Skip to content

Free on Board (FOB) vs. Ex-Works (EXW): Importing from China

    The letters “EXW” stand for a clause in contracts that is often used in international sales. This is one of the Incoterms, which are business rules made by the International Chamber of Commerce (ICC) and used all over the world.

    What are Inconterms

    Incoterms, which stands for “international commercial terms,” are used in both imports and exports to make sure that the rights and responsibilities of all parties involved in moving goods from one country to another are clear and cannot be misunderstood.

    The seller and the buyer also agree on the following:

    how much it will cost to get there, what insurance will cover
    The Rules for
    The definitions of these terms are very important because they show when ownership of the goods changes hands and who is responsible for any losses, damages, or costs related to the goods.

    Ex Works: what is meant by EXW

    Ex Fabbrica or Ex Works, written as EXW in incoterms, is part of a group called E, which comes from the word “ex,” which means “departure.” The letters EXW stand for “ex works,” which must always be followed by the exact address of a place, and “door to door,” which means “from door to door.”

    According to this contract, the seller is in charge of getting the goods from the seller’s door to the door of the destination.

    The seller’s job is to make the goods available at an agreed-upon date in its factory or warehouse, along with the necessary paperwork for export from the country of origin. The buyer’s job is to take care of customs in both the country of origin and the final country, arrange transport and pay the costs, and take on all responsibilities and risks up to the destination.

    The EXW in Incoterms

    Since they were first made, the Incoterms have been changed several times. The most recent change happened in 2020, so we’ll explain what EXW and fob mean in terms of the new rules.

    It was easy to buy from China.
    EXW: “Ex-Work” means that the seller has the least amount of responsibility. Because of this, the Italian Chamber of Commerce only recommends it for sales within Italy.

    For the EXW, all the seller has to do is deliver the commercial documents and make the goods available by a certain date and in the amount that was asked for.

    Also, if the goods are going to be sent to another country, the seller has to give the customs office where the goods are leaving all licenses and export documents.

    The seller must also say how the goods should be shipped, if they are fragile, etc., but that’s all he has to do. The rest is up to the buyer.

    Unlike the seller, the buyer doesn’t have to pick up the goods, and he or she doesn’t have to at all. There are no penalties if the buyer never picks up the goods. Because of this, many contracts have a notice period after which the goods ordered can no longer be refused.

    This term doesn’t require any kind of insurance, but the buyer can still choose to get it insured on his own.

    The Expedition

    The fob, which stands for “Free On Board,” is actually a shipment called “port to door,” which means from the port of embarkation to the port of delivery. This is only valid for shipments by sea.

    The fob conditions say that the supplier is responsible for all local costs, shipping, handling, and customs in the country where the goods are made. If you choose this type of shipping, you will need to find a freight forwarder to take care of the goods and move them after they have been shipped or flown. This is because the supplier is no longer responsible for the goods while they are in transit, in flight, or at sea. If you buy goods with fob conditions, the supplier will include local costs in the price of the goods and may add extra costs to make sure you don’t lose money.

    Fob in Incoterms

    On the website of the Italian Chamber of Commerce, it says, “The seller delivers the goods by putting them on the ship that the buyer has chosen.” When the goods are on board the ship, the buyer is responsible for all costs if the goods are lost or damaged. The seller must deliver the goods to the ship or buy goods that have already been delivered and are ready to be shipped. When the word “procure” is used here, it refers to what are called “multiple chain sales.” If Fob is used, the seller is required to clear the goods for export, if that is the case. 

    With this Incoterms, the seller is responsible for getting the goods to an agreed-upon port by a certain date and paying for and taking the risk of loading the goods. The seller is still responsible for the goods until they are on the ship and given to a freight forwarder.

    The Seller has to make both the production and export documents, and his job isn’t done until he gets the maritime bill of lading.

    Again, there is no need for insurance, but the buyer can get one at his own cost if he wants to.

    Differences and advantages between Ex Works and FOB

    Most of the time, goods bought at EXW conditions are cheaper, which can be an advantage for people who want to buy in bulk from China. But the situation would be different if transportation costs went up, which would cancel out the savings on the cost of goods. If you choose this type of shipment, you will pay less and save money on the total cost, but you will also be responsible for shipping, customs clearance, making sure the supplier has the right permits for export, and finding a shipper who offers an Ex Works service.

    On the other hand, it may seem like fob shipping is less beneficial than EXW, but that may not be the case. The price the supplier says it will cost to deliver the goods to the port of departure could be less than what the freight forwarder says it will cost. The supplier is then charged for customs clearance and export documents, which makes the process easier. However, things could go wrong in the event that the supplier refuses to pay the local expenses as agreed or calculates additional expenses that can raise the previously agreed cost.

    Which one is better? EX Works or Free On Board ?

    To decide which incoterm to use, you need to look at its pros and cons in the context of your specific situation.

    calculate the total cost of shipping, which is how much the goods will cost when they arrive at your door. This includes the cost of transportation, insurance, and taxes.
    check to see if all of these charges should be added up for your shipment, or if some things may not be added up under other agreed Incoterms.
    Compare how much the same shipment would cost if the terms were EXW or fob, and choose the one that works best for you.
    Here is one example of a cost to think about:

    The distance between the warehouse and the port can make a big difference in how much it costs to move a full container. Most of China’s exporters have warehouses on the east coast, which is three to four hours away from the ports.
    If Hai Guan, or the Chinese customs authorities, find goods that don’t have the right paperwork to be exported, they could fine the supplier thousands of RMB. If you buy under the EXW terms, you can buy the documents for customs clearance from an authorized freight forwarder or an exporter.
    From the port of loading to the port of destination, transport costs can be high, but local costs can be low or vice versa, but with high local costs. Costs to ship a full container are usually high, but the distance it has to go must also be taken into account. Local costs can still be very high even if the container is only partially full.
    Goods must be insured because a lot of suppliers use cheap packaging. About 0.02% of the cost of the Franc on board goes to insurance.
    Purchasers have to pay extra money for things like the delivery of the bill of lading, the goods bill, the commercial invoice, forms, and various certificates.
    Prices can be very high in the port of destination. When figuring out costs for a full container, they are based on the single container, not the number of cubic meters. When it comes to containers that are only partially full, local tariffs are based on volume and are measured in cubic meters. Based on these calculations, the price can go up a lot, sometimes to the point where shipping with only some of the cargo containers, which have a total volume of 29 cubic meters, can be just as expensive as shipping with all of the cargo containers.

    Importing from China

    As you should now know, there are many things to think about and variables that can affect how well a sale from China goes.

    Leave a Reply

    Your email address will not be published. Required fields are marked *