FOB vs EXW, Know Your Best Shipping Approach - YouTube

Hello, this is Chris Brennan with Deringer,

Route Development Manager, Transpacific Trade

Today, I also have with me Matt Parrott, Director of Distribution.

And we're going to take a deep dive into incoterms.

So maybe we take a deeper dive into FOB, to start

and just more detailed explanation of FOB.

And that's perfect, because if you're importing from China

into the United States, we really would recommend that you use FOB

Free On Board. Now, why would I recommend that?

So free onboard means that the risk

of that shipment transfers from the seller of the goods to the buyer of the goods

when the container actually passes across the bow of the ship. A crane

picks up that container from the container yard, picks it up, puts it on the ship.

If the container drops that ship and it falls on the bow,

if it falls off of the ship and on to the container yard,

the seller is responsible for those goods. If it falls on the ship

the buyer is responsible for those goods.

So let's break that down a little bit more.

So the pre carriage in this instance would be paid for by the seller.

So they would have to pack the goods for export.

And you'll hear me say that a lot, because packing the goods for export

means that they're appropriately packed for the goods that you're selling.

So the seller has to appropriately pack it for export, put the goods

in the container, truck the goods over to the container yard

and pay for the goods to be picked up and put on the boat.

Within that, each country has differing and varying

requirements for Customs clearance on the export side of them.

So if you buy FOB, that means that your goods are going to be on the boat.

They get exported over to the United States.

They get taken off the boat, put in a container yard,

and then you Customs clear them, arrange delivery to door, and all of that.

So with the FOB incoterm, you slice

that up where the seller pays to pick up the goods,

make sure their packed get them on the boat,

then the risk transfers from the seller to the buyer and the buyer has to do

everything else, including pay the duty and get it to their door.

So under that scenario,

the buyer is going to want to make sure that they have very strong

all risk marine insurance in place, because if that container washes

over the side of the deck on the way over it's going to be a total loss.

And if there's no insurance the buyer is going to be out of luck.

OK, and then looking,

same question. But from an ex works standpoint and even transfer

where it is for supplier-buyer, maybe just go into an ex

works definition.

So ex works is also a very popular incoterm.

I'm going to switch and go over to Europe and say that we're buying,

you know, in Amsterdam and we're sending the goods over Rotterdam

and sending them into New York port,

and then over to Albany, New York, just for ease of reference.

So under ex works terms, the seller is responsible

to pack the goods properly for export.

I went into why I'm saying that specifically.

But they're always responsible to pack the goods appropriately.

They pack the goods, get them on their dock.

In this instance, the buyer is responsible for everything else.

The buyer has to arrange to get that container positioned

at the seller's dock when they ask to have it there

and everything else that you have to arrange the export Customs clearance,

the dray over to Rotterdam, get it put on the boat and

have the ocean freight over to New York,

get it off the boat Customs clear it, and deliver it to Albany.

<font color=#122E75FF>So why did I use Europe as an example</font> <font color=#122E75FF> for something that's an ex works term</font>

<font color=#122E75FF>The customs clearance in Europe</font>

<font color=#122E75FF>is pretty similar to the Customs,</font> <font color=#122E75FF> the export Customs clearance in the US.</font>

<font color=#122E75FF>And it's something that isn't as</font> <font color=#122E75FF>complex and is fairly </font> <font color=#122E75FF>straightforward.</font>

<font color=#122E75FF>And you are OK to use</font> <font color=#122E75FF> an ex works incoterms out of</font>

<font color=#122E75FF>Europe, more so than </font> <font color=#122E75FF>you would be in Asia,</font>

<font color=#122E75FF>because it's more similar to the </font> <font color=#122E75FF>US sort of standards and policies.</font>

<font color=#122E75FF>So you could be fine </font> <font color=#122E75FF>going with ex works,</font>

<font color=#122E75FF>Amsterdam, buying goods and </font> <font color=#122E75FF>getting them and importing them </font> <font color=#122E75FF>into the United States.</font>