In the world of international trade, we come across terms such as FOB and EX WORK. What do these terms mean and how do they affect the cargo shipping? In this article, we will talk more about FOB vs EX WORK and explain the differences and definitions.
FOB vs EX WORK Definitions:
EX WORK (EXW) and Free on Board (FOB) are both international trading terms. These terms are known as Incoterms, which specify buyers’ and sellers’ obligations. These obligations include which parties are required to cover all the shipping costs and arrangements.
Shipping using the EX WORK (EXW) designation indicates that the seller is responsible for ensuring the purchaser that the goods can be accessed and picked-up at their place of business. Under the EXW option, transportation costs and associated risks are no longer a burden on the seller, and that favors the shipper.
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For instance, if a seller of electronics, located in Toronto, Canada, and the buyer is in New York, USA. The buyer and the seller negotiate on the price of the goods and sign an EX WORK trade contract. The buyer demands to pick up the products in a month and the seller must prepare the goods for cargo. However, in this situation, the buyer takes responsibility for all the extra costs regarding delivery. The buyer will cover all the cargo costs. And in case of any problem with the cargo on its way, the seller will not be held liable.
FOB (Free On Board)
Dissimilar to EXW, when a buyer and a seller sign a Free on Board (FOB) trade contract, the seller will commit to delivering the products to a destination. From this destination, the buyer will transfer the products to a carrier of their choosing. The location selection in the FOB is where product ownership is handed over from the seller to the buyer. At this time of the contract, the responsibility often shifts. This means that the seller will be responsible for transporting the goods. But the buyer might or might not have to take responsibility for all transportation planings from this point to up until the point he will receive the goods, this will also depend on the agreement terms.
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For instance, imagine a buyer located in Chicago, Illinois needs to buy computers from a seller located in Los Angeles, California. The buyer and seller both agree to sign a FOB trade contract. The buyer specifies that they are going to send the products via air freight. And the seller is responsible for the cargo expenses related to transporting the computers to the airport in Chicago for the delivery. At this point, the obligations change and the buyer will be responsible for all further expenses related to transporting the goods to their final destination. The buyer is also liable for any damages that may happen during this phase of the process.
Now that you know about FOB vs EX WORK you can make a more informed decision at the time of importing from China or anywhere else in the world. However, generally in the case of FOB vs EX WORK, we generally suggest FOB contract for first-time importers. But if you have a good relationship with your seller, you are free to choose the other method.