EXW vs FOB are international trade terms explaining what the buyer and seller must do when selling goods internationally.
What is EXW?
EXW (Ex Works) means the seller must only make the goods available at their location or another agreed place. After that, the buyer takes care of all the expenses and risks.
Advantages of EXW:
- Control for the Buyer:
As the buyer, you get to decide how your goods are shipped. You can choose the most cost-effective and efficient way to transport them.
- Transparency:
You can see what’s happening with your goods when you handle the shipping. It helps ensure that they are handled safely.
- Flexibility:
You have the freedom to work with the shipping companies you prefer. You can choose carriers and freight forwarders that you trust.
Disadvantages:
- Complexity and Risk:
Managing logistics and compliance can be challenging, especially with little experience. It puts the responsibility on you, the buyer.
- Potential Delays and Costs:
If you need any help with customs or transportation, it could lead to delays and extra expenses.
- Lack of Seller Responsibility:
The seller’s responsibility ends once the goods are made available. So if something happens to the goods during transportation, you may have limited options to seek recourse from the seller.
What is FOB?
FOB (Free on Board) means the seller is responsible for delivering the goods onto the ship at the specified port. From that moment, the buyer controls all the costs and risks.
Advantages of FOB:
- Clear cost sharing:
FOB helps to divide the costs between the seller and the buyer. The seller pays for transporting and loading the goods onto the ship, while the buyer takes over the responsibility once the goods are on board. It makes it easier to understand who pays for what.
- Fair risk sharing:
FOB also makes the risk-sharing fairer. The seller bears the risk until the goods are loaded on the ship, which means the buyer has less trouble at the beginning of the shipment.
- Better pricing options:
With FOB, the buyer might get better pricing options because the seller controls shipping costs until the goods are shipped.
- Easier logistics:
FOB simplifies the logistics for the buyer. They only need to take responsibility for the goods after they are on the ship, which makes things less complicated.
Disadvantages of FOB:
- Limited control for the buyer:
When the goods are on the ship, the buyer becomes responsible for any problems during shipping. But they may have little control over the shipping process, so if there are issues, it could be difficult for them to fix.
- Potential disputes:
Sometimes, there can be arguments about when the buyer takes responsibility for the goods, especially if there are delays or misunderstandings during loading. It may cause disagreements between the buyer and the seller.
- Complex paperwork:
FOB can involve complicated paperwork, especially for shipments between different countries. It means lots of forms and following trade rules, which can be tricky.
- Extra costs:
Although FOB can offer reasonable prices, the buyer might pay extra expenses like customs duties, taxes, and handling fees once the goods reach the destination port.
- Security worries:
The buyer may worry about the safety of the goods during the loading process. They only have direct control over it once it’s on the ship.
Conclusion:
In simple terms, EXW requires the buyer to handle everything after picking up the goods, while FOB means the seller delivers the goods onto the ship, and then the buyer takes over.
Knowing the dissimilarities between EXW and FOB trade terms is very important for businesses involved in global trade. These terms explain each side’s duties during shipment, ensuring transactions go well and disagreements are reduced. By carefully choosing the correct time for them, buyers and sellers can make intelligent decisions that safeguard their interests and promote successful trade partnerships.