shipment.
What Do EXW and FOB Stand for?
EXW stands for Ex Works, an incoterm whereby the buyer of a shipped product pays for the goods when they are delivered to a specified location. FOB, or Free on Board, instead shifts the responsibility of the goods to the buyer as soon as they are loaded onboard the ship.
Is Ex Works or Free on Board Better?
Goods shipped EXW will usually be cheaper FOB, since Free on Board would have the supplier bear the costs of transportation, handling, and customs clearance. EXW terms, however, are often riskier since the supplier is responsible for the goods until they reach their location.
Free on Board
Unlike EXW, when a buyer and a seller enter a Free on Board (FOB) trade agreement, the seller is obligated to deliver the goods to a destination for transfer to a carrier designated by the buyer. The location designation in the FOB trade agreement is the point at which ownership is transferred from the seller to the buyer. The responsibility often shifts at this arrival location. The seller is responsible for transporting goods up until this point, but the buyer may or may not be responsible for all transportation arrangements from this point to their location, depending on the terms of the agreement.
For example, suppose a buyer located in Los Angeles, CA, wants to purchase computers from a seller located in Chicago, IL. The buyer and seller sign a FOB trade agreement. The buyer designates that the computers be shipped by airplane, and the seller is obligated for the transportation expenses associated with transporting the computers to the airport located in Los Angeles. At this point, the responsibilities shift and the buyer is responsible for all further costs related to transporting the computers to the final destination. The buyer is also liable for any damages that may occur during this phase of the shipping process.
FOB transfers liability from seller to buyer when the shipment reaches the port of origin, and not the destination.