1 Overview
In international trade, the moment goods leave the seller's control is a critical point where risk and responsibility shift. Two Incoterms rules, EXW (Ex Works) and FCA (Free Carrier), govern this handover but in subtly different ways. EXW places the least obligation on the seller: the seller merely makes the goods available at its premises, and the buyer assumes all costs and risks from that point. FCA, by contrast, requires the seller to deliver the goods to a carrier nominated by the buyer, often at a named place such as a terminal or forwarder's warehouse. The distinction matters because it determines who is responsible for loading, export clearance, and the critical moment when risk transfers.
Many traders conflate EXW and FCA, assuming they are interchangeable. They are not. Under EXW, the buyer must arrange loading at the seller's dock, which can be impractical if the seller lacks equipment or if the buyer's carrier cannot access the premises. FCA was designed to address this by allowing the seller to load the goods onto the buyer's collecting vehicle at the seller's premises, or to deliver them to another named place. The choice between EXW and FCA affects cost, control, and legal exposure, especially when goods are damaged or lost during the initial inland leg.
This article examines the handover problem at the seller's dock, explaining how EXW and FCA allocate risk and cost, the mechanics of each rule, common pitfalls, and the documents that evidence compliance. By understanding these nuances, buyers and sellers can avoid disputes and ensure smooth cargo movement from origin to destination.
2 Where the risk and the cost actually land
Under EXW, risk transfers when the goods are placed at the seller's disposal at the agreed premises, not loaded onto the collecting vehicle. The buyer bears all costs from that instant, including loading, inland transport, export clearance, main carriage, insurance, and import duties. This means if goods are damaged during loading, the buyer suffers the loss unless the seller's actions caused it. The seller's only obligation is to package the goods and provide them at the named place, typically the seller's factory or warehouse. Export clearance is the buyer's responsibility, which can be problematic if the buyer is not established in the seller's country.
FCA shifts the risk and cost allocation. The seller must deliver the goods to the carrier nominated by the buyer at a named place. If that place is the seller's premises, the seller is responsible for loading the goods onto the collecting vehicle, and risk passes once the goods are loaded. If the named place is another location, such as a terminal, the seller must deliver the goods to that place, and risk passes when the goods are placed at the disposal of the carrier. In both cases, the seller handles export clearance, which is a significant advantage for buyers unfamiliar with the seller's customs procedures. The buyer remains responsible for main carriage, insurance, and import duties.
The cost bearer under EXW is almost entirely the buyer, while under FCA the seller bears costs up to the named delivery point. Insurance is not mandatory under either rule, but buyers typically arrange coverage from the point of risk transfer. Because EXW transfers risk earlier, buyers may need to insure goods while they are still at the seller's dock, a detail often overlooked. FCA reduces this gap by aligning risk transfer with the seller's delivery to the carrier, making insurance arrangements more straightforward.
3 How the mechanics work end to end
The mechanics of EXW begin with the seller preparing the goods for pickup. The seller must package the goods suitably for transport, mark them clearly, and make them available at the agreed premises on the agreed date. The buyer then arranges a carrier to collect the goods. At the seller's dock, the buyer's carrier is responsible for loading, unless otherwise agreed. The seller provides a commercial invoice, packing list, and any documents required for export, but the buyer must handle export customs clearance. Once loaded, the buyer's carrier transports the goods to the destination, and the buyer manages all subsequent logistics, including main carriage, insurance, and import clearance.
FCA operates differently. The seller agrees to deliver the goods to a carrier nominated by the buyer at a named place. If the named place is the seller's premises, the seller loads the goods onto the buyer's collecting vehicle, and risk passes upon loading. The seller then provides the buyer with a delivery receipt or proof of delivery. If the named place is another location, such as a container terminal, the seller transports the goods to that place and makes them available to the carrier. In both scenarios, the seller is responsible for export clearance, meaning the seller must file export declarations and obtain any necessary licenses. The buyer then contracts with the carrier for main carriage and handles import formalities.
A key mechanical difference is the loading obligation. Under EXW, loading is the buyer's responsibility, which can lead to delays if the seller's premises lack loading equipment or if the buyer's carrier arrives unprepared. Under FCA, when delivery occurs at the seller's premises, the seller loads the goods, ensuring a smoother handover. This subtle shift can prevent damage and disputes. Additionally, under FCA, the seller's export clearance obligation means the buyer avoids the burden of dealing with foreign customs, which is especially valuable when the buyer has no legal presence in the seller's country.
4 A worked example from door to destination
Consider a seller in Germany selling machinery to a buyer in Canada. The parties agree on EXW Stuttgart. The seller packages the machinery and makes it available at its warehouse. The buyer arranges a trucking company to pick up the goods. The truck arrives, but the seller's dock does not have a loading ramp, and the buyer's carrier must wait for a forklift. During loading, a crate is dropped and damaged. Because risk passed when the goods were made available, the buyer bears the loss. The buyer also must arrange export clearance from Germany, which requires a customs broker familiar with EU export procedures. The buyer then coordinates ocean freight from Hamburg to Montreal, arranges cargo insurance, and handles Canadian import clearance and duty payment. The total cost and risk fall heavily on the buyer.
Now imagine the same transaction under FCA Stuttgart. The seller agrees to deliver the goods to a carrier nominated by the buyer at the seller's warehouse. The seller loads the machinery onto the buyer's truck, and risk passes once loading is complete. The seller also handles export clearance, filing the necessary declarations with German customs. The buyer's carrier then transports the goods to Hamburg for ocean freight. The buyer arranges main carriage and insurance from the point of loading, and handles import clearance in Canada. If the crate is damaged during loading, the seller bears the loss because risk had not yet passed. This allocation encourages the seller to ensure proper loading equipment and trained personnel.
In both cases, the buyer pays for main freight, insurance, and duty. However, under FCA, the seller's involvement in export clearance and loading reduces the buyer's logistical burden and risk exposure. The buyer can focus on the main leg and importation. The seller, meanwhile, retains control until the goods are safely on the buyer's vehicle, which can reduce disputes over damage. This example illustrates why FCA is often preferred over EXW when the seller can handle export formalities and loading.
5 Mistakes that cost money at the border
One common mistake is using EXW when the seller is better positioned to handle export clearance. Under EXW, the buyer must clear the goods for export from the seller's country. If the buyer is not established there, it may need to appoint a customs broker, which adds cost and complexity. Worse, some countries require an exporter of record to be a local entity, making EXW impractical. The buyer may also face delays if export documents are incomplete. In contrast, FCA obliges the seller to handle export clearance, leveraging their local knowledge and avoiding border delays.
Another error is misunderstanding the loading obligation under EXW. Buyers often assume the seller will load the goods, but EXW places that duty on the buyer. If the seller's premises lack loading docks or equipment, the buyer's carrier may struggle, leading to damage or additional fees. Even if the seller assists, the risk remains with the buyer. Under FCA, when delivery is at the seller's premises, the seller loads, which clarifies responsibility. Buyers should specify in the contract if they expect the seller to load under EXW, but this changes the risk profile and may not be recognized by Incoterms.
A third pitfall is insurance gaps. Under EXW, risk passes at the seller's dock, so the buyer must insure the goods from that point. If the buyer arranges insurance only from the port of export, any damage during inland transport to the port is uncovered. Under FCA, risk passes when the goods are delivered to the carrier, so insurance should start then. Buyers should coordinate with their insurer to ensure coverage aligns with the Incoterm. Additionally, sellers under FCA must provide the buyer with a delivery receipt or proof of delivery, which is often required for insurance claims. Failing to obtain this document can complicate claims. Finally, misdeclaring the Incoterm on customs forms can lead to penalties or delays, as customs authorities use the Incoterm to assess duties and compliance.
6 Documents worth keeping
Under EXW, the seller's primary obligation is to provide the goods and a commercial invoice. The seller may also provide a packing list and any documents required for export, but the buyer is responsible for export clearance. Therefore, the buyer should obtain a delivery receipt or a written acknowledgment from the seller confirming that the goods were made available at the agreed place and time. This document is crucial for proving risk transfer and supporting insurance claims. The buyer also needs the commercial invoice for customs valuation and the packing list for cargo handling. If the seller provides an export declaration or certificate of origin, the buyer should retain these for import clearance, but the obligation to produce them lies with the buyer.
Under FCA, the seller must provide the buyer with a delivery receipt or proof of delivery to the carrier. This document evidences that the seller fulfilled its delivery obligation and that risk has passed. The seller also handles export clearance, so the buyer should receive a copy of the export declaration or customs release. The commercial invoice and packing list remain essential. The buyer will also need the transport document issued by the carrier, such as a bill of lading for sea freight or an airway bill for air freight, which serves as a receipt for the goods and a contract of carriage. This document is typically issued to the shipper (seller) but transferred to the buyer.
Both parties should keep records of all communications regarding the handover, including emails confirming the pickup time, loading arrangements, and any special instructions. Under FCA, if the named place is not the seller's premises, the seller should obtain a receipt from the carrier at that place. These documents help resolve disputes over damage, delay, or missing goods. For customs audits, retaining the commercial invoice, packing list, transport document, and proof of delivery is essential. The Incoterm used should be clearly stated on the commercial invoice to avoid confusion. In summary, while EXW and FCA have different documentary obligations, both require meticulous record-keeping to protect the parties' interests.
7 Frequently asked questions
What is the main difference between EXW and FCA? The main difference is the point of risk transfer and the seller's obligations. Under EXW, risk passes when goods are made available at the seller's premises, and the buyer handles loading and export clearance. Under FCA, risk passes when goods are delivered to the buyer's carrier, and the seller handles loading (if at seller's premises) and export clearance. FCA is generally recommended when the seller can handle export formalities.
Can I use EXW for air freight? Yes, EXW can be used for any transport mode, including air. However, because the buyer must arrange export clearance and loading, it may be impractical if the buyer is not local. FCA is often more suitable for air freight because the seller handles export clearance and delivery to the carrier at the airport.
Who pays for insurance under EXW and FCA? Neither Incoterm obliges the seller to arrange insurance. The buyer typically arranges insurance from the point of risk transfer. Under EXW, this means insurance from the seller's premises; under FCA, from the point of delivery to the carrier. Buyers should ensure their policy covers the entire journey.
What documents does the seller provide under FCA? The seller provides a commercial invoice, packing list, delivery receipt or proof of delivery to the carrier, and export clearance documents. The buyer receives the transport document from the carrier.
What if the goods are damaged during loading under EXW? Under EXW, risk has already passed to the buyer when the goods are made available, so the buyer bears the loss unless the seller's negligence caused the damage. Under FCA, if loading is the seller's responsibility (when delivery is at seller's premises), risk passes after loading, so the seller bears loss during loading.
Is FCA always better than EXW? Not always. If the seller is unwilling to handle export clearance or loading, EXW may be the only option. However, FCA offers a more balanced allocation of responsibilities and is often preferred in modern trade.