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FCR risk and control

by:VIPUTRANS     2020-07-26
FCR (Forwarders Certificate of Receipt) is a document recommended by the International Federation of Freight Forwarders Associations for its internal international freight forwarders, which refers to the receipt of goods by the forwarders. From its literal meaning, the document is only a receipt issued by the freight forwarder after receiving the goods, not a transport document. In the export practice of Chinese enterprises, FCR is often used as one of the export documents, but the characteristics of FCR itself determine its own risk attributes. This article will combine a typical case to briefly analyze the application of this trade term.

Typical Case
Fujian A company (specializing in the production of footwear products, and most of the products are international well-known brands) has nearly 3 years of trading history with Chilean buyer B company, and the total transaction amount is about 1.7 million US dollars. At the beginning of 2010, in order to meet the market demand during the World Cup, the two parties signed a batch of orders for air freight with a 30-day billing period and a value of 550,000 US dollars. The payment method is 15% prepayment before shipment. , And the remaining 85% will be paid within 30 days after the arrival of the goods. This batch of products are OEM sports shoes signed by the football star, and the goods are transported by Company B.

In June 2010, Company B issued an original freight forwarder's receipt (hereinafter referred to as 'FCR'). The FCR stated that the shipper was Company A, the consignee was Company B, and the port of destination was Chile. A prominent position on the front of the FCR also records: 'We confirm that the goods recorded above are in good condition, and the goods delivery instructions are irrevocable. The goods will be sent directly to the consignee. The change and cancellation of the goods delivery and delivery instructions can only be done after the original FCR is presented It can only be carried out under the premise that we can still comply with it.'

After the above-mentioned goods arrived at the port of destination, the buyer was unable to pay for the redemption due to insufficient funds due to the local economy. Considering that in order not to affect sales during the World Cup, Company A decided to let Company B pick up the goods first, and then pay after the goods are sold. However, due to the difference between the results of the World Cup matches and expectations, the names of the players printed on the shoes were not accepted by the local market.

Since then, Company B delayed payment for various reasons, such as the wrong name of the payment company, the absence of the person in charge of the company, the slow payment procedures of the Chilean bank, and the quality of the goods. Due to the long-term non-payment of the buyer, the exporter (Company A) has brought great pressure on capital turnover, and the remaining 3 batches of goods have been prepared for production. The products are OEM products and are not resale. After consulting with a lawyer, Company A learned that: As the FCR records: 'The goods will be sent directly to the consignee', since Company A has accepted the document, it should be bound by the agreement. Therefore, the carrier’s failure to deliver the goods to the consignee by FCR does not violate the provisions of the contract of carriage of both parties, and it is not wrong for the carrier to directly deliver the goods to the consignee. Based on the above reasons, it is difficult for Company A to sue the carrier to win the lawsuit, and the litigation period due to cargo quality disputes is extremely long and the cost is uncertain. Taking into account various factors, Company A can only choose to take a bit of a loss and settle down. For an order of USD 550,000, the actual amount received is less than 50% including the advance payment.

The application and characteristics of FCR
In the actual export business, when the buyer is a buyer of a well-known international supermarket or a large-scale construction project, due to the large number of orders and a long period, an order may be transported multiple times. The buyer saves time and freight, FOB price clauses or EXW price clauses are often required in sales contracts. In this case, you need to use FCR to simplify operations. The transportation of goods is controlled by the buyer. The buyer designates the seller to deliver the goods to the freight forwarder. The freight forwarder pre-packages a number of containers with the shipping company, and then the freight forwarder is responsible for loading the containers. When the goods arrive at the destination, the freight forwarders The agent at the destination is responsible for picking up the counter and delivering it to consignees in different regions.

It can be seen from the above business operation process that it is the freight forwarder, not the shipper, who signs the maritime transportation contract with the shipping company. Therefore, after the shipper delivers the goods to the freight forwarder, the document obtained is the FCR instead of the ocean bill of lading, so FCR It is just a receipt and no right to cargo. It is a receipt issued to the shipper when the freight forwarder receives the consignment. It is only a document that promises to ship the goods to the destination stated on the FCR.

Through the above analysis, we can find that FCR has three main characteristics:

1. FCR is only a receipt and not a certificate of cargo rights. It only indicates that the freight forwarder accepts the carriage of the goods. China's Maritime Law does not provide for documents other than FCR and other bills of lading. It is also the carrier who does not rely on FCR to deliver the goods to the consignee. Provisions.

2. FCR generally only appears under the FOB price clause and EXW price clause, that is, the buyer controls the transportation of the goods. For the seller, the FCR saves transportation, insurance, customs declaration and other expenses, and the goods are directly delivered to the carrier, saving money and trouble.

3. FCR is not transferable, the goods can only be delivered to the FCR named consignee.

Risk attributes of FCR
In actual operation, FCR generally clearly records 'the goods will be sent directly to the consignee' in a prominent position on the front. As long as the shipper accepts the document, it shall be bound by the agreement. Therefore, the carrier does not rely on the FCR to transfer the goods. Delivery to the consignee does not violate the provisions of the transportation contract. It can be seen that under the mode of transportation that uses FCR instead of bill of lading, the carrier directly delivers the goods to the consignee neither illegal nor breach of contract, and there is no need to compensate the shipper for the losses suffered by it. Therefore, even if the buyer has no willingness to pay, he can pick up the goods first and continue selling. When the goods are difficult to sell or there is a problem with the ability to pay, the buyer may find various reasons for not paying.

As mentioned above, the characteristics of FCR make it difficult for exporters to sue buyers: First, buyers are generally well-known supermarkets or large-scale project buyers, which are relatively strong; second, orders have the characteristics of large volume and long cycle, which have objective benefits. The operating rate can also be guaranteed, and exporters generally will not sue the buyer easily; third, one order is shipped multiple times, and there are many batches of goods that have been produced in the later stage, and the cost has been invested. If easy to sue, it will cause relatively large losses.

How to avoid FCR risk
The operation of FCR requires extreme caution. To avoid the above risks, the author personally thinks that the following methods can be adopted:

1. It is possible to record 'deliver the goods to the consignee' when issuing the FCR, that is, when the freight forwarder promises to 'deliver' the goods to the destination in accordance with the transportation requirements recorded in the FCR, the freight forwarder is actually a non-vessel carrier The FCR issued by it should be regarded as a transport document, which is a proof of the contract of carriage. Subject to the adjustment of China’s maritime law, it should be a “document other than a bill of lading”. But in the case of the buyer's designated freight forwarder, the above operations are difficult to perform. Because the buyer designates the freight forwarder to charge the seller the agency fee, the freight forwarder needs to be responsible to the buyer.

2. When a Chinese exporter receives a contract and the payment method is FCR, he can apply for insurance to Sinosure. Sinosure investigates the credit status of the contract party through credit channels, evaluates the insurable limit, and specifies the scope of insurance coverage. The internal protection of accounts receivable. Considering that FCR is only a receipt, exporters can insure in accordance with the O/A (Account Sales) payment method.

3. Use FCR (the original CNF, but it has been changed to CFR after 2000) for products such as tight raw materials or large price fluctuations. According to the interpretation of CFR by the International Chamber of Commerce, the basic obligations of the buyer and the seller are the basic obligations of the seller and the buyer. When the transaction is concluded in accordance with the CFR terms, the seller’s obligation is: the seller should contact the shipping company or forwarder (the forwarder should be in the list of non-vessel carriers specified by the state), Arrange cargo transportation and control cargo rights. Although you bear the risk of freight fluctuations, the freight forwarder or shipowner you find yourself is more assured after all, and there is generally no risk of unauthorized release of orders.
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