FOB or EXW, Which one to use? International Commercial Terms or Incoterms can be confusing for any new importers, as things to be aware of include trust, picking the best option and the best solution to ship and import. With this article, we aim towards the common incoterms FOB or EXW, which are the basic essential terms to be familiar with when importing for outside your counter.
FOB is an acronym for ‘Free on Board’, it is a port to door shipment. It refers to a shipping arrangement where the seller or sender has ownership of the goods only until when the are loaded.
After the loading process supplier takes ownership at the point of departure from the seller’s shipping dock. The supplier is responsible for providing transportation of the goods sold to a main shipping origin point. The shipping origin point is a port as incoterms are used for international trade which in turn imports goods through the sea.
When a buyer or the receiver gets the ownership of goods then it is considered as a complete delivery or delivery is accomplished. If goods are damaged in transit, the buyer should file a complaint with the insurance carrier. The cost of delivering the product to you are included but further, all the costs will be handled by the buyer.
So, in short, FOB means that the first seller sends the product which with the help of the supplier, and then reaches to the buyer who later has to arrange and ship it to the desired location.
Advantages of FOB:
As a buyer, you don’t have to worry about documentation in the origin country except for clearance as this goes under the supplier’s responsibility. If a buyer is withdrawing the trade the seller can still recover the goods before the goods are loaded to port, similarly, the buyer doesn’t have to pay if he doesn’t get the desired quality or quantity.
FOB disadvantages include situations when the supplier refuses to pay the cost that has been agreed upon and similar scenarios related to charges.
EXW stands for Ex Works and it is a Door to Door shipment, all the cost, and the responsibilities are with the buyer. In Ex Works shipping term the only responsibility that the seller has is to ensure that goods are available when the buyer needs them. Ex Works term is used while making an initial quotation for the sale of goods without mentioning costs.
Buyer is the only one in charge, cost, risk, and transport will have to be dealt with by the buyer with which he can get the prices of all their costs upfront, Suppliers don’t add any margin to shipping.
Buyer is responsible for all the risks included within shipping to delivering at the door, Customs have different cost in countries which might lead to extra costing and the first time buyers don’t have an idea about the cost upfront.
EXW or FOB? :
Both these terms have their benefits and risks it depends on your knowledge of goods and of International commercial terms, with FOB being the most commonly used as it eliminates or splits the buyer’s responsibility, whereas in Ex-Works all costs and responsibility is to the buyer. FOB and EX Works both be used to get an idea about the costs and then make the right decision.