When it comes to FCA vs. FOB incoterms, you will find fundamental differences in the transportation mode and arrangements, goods delivery, transactions, and risk transfers.
So whether you are a buyer or seller, knowing these variations will help you make an ideal shipping agreement that will turn into a profitable trade.
Among many, a few of the essential incoterms are FCA and FOB. So what each of them offers? Let’s compare them to know the differences.
What is FCA?
FCA stands for Free Carrier, which is one of the Incoterms published by ICC, which can be utilized in all kinds of shipping modes.
With FCA, the seller is the only party responsible for making goods available at the port of origin. Then, the buyer loads those goods on the cargo ship and delivers them to the port of destination at their own expense.
The buyer is also free to nominate a service to accept goods and have them delivered.
What is FOB?
The full form of FOB is “Free On Board.”
With these Incoterms, you are allowed to send goods from one country to another only when you choose the inland waterway or ocean shipping.
FOB terms set the seller free from the duty of delivering goods when they load them on the cargo ship.
That means when the exporter transports the sold items from their warehouse. And, when they load those commodities on the vessel, the order is said to be “delivered.” But during these activities, all the expenses will fall upon the seller, including customs clearance and export taxes.
Then, the seller informs the buyer about the vessel, delivery date and time, and any other restrictions in advance.
Difference between FCA and FOB
Both incoterms are essential and serve different purposes and country laws. Here are the main and the most important dissimilarities between Free Carrier and Free On Board.
Transportation Mode
FCA can be applied to all modes of transportation. In other words, whether you are sending and receiving goods by airfreight, ocean shipping, or any other method, you can make a business deal using FCA terms.
FOB, in contrast to FCA, is limited to sea and inland transportation only.
Transportation Arrangements
In both FCA and FOB, buyers are dutiful for making main carrier arrangements and paying for these services to shift goods from the port of origin to the port of destination.
But in FCA, the seller can also arrange the mode of transportation (if agreed) for the buyer.
Delivery
FCA agreements mark goods as “delivered” as soon as they are available at the origin port by the seller.
So, if Mr. John is a seller from China and delivers goods at Qingdao port (port of origin), he has already played his part according to the FCA terms.
Now, it is the duty of Mr. Alfred in Canada (the buyer) to load those goods to deliver them to the port of Montreal (port of destination).
But FOB is quite the opposite of FCA. How? It is because in this agreement when the seller organizes and set goods on the vessel as managed by the buyer, the cargo is said to be “delivered.”
That means Mr. Alfred will tell Mr. John about the vessel details in advance, and Mr. John must load the goods on the ship at Qingdao port in China to mark the goods as delivered in the documents.
Payment
FCA terms make the buyer pays for the expenses at the port of origin. These include all the costs related to freight, terminal, and unloading goods from the local carrier and loading them on the vessel at the port of origin.
Once these goods are loaded on the vessel, the buyer is also responsible for paying the main carrier charges to transport commodities from the origin port to the destination port. Furthermore, he must also bear the expenses for hiring a local carrier to take goods from the destination port to their shop, warehouse, or other locations.
On the other hand, in FOB, the buyer pays for the main transportation charges and bears expenses from that point until the goods reach their premises (from the destination port to the buyer’s warehouse). The seller pays the terminal price (at the origin port) and bears expenses related to loading goods on the cargo ship.
Risk Transfer
There’s a thing called transfer of risks.
In FCA, when the exporter delivers all the goods through a pre-carriage to the origin port, the risk is transferred to the importer. That means, if any damage occurs to the products during the transportation process (from the exporter’s warehouse to the port of origin or named place), the exporter will pay the price.
But once the commodities come under the supervision of the buyer’s chosen carrier, any damage or loss will be the buyer’s responsibility.
Comparatively, FCA is easy on exporters. The risk is immediately gone to the importer when the exporter delivers goods at the port of origin.
If the vessel sinks or goods are damaged or missing when the vessel arrives at the destination port, the buyer cannot blame the seller nor demand any compensation.
But as FOB agreements make sellers responsible for keeping products on the ship at the origin port, therefore, until the goods are loaded on a vessel, they will have to pay the price for any damaged or lost goods. But once, the goods are on board, the risk shifts from the exporter to the importer.
Summary
| FCA | FOB | |
|---|---|---|
| Mode of Transportation | Both airfreight and sea freight. | Seaways only. |
| Transportation Arrangements | The seller organizes means of transportation from their country to the buyer’s country. | The buyer arranges transportation from the origin country to the destination country. |
| Delivery of Goods | The seller delivers and loads items on the carriage to the buyer’s named area or place. | The buyer brings imported commodities from the origin country to the destination country. |
| Payment | Buyer pays for freight charges and insurance costs. | Seller pays freight and insurance costs. |
| Risk Transfer | From exporter to the importer – when goods come to the destination port. | From exporter to the importer – when goods are loaded on the cargo ship from the origin country. |
Mode of Transportation
FCA: Both airfreight and sea freight.
FOB: Seaways only.
Transportation Arrangements
FCA: The seller organizes means of transportation from their country to the buyer’s country.
FOB: The buyer arranges transportation from the origin country to the destination country.
Delivery of Goods
FCA: The seller delivers and loads items on the carriage to the buyer’s named area or place.
FOB: The buyer brings imported commodities from the origin country to the destination country.
Payment
FCA: Buyer pays for freight charges and insurance costs.
FOB: Seller pays freight and insurance costs.
Risk Transfer
FCA: From exporter to the importer – when goods come to the origin port.
FOB: From exporter to the importer – when goods are loaded on the cargo ship from the origin country.
Final Words
If you have any questions after reading this simple guide on the differences between the trade term FCA and FOB, please leave a comment below.
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