Three big reasons why everyone is switching to FCA.
While on-shoring is the fastest-growing trend in sourcing, Asia remains the go-to destination for producing labor-intensive products like shoes, apparel and textiles. For companies sourcing in China, Malaysia or Vietnam, a key issue is whether to transport goods via the Free on Board (FOB) or Free Carrier (FCA) shipping model.
Decoding the Shipping Alphabet Soup
Before a deep-dive into why so many companies are making the move to FCA contracts, it’s helpful to understand the differences between the two shipping modes:
- Free on Board (FOB): The seller takes responsibility for all logistics and costs associated with moving goods from the factory to the destination port (via sea and inland waterways.) This includes booking ocean containers, transporting goods from the factory to the port, clearing customs and loading goods onto the buyers’ nominated vessel. The seller pays all port, gate, terminal, documentation and other fees. Once the container is delivered and the ocean carrier issues a bill of lading, costs and risk pass to the buyer.
- Free Carrier (FCA): The buyer takes possession of goods as soon as they leave the factory door and is responsible for arranging trucks to deliver containers to the factory, loading cargo onto the container, transporting and loading containers onto carrier ships and paying for marine freight transportation, insurance and unloading at the destination port. FCA includes trade by road, rail, air or sea.
The primary difference is where the costs and risks are handed off from supplier (factory) to buyer. With FOB, it’s at the ship. With FCA, it’s at the factory door.
The Tide is Turning
FOB has been the default shipping choice for years, primarily because companies didn’t have offices in Asia or boots on the ground to arrange and track trucking and shipping. Today, with a growing presence in foreign markets and access to logistics partners working on their behalf, companies are switching to FCA for three key reasons:
1) Better control of the supply chain: With an FOB contract, buyers historically had little control of the process – from timing of container delivery, when products left the factory and movement of products through customs and onto the ship. With FCA, buyers control goods from pickup at the factory to delivery to the destination (U.S.) port, enabling a more proactive approach. By eliminating the middleman, buyers have better control of shipping, containers and documentation, and experience fewer delays or supply chain disruptions.
2) Cost savings: With FOB, sellers control the entire process, marking up everything from trucking and container costs to all kinds of fees, including port, documentation and gate fees. While it may not seem like much, when you’re moving 30,000 containers a year, those markups add up quickly. By shipping FCA, buyers can lower overall landed cost. More transparency and enhanced visibility into the breakdown of costs enables more informed decision-making.
3) Improved visibility: By taking control of product transport from factory to destination port, buyers gain visibility into the supply chain earlier in the game. For example, with FOB, visibility starts once goods are on the ocean carrier. If there’s a problem or delay before that point, you don’t find out until it’s too late. For example, you might not know an ocean carrier wasn’t booked or there were delays getting containers onto trucks. Issues like these can be overcome with the help of a qualified partner that can track progress from PO creation to final delivery. With FCA, you have visibility across the supply chain.
Whether you’re working directly with suppliers in Asia or partnering with a service provider, have you considered FCA for your international shipments?
Written by Lee Williams, Ryder Supply Chain Solutions
Lee Williams is Director of Business Development for the Retail Division of Ryder Supply Chain Solutions. Lee’s background and experience include international logistics, international freight consolidation and Asia origin services.