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Incoterms: Free Carrier

Posted in Incoterms - 5 Feb 2018, 9:30 AM

The word ‘free’ is often referred to ‘something with no rules’. Surely, this has nothing to do with the free carrier, especially when it comes to International Chamber of Commerce or ICC. The free carrier is also known as FCA for short. It is a trade term where the location of the seller to deliver their goods is designated. Most of the time, the location may involve airports, terminals, or other venues where the carrier exists and operates. The seller is in charge of setting the price for the transportation cost.

Unlike EX Works where most of the costs are the buyer’s responsibilities, the seller is responsible for the risk of loss of the goods during the delivery process. When that happens, the seller must transfer the payment for the loss to the buyer upon the delivery to the carrier. It is no surprise that free carrier is considered a much better option than EX Works, especially from the buyer’s side. For cross-border transactions, FCA is also deemed more practical. It can take place in any transportation point, despite the kind of transportation that is used to deliver the goods.

With the free carrier, the most important is the seller’s original location or home nation. When the seller has the goods to be delivered, the responsibility is on them. In fact, here is the seller’s responsibility for export clearance. Another responsibility requires the sellers loading the goods themselves right into the chosen vehicle for the delivery. That way, they can still do the last-minute check to make sure all goods are there and intact. The last thing they need is anything that makes them have to pay for the risk of loss.

Then how to pay the carriage? There are different terms in this part, depending on the company involved and the agreed contract. It is known as CPT or carriage paid to. To be on the safe side, there are things to watch out for if you are the seller when it comes to using a free carrier, like the terminal handling charges or THC which can be incurred in the carrier or not. In the free carrier, the seller must ask beforehand, whether the CPT or Carriage Paid to also includes THC. That way, the seller may not get a last minute’s surprise, since every important detail that they have to know has already been revealed. Besides THC, there is also another thing to consider, which is Carriage and Insurance Paid To or CIP. It is the part where the seller is responsible for making sure that the carriage is not just sent to the named place or destination. The seller has to be responsible for insuring the goods.

Of course, this does not mean that the seller has to cover all insurances. In fact, they only need to cover a minimum level of it. However, this policy is considered unrealistic in a commercial sense. Still, the level of coverage should be discussed regarding the commercial agreement.

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