International freight processes are the backbone of international trade, but the process of transferring goods from suppliers to importers is indeed cumbersome and complicated. In order to standardize the order of responsibility transfer of goods in this process, the International Chamber of Commerce in Paris promulgated the international trade terms “Incoterms” to clarify.
In this article, two of these terms will be described in detail: EXW and FOB.

EXW

1.Definition of EXW

EXW (Ex Works) is a term in international trade terms, and its full name is Factory Delivery (Named Place). Under the EXW trade method, the seller is responsible for preparing the goods and placing them at the designated place (such as a factory, warehouse, etc.) waiting for the buyer to pick them up.

2.Characteristics of EXW

• Minimum seller responsibility: Under EXW terms, the seller’s responsibility is limited to preparing and placing the goods at the agreed location. The seller is not responsible for loading them onto the vehicle or clearing customs for export.
• Buyer bears the risk: Starting from the seller’s factory or warehouse, all transportation risks are borne by the buyer.
• Buyer is responsible for logistics: The buyer needs to arrange transportation by himself, including communicating with the logistics company, signing a transportation contract, paying freight, etc.
• Relatively low price: Since the seller’s responsibility is small, the price of goods is usually relatively low, and the buyer can enjoy certain cost advantages.

3.Applicable situations of EXW

• The buyer wants to control the transportation and delivery process of the goods.
• The buyer is located near the seller, or the buyer has its own reliable logistics network.
• The buyer wants to purchase the goods at the lowest price and is willing to bear the corresponding logistics risks and costs.

4.How to operate EXW trade method correctly

When using the EXW trade method, cross-border sellers should pay attention to the following points:

• Specify the place of delivery: Make sure the place of delivery of the goods is clearly marked in the contract.
• Prepare appropriate documents: Provide necessary shipping documents, such as packing list, invoice, etc.
• Notify the buyer: When the goods are ready, notify the buyer to pick up the goods in a timely manner.
• Confirm the condition of the goods: Before the buyer picks up the goods, check the condition of the goods together to confirm that they are correct.

5.The significance of EXW

EXW price represents the cost of goods when they are provided at the seller’s location. It does not include any transportation, insurance or customs clearance costs. This price structure is beneficial for buyers who have their own logistics arrangements or want to have better control over the transportation process.

EXW is an international trade method characterized by minimizing the seller’s responsibility. For cross-border sellers, choosing the right trade terms is crucial to ensure a smooth transaction. By deeply understanding the concept and operation process of EXW, sellers can better control costs while transferring logistics risks to buyers, thereby achieving a win-win situation for both parties. In today’s increasingly frequent global trade, mastering international trade terms such as EXW is of great significance to enhancing the international competitiveness of cross-border sellers.

FOB

1.Definition of FOB

FOB (Free On Board) is one of the commonly used trade terms in international trade, which means delivery on board. Under FOB terms, the buyer is responsible for sending a ship to pick up the goods, and the seller loads the goods onto the ship designated by the buyer at the specified port of shipment and within the specified period, and notifies the buyer. When the goods cross the ship’s rail during loading, the risk is transferred from the seller to the buyer.

FOB means the buyer designates the carrier and controls the transportation. The buyer usually instructs or even directly controls the freight forwarder to ensure that the goods arrive at the destination on time. In this case, if there is no document, the goods will usually be released without compensation.

FOB applies to transactions involving goods transported by ship, including sea and air cargo, excluding land transportation. By using the FOB term, the buyer and seller can clarify their respective responsibilities and obligations and stipulate the time and place of transfer of ownership of the goods.

2.Features of FOB

• The buyer specifies the carrier and controls the transportation.
• The seller is responsible for loading the goods onto the vessel designated by the buyer.
• When the goods are loaded on board, the risk is transferred from the seller to the buyer.
• FOB is applicable to transactions of sea and air cargo.

3.Application of FOB

• The buyer wants to control the transportation process of the goods.
• The buyer has its own reliable logistics network.
• The buyer wants to purchase the goods at a lower price and bear the corresponding logistics risks and costs.

4.How to operate FOB trade method correctly

FOB (Free on Board) is one of the commonly used trade terms in international trade. It stipulates the rights and obligations of buyers and sellers in the process of goods delivery. The operation process of FOB includes the following steps:

 

• The buyer specifies the logistics and port of departure：The buyer specifies the logistics and port of departure in the contract , and the buyer chooses different logistics companies and ports of departure based on actual conditions to meet his or her own needs.
• The seller notifies the buyer that the goods have been loaded on board：When the goods are loaded on board, the seller notifies the buyer of the loading status, indicating that the goods have been loaded on board. This step is for the seller to provide the buyer with proof of delivery of the goods, and the buyer can make subsequent transportation and logistics arrangements based on the shipping notice.
• The buyer pays for the transportation of the goods：The seller is responsible for transporting the goods to the port of shipment and notifying the buyer that the goods have been loaded. However, the buyer needs to bear the transportation costs of the goods. After receiving the shipping notice, the buyer should pay the transportation costs of the goods in a timely manner.
• Goods transported to the destination port：After the goods leave the port of departure, they will be transported to the port of destination according to the buyer’s requirements. The buyer can choose different modes of transportation, such as ship, land or air, to meet his needs.
• The buyer handles customs clearance procedures at the port of destination:After the goods arrive at the port of destination, the buyer needs to go through the customs clearance procedures at the port of destination. This includes declaring import procedures, paying customs duties and taxes, etc. The buyer should complete the customs clearance procedures according to the relevant laws and policies of the port of destination.
• Buyer receives the goods:After the goods have been cleared and taxes have been paid, the buyer can receive the goods. The buyer should verify whether the quantity and quality of the goods meet the contract requirements and ensure that the goods are not damaged or lost. If there are any problems, the buyer should contact the seller in time to resolve them.

These two international trade methods are very similar. The biggest difference is the location of goods delivery. The second is that EXW minimizes the cost of purchasing goods. The biggest similarity between the two is that both require the buyer to have his own freight channel. Therefore, if you are an individual buyer and do not have your own designated freight company, you need to contact the buyer to choose a suitable trade method.