Choosing Between FOB Vs. Ex Works Terms of Sale

If you are a small or medium-sized business (SMB) who is buying from an overseas supplier, there's a good chance you're buying under either Free On Board (FOB) or Ex Works (EXW) terms of sale. These are the two most commonly used international shipping standards – known as Incoterms – in global trade. In this article, we'll explore the distinctions between EXW vs FOB shipping and how they can positively or negatively impact how you manage logistics.

First, a word about Incoterms. There are 11 of them and they simply spell out the responsibilities of buyers and sellers in global trade. They say who is responsible for paying for and managing the transportation, insurance, documentation, customs clearance, and other logistical activities.

Free On Board as an Option for Terms of Sale

With Free On Board shipping terms of sale, the seller retains responsibility for all charges and risks until goods are loaded onto the ship at the origin port. For buyers, it can seem like a logical option if the company is less experienced with international shipping and lacks logistics partners at origin. But buyers need to be careful about over-reliance on the seller if they want to keep their supply chains running smoothly.

This reliance on the seller comes with concerns related to cost and service levels. As a buyer, you want your goods delivered in a timely manner. Under FOB, a seller may rely on only one or a few carriers to transport goods to the port. During a busy period, they may lack the capacity to move loads in a timely manner, causing your shipment to miss a sailing date and delaying that shipment a week or more.

It's worth noting that heavyweight or oversized shipments (e.g., machinery, farm equipment, etc.) can be especially susceptible to delays under FOB terms if the supplier does not have relationships with specialized carriers needed for such loads. A freight forwarder that is an expert in shipping for oversized equipment can help here.

What Is Ex Works Shipping Terms, And Why Choose It?

An Ex Works shipment (EXW) places a minimum responsibility on sellers, only requiring them to make the goods available for pickup at a designated location – usually their factory or warehouse. Buyers, also known as consignees, assume all costs, risks and paperwork requirements involved in transporting the goods from the seller’s destination to the final delivery point.

For buyers, engaging with an experienced freight forwarder is strongly recommended – especially for smaller companies without the resources or expertise to handle the shipping on their own.

EXW freight terms are frequently used for exports from the U.S. Sellers like it because it puts almost all the work and risk on the buyer. Sure, the seller is responsible for helping the buyer obtain all necessary export licenses and other required paperwork, but basically sellers can book the sale and move on.

Buyers may prefer EXW because it typically results in the lowest selling price — they are paying only for the product and packaging, without any added logistics, insurance, or transportation costs. They may also feel that by arranging transportation themselves, they can secure better rates than the seller might offer, especially if the seller has little incentive to find the most economical carrier.

In FOB arrangements, the seller’s involvement in ocean freight is generally minimal, as transportation becomes the buyer’s responsibility once the goods are loaded onto the vessel. However, with other Incoterms such as CFR, CIF, CPT, CIP, DAP, DPU, or DDP, the seller is responsible for transportation — and it’s common for sellers to include a margin on the freight charges. In some cases, sellers may leverage discounted carrier rates but charge buyers higher freight costs, pocketing the difference as added profit.

The following scenario illustrates the difference in transportation costs between FOB and EXW trade terms.

When a seller offers the FOB price, they’re of course responsible for delivery of the goods to the port and getting them on board the vessel. The buyer takes over responsibility and cost from there, usually handling ocean freight, destination charges, duties, and final delivery.

If a buyer then asks for EXW pricing, they’re essentially saying, “What’s the cost of the goods right at your facility, with no transport included?” At that point, they can go out and get their own freight quotes, which often reveals how much of a markup the seller baked into the original FOB offer.

Even if there is no markup by the seller and thus no transportation savings under EXW shipping terms, the advantage is still to the buyer as they’re in control of transportation.

The advantage for a manufacturer or seller under EXW is that they don't have to bother making any transportation arrangements. They can basically say to the buyer, “Come and get it, we’ll load it and off it goes.”

If you're an SMB, you may lack the resources required to manage the most efficient logistics process, particularly at the origin location. In these cases, an experienced freight forwarder can be your best friend.

In fact, buyers working under Ex Works terms of sale may actually ask the seller to recommend a top freight forwarder in the market, simply because they have no clue where to start. Over the years, I.C.E. Transport’s U.S. offices have helped many foreign buyers manage U.S. export shipments based on referrals from U.S.-based suppliers. In such cases, buyers get the best of both worlds: a low purchase price AND the ability to leverage the local knowledge and freight buying power of an experienced forwarder.

For freight moving to Eastern Europe or the UK, I.C.E. Transport will often handle the entire door-to-door shipment, leveraging office locations in the UK, Poland and Lithuania to handle all transportation requirements at destination.

How Do You Calculate An Ex Works Price As A Buyer?

From origin, this includes the cost of trucking to the port, port handling charges, marine cargo insurance if desired, and the ocean freight cost itself. Depending on the country, export customs clearance could be included, but that’s most often covered by the seller.

At the destination port, costs include import customs clearance, drayage, and inland transportation. A licensed non-vessel-operating common carrier (NVOCC) with experience in your trade lanes can give you the all-in cost, and easily handle all the logistical details.

Can A Buyer Self-Manage An Ex Works Transaction?

Yes, but they would have to be experienced in the details of ocean freight and managing cross-border logistics. Without that knowledge and expertise, it would be very difficult to book a sailing with an ocean line at the best possible rate, handle import and export documentation, and then find a trucking company in the destination country.

In that case, they may favor the FOB option because they can just go to a steamship line or a freight forwarder and ask for a rate from, for instance, New York to Gdynia in Poland. They don’t have to worry about making the transportation arrangements at origin, but the tradeoff is that they lose some control in the process.

Which Is More Popular With Buyers, EXW or FOB?

It depends on the country of origin. Chinese manufacturers, for example, strongly prefer to sell on an FOB basis and take care of all the in-country logistics like trucking and customs clearance. In Europe, they tend to lean more toward Ex Works, and have for a long time. It's just a market specific preference or situation.

What Is the Difference Between FOB and Ex Works Terms of Sale?

Here's an easy reference chart showing the distinctions between Free On Board and Ex Works terms of sale.

Free on Board or Ex Works: How to Decide

If you're struggling with whether EXW or FOB is the right purchase term for you, here are some factors to consider. Depending on your specific situation, these factors may dictate your choice:

• Buyer’s experience with managing logistics in the seller’s country. If this experience is strong, EXW can work. But if you are less experienced in global trade, FOB may be a better option.
• Relationship with supplier. If you have a strong, long-term relationship with the seller and trust their ability to coordinate shipment details at origin, you may be more apt to choose FOB. Less confident? Choose EXW.
• Control over costs. If you want this control as a buyer, it's EXW, which allows you to choose transportation partners and negotiate rates directly.
• Risk tolerance. Ex Works terms of sale come with more control, but also more risk for the buyer. If you want to deflect some of that risk, opt for FOB.
• Visibility into transportation markup. Under EXW, buyers can clearly see and manage all freight-related costs. FOB terms may mask origin-side logistics costs bundled into the seller’s pricing, limiting transparency.
• Responsiveness to delays or disruptions. If you want the flexibility to re-route or expedite shipments based on changes in demand or supply chain issues, EXW gives you more agility. With FOB, the seller manages freight up to vessel loading, limiting midstream adjustments.

The Right Freight Forwarder Can Streamline Your Ex Works Shipments

Ex Works terms of sale put more work, responsibility and control on the buyer. Large shippers may welcome this because they have the shipping and trade compliance staff to economically manage the details. SMBs, on the other hand, may struggle to manage the added details on their own.

The good news is that a freight forwarder like I.C.E. Transport can essentially serve as your global shipping department, handling logistics, paperwork, customs clearance, and tracking from the factory to final delivery, if needed. Check out our eBook: The Small Business Survival Guide to Global Shipping.

Need advice on whether to ship under EXW vs FOB terms of sale? Contact the experts at ICE Transport today to start a conversation.