Recently, many of my friends engaging in import business have asked me about the difference between FOB and EXW. Today’s blog explains EXW vs FOB with Alibaba suppliers as examples. After reading, you’ll better comprehend these two terms and know which is suitable for you when importing from China.
What are Ex Works and FOB shipping?
EXW meaning
Simply put, Ex Works or EXW means that the supplier only manufactures the order and delivers the goods to you at their factory or warehouse. From that point onward, you gain ownership of the goods and handle everything, starting from the supplier’s factory to your place.
Alibaba EXW meaning
Suppose you buy a batch of goods from a Chinese supplier on Alibaba using the EXW delivery term and want to ship them to Los Angeles. In that case, you need to:
Find a freight forwarder to load the goods onto a truck, transport goods from the supplier’s factory to the nearest port in China, handle export customs declaration, and load shipments onto the ship at the port of origin.
Ask your forwarder to follow up on the logistics from China to the port of Los Angeles.
Upon arrival at the port of Los Angeles, ask your agent to handle import customs clearance, pick up the goods, and deliver them to your specified location.
You are responsible for arranging and managing all aspects of the entire process, bearing all risks and costs.
FOB meaning explained with Alibaba suppliers as example.
If you request FOB, Free On Board, you need to specify the port of origin, usually the nearest port to the supplier’s warehouse. Assuming, in the example above, you and the Alibaba supplier agreed on the delivery term FOB Shanghai port. This means:
Your supplier is responsible for transporting the finished goods from the factory to Shanghai port, handling export customs declaration, and loading the cargo onto the ship at Shanghai port. The supplier bears the costs and risks of this process.
Once the goods are on board the ship, you are responsible for the shipment arrangement from Shanghai port to the port of Los Angeles, import customs clearance, pick up your cargo from the port, and send it to your specified location. You bear all the risks and costs associated with this process.
The main difference between Ex Works (EXW) and Free On Board (FOB) lies in whether the supplier is responsible for export customs declaration, transporting the goods to the nearby port, and bearing the associated costs and risks during this process. Here is an “EXW vs FOB” infographic for visual understanding.
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EXW price vs FOB price, what's the difference?
EXW price is the cost of the products you want to purchase. FOB price refers to all costs before the goods are loaded onto the ship at the departure port, including the product cost, logistics fees from the factory to the designated port, export customs declaration fees plus other types of port charges.
Suppose you plan to buy 20,000 watches from an Alibaba supplier located in Guangzhou, Guangdong industrial cluster. You request an EXW quote and a FOB Guangzhou quote. The supplier’s response is as follows:
EXW quote: $200,000
The ex-factory price for one watch is $10.
So, the product cost for this batch of watches is $200,000.
FOB Guangzhou quote: $201,300
Chinese suppliers generally have 2 ways for FOB quotations:
The ex-factory price for one watch is $10. For this batch of goods, we need to charge an additional FOB cost of $1,300:
The ex-factory price for one watch is $10. For this batch of goods, we need to charge an additional FOB cost of $1,300:
- Shipping fees from the factory to Guangzhou Port: $800
- Export customs declaration fee plus other port charges at Guangzhou Port: $500
Calculate FOB fees and then evenly allocate them across each watch, quoting a unit watch price of $10.065 under FOB.
Calculate FOB fees and then evenly allocate them across each watch, quoting a unit watch price of $10.065 under FOB.
FOB Price $201,300 / 20,000 pcs. = $10.065
In short, FOB quote = EXW quote + delivery fees from the factory to the departure port + export customs declaration fee plus other port charges at the departure port.
Note that under the EXW trade term, suppliers will request 100% payment before you get the goods out of their factory. Because once the goods leave the factory, you become the owner, and suppliers may not feel secure if the final payment hasn’t been made.
FOB: port charges at the departure port
Under FOB, the supplier will charge you for some operational fees at the departure port, such as the terminal handling charge, booking fees, demurrage, and so on. In practice, these fees are incurred by your freight forwarder when arranging the shipment to board the ship at the departure port, and he collects these fees from your supplier in advance.
Regarding these port charges, some suppliers include them directly in FOB quotes, as in the above example, while some suppliers list port charges separately for individual billing.
For the full container load shipment, the port charges are fixed and won’t vary significantly. For example, the port charge for a 20″GP is about $330. Here the exchange rate is 7 and the export customs declaration fee is $50.
However, for LCL (Less than Container Load) shipments, port fees are charged on the basis of the specific cargo volume and are not fixed. This leads to confusion in LCL shipment port charges. Chances are that buyers’ forwarders may collect port fees arbitrarily.
Additionally, special cargo requires certain certificates and testing reports. For instance, products with lithium batteries need a dangerous goods transportation report, cosmetics require an MSDS testing report, and bamboo or wood products need a fumigation certificate. All these result in additional operational fees.
Ex Work vs FOB, who typically uses?
Major 3 types of buyers using EXW
Firms with branch offices in the exporting country, primarily medium to large enterprises.
Buyers use commercial couriers such as FedEx, UPS, etc., for international parcel shipping, as these courier companies pick up the goods at the supplier’s location.
Buyers with extensive import and export experience and knowledge. So they can arrange the transportation of goods from the supplier’s warehouse to the port, handle export customs declaration, and manage the entire process from the exporting country to the destination country.
For most importers, especially newbies or those with limited importing experience, I do not recommend choosing EXW. Focus on what you excel at, and outsource the remaining tasks to your supplier. For instance, when importing from China, suppliers usually have experience in shipping goods from the factory to the nearest port and handling export customs declarations.
For whom is FOB suitable?
If you have a familiar freight forwarder, FOB is a good choice. You only need to ask the supplier when the goods will arrive at which port and then forward this information to your freight forwarder. He will handle the entire international shipping process for you.
Additionally, FOB is good for you when purchasing products from multiple suppliers and wanting to consolidate goods at the same port for shipping. Simply specify one port, have your suppliers deliver the goods to that port, and let your forwarder collect and properly load these shipments into the same container for transportation.
If you don't have a familiar freight forwarder, consider CIF, DPP, or other trade terms.
Under the shipping term CIF, suppliers directly ship the goods to the port in your country, and you just need to arrange your customs broker for import clearance, pick up the goods, and deliver them to your warehouse.
In case you are a beginner without any shipping resources, then DPP or DDU would be more suitable for you. DDP means that suppliers bear the shipping cost, tax, and customs duties, and you just need to wait for suppliers to deliver goods to your address. This is similar to ordering from Amazon or other online retailers. While under DDU, the only difference is that you need to pay for the import duties yourself.
In short, you should request a quote from your supplier based on your specific circumstances and needs. If you want to know the price of the product, ask the supplier for an EXW quote. If you want to get a rough idea of all the costs involved in the entire import process, inquire about a DDP quote from the supplier.
Check our blog to learn more about how to get precise quotes & which trade term works best.
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