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EXW vs FOB – What do they stand for?

Question:

What the difference between the two?

What is better and when I should close a deal with a supplier based on EXW and when based on FOB??

Is there any difference cost wise when I close with my supplier c.terms EXW and FOB??

Answer:

Lets start by definition:

EXW- Ex Works

FOB- Free on Board

Ex Works (EXW) and Free on Board (FOB) are both international trade terms, known as Incoterms that dictate the responsibilities of buyers and sellers, including which parties are required to cover all costs and arrangements related to the shipping of goods.

With Ex Works, the supplier is not obligated to load the goods on the buyer's designated method of transport. Instead, the ssupplier must make the product available at a selected location, and the buyer must incur transportation costs.

With Free on Board, the supplier does have to load the goods on the buyer's method of transport at the shipping point and may be responsible for them throughout the trip and to the final destination. Free on Board means the supplier retains ownership and responsibility for the goods until they are loaded "on board" a shipping vessel. Once on the ship, all liability transfers to the buyer.1

KEY TAKEAWAYS

  • Ex Works and Free on Board are both international shipping terms.
  • They are types of incoterms.
  • Incoterms specify the rules and terms used in international and domestic trade contracts. 
  • Ex Works requires that the seller make the product available at a designated location, and the buyer incurs transport costs.
  • Free on Board has the seller responsible for the goods until they are loaded on a shipping vessel; at which point, all liability transfers to the buyer.

Now, to the main question:

Is Ex Works or Free on Board Better?

Goods shipped EXW will usually be cheaper FOB, since Free on Board would have the supplier bear the costs of transportation, handling, and customs clearance. EXW terms, however, are often riskier since the supplier is responsible for the goods until they reach their location.

In other words- The main difference is the risk of liability in case a seller choosing to work with his supplier under EXW compare to FOB.

Cost wise- it will be almost the same.

When perform under EXW- unit cost will be lower compare to FOB but the seller will add the origin cost from supplier to port while doing FOB unit cost would be a bit higher compare if we would do EXW but the overall cost would be almost similar to EXW + paying to origin logistics cost.