Choosing between FOB and EXW when importing
Choosing between FOB and EXW when importing
If you are new to importing or haven’t quite got your head around the terminology and process it can feel very confusing. Understanding Incoterms can be one of the most challenging aspects of importing. Trying to work out what each term means, which one you should choose alongside what that means in terms of cost and responsibility is often overwhelming. This rundown will hopefully answer your questions and help you to make the best decision for you.
So what are Incoterms?
They were created by the International Chamber of Commerce to try and stop any misunderstanding when importing. They are now globally recognised as the international terms of trading. The terms help to determine who takes ownership of the shipment at every stage of the importing journey. This means depending on the chosen Incoterm you are responsible for transportation, cargo handling and customs clearance costs as well as any costs incurred for loss or damage during certain parts of importing. So it is essential to know who has the ownership at which point of importing to make sure you don’t end up with any unforeseen costs.
The two most common terms used within importing are FOB which stands for Free on Board and EXW which stands for Ex Works. This article will look at both of these and break them down so you can make an informed decision when importing.
FOB – Free on Board.
FOB is the term used to describe a shipment from port to door. This means that you, the importer are responsible for the shipment from the origin port to the final destination in the UK. Your supplier is therefore responsible for the shipment from their address (warehouse) to the port, including the cargo handling and customs clearance at that side. You as the importer will need your freight forwarder to then arrange everything from the port onwards.
An example of FOB terms in practice could be:
Your supplier is based in Zhejiang in China and the nearest port is 140km away in Ningbo. They would in accordance with FOB Terms, be responsible for getting the shipment to the port and covering the associated costs of the transport, handling and customs clearance at Ningbo. As soon as the shipment is on board the vessel (Or aircraft) your chosen freight forwarder would become responsible for all subsequent costs and ownership on your behalf.
The benefits of this are often seen in the total costs of importing being less than EXW. It is often easier for the supplier to get a lower rate for arranging the shipment to port. However, it is also possible that your supplier will add on a cost for you to ensure that their costs are covered. They are also in a position to refuse to pay the costs at their end, so it is worth having a supplier you know you can trust.
EXW – Ex Works
Ex Works is the term for a shipment that you the importer are responsible for from door to door. That means that your freight forwarder will arrange everything from your supplier’s address to your address in the UK. So when you select a Freight Forwarder you need a company that can arrange both transportation and customs clearance from start to finish in both countries.
An example of EXW in practice could be –
Your supplier is still based in Zhejiang in China and the nearest port is 140km away in Ningbo but your supplier does not want to take on the local costs and transportation, so you would arrange the shipment via Ex Works. This makes you responsible for everything from door to door, including picking up the goods from your supplier.
The benefits of this are that you are in complete control of every aspect of importing. It is also possible that the goods you are purchasing from the supplier will be at a reduced cost as they do not have to factor in the charges for shipping. It does, however, mean that the overall cost for you will probably be higher than with FOB.
The best way to decide which term works best for you is to calculate the entire cost. You should calculate the importing costs from start to finish and include the cost of the items. You can then make a comparison based on cost and convenience. It is always worth discussing this with your freight forwarder as they can advise you on the best options depending on your supplier’s location.
Isca Forwarding has been importing for 35 years and offers rates for both FOB and EXW by sea and air. If you would like more information or would like to discuss it with one of our experienced members of staff give us a call on 01392 369923 or feel free to send us an email at email@example.com.
Isca Forwarding are a UK based independent Freight Forwarder who have unrivalled logistics experience. We provide international sea freight, air freight and road freight services for commercial businesses and the personal effects markets.
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