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Difference Between EXW And FOB Explained- Which Is Better?

A newbie shipping goods for the first time might come across terms such as EXW and FOB. These terminologies like any other can be quite confusing when you encounter them for the first time. However, these are common terms used in the shipping industry all across the globe; it does not matter whether you are cargo shipping from China or any another country; as these are standard terms that you will come across all the time.

So, what do EXW and FOB stand for? What do the terms mean?

Understanding The Term EXW

EXW or EX- Works can be best described as the most basic and clear-cut shipment arrangement between the seller and the buyer, under which minimum responsibility lies with the seller and the buyer has more at stake.

The EX-Works is a business deal wherein merchandise is available at the seller’s business outlet, which can be a warehouse or factory and the same is considered delivered the moment it is handed over to a consignee’s freight forwarder.

This accomplished, it becomes the responsibility of the buyer to arrange for necessary clearances so the consignment can be shipped. This is done with the participation and support of a freight forwarder. The procedures involved generally include getting relevant insurance for the merchandise, export and customs clearance and completion of other necessary paperwork.

Often trading companies source goods from manufacturers in one country and supply it to buyers in another. EXW is an option that allows such companies to withhold their source of supply, since only the details of the trading company are mentioned in all the export documents. With no mention of the supplier in any of the documentation it becomes easier for trading companies to keep the source of goods a secret, and continue to do business as usual. If the name of the original supplier shows up in any of the documents there is a risk of the end buyers approaching them directly.

What Is FOB?

FOB is the short form for Free on Board. The term generally implies that the seller/shipper arranges for a freight forwarder to transport the goods to a designated port or specific point. It is one of the most used terms and also the most misused term in the shipping industry. The term FOB is often used for describing inland movement of cargo. However, it explicitly stands for transportation of goods through inland or ocean waterways.

When the terms of delivery agreed upon by the seller and buyer are FOB it implies that it is the seller/shippers responsibility to transfer the consignment onto a container and have the same delivered to a port where it is loaded onto a ship. Delivery of goods is considered completed once the consignment is loaded on a vessel at the port of shipment. From that point onwards the buyer becomes responsible for the consignment. The seller is of course under no obligation to cover the insurance or freight charges. The buyer on the other hand is at liberty to pick whichever ocean carrier he chooses. When a buyer thinks of cargo shipping from China under an FOB contract a local ocean freight company can prove to be of immense help, as it is likely to be familiar with the system and procedures involved.