What Is The Difference Between FOB vs. EXW?

When importing goods from China, there are lots of trade Incoterms and logistics to navigate. Two of the most common Incoterms you will encounter are FOB and EXW. They refer to the responsibilities and costs of shipping goods. 

If you are in the market for toner cartridges, you need to understand the difference between these terms. This will help you to make an informed decision and avoid any costly surprises. 

This article will explain the differences between FOB and EXW. We will also give you the knowledge to plan and budget for all the costs associated with importing your toner cartridges from China.

What is FOB?

“Free on Board” or “Freight on Board” (FOB) is a common shipping term used in international trade, which also applies to importing goods from China. 

FOB refers to the point at which the seller transfers the goods and their responsibility to the buyer. It indicates that the seller handles loading the goods onto the shipping vessel. And the buyer is responsible for all costs of transporting the goods from that point forward.

Let’s say you’re importing toner cartridges from China and agree to purchase them on FOB terms. This means that the supplier handles loading the toner cartridges onto the shipping vessel at the port in China. Once the toner cartridges are loaded, the buyer (that’s you!) becomes responsible for all costs associated with getting the toner cartridges from China to your destination. This could include transportation costs, customs clearance fees, insurance, and other costs that might arise during transit. 

So basically, FOB indicates that the supplier’s responsibility for the toner cartridges ends when loaded onto the shipping vessel. From that point on, the buyer assumes responsibility for everything else.

Buyer and Seller Obligations in FOB Contract.

In a Free On Board (FOB) contract, the seller is obligated to:

• Prepare the goods and keep invoices and documents ready.

• Properly pack and mark the cargo.

• Obtain export licenses and clear customs formalities.

• Make arrangements for pre-carriage and delivery.

• Assume responsibility for the costs of loading and transporting the goods from the warehouse to the port.

• Deliver the goods onboard the named ship at the named port of departure and pay the loading charges.

• Obtain delivery proof and pay for pre-shipment inspection (if required).

On the other hand, in a Free On Board (FOB) contract, the buyer is obligated to:

• Pay for the goods as per the sales agreement.

• Arrange for the main carriage, discharge, and onward carriage.

• Clear import formalities and pay relevant duties.

• Pay for the pre-shipment inspection during import clearance.

• Arrange and pay for insurance.

What is EXW?

EXW stands for “Ex Works.” Some people call it door-to-door shipment. It is an arrangement in which the seller makes the goods available at their factory. Then the buyer bears all costs of transporting the goods from that location to their final destination.

So, let’s say you’re importing toner cartridges from a supplier in China, and you agree to purchase them on EXW terms. This means that the supplier will make the toner cartridges available at their factory in China. It will be up to you to arrange for transportation and customs clearance to get the toner cartridges to your destination.

Unlike FOB, the EXW contract place all responsibility for transportation and other costs on the buyer. And This can be beneficial if you have experience with importing. Or if you have established relationships with reliable transportation and logistics companies.

Buyer and Seller Obligations in an EXW Contract

Seller’s Responsibilities in an EXW Contract

The seller’s responsibilities in an EXW agreement are quite limited. They only need to ensure that the cargo is ready for export and that the buyer can collect it from their location. 

This involves packaging the products into export cartons and ensuring they are available for pickup.

Buyer’s Responsibilities in an EXW Contract

• The buyer must handle the loading of the goods at the pickup location to be transported to the port for export.

• The buyer arranges for the transportation of the goods to the port of origin to initiate the export process.

• The buyer must handle all export documentation and pay any duty required to export the cargo. They must also have their own means of exporting the goods.

• The buyer pays all fees associated with the terminal.

• The buyer must take care of the loading of the goods onto the carriage.

• The buyer covers all freight costs in moving the cargo from port to port.

• The buyer pays all the fees associated with the destination port and terminal. 

• The buyer must handle the cargo’s costs from the destination port to the final destination.

• The buyer must pay for the costs associated with unloading the cargo from the final carrier once the goods have arrived at the destination.

• The buyer is responsible for paying any duty and taxes associated with importing the cargo into the destination country.

What is the Best Trading Option for Me – FOB or EXW?

Deciding which trading option to choose between FOB and EXW depends on your specific shipment. Each incoterm has its advantages and disadvantages. Below, we have listed the advantages and disadvantages of FOB and EXW shipping terms to help you make an informed choice.

Advantages of FOB Contract

Some of the advantages of using FOB include the following:

FOB is Cost-effective

One of the main advantages of FOB is that it is a cheaper option for importers. This is because the seller handles loading the goods onto the shipping vessel at the port of origin. This saves the buyer money on labor and transportation costs.

It Reduces the Risk of Loss or Damage for the Buyer

FOB reduces the risk of loss or damage to the goods during transportation for the buyer. This is because the seller handles loading the goods onto the shipping vessel.

Clear Division of Responsibilities

FOB provides a clear division of responsibilities between the buyer and the seller. This helps to prevent misunderstandings or disputes. The seller is responsible for loading the goods onto the shipping vessel. And the buyer handles all costs of transporting the goods to the final destination.

Disadvantages of FOB Contract

There are certain drawbacks associated with using FOB. 

When sellers use FOB, they assume the cost and insurance liability for transporting the goods. This can become costly, particularly when shipping goods across borders. 

Moreover, the seller handles loading the goods onto the vessel and provides insurance coverage. In the event of any damage to the goods during transportation, the seller may be held accountable.

Advantages of EXW Contract

EXW can be a practical solution for shipping products in certain circumstances.

• EXW is ideal for businesses that purchase from one country and want to consolidate products from multiple suppliers.

• You can hide your supplier’s identity by using a different exporter on shipping documents.

• EXW is usually the cheapest option for purchasing products, but FOB may be cheaper if sellers can obtain tax returns on exported products.

• EXW is useful for buyers purchasing from manufacturers producing only for the local market.

Disadvantages of EXW Contract

EXW can have a lower unit cost than other Incoterms, but it has significant disadvantages for the buyer. They are:

• The buyer handles all risks and costs associated with the export, transport, and importation of the cargo

• EXW does not require the seller to load, deliver, and export the cargo to the terminal. It leaves the buyer with all those responsibilities..

• If there are issues in the seller’s country, the buyer needs a qualified partner to handle them

• If the buyer is unsure of the process or costs involved in exporting, EXW could result in unexpected expenses

Conclusion.

If you’re looking to buy toner cartridges from a Chinese factory, you may be asked whether you want the EXW or FOB price. The EXW price is the price of the product at the factory gate without any shipping or delivery costs included. And The buyer is responsible for all transportation and insurance costs from the factory to the final destination.

On the other hand, the FOB price includes all costs associated with loading the goods onto a shipping vessel. And The seller is responsible for these costs, but the buyer is responsible for shipping the goods to the final destination. 

It’s important to note that the price difference between EXW and FOB can be significant. So, choosing the pricing option that best suits your budget and needs is important. Regardless of your choice, ensure you know what costs are included. This is to ensure that there are no surprises down the line.

At Ikalor, we understand you may have questions about pricing and shipping. That is why we offer EXW and FOB pricing options, so you can choose the option that best suits your needs and budget. With Ikalor, you can trust that you are getting top-quality products at a fair price. So why wait? Contact us today to learn more about our products and services!