What is the difference between Ex Works (EXW) and Free on Board (FOB)?
Ex Works (EXW) and Free on Board (FOB) are both international trade terms, known as Incoterms, which specify the responsibilities of buyers and sellers, including which parties are required to bear all costs and arrangements associated with the transportation of goods.
Trade Terms of International Trade, also known as Terms of Trade, price Terms. In international trade, the obligations of buyers and sellers will affect the price of goods. In the long-term international trade practice, gradually formed some closely related to the terms of trade and prices directly linked together, formed a number of quotation patterns. Each model sets out the obligations of the buyer and seller under certain terms of trade. The term used to describe this obligation is called trade terms.
But some international trade terms have a lot of similarities. How can we distinguish them? Let’s introduce the most common EXW and FOB differences between the two?
What is EXW?
EXW means that the delivery is completed when the Seller places the goods at the disposal of the Buyer at its place or other designated place (such as workshop, factory or warehouse) without the Seller completing export clearance or loading the goods on any means of transport.
What is FOB?
FOB is one of the commonly used trade terms in international trade. In a FOB transaction, the Buyer shall send a vessel to pick up the goods. The Seller shall ship the goods on board the vessel designated by the Buyer at the port of shipment and within the time limit specified in the contract and notify the Buyer in time. Risk shall pass from the seller to the buyer when the goods are loaded on the named vessel at the port of shipment.
Specific differences between EXW and FOB:
- The time of shipping advice given to the buyer is different
The seller shall inform the buyer of the shipping contents and details before shipment so that the buyer can have sufficient time to handle the Marine insurance of the goods.
EXW The Seller must place at the disposal of the Buyer the goods not placed on any transport vehicle at the designated place on the date or period agreed upon in the Contract or, if no date or period is agreed upon, at the time normally used for the delivery of such goods. If no specific point of delivery is agreed upon within the specified place, or if several points of delivery are available, the Seller may choose the most suitable point of delivery among the places of delivery.
- Different delivery places and methods
EXW is delivered at the factory, the place of delivery is the seller’s place of the exporting country, the risk of transfer to the buyer, export tax to be borne by the buyer, any applicable mode of transportation; Shipping under the ex-factory (EXW) name indicates that the Seller is responsible for ensuring that the Buyer can pick up and collect the goods at its place of business. Under the EXW option, shipping costs and associated risks are no longer a burden on the seller, which benefits the shipper.
FOB means delivery on board the ship at the port of loading in the exporting country. After crossing the ship’s rail, the risk is transferred, export tax is borne by the seller, and the applicable mode of transport is water transport. Unlike EXW, when buyers and sellers enter into a FOB trade agreement, the seller is obligated to ship the goods to their destination for transfer to a carrier designated by the buyer. FOB The location in a trade agreement specifies the point at which ownership is transferred from the seller to the buyer. Responsibility often shifts at this point of arrival. The Seller is responsible for transporting the goods until then, but the Buyer may or may not be responsible for all transportation arrangements from that location to its location, depending on the terms of the agreement.
- Customs clearance is different
EXW does not take tax refund into account; FOB is subject to a tax refund. In EXW, the Buyer must pay the cost of any pre-shipment inspection, including inspection mandated by the competent authority of the exporting country. For example, the commodity inspection fee of legal inspection. At the Buyer’s request and at the buyer’s risk and expense, the Seller shall give the Buyer all assistance when customs formalities are required;
In FOB, the Buyer must obtain any export and import licenses or other official permits at his own risk and expense. And handle all customs formalities for the export of goods when customs formalities are required. The Seller shall give all assistance to the Buyer at the Buyer’s request and risk and expense.
- Different responsibilities
EXW is the term for which the seller has the least liability. The Buyer must bear all costs and risks of taking delivery of the goods at the location of the Seller. However, if the parties wish the Seller to be responsible for loading the goods and bear all the costs and risks of loading the goods at the time of shipment, this must be expressly stated in the Sales Contract.
The FOB seller delivers the goods to the carrier designated by the buyer at the designated place and completes export customs clearance procedures. If the place of delivery is the Seller’s place and the goods are loaded onto the means of transport provided by the carrier designated by the Buyer, the delivery obligation shall be deemed to have been fulfilled; The Seller shall be deemed to have fulfilled the delivery obligation when the goods are delivered to the care of the carrier appointed by the Buyer in the carrier of the Seller’s means of transport before unloading the goods. The Seller shall not be responsible for unloading the goods.
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