When it comes to international shipments, Ex works vs Fob (EXW vs FOB) are two important terms to consider. These terms refer to freight services and are crucial for clients who require reliable transportation of goods. However, before choosing between EXW vs FOB, it is important to understand the difference between these two terms and what they entail.
EXW vs FOB are both Incoterms used in international shipments. The appropriate usage of these terms is dependent on various factors, including the type of goods being shipped and the destination of the shipment. In this article, we will explore the differences between EXW vs FOB and how to determine which term is best suited for your shipment needs.
Key Takeaways
- EXW and FOB are two important Incoterms used in international shipments
- Understanding the difference between these two terms is crucial for determining the appropriate usage
- Factors such as the type of goods and destination of the shipment can help determine which term is best suited for your needs
EXW vs FOB
EXW and FOB are both trade terms used in international trade. EXW, or Ex Works, means the seller is responsible for making the goods available at their premises. FOB, or Free on Board, means the seller is responsible for loading the goods onto the ship. The choice between EXW and FOB depends on the buyer and seller’s preferences and the specifics of the transaction.
EXW vs FOB
FOB Meaning
FOB, or Free on Board, is a shipping term that refers to the point in the supply chain where the buyer or seller becomes responsible for the goods being shipped. Under FOB terms, the seller is responsible for loading the package onto the desired ship, and only after that does the responsibility of goods pass on to the buyer.
Ex Works (EXW) Meaning
EXW, or Ex Works, is a shipping arrangement in which the seller makes a product available at a specific location, and the buyer has to pick it up themselves. Under EXW terms, the responsibility of collecting, loading, and transporting the goods falls on the buyer, while the seller only has to provide the pick-up location.
EXW Shipping Analysis | Pros and Cons
EXW is a widely used shipping method around the world, but it has its benefits and drawbacks. One advantage of EXW is that the buyer has control over everything, from choosing the transportation method to reducing the chances of fraud. Additionally, the buyer can know their total costs with the supplier’s help.
However, the downside of EXW is related to customs clearance of the goods in the origin country. If the information provided by the supplier is misleading or misstated, the buyer will have to bear the costs of extra inspections and any possible additional costs. Moreover, if the customs department chooses the goods for random extra inspection, any resulting costs will also have to be borne by the buyer.
Furthermore, a supplier who does not offer FOB terms may not have a license to export. If the buyer enters into an EXW contract with such a supplier, they will be charged for the export license fee, which is usually high. Therefore, it is advisable to ask if the supplier has the license if the buyer is being refused FOB terms.
It is also essential to mention that if the buyer is accustomed to traveling overseas to place orders with multiple vendors, they might be at risk of bearing very high costs. This is because the vendors might not let the buyer know, but they will most likely be signing an EXW contract with each of them, meaning the transport costs will be on the buyer.
FOB Shipping Analysis | Pros and Cons
FOB conditions have many benefits to the buyer. For example, the buyer can buy insurance and have the initiative in the choice of insurance types, rates, and claims. The buyer can also specify transportation and obtain transportation cost control, get bulk shipping discounts, require shipping credits, batch import customs clearance, and enjoy other conveniences. FOB prices allow buyers to evaluate the import costs of various countries intuitively.
However, if the buyer is a new buyer, FOB may have some risks. They may find unprofessional freight forwarders and suffer losses at their own expense. The buyer has to obtain export licenses at their own risk and expense, go through export procedures, be responsible for all costs and risks of loss or damage to the goods before the goods pass the ship’s rail at the designated port of shipment, provide commercial invoices, clean shipment documents, and more.
In conclusion, both EXW and FOB have their advantages and disadvantages. The buyer should choose the shipping method that best suits their needs and requirements.
Basic Trade Terms (Incoterms) Explained
Incoterms, also known as Trade Terms, are international contractual terms that are commonly used in sales transactions. The most widely used incoterms are EXW (Ex Works) and FOB (Free on Board). Let’s take a closer look at these terms and other recognizable ones as outlined in the newest incoterms.
FOB (Free on Board)
FOB refers to the delivery of goods at the terminal in China. The value of goods and domestic freight are added together to determine the FOB price. If the delivery is agreed to be made at Shanghai port, it is called FOB Shanghai. Under these conditions, the freight, customs declaration, and export procedures for transporting the goods to the Shanghai terminal are also added to the FOB price. This is also part of the cost.
C&F (Cost and Freight)
C&F refers to the delivery of goods at the buyer’s terminal. The C&F price is determined by adding the FOB price and ocean freight charges. If the delivery is agreed to be made at New York port, it is called CNF New York. This condition is the FOB price plus the ocean freight charges for shipping the goods to New York, USA.
CIF (Cost, Insurance, and Freight)
CIF refers to the delivery of goods at the buyer’s terminal. The CIF price is determined by adding the FOB price, ocean freight charges, and insurance premium. Alternatively, the CIF price can be calculated by adding the CNF price and insurance premium. The insurance fee is determined by the type of goods and the place of delivery. The insurance company determines the insurance amount, and there are several types of insurance, but all risks insurance is usually chosen.
Overall, understanding these trade terms is essential for businesses engaged in international trade. It is important to carefully consider and negotiate the terms of a contract to ensure that both parties are clear on their responsibilities and obligations.
How to Determine What Incoterms to Use(EXW vs FOB)
When it comes to shipping goods from China, it is essential to choose the right international trade term that meets your needs. The two most commonly used trade terms are EXW (Ex Works) and FOB (Free on Board). However, there are several other trade terms available, and choosing the right one can be confusing. This section will provide you with some guidance on how to determine what incoterms to use.
The International Chamber of Commerce (ICC) has established a set of rules for interpreting trade terms known as Incoterms. These rules define the responsibilities of the buyer and seller in a transaction, including who is responsible for the cost and risk of transportation, insurance, and customs clearance.
To choose the right trade term, you need to consider several factors, such as the nature of the goods, the shipping method, and the destination country’s regulations. The following flow chart can help you understand the general principles of interpretation of major trade terms:
It is worth noting that the ICC’s general rules for interpreting trade terms are advisory and not mandatory. Therefore, you can define your own trade incoterms if you know exactly what you are doing. However, if you are buying a large number of goods, it is recommended to use pre-packaged transport terms.
For example, if you want to receive the goods in your own warehouse and let the seller pay import duties, but you want to control the transportation, you can choose DDU (Delivered Duty Unpaid), which is similar to FOB except for transportation. A professional logistics agent can help you see the opportunities and ensure that your contract contains all the essential terms.
If you represent a certain size of your business, suppliers will usually listen to you and show a certain degree of flexibility. However, if you are an absolute new buyer, DDP (Delivered Duty Paid) may be a good choice.
In conclusion, choosing the right trade term is crucial for a successful transaction. By considering the nature of the goods, the shipping method, and the destination country’s regulations, you can determine which incoterm to use. It is also essential to seek the advice of a professional logistics agent to ensure that your contract contains all the essential terms.
Exworks vs Fob Conclusion
In summary, both EXW and FOB have their advantages and disadvantages. EXW offers more control over costs, but it also comes with more risks. On the other hand, FOB may be cheaper, but the supplier is responsible for shipping, handling, and customs clearance costs in the country of origin.
When choosing between EXW and FOB, it is important to consider your level of import experience and to explore alternative trade terms. By doing so, you can make an informed decision that suits your business needs.
The following table compares the key differences between EXW and FOB:
| EXW | FOB | |
|---|---|---|
| Responsibility for Costs | Buyer | Supplier |
| Responsibility for Shipment | Buyer | Supplier |
| Risk | High | Low |
| Control | High | Low |
| Customs Clearance | Buyer | Supplier |
| Shipping Costs | Buyer | Supplier |
Ultimately, the decision between EXW and FOB will depend on your specific circumstances and priorities. It is important to carefully evaluate your options and choose the trade term that aligns with your business goals.