FCA vs EXW: Choosing the Best Incoterms for Buyers and Sellers in International Trade

Introduction

In the complex world of international trade, choosing the right Incoterms (International Commercial Terms) can make a significant difference in the success and efficiency of your shipments. As global trade continues to evolve, it's crucial for both buyers and sellers to understand the nuances of different Incoterms and select the one that best suits their needs. In this article, we'll explore the advantages of Free Carrier (FCA) Incoterms, comparing it to Ex Works (EXW) and Free on Board (FOB) to help you make informed decisions for your international shipments.

At FreightAmigo, we understand the importance of selecting the right Incoterms for your business. As a full-service, one-stop Digital Logistics Platform, we're committed to helping organizations, enterprises, and individuals transform and redefine their logistics experience. Our platform combines artificial intelligence, big data, FreighTech, FinTech, InsurTech, and GreenTech to accelerate logistics, information, and cash flow, ensuring a hassle-free and enjoyable logistics experience for all our clients.

Understanding Incoterms: FCA, EXW, and FOB

Before we delve into the advantages of FCA, let's briefly review the three commonly used Incoterms for international shipments:

• FCA (Free Carrier): The seller delivers the goods, cleared for export, to the carrier or another person nominated by the buyer at the seller's premises or another named place.
• EXW (Ex Works): The seller makes the goods available at their premises, and the buyer is responsible for all costs and risks involved in taking the goods from there to the destination.
• FOB (Free on Board): The seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment.

Why FCA is Preferred Over FOB

While FOB has been a popular choice for international shipments in the past, it's becoming less suitable for modern containerized shipments. Here's why FCA is often a better option:

1. Adaptability to Containerization

FOB terms state that the seller must deliver the goods on board the ocean vessel. However, in today's shipping landscape, most cargo is transported in containers that need to be dropped off at a Container Yard (CY) or stuffed at a Container Freight Station (CFS) before being loaded onto the vessel. Unless the seller owns the port of origin, it's nearly impossible for them to deliver the cargo directly to the vessel.

FCA, on the other hand, was designed by the International Chamber of Commerce (ICC) in the 2010 revision to accommodate the containerization of modern shipping. Under FCA terms, the seller and the buyer can agree to have the buyer pick up the goods at the seller's premises or another named location, such as a CFS or CY.

2. Clear Responsibility in Case of Damage

If cargo delivered to a CY or CFS under FOB terms is damaged in transit, determining buyer/seller responsibility can be complicated and potentially lead to disputes. This can result in additional expenses and time delays for the buyer.

With FCA, the responsibility is more clearly defined, reducing the potential for disputes and ensuring a smoother shipping process.

3. Recent Improvements in Incoterms 2020

The recently published Incoterms 2020 introduced an additional provision to the FCA incoterm to address some lingering issues. Now, parties can agree that the buyer must instruct the carrier to issue a transport document to the seller, at the buyer's cost and risk, stating that the goods have been loaded. The seller is then obligated to provide this document to the buyer, further streamlining the process and improving transparency.

Why FCA is Preferred Over EXW

While EXW might seem attractive due to its simplicity, FCA offers several advantages that make it a better choice for many international shipments:

1. Export Clearance Responsibility

One of the most significant advantages of FCA over EXW is the allocation of export clearance responsibility. Under FCA terms, the seller is responsible for export clearance and loading the goods (if the buyer is picking up at the seller's premises). This is particularly beneficial for buyers who may be unfamiliar with the exporting country's regulations.

In contrast, EXW terms require the buyer to clear their own goods for export. This can be a costly, time-consuming, and challenging process, especially if the buyer lacks experience with the country's export procedures.

2. Loading Responsibility

Under EXW terms, the seller is only required to make the goods available for pickup. The buyer is responsible for loading the goods onto their transport, even if the seller might be in a better position to do so. This can lead to inefficiencies and potential damage to the goods if the buyer's team is not experienced in handling the specific cargo.

With FCA, the seller is responsible for loading the goods if the pickup is at their premises. This ensures that the goods are handled properly by those most familiar with them, reducing the risk of damage during loading.

3. Cost and Risk Allocation

FCA offers a more balanced allocation of costs and risks between the buyer and seller. While EXW places almost all responsibilities on the buyer, FCA distributes them more evenly. This can lead to smoother transactions and fewer disputes between parties.

Best Incoterms for Buyers

For buyers purchasing goods from foreign manufacturers and shipping them internationally, FCA is often the most appropriate incoterm. Here's why:

1. Optimal Risk Transfer Point

Under FCA terms, the risk transfers from the seller to the buyer when the goods are delivered to the carrier or another nominated party. This is typically at a point where the goods can be easily inspected and any issues can be quickly identified.

2. Clearer Documentation

With the new provision in Incoterms 2020, buyers can ensure they receive proper documentation from the seller confirming that the goods have been loaded. This can be crucial for payment processes, especially when using letters of credit.

3. Flexibility in Pickup Location

FCA allows buyers to nominate a specific pickup location, which can be the seller's premises, a port, or any other agreed-upon location. This flexibility can help optimize the supply chain and reduce overall shipping costs.

4. Easier Customs Procedures

Since the seller is responsible for export clearance under FCA, buyers don't need to navigate potentially complex foreign customs procedures. This can save time, reduce costs, and minimize the risk of delays due to customs issues.

Best Incoterms for Sellers

While FCA offers many advantages for buyers, it can also be beneficial for sellers in certain situations:

1. Limited Liability

Under FCA terms, the seller's liability ends once the goods are delivered to the carrier or nominated party. This limits the seller's exposure to risks during international transit.

2. Control Over Export Procedures

By maintaining responsibility for export clearance, sellers can ensure compliance with local regulations and maintain control over the export process. This can be particularly important for sellers dealing with sensitive or regulated goods.

3. Potential for Higher Prices

Because FCA terms include more responsibilities for the seller compared to EXW, sellers may be able to justify slightly higher prices to cover these additional services.

4. Improved Customer Relationships

By taking on export clearance and loading responsibilities, sellers can provide a more comprehensive service to their customers. This can lead to improved relationships and potentially more repeat business.

Considerations When Choosing Incoterms

While FCA offers many advantages, it's important to remember that the best incoterm can vary depending on the specific circumstances of each shipment. Here are some factors to consider when choosing between FCA, EXW, and FOB:

1. Nature of the Goods

Consider the type of goods being shipped. Are they containerized? Do they require special handling? The nature of the goods can influence which incoterm is most appropriate.

2. Mode of Transport

FCA is suitable for all modes of transport, while FOB is specifically designed for sea and inland waterway transport. Consider your transportation needs when selecting an incoterm.

3. Familiarity with Local Regulations

If you're unfamiliar with the export regulations of the country of origin, FCA might be a better choice as it places the responsibility for export clearance on the seller.

4. Cost Implications

Consider the total cost implications of each incoterm, including not just the price of goods but also shipping, insurance, and potential customs fees.

5. Risk Tolerance

Assess your company's risk tolerance. FCA offers a more balanced risk allocation compared to EXW, which places most of the risk on the buyer.

6. Control Over the Supply Chain

Consider how much control you want over the shipping process. FCA allows buyers more control over the main carriage compared to FOB.

How FreightAmigo Can Help

At FreightAmigo, we understand that choosing the right incoterm is just one part of managing your international shipments. As a comprehensive Digital Logistics Platform, we offer a range of services to support your shipping needs, regardless of the incoterm you choose:

• Compare door-to-door freight quotes for international courier, airfreight, sea freight, rail freight, and trucking solutions and book online.
• Track shipment status anytime, anywhere (connects with more than 1000+ reputable airlines and shipping lines).
• Arrange customs clearance, cargo insurance, and trade finance in one stop.
• Automate shipment documents.
• 24×7 logistics expert support.

Our platform is designed to streamline your logistics operations, providing you with the tools and support you need to manage your shipments efficiently, regardless of the incoterms you're working with.

Conclusion

In the ever-evolving world of international trade, choosing the right incoterm is crucial for both buyers and sellers. While EXW and FOB have their places, FCA often provides the best balance of cost, risk, and responsibility allocation for containerized shipments.

FCA offers clear advantages over FOB in terms of adaptability to modern containerized shipping and clearer responsibility allocation. Compared to EXW, FCA provides a more balanced distribution of responsibilities, particularly in terms of export clearance and loading.

For buyers, FCA offers an optimal risk transfer point, clearer documentation, flexibility in pickup location, and easier customs procedures. For sellers, it provides limited liability, control over export procedures, potential for higher prices, and improved customer relationships.

However, it's important to remember that the best incoterm can vary depending on the specific circumstances of each shipment. Factors such as the nature of the goods, mode of transport, familiarity with local regulations, cost implications, risk tolerance, and desired level of control over the supply chain should all be considered when making your choice.

At FreightAmigo, we're committed to helping you navigate these complexities. Our Digital Logistics Platform provides the tools and support you need to manage your shipments efficiently, regardless of the incoterms you're working with. From quote comparisons and shipment tracking to customs clearance and document automation, we're here to ensure a hassle-free and enjoyable logistics experience.

As you continue to grow your international trade operations, remember that the right incoterm, combined with a powerful Digital Logistics Solution like FreightAmigo, can significantly streamline your shipping processes, reduce risks, and ultimately contribute to the success of your business in the global marketplace.