Ex Works (EXW) and Free On Board (FOB) are two Incoterms used for standardising and easing international freight transport. As with all Incoterms, they are used to establish the responsibilities and risks of the seller and buyer – but which one is better for you? Although FOB and EXW share some similarities, it is important to understand the differences between Ex Works and FOB before you organise your shipment.
The main difference between Ex Works and FOB is the point where the responsibility shifts from the seller to the buyer. Under FOB shipping terms, the seller is responsible for loading the goods on board the selected vessel, which means the buyer’s responsibility starts. Under Ex Works, the seller is not obligated to load the goods in the selected vehicle, only to make it available at a designated location.
Another significant difference between EXW and FOB is that under FOB terms, the seller is the one that pays for transporting the goods to the vessel before loading them. Under EXW, once the seller makes the goods available at the designated location, any further transport costs are borne by the buyer.
Since FOB’s shipping rules are closely related to the vessel, this Incoterm mainly applies to maritime and waterway transport. On the other hand, EXW can be used for all modes of transportation.
Read more about each Incoterm:
For the buyer:
One of the main benefits of using EXW is that they get a clear picture of what is their total cost since most of the responsibility falls on them. Since the buyer has control over the entire process, the risks of extra charges or fraud are essentially none. However, the disadvantage for the buyer is the responsibility of having to deal with the export clearance in the origin country. Not always will the buyer have the necessary documents or expertise to conduct the process alone.
For the seller:
EXW is a good option if their operations are only local-based and they do not have the permit or experience with exporting goods. If they get a customer from abroad and they sell under EXW, it means the buyer will have to deal with all the documents and export procedures, so the transaction is easy for the seller.
For the buyer:
Using FOB is usually a good option if you do not have experience with export and transport in the country of origin because the seller will then be responsible for clearing the goods and arranging the domestic transport. FOB usually turns out to be a more affordable solution exactly because you benefit from the seller’s local logistics network instead of having to arrange it yourself. The biggest risk for the buyer is when you have to deal with inexperienced or unprofessional sellers/freight forwarders, which may result in losses.
For the seller:
Sellers should only agree to ship under FOB if they do indeed have the experience to arrange all export procedures and transport themselves. For sellers not experienced in exporting goods, it may be without having the proper knowledge and network.
Another difference when comparing Ex Works vs FOB is who pays for import and export duties.
|Type of transport||All modes of transport||Sea freight|
|Loading the goods||Buyer||Seller|
|Unloading and handling at arrival at the named place||Buyer||Buyer|
|Domestic transport to the named destination||Buyer||Buyer|
|Risk transfer||When the goods are made available at named location||When the goods are loaded on board the selected vessel|
|Insurance||Not an obligation of either parties||Seller until the loading, buyer after that point|
There are many differences between Ex Works and FOB, mainly because FOB can only be used for sea cargo. If you want more information about FOB, EXW, and other Incoterms by reading our complete guides.
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