Free Carrier (FCA) and Free on Board (FOB) are part of the Incoterms 2020 established by the ICC to standardise international cargo transport. This article will cover the differences between FOB and FCA to help you decide which Incoterm is better for your operations.
The main difference between FCA and FOB Incoterms is the point of risk transfer from the seller to the buyer. Under FCA, the seller must make the goods available at the agreed location, which can be at the seller’s premises or the port of origin. The moment the goods are delivered and available, the risk transfers to the buyer, which means he is then liable for loading the goods into the vessel.
When shipping under FOB, the seller’s responsibility goes one step further since he must load the goods on the vessel selected by the buyer. In this case, the risk is transferred from the seller to the buyer at the moment when the goods are loaded.
The biggest consequence of this difference in responsibilities when comparing FCA and FOB is the implication that FOB is not suitable for containerised cargo and FCA is. In fact, FCA is the Incoterm the ICC recommends using for container shipping. Continue reading to dive deeper into this topic.
Read more about each Incoterm:
One of the main questions traders have when comparing FCA and FOB differences is their use for container cargo.
The reason the ICC recommends using FCA instead of FOB for containerised cargo is that under FOB shipping terms, the seller is normally not able to leave the goods on board the selected vessel because container loading requires specific port infrastructure. This means the seller cannot be liable for loading the goods on the vessel, as they should under this Incoterm.
When shipping containers, the seller is forced to leave the cargo at a port terminal, so they can then be loaded using the port loading equipment. That is why the FCA Incoterm is more suitable in this situation. FCA Incoterm rules establish that the seller should deliver the containers at a location (in this case, the port terminal), and this is when the risk transfers to the buyer, who is responsible for arranging the loading.
For the buyer:
FOB is one of the most commonly used Incoterms, and it is often a preferred choice for buyers importing goods from China, for instance. The main advantage of shipping under FOB is that the buyer has fewer responsibilities as the seller is the one that loads the goods on the vessel. On the other hand, compared to FCA, FOB is more limiting since it should only be used for non-containerised sea freight, while FCA can be used for all modes of transport.
For the seller:
Sellers with the means and the network to arrange all the steps required until the loading of the goods tend to prefer shipping under FOB because it is a competitive advantage, being one of the most used Incoterms. However, compared to FCA, FOB gives more responsibility to the seller, so they are still liable if anything happens to the cargo while waiting for the vessel or during loading. For instance, if the buyer fails to arrange an appropriate vessel, this cost is borne by the seller.
For the buyer:
Shipping under FCA is beneficial for buyers shipping container cargo, as previously explained. However, FCA gives more responsibilities to the buyer when compared to FOB, as the buyer is the one responsible and liable for the goods during loading.
For the seller:
The main advantage of shipping under FCA for the seller is that they have fewer responsibilities compared to FOB. In many cases, the seller is only responsible for making the goods available at their own premises, where they should be loaded onto the buyer’s vehicles. This means they also save the costs of domestic transport.
When it comes to how customs clearance procedures work, both FCA and FOB have similar rules, as follows:
| FCA | FOB | |
|---|---|---|
| Type of transport | All types of transport | Sea freight |
| Export duties | Seller | Seller |
| Loading the goods on the selected vehicle | At the seller’s premises: seller At a named location: buyer | Seller |
| Freight charges | Buyer | Buyer |
| Import charges and clearance | Buyer | Buyer |
| Import charges | Buyer | Buyer |
| Unloading and handling at arrival at the port of destination | Buyer | Buyer |
| Domestic transport to the named destination | Buyer | Buyer |
| Risk transfer | At the seller’s premises: when the goods are loaded on the vehicle. At a named location: once the goods are made available. | When the goods are loaded onboard the selected vessel |
As you can see, the differences between FCA and FOB can be crucial when choosing which Incoterm to use. Both the FCA and FOB have specific use cases that would add even more complexity to this comparison, which can make it hard for a shipper without experience to understand at first glance. To help you understand the Incoterm topic better, check our dedicated guides below:
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