FCA Free Carrier Incoterms 2020 is one of the most flexible Incoterms:
- It can be used with any mode of transport.
- It is meant for containerized cargo.
- It allows the parties to choose any point at origin as place of delivery.
The latter point is especially important when the parties agree to trade under FCA instead of EXW (as they always should, being EXW not meant for international shipments), choosing as the place of delivery the seller’s premises (or a seller’s warehouse close to the seller’s head office).
Suppose that a Spanish food company located in Madrid sells foodstuff to a Mexican retailer under FCA. The terms of the contract are:
Place of delivery: Spanish company’s warehouse, Madrid.
Mode of transport: waterway transport.
Port of shipment: port of Valencia.
What happens is that delivery takes place as soon as the Spanish seller loads the goods on the carrier sent by the Mexican buyer: after that moment, risks and transport obligations are on the latter party, i.e. the Mexican firm has to arrange transportation to the port of Valencia, load the goods on the vessel and send them all the way to Mexico through the ocean.
Upon delivery of the goods, the Spanish firm receives a bill of lading stating that the goods have been delivered to the carrier according to the terms of the contract.
So far, so good.
However, the issue arises if the Spanish firm needs a bill of lading with an on-board notation, i.e. a bill of lading stating not only that the goods have been delivered to the carrier in Madrid, but also that the same goods have been placed on board a ship at the port of Valencia.
How It Worked Before Incoterms 2020
Before the newest publication Incoterms 2020, the issuing of a bill of lading with an on-board notation where the place of delivery is not the port of shipment was not possible.
The parties had two choices:
- Use FOB Free On Board Incoterms 2010: under FOB delivery takes place when the goods are loaded on the vessel at the port of shipment. Yet, the use of FOB for containerized cargo is not a good idea because of the problems that it may cause to the parties (see our article about the risks of using FOB in the wrong way).
- Use FCA Free Carrier Incoterms 2010 with the place of delivery being the port of shipment. To be perfectly honest, this is still possible under the current FCA Free Carrier Incoterms 2020. Essentially, the seller delivers when it makes the goods at the disposal of the carrier at the container yard of the port of shipment. In our example, the Spanish foodmaker should arrange and pay for transportation of the goods up to the container yard of the port of Valencia.
How It Works After Incoterms 2020
In order to provide the parties with maximum flexibility, with the Incoterms 2020 publication the ICC introduced a mechanism whereby it is now possible for the seller to receive a bill of lading with an on-board notation before the goods are loaded on the vessel (such mechanism is described at paragraph 6 of the explanatory notes, FCA and at article B2, FCA).
Essentially, the buyer will instruct its carrier to issue a bill of lading with an on-board notation to the seller when this latter delivers the goods at the agreed place of delivery (which is other than the port of shipment) before the carrier loads the goods on the vessel.
The seller can then tender the documents to the advising bank and cash the credit. The seller, through the banking channel, must make the documents available for collection to the buyer, which will need them to unlock the goods at the port of arrival.
While such mechanism provides the parties with a great level of flexibility, it must be noted that it all happens at the risk and cost of the buyer. Therefore, while the seller can cash the credit immediately upon presentation of the documents, if anything goes wrong with the goods before they are placed on the ship, the buyer is responsible.
As such, in cases where a bill of lading with an on-board notation must be provided, buyers should think carefully whether they want to implement this mechanism or go with the more straightforward FCA with delivery at the port of shipment.
Globartis Research Team