When you’re starting to import goods, you might come across terms like EXW (Ex Works) and FOB (Free On Board). These terms, known as Incoterms (International Commercial Terms), are essential in determining who is responsible for various costs and tasks in the logistics chain. If you’re new to importing, it can be confusing, especially when suppliers ask whether you want EXW or FOB. This article will break down the differences between EXW vs FOB and help you understand which one might be better suited for your business.
What Is the Difference Between EXW and FOB?
EXW (Ex Works) means that the seller’s responsibility is limited to making the goods available at their premises (or another agreed-upon location). After that, the buyer takes on all the responsibility for the transportation, including paying for the shipping costs, customs clearance, and delivery to the final destination.
FOB (Free On Board), on the other hand, means that the seller is responsible for getting the goods to the port of departure and loading them onto the vessel. Once the goods are loaded onto the ship, the responsibility shifts to the buyer. This includes paying for the shipping, insurance, and any other costs associated with bringing the goods to the final destination.
EXW vs FOB: Which Should You Choose?
If you’re comparing a quote that is FOB to one that is EXW, it’s essential to understand that these aren’t apples-to-apples comparisons. While FOB will generally result in a higher price, that’s because the seller is taking on more of the logistics process, making it less of a hassle for you as the buyer. With EXW, you’re responsible for arranging the freight and dealing with the complexities of transportation, customs, and port handling.
When suppliers give you quotes using EXW vs FOB, it’s important that everyone is quoting using the same Incoterms. Otherwise, comparing the costs won’t give you an accurate picture of which option is cheaper.
However, even if all the suppliers are quoting EXW, you still need to consider other factors. For example, suppliers located closer to a port may have lower port costs, and this could affect the overall price when shipping goods.
Why FOB Might Be a Better Option for New Importers
Although FOB may come with a higher upfront price, it could often end up being cheaper overall. Suppliers typically have established relationships with freight carriers and shipping companies, which may lead to lower shipping costs compared to what you might pay when using a freight forwarder. Additionally, the FOB option means less hassle for you, as the seller will handle getting the goods to the port.
When you choose EXW, you’re essentially taking on more responsibility. You’ll need to hire a freight forwarder, arrange for transportation to the port, and ensure the goods clear customs. While this might give you more control over the process, it also means you need to be more involved in the logistics side of things.
In many cases, letting the supplier handle the transportation to the port (FOB) may be cheaper than handling it yourself with a freight forwarder (EXW). However, this isn’t always true, and it’s important to weigh the costs of using your own freight forwarder against the costs of the supplier doing the work when deciding on EXW vs FOB.
The Regional Differences in EXW vs FOB Pricing
If you’re getting quotes from different suppliers, you might notice that the price is still not quite apples-to-apples, even if all the quotes are for EXW. One supplier might be located closer to a major port, resulting in lower shipping and port costs. Another supplier could be located far from the nearest port, which may mean higher transportation costs to get the goods to the port.
This is where FOB can make sense: If every supplier quotes FOB, you’re essentially asking them to take care of the logistics for you, and you won’t have to worry about these regional cost differences. In this case, FOB can simplify the process and ensure you’re comparing costs on an even playing field.
Does EXW or FOB Affect Your Responsibility?
Ultimately, whether you choose EXW vs FOB, you will be able to rely on a freight forwarder to manage the logistics of getting the goods from the supplier to your final destination. That said, choosing EXW will mean you have more responsibility to arrange transportation and handle more aspects of the process yourself, while FOB reduces your involvement in these areas.
However, choosing EXW may offer a slight advantage if you’re comfortable with the logistics process and want more control over the shipment. On the other hand, FOB offers a more hands-off approach, especially for beginners in importing.
If you would like help deciding which Incoterms are right for you, feel free to contact Part Distribution so we can guide you.
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