Trade knowledge / FCA Incoterms 2010: A Replacement for the Domestic Trade Term FOB
Date: 2017-05-26
FCA Incoterms 2010: A Replacement for the Domestic Trade Term FOB
Companies that ship domestically within the United States often use the trade term FOB—Free On Board. But FOB has a completely different meaning under the international trade terms, Incoterms 2010. Exporters who want to use the international equivalent to FOB often use the Incoterm FCA—Free Carrier At.
Like all 11 of the 2010 Incoterms rules, FCA identifies whether it is the seller or the buyer who pays the domestic, international and on-carriage freight charges. So, let’s compare the domestic use of FOB with the international use of FCA.
Transfer of Title versus Transfer of Risk
The domestic term FOB. indicates where risk and title transfer from the seller to the buyer. If FOB origin is specified, it is at the seller’s facility.
The Incoterms 2010 rule FCA indicates where risk transfers from the seller to the buyer. If the location for delivery is at the seller’s facility, then risk transfers when the goods are loaded onto the first carrier. If the location for delivery is at another location, then risk transfers from the seller to the buyer at time of arrival, but before the goods have been off-loaded.
Incoterms 2010 rules do not specify when and where title transfers from one party to the other.
Who’s Paying the Freight?
The domestic term FOB does not identify who pays for the freight charges; it is necessary for the seller to state in the quote and subsequent documentation whether the freight charges are to be prepaid or collect. Sellers usually state “FOB Origin” or “FOB Destination” on their quotations and invoices.
The Incoterms 2010 rule FCA identifies who pays for the freight charges and clears the goods for export. FCA is used by the U.S.-based exporter to designate whether the goods will be available at their facility or at another place in the U.S. by the syntax appended to FCA:
“FCA Seller’s facility, Minneapolis, MN USA” indicates that the seller will load the items on the buyer’s designated carrier, and the freight charges will be collect;
“FCA Freight forwarder’s facility, Miami, FL USA” indicates that the seller will load the items on their designated carrier, deliver them to the forwarder’s facility to be unloaded by them, and the freight charges to the forwarder’s facility are to be prepaid.
Each of the Incoterms 2010 rules designate 10 responsibilities for the seller and the buyer; one of those responsibilities is the payment of freight charges. The other nine responsibilities are specified by the International Chamber of Commerce, the author of the terms.
In their publications on Incoterms 2010, the ICC advises sellers and buyers to add to the selected term a place, city, state and country. With the addition of the location, the seller is advising the buyer the location where the goods will be delivered; it is also the place to which freight charges are prepaid.
Companies that export will benefit from the accurate use of an Incoterms rule in its quotations, commercial invoices, and contracts along with a named location.
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