Incoterms_® and Commercial Contracts

Preliminary remark: The graphic representation of the FCA rule suggests that the seller is to hand over the goods at the seller’s premises to a carrier nominated by the buyer. Note however that the Guidance Notes to the FCA Incoterms® 2010 rule clearly stipulate that ‘Free Carrier’ means that the seller may also deliver the goods to the carrier or another person nominated by the buyer at another named place. The ‘ship from’ place may even be situated outside the seller’s country.

How are goods handed over to the carrier?

‘Free Carrier’ means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place.

1. If the named place is the seller’s premises, which may be any place under the seller’s control,¹ delivery happens when the goods have been loaded on the means of transport provided by the buyer. Depending on the mode of transportation, the transport contract, the nature of the goods, the infrastructure available etc., ‘loading’ may require different actions (placing on board, stowing, trimming, lashing, securing, …). Essential is that the seller has passed the goods into the custody of the carrier’s liability as evidenced by a transport document executed by the buyer’s carrier.
2. If the seller is to bring the goods to the carrier or another person nominated by the buyer (such as a terminal or warehouse operator), delivery is completed when the goods are placed at the disposal of the latter on the seller’s means of transport ready for unloading. The carrier or terminal nominated by the buyer must then take delivery of the goods , either by unloading the means of transportation (often a truck), or by taking over the means of transportation (container). This ends the transport operation from the seller’s premises to that named place of departure. This may be evidenced by the carrier or terminal signing a receipt for the goods at the named place.

The FCA buyer and the carrier should agree on the place of delivery. The buyer must notify the seller thereof (name of the carrier, selected time within the period agreed for delivery when the carrier or party nominated will take the goods, mode of transport and point of taking delivery within the named place) within sufficient time as to enable the seller to deliver the goods. If no specific point has been notified by the buyer within the named place of delivery, and if there are several points available, the seller may select the point that best suits its purpose.

Unless the manner in which the goods were delivered to it precludes this, the carrier will verify, when taking delivery, whether the apparent condition of the goods and/or their packaging allows for a safe journey. It may verify the apparent nature, quantity, dimensions and weight of the goods.

In the special case where the FCA seller arranges carriage on behalf of the buyer, handing over the goods to the carrier will usually require the seller loading the goods (see above). This is regardless whether the named place is seller’s premises, where loading is done at the seller’s risk and expense, or another place, where unloading is done at the buyer’s risk and expense.

When and how are goods made available to the consignee?

The Incoterms® rules do not deal with the receipt of the goods by the FCA buyer (or any other consignee) from a carrier that it nominated.

In the special case where the FCA seller arranges carriage on behalf of the buyer, the buyer must receive the goods from the carrier at the place of destination of the contract of carriage made by the seller on usual terms at the buyer’s risk and expense.

Who shall pay the price for transport?

The carrier acts on the basis of a contract entered into with the FCA buyer. Therefore, it is for the buyer (usually also the consignee) to pay the price for transport from the named place.

Note: in order to deliver the goods to the facility of the carrier contracted by the buyer, the seller may have to contract another carrier to transport the goods to the named place of delivery (‘pre-carriage’). It may also have to appoint a carrier to collect a container from the stack, load that container at its premises and transport it back to the named place of delivery, such as a container yard (CY), container freight station (CFS) or terminal. The costs and risks thereof are for the seller. The seller’s carrier would in these circumstances need to liaise with the buyer’s carrier to determine with which shipping line the booking has been made, from which depot the empty container is to be collected against what booking reference, and to which container yard the stuffed container is to be delivered.

In the special case where the FCA seller arranges carriage on behalf of the buyer, the seller may try to instruct the carrier to collect the price for transport from the buyer (‘freight collect’). If the carrier does not consent, and the seller ends up paying the price for transport to the carrier, the seller may claim reimbursement from the buyer.

What additional costs can be added to the price for transport?

The buyer has to pay all costs from the moment of delivery (price for transport + additional costs).

In the special case where the FCA seller has arranged carriage on behalf of the buyer, the carrier may turn to the seller should the buyer/consignee refuse to pay supplementary transport costs. The FCA seller who gives instructions to transport goods is bound by the transport agreement in spite of the fact that the seller sold using the Incoterms® rule FCA. The seller may claim reimbursement from the buyer.

When a party is named as the shipper on the transport document, it will often be presumed to be the contracting party to the contract of carriage and thus the debtor of the price for transport and all its adjustments and supplements. A party that is named as (material/documentary) shipper solely for the fact of having handed over the goods to the carrier without having contracted for carriage might find it useful to decline any characterization as contracting party to the contract of carriage upon receipt of the transport document.

Is there a variable part to the price for transport (i.e. ‘adjustment factors’)?

The buyer has to pay all costs from the moment of delivery in accordance with A4 (price for transport + additional costs).

In the special case where the FCA seller arranges carriage on behalf of the buyer, the seller may try to instruct the carrier to collect the price for transport and any adjustments thereof from the buyer. If the carrier does not consent, the seller may claim reimbursement of any payment made from the buyer.

When is the price for transport payable?

The contract of carriage between the FCA buyer and the carrier will normally specify when the freight is payable. The buyer and the carrier may agree that freight is payable upon departure, usually indicated by the words ‘freight prepaid’ or ‘freight in advance’, or upon arrival – ‘freight collect’ or ‘freight payable at destination’. This will typically be agreed on booking, be included in the transport contract and subsequently be restated in the transport document. It should be noted that the transport contract often contains further provisions with respect to the payment of freight.

In the special case where the FCA seller arranges carriage on behalf of the buyer, the seller may try to instruct the carrier to collect the price for transport and any adjustments thereof from the buyer. If the carrier does not consent, the seller may have to pay for carriage at departure and claim reimbursement from the buyer.

How are the goods to be packaged?

Unless agreed otherwise, the goods must be packaged in a manner ‘appropriate for their transport’. ‘Appropriate for their transport’ is not equal to ‘reasonable’ or ‘usual’ but refers to a fitness for the purpose of transportation. This comprises qualities such as ‘apt’, ‘becoming’, ‘befitting’, ‘belonging’, ‘right’, ‘suitable’, and to this purpose verifiable by the carrier.

So-called ‘any mode’ Incoterms® rules may be used for any type of transportation. In an FCA sale, the seller may not know the final destination of the goods and the means of transportation the buyer will use. The FCA buyer should therefore inform the seller in advance of the destination, the transport modes used, the route and/or the regulatory packaging requirements if any.

In the absence of such instructions or knowledge from previous dealings, the seller is not at liberty to choose ‘any’ type of transport packaging but may choose a packaging ‘appropriate’ for the means of transportation used to collect the goods at its premises (most commonly road transportation).

Unless the goods are handed over to the carrier in a container or otherwise not verifiable by the carrier, the party best placed to examine whether packaging is appropriate for transport of the goods is the carrier. Whether the carrier is obliged to verify the packaging of the goods depends on the contractual obligations of the carrier under the contract of carriage and the applicable law.

The indication on the transport document ‘unpacked’ does not automatically mean that the goods have not been ‘appropriately’ packed for their transport. It may be ‘usual for the particular trade to transport the type of goods sold unpackaged’ (some agricultural goods, mineral products, breakbulk, …).

Is the seller or the buyer responsible for customs clearance?

When selling goods leaving for a destination outside of the customs territory of departure, it is up to the seller to carry out all customs formalities necessary for the export of the goods from the named place of delivery at its own risk and expense. This includes any export license or other official authorization that may be required. Formalities beyond the customs territory of departure (transit, import) are to be carried out by the buyer at its own risk and expense.

As the named place (seller’s premises, terminal) in an FCA sale will often be situated within the country of export, the goods pass into the care of a carrier or other person acting on instruction of the buyer prior to passing the customs border. At that moment, all the information regarding the export of the goods the seller may need for, e.g., taxation or reporting purposes may not yet be available and all the customs formalities may not yet have been completed.

The buyer and the carrier – if contractually so agreed under the contract of carriage - must provide the FCA seller, at the seller’s request, risk and expense, assistance in obtaining any additional information² and/or completing the export formalities.³ The buyer may have to instruct its carrier accordingly.

To avoid inconsistency, the instructions to the carrier, customs broker or freight forwarder should be in line with the assignment of obligations of the seller and the buyer regarding customs clearance under the FCA Incoterms® rule .

Who is responsible for stowage and cargo securing?

The Incoterms® 2010 rules do not deal with the parties’ obligations for stowage and cargo securing and therefore, whenever relevant, the parties are advised to deal with this in the sale contract.

Whether the obligation of the FCA seller to hand over the goods to the carrier nominated by the buyer requires the goods to be loaded, and whether this ‘loading’ includes stowage and cargo securing, will depend on the named place (seller’s premises or another place), the mode of transportation, the transport contract and the nature of the goods.

When the goods are to be delivered FCA (seller’s premises), the seller will usually have to stow the goods (in a container, on a truck) for the loading process to be accomplished.

When the goods are to be delivered FCA at ‘another place’, such as not yet stuffed in a container (LCL), the buyer is to instruct the party receiving the goods on its behalf to stow and secure the goods appropriately (in a container, on a ship, on an airplane…).

What sort of transport document should be issued by the carrier?

In FCA sales the seller must provide the buyer, at the seller’s expense, with the usual proof that the goods have been delivered

• either loaded on the means of transport provided by the buyer when the named place is seller’s premises
• or placed at the disposal on the seller’s means of transport ready for unloading when the named place is another place.

The seller must furthermore provide assistance to the buyer, at the buyer’s request, risk and expense, in obtaining a transport document.

The FCA buyer, when contracting for carriage, should stipulate that the carrier or terminal must provide an acknowledgment of receipt to the seller. This may be an issue when selling FCA at a place other than the seller’s premises.

If no obligation as to issuing an acknowledgment of receipt has been agreed between the buyer and its ‘terminal’, the terminal might refuse to issue such an acknowledgment. In such situation, the seller might refuse to hand over the goods provided no other document is available to prove delivery (e.g. transport document to the terminal, signed for receipt). In this event, the terminal must require instructions from the buyer. If the buyer issues no instructions the terminal may not request the goods from the seller, and the seller may request reimbursement of expenses or demurrage – as the case may be – from the buyer.

The FCA rule may be used irrespective of the mode of transport selected and may also be used where more than one mode of transport is employed. As such the rule does not refer to any particular type of transport mode/document, and the buyer and the carrier may agree on whatever transport document is convenient for them.

Most international transport conventions require the carrier to deliver a specific transport document or cargo receipt such as an Air Waybill (AWB), Bill of Lading (B/L), Road Consignment Note (CMR) in respect of cargo received for carriage. If the carrier issues such a document at the request of the FCA seller, it shall generally be deemed to have done so on behalf of the buyer for purposes of the contract of sale, subject to proof to the contrary.

The transport document serves as proof that goods have been taken into the custody of the carrier (see above, Acknowledgment of Receipt) and as the place to note any reservations about the goods. In other situations, the transport document might be used in a way that only the holder of the transport document is entitled to claim the goods (such as with a negotiable Bill of Lading).

If the buyer so requests, the seller has an obligation to assist the buyer in obtaining a transport document. The FCA seller is in principle not party to the contract of carriage. Therefore, the buyer should instruct the carrier to issue a transport document of the customary kind to the seller/consignor as proof of receipt of the goods by the carrier. Where the FCA seller arranges carriage on the buyer’s behalf in accordance with the special provision in A3 of the FCA Incoterms® 2010 rule, the FCA seller and the carrier may agree who issues the transport document.

Specifically, the document should record whether the goods have been loaded and secured by the seller or the carrier. Moreover, the document should identify by name the party that handed over the goods to the carrier (the FCA seller) OR the party that contracted for carriage (the FCA buyer) and the consignee (often the buyer or its representative). The transport document should record the apparent condition of the goods at the point where they are received by the carrier. If the goods are received in one or more sealed transport units (such as containers), it is sufficient that the carrier confirms the visible condition of the transport unit or units.

The document should be visibly and unequivocally dated and signed.

Unless obviously unnecessary, the document should include a clear undertaking to deliver the goods to the consignee, subject to presentation of one original in the case of a negotiable transport document.

If the buyer asks the carrier to arrange for customs documents (invoices, packing lists, certificates of origin,…) the carrier is not obliged to do so. Whenever the carrier accepts this request, particular attention should be paid to these documents which are very much formalized, in particular to the mode of transport, the goods, the applicable law and regulations and the status of the transport buyer and the carrier.

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