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How To Manage Costs & Risks Using

INCOTERMS In International Trade

Fida HusainFollow
General Counsel / Vice President

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In international trade, cargo movement is the essence. It involves costs and risks which are often
unforeseeably huge. Most business managers apply various measures to mitigate risks as well as
manage costs and one of the primary starting point is often International Commercial Terms (or
INCOTERMS) which for most businessmen, immediately gives a sense of control on costs & risks
that they are about to incur should they sign on the dotted line.
INCOTERMS, for those who are new to this, are a nifty shorthand means of agreeing on who is
responsible for the costs and risks associated with the international sale of goods. It is usually
written with a three letter acronym (see table below) that confirms when risk in the goods passes
from the seller to the buyer, and who is responsible for transporting, insuring, and paying duties on
them. They also define the point of passage of risk with regards to cargo loss or damage. There are
currently 11 Incoterms, 7 of which can be used for any mode of transportation, and 4 of which only
apply to transport by water.

So why are Incoterms so relevant to cross-border trade; take a look at the below pictogram to
understand the stages of cargo movement from seller to buyer.

All points marked above represents a milestone in international trade, the responsibility of which
(including costs & risks) needs to be agreed upon between parties. To reduce the burden of
negotiations for every single stage, the three letters Incoterm acronym is used which comes with
pre-defined accountabilities between the parties. Depending on the nature of trade, specific
Incoterm can be used which will specify where does the risk transfers and who bears the costs.
For instance, FOB rule specifies that risk & costs transfers to buyer when the goods
have been loaded on board the vessel. However FAS rule specifies that risk & costs
transfers when the goods have been placed alongside the vessel on the quay (or in
lighters).

The above may appear not to be very complicated but when you factor in the costs involved in
getting the goods cleared for export and additional stevedoring charges involved in FAS compared
to FOB, the difference between the two would suddenly seem very evident.
In my experience, business managers often do not delve into the finer text of these terms and end up
negotiating without fully realizing the impact these terms have on the overall costs/risks. Even
more, I have noticed that due to lack of awareness business managers are unable to strategize their
available resources to extract maximum benefit during negotiations. Understanding the supply-
chain of the cargo is the key because it helps selecting the appropriate Incoterm that would be most
suitable and would enable businesses to reap the benefits of low hanging fruits by which costs can
be managed, such as: -
1. Cost Efficiency – negotiating the right Incoterm helps you control your shipping costs. For
instance if a buyer has a dedicated shipping network and FOB/FAS is chosen, then the
shipping fees can be procured directly with the main carrier which will most likely be
cheaper compared to one provided by the seller because it is often marked-up.
2. Route Optimization – if an Incoterm is selected where the sellers are to arrange delivery they
will often choose the most economical routing of the cargo which may not be aligned with
your business timelines. Choosing your own shipping route may not only be cheaper but
delivery would prove to be faster.
3. Control & Visibility – while booking shipping through your preferred agent, it will give you
more control and visibility on real-time status of your cargo. You will have the flexibility to
optimize the route to suit your business needs.
4. Insurance – depending on the point of transfer of risk in the goods, you will have the option
to procure the right insurance for your cargo which will become effective with the passage
of risk. Being handed-over a foreign insurance by seller (which may or may not be from a
reputable insurer), may be a challenge especially when there is a loss or damage to goods
involved.
Although the above highlighted points are few benefits of choosing Incoterms smartly, you will find
online many materials that are dedicated to academic discourse on Incoterms which I highly
recommend for reading. In the meantime, following are few tips that can be handy:
1. Understand the supply-chain of the cargo; if you chose Incoterms based on convenience then
costs will definitely be higher. Collate your resources and strategize how to deploy those
resources vis-à-vis Incoterms to ensure cost efficiency.
2. Be realistic with the expectations from the counter-party (& yourself). Issues such as
whether the seller can undertake all the necessary formalities in the buyer’s country, e.g.
paying GST or VAT while using DDP or using EXW without thinking through the
implications of the buyer being required to complete export procedures can create
unnecessary (& expensive) delays.
3. If more than one carrier is involved in transportation, ensure that the implications of risk
transfer by the first carrier which in all likelihood will be a small haulage firm, are
adequately addressed.
4. Always double check how terminal handling charges (THC) are going to be treated at the
point of arrival. Some carriers absorb these costs while some do not.
5. Incoterms state when risk in the goods passes, but not title. Please bear in mind that
Incoterms is not a substitute to a contract therefore contractual issues such as price,
consequences of breach, termination rights, governing law etc. must be incorporated in a
separate contract.
6. Always clearly specify which Incoterm is being used and also define the edition you are
using. For instance, ‘[Incoterm, delivery point] Incoterms® 2010’.
7. When naming a specific delivery point or port, be specific – simply mentioning ‘USA’ could
mean your goods end up in Houston when you want them in Long Beach.
8. In general, Incoterms are silent on the matter of insurance (except CIF and CIP) and the
buyer/seller each decides insurance of the cargo for that part of the journey for which they
bear the risk of loss or damage. Ensure that adequate insurance terms are defined and agreed
beforehand.
9. Adding qualifications or variation to an Incoterms rule is generally acceptable but extra
caution should be applied to avoid introducing ambiguity which often comes from different
interpretation applied to common terms in market practice.
10.Incoterms are quite extensive, therefore always seek legal help when you feel you are
getting out of your comfort zone.
IMPORTANCE OF INCOTERM 2010, in
procurement cost reduction.

Pinto Fredaric (BA,LL.B,PGDBA,CMILT,CISCP)Follow


Supply chain professional

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Incoterms 2010 clarifies which terms are and are not intended for maritime intermodal shipping.
Nonetheless, many continually misuse Incoterms, leaving themselves vulnerable. I elucidate key
changes in Incoterms 2010, paying attention to the oft-misunderstood, misused FOB. I suggest FCA
might close this vulnerability gap, giving buyers greater visibility and control.

Introduction
Incoterms are an acronym for INternational COmmercial TERMS and were developed by the
International Chamber of Commerce (ICC) and were first codified in a pre-incoterms edition of
1923 (International Chamber of Commerce 2010a). The 1923 edition consisted of six terms: 1)
FOB-Free On Board; 2) FAS-Free Alongside Ship; 3) FOT-Free On Truck; 4) FOR-Free On Rail; 5)
CIF-Cost Insurance and Freight, and; 6) C&F-Cost and Freight (International Chamber of
Commerce 2010b). These terms were subsequently released as the first revision of Incoterms in
1936. Although it is well known that international trade had been transpiring over several millennia
(Beragami 2012), Incoterms came into being to address the problem of interpretation amongst
trading partners and to harmonize transactions. Incoterms were crafted to harmonize the world’s
maritime traders and their shipping policies; reduce the number of disputes between trading
partners, and; to clearly define dyadic responsibilities (e.g., costs, risks, documentation, contracting
for transport, etc.) between buyers and sellers (Stapleton and Saulnier 1999, 2000). Incoterms have
undergone substantial changes in 1957, 1967, 1976, 1980, 1990, 2000, and most recently in 2010,
taking effect in 2011 (Ramberg 2010). INCOTERMS 2000 were presented by the ICC in four
groups: E, F, C, and D, each group representing classes of terms that varied slightly within groups
but significantly across groups in terms of delivery points, risk, and cost responsibilities, and the
point at which those costs and risks shifted from the seller to the buyer. The new Incoterms (i.e.,
rules) are presented in two distinct groups instead of four, specifically to guide traders in using the
appropriate terms. That is, INCOTERMS 2010 are compressed and now presented in two groups—
the new classification makes it easier for shippers to discern between Incoterms that are to be used
only for ocean and inland waterway, and those that should be used for multi-modal contracts (i.e.,
intermodal transportation transactions). The new Incoterms, or Rules, are separated as follows: 1)
Rules for use in relation to any mode or modes of transport, which can be used where there is no
maritime transport at all, or for transportation transactions in which maritime transport is used for
only part of the carriage (i.e., intermodal maritime); and 2) Rules for ocean and inland waterway
transport, where the point of dispatch and delivery are both ports. Thus, FAS, FOB, CFR, and CIF
belong to the latter class of Rules; while EXW, FCA, CPT, CIP, DAP, DAT, and DDP belong to the
former. A major change in the latest version of Incoterms is the separation of the place-to-place
delivery terms, commonly known in the industry as “multimodal,” from the delivery terms that are
simply port-to-port ocean freight terms. There are seven terms to be used when delivery is from
place-to-place (i.e., EXW EX-Works, FCA Free Carrier At, CPT Carriage Paid To, CIP Carriage and
Insurance Paid to, DAT Delivered At Terminal, DAP Delivered At Place, and DDP Delivery Duty
Paid). The remaining four terms are purely ocean freight terms and often involve bulk carriage (i.e.,
CFR Cost and Freight, CIF Cost, Insurance and Freight, FAS Free Alongside Ship, FOB Free on
Board). In the definitions of FOB, CFR, and CIF, the phrase “ship’s rail” -the point at which cost
and risk shifted parties in the previous Incoterms - has been deleted and the reference now is to
delivery of goods “on board.” FAS and FOB do not apply to multimodal sea transport in containers
(Rosenberg et. al. 2011). While the ICC’s purpose in periodically updating Incoterms is to
harmonize policy and trade practices (Malfliet 2011), problems remain because parties continue to
use the “wrong” term (Ramberg 1999) given the circumstances and nuances of their trading
relationships. Using the “right” term, on the other hand, may prevent disputes (Richardson 1998),
and provide clarity. But an Incoterm is only “right” if it is in harmony and congruent with the other
trade facilitating documents (e.g., contract of sale, contract of carriage, insurance documentation,
Bills of Lading, DLC, etc.), as well as compliant with the ICC’s Incoterm policies and procedure as
codified in the latest Incoterms (i.e.,Incoterms 2010).

Why FCA Instead of FOB? Visibility and Control


The ICC encourages the appropriate use of Incoterms for containerized traffic (Stapleton et al.
2013, Malfliet 2011). That is, the ICC encourages the use of “multimodal” terms such as FCA, CPT,
CIP, etc. instead of “maritime” Incoterms (i.e., FAS, FOB, CFR and CIF). According to the ICC,
maritime terms are not appropriate, and thus should not be used in containerized trade. Additionally,
the seller does not “deliver” the container onboard the vessel, but instead mostoften hands over the
goods to the carrier at an inland point or terminal (Malfliet 2011: 163). F Terms represent those
terms where delivery takes place at the buyer’s carrier. The FCA term’s delivery point is where the
seller loads the goods onto the transport the buyer has designated. The seller does not have to
unload the cargo. FCA is typically a better option than FOB because it encompasses both ocean
shipping and multi-modal transport. In considering the FOB Incoterm 2010, Bergami (2012)
writes,”(I)t is not difficult to see where maritime containers are concerned, the seller carries a higher
risk profile than necessary, and that the risk is retained beyond the seller’s physical control of the
goods” (Bergami 2012: 17). Consequently, in an era where traders are highly concerned about
supply chain intelligence and visibility (Barratt and Oke 2007), supply chain risk assessment,
mitigation, and management (Manuj and Mentzer 2008), and supply chain security (Williams et al.
2008; Willis and Ortiz 2004), using the wrong
3 Incoterm (FOB) for containerized freight or intermodal freight, unnecessarily increases risk, and
costs while decreasing control. In such circumstances, the misuse of FOB needlessly places the
supply chain in a vulnerable position. The proper and appropriate use of shipping terms can mitigate
this vulnerability and provide greater Supply Chain visibility and control.

Table 1: FCA Free Carrier


FCA-Free Carrier
Modes of Transport Covered: All modes of transport including multimodal. In Free Carrier, the
Seller/exporter/manufacturer clears the goods for export and delivers them to the carrier specified
by the Buyer at the "named place of delivery." If the named place of delivery is the Seller’s place of
business, the Seller is responsible for loading the goods onto the transport vehicle. If the named
place is any other location, such as the loading dock of the carrier, the Seller is not responsible for
unloading. When using the FCA term, it is advisable to clearly specify in the contracts of sale and
carriage the precise point of delivery. "Carrier" has a special meaning. Technically, a carrier is a
firm that itself transports goods or passengers for hire, rather than simply arranging for such
transport. Examples are a shipping line, airline, trucking firm, or railway. In the FCA term,
however, the carrier can be any person who by contract "undertakes to perform or procure" such
services by any of the above methods of transport including multimodal. Therefore, a person, such
as a freight forwarder, can act as a "carrier." With the FCA term, the Buyer nominates the "carrier,"
and the Seller need only accept the nomination for the term to work. The FCA term may be used for
any mode of transport including multimodal. With FCA, the named place of delivery is domestic to
the Buyer. The FCA term is often used when making an initial quotation for the sale of goods.
Crafted andcondensed from: http://www.worldtraderef.com/wtr_nl/WTR_site/incoterms_2010.asp
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Table 2: FOB Free on Board


FOB-Free on Board
Modes of Transport Covered: Used only for ocean or inland waterway transport. In Free On Board,
the Seller/exporter/manufacturer clears the goods for export and delivers them on board the named
vessel at the "named port of shipment." This is a change from Incoterms 2000, where the Seller was
responsible only to deliver the goods "past the ship’s rail." With FOB, the Seller has the option to
deliver the goods on board the vessel, or to "procure goods already so delivered." This is a reference
to so-called "string sales," where a single shipment might be resold multiple times during transport,
as is common in the commodity trade. The named place in FOB is a port and therefore the term is
used only for ocean or inland waterway transport. With FOB, the named port of shipment is
domestic to the Seller. If the shipment is containerized or to be containerized, common practice is to
deliver the shipment to the carrier at a terminal and not on board a ship. In such situations, the FCA
term is recommended. The FOB term is commonly used in the sale of bulk commodity cargo such
as oil, grains, and ore. The key document in FOB transactions is the "On Board Bill of Lading." The
named place in FOB is a port, and therefore the term is used only for ocean or inland waterway
transport. Sellers and Buyers often misuse the FOB term. FOB does not mean loading goods onto a
truck or train at the Seller’s place of business. FOB is used only in reference to delivering the goods
on board a ship in ocean or inland waterway transport. The FCA term, on the other hand, is
applicable to all modes of transport. Crafted and condensed from:
http://www.worldtraderef.com/wtr_nl/WTR_site/incoterms_2010.asp
Every contract of sale should include a trade term (Malfliet 2011, Jiminez 2008, Ramberg 1999).
The use of any Incoterm should be followed by an appropriate geographic place name (Stapleton et
al. 2013, Stapleton and Saulnier 1999, 2002). “Naked” Incoterms are thus Incoterms not followed
by a named place or port, which is an improper use of Incoterms, yet is quite common. This is only
somewhat acceptable if the seller is clearly actually located in or near a port. But an inland seller
further away usually has a choice of several possible ports with
different shipping charges, and in such cases, the name of the applicable port should be specified for
clarity to prevent surprises where ultimately the buyer and seller’s contemplated choice of ports do
not match. Under FCA, the seller delivers the goods at a named place, a specific place the buyer and
seller agree to as part of the contract of sale. The named place may be anywhere between the
seller’s premises and the export wharf (Bergami 2012). Under FCA, the risk in transit transfers
where the goods are delivered to the carrier or another person nominated by the buyer
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(International Chamber of Commerce 2010b: 23). This means that under FCA, the buyer and seller
may agree to the delivery point being the export wharf, wherein the risk would transfer from the
seller to the buyer when the consignment is lifted from the delivery vehicle, and not once it is
loaded on board as it is in FOB. Therefore, under FCA the loading on board the export vessel is
done at the buyer’s risk. Under FOB, the seller delivers the goods in a manner customary at the
port of shipment, and if there are no port customs, by placing them on board the vessel (Montfliet
2011), as the reference to the critical point of the “ship’s rail” has been eliminated (Stapleton et al.
2013).Importantly, in the latest Incoterms, the term FCA refers to “loading” the goods; while the
FOB term uses the nomenclature “placing” the goods. The inappropriate use of FOB or other ocean
freight Incoterms for multi-modal transport: As the ICC has repeatedly pleaded, FCA is the
appropriate F term for multi-modal transport. The erroneous use of FOB exposes sellers to a “risk
gap.” Under FOB, the risk point is when the goods have been loaded aboard an ocean carrier.
Accordingly, if a container is dispatched from the seller’s place of business, the risk does not pass
until it is loaded aboard the ship. However, many sellers wrongfully believe that since the container
is now in the hands of the carrier, the risk has already transferred to the buyer. It has not. And
accidents do happen - trucks crash, port warehouses catch fire, cranes topple during loading, goods
are stolen from containers on piers etc. In all such circumstances, if FOB is the designated
Incoterm, these mishaps are at the risk of the seller who is usually blithely unaware of this. Any use
of FOB by an inland producer of manufactured goods is rather suspect because such goods travel in
containers and FCA is the more appropriate choice. Consistent with the spirit of INCOTERMS
1990 and INCOTERMS 2000, in INCOTERMS 2010 the use of the term FOB, and by implication
CFR and CIF, is not recommended for container traffic (Bergami 2012: 36).
Conclusion
It is well known that it is difficult to get buyers and sellers to change well established behavioral
patterns (Malfliet 2011). Specifically, as Bergami (2012) argues, “(T)here are significant problems
in getting traders to change routines to the more appropriate and correct use of Incoterms. The term
FOB has been around long before Malcolm McLean’s idea of containerization revolutionized the
world of international trade. Yet, it continues to be misused and misunderstood by the global trading
partners in the 21st century. I agree with Bergami’s (2012) assessment: “It seems strange that the
term FOB, coined at least two hundred years before the era of containerization (from the 1950s-
1960s), has been so readily adopted and inappropriately applied to modern day container handling
practices,” (Bergami 2012:17-18). The problematic FOB term and its misuse in containerization is
not likely to be totally resolved. Though the ICC through INCOTERMS 2010 sought to more
closely match the way in which trading partners utilize information technology (Paliu-Popa 2012),
blur the formalities of border technicalities by taking advantage of trading blocs, and more clearly
define which terms are appropriate for ocean intermodal (Stapleton et al. 2013), and containerized
goods, changing behaviors will take time. The biggest challenge is in getting buyers, sellers, freight
forwarders (including Ocean Intermediaries and Custom House Brokers) and their bankers to use
the correct Incoterms for the proper mode of transport on a consistent basis. Incoterms have always
sought
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to standardize meaning and remove ambiguity of both the largest details of the transport transaction
and of the smallest details. Key to their success is that all parties (i.e., buyers, sellers, freight
forwarders, Customer House Brokers, and bankers) fully understand each of the 11 INCOTERMS
2010, and especially those that are inappropriate for containerized traffic or
intermodal maritime transport.
The proper use of FCA over FOB is a step in the right direction. As long as traders continue to cling
to old habits and fail to update their delivery terms and arrangements to reflect contemporary
business practice and to protect their supply chains and visibility, much of the progress the ICC put
into the change process will continue to be lost. When a buyer shifts from FOB to FCA, not only
the point of risk changes, but the point of cost division may change as well. The thrust behind the
ICC’s presentation in INCOTERMS 2010—presenting them in two groups (i.e., “any mode” and
“multimodal”) —instead of the traditional four: E,F,C, and D; was to reinforce that traders should
avoid applying the old maritime terms where and when they should actually apply multimodal
terms. It is not simply a matter of using the old terms, including the misuse of FOB, for
convenience or expediency sake. It is a legal matter as well (Malfliet 2011). That is, if traders
continue to misuse Incoterms in their international shipping contracts and carriage they must be
willing to assume the risks of loss or damage during a period of time where they have lost visibility
and control over the goods, which ultimately leaves their supply chain is vulnerable.
Ex Works: How it works, price, and risks
Guide
4 Jul 2018
Read on to learn more about what Ex Works actually means, and the advantages and disadvantages
of using this Incoterm when buying goods from abroad.
• COMMENT

Ex Works puts the full obligation for things like arranging and paying for shipping, and dealing with
customs clearance, on the buyer

Ben Lobel

Ex Works – also expressed as the three-letter code EXW – is an Incoterm you might have spotted if
you’re involved in buying and selling internationally.
They’re only a few letters long, but using the wrong Incoterm when buying goods from a supplier
based overseas can be an extremely costly mistake.

Ex Works meaning
Incoterms or International Commercial Terms, are trade terms defined by the International Chamber
of Commerce, used to communicate the tasks and costs involved in international shipping. Having
an agreed definition of these terms reduces the risk of suppliers and buyers misunderstanding or
misinterpreting what each other wants or needs, when it comes to international procurement of
goods.
Ex Works, also known as Ex Works (named place of delivery), or EXW, can be used in relation to
any form of transport. This Incoterm puts the full obligation for things like arranging and paying for
shipping, and dealing with customs clearance, on the buyer.
EXW is often used when obtaining a quotation for a price of goods, to express the pure cost of
goods without any costs included.

How EXW works


Of all Incoterms used, Ex Works places the highest possible obligation on the buyer, and the lowest
possible obligation on the seller. It means that the seller simply makes the goods available, at their
warehouse for example, and the buyer is then responsible for arranging everything else.
Usually this will mean that the buyer makes separate arrangements to have the products collected
and shipped, including completing customs clearance. The seller is then obliged to provide the
documents required for export processes, for example, although they can charge for doing so.

Ex Works price
If you’re buying goods from abroad under EXW terms, you’ll be responsible for all of the costs
involved in setting up shipping and customs clearance. That can mean that, as well as paying your
supplier, you’ll have to arrange and pay for things like air or sea freight, and local haulage. You
might also consider employing the services of a customs broker, to help complete all the paperwork
needed to get your purchase through customs smoothly.
Importing Ex Works is likely to involve making several international payments – and these cross
border transactions can be costly. Not only are there upfront fees to consider, it’s common for banks
to add a markup to the exchange rate they offer customers, which can mean you lose out every time
you make an international payment.

Instead of using your bank to arrange payments to international suppliers and service providers, you
could be much better off choosing a specialist in international payments like TransferWise.
TransferWise offers international payments using the real, mid-market exchange rate, and just a low
upfront fee – which can mean they’re up to eight times cheaper than using a UK high street bank.
Payments can be arranged online for convenience, and the service is FCA regulated – just like your
normal bank.
EXW Risks
Under Ex Works terms, the buyer bears all of the risk involved in the shipment. That means that any
additional costs incurred when clearing customs, for example, will fall to the buyer. It’s important to
be really clear on the export documentation you will be able to obtain from the seller, and make sure
you familiarise yourself with local customs regulations, to avoid issues.

Summary of Ex Works
The cost, and in most cases, risks associated with moving the goods from their origin to the UK, fall
to the buyer.
Allocation of costs using
Ex Works Terms
Export customs
Buyer
procedures
Transport to export
Buyer
port/airport
Unloading of truck in port Buyer
Loading goods onto
Buyer
vessel/airplane
Transportation to UK Buyer
Insurance Buyer
Unloading at destination
Buyer
port/airport
Loading for local haulage
Buyer
in UK
Transport to final
Buyer
destination in UK
Import customs clearance Buyer
Import duties and taxes Buyer

Advantages of Ex Works
Using EXW terms means that as buyer, you have complete control of your shipment. The exact cost
of goods, and of all elements of transporting them, are clear – which should mean there are no
surprises.
Buyer is in control of shipping arrangements and costs
Because you’ll set up all the transportation arrangements yourself you can compare the market to be
sure you’re getting the best deal available. You can be confident that the seller isn’t adding a margin
or markup to the cost of transport. You might decide to employ a freight forwarder to make all the
arrangements on your behalf, or contract individual transport companies to move the goods as
needed.
Choose how to clear customs
You can also make your own decisions as buyer regarding customs clearance – whether or not to
use a broker to help with the import/export process, for example. If you’re very familiar with
customs processes, or have someone in your team who is, you might choose to tackle this step
yourself.

Disadvantages of EXW
Ex Works isn’t suitable in all cases. As well as the risks we have noted above, there are some other
possible disadvantages you’ll need to be aware of, too.
Check if your supplier has an export license
If your supplier doesn’t have an export license, then you might need to get one yourself, as a buyer
using EXW terms. This will then become an additional cost you need to consider.
Country of origin export paperwork
You’ll find that the supplier is responsible for providing paperwork and documentation to make sure
your goods clear customs for export in the country of origin. However, under EXW terms you
would then be liable, as buyer, for any issues encountered during customs clearance. So for
example, if the supplier provides incorrect or incomplete information, you might find the costs of
customs duty is higher than expected.

EXW VS FOB
If you’re working out whether or not Ex Works terms will suit your needs, it can be helpful to know
what other options are out there. One common alternative to EXW is to use FOB – Free On Board –
Incoterms. It’s helpful to know that usually, FOB terms are only available on sea freight shipments,
and basically mean the seller is responsible for costs up to the point that the goods are on the ship
and ready for transportation.
Here’s a brief comparison of how costs are divided, using EXW and FOB Incoterms – or you can
read more about FOB terms in this helpful article.

Allocation of costs using Allocation of costs using FOB


EXW Terms Terms
Export customs procedures Buyer Seller
Transport to export
Buyer Seller
port/airport
Unloading of truck in port Buyer Seller
Loading goods onto
Buyer Seller
vessel/airplane
Transportation to UK Buyer Buyer
Insurance Buyer Buyer
Unloading at destination
Buyer Buyer
port/airport
Loading for local haulage in
Buyer Buyer
UK
Transport to final destination in
Buyer Buyer
UK
Import customs clearance Buyer Buyer
Import duties and taxes Buyer Buyer
Who is EXW most suitable for?
Ex Works terms are a good choice if you want to have complete control over your shipment. You
can clearly see how the costs of your goods, and their transportation to the UK breaks down, and
negotiate on individual elements with different providers to get a good deal.

How to organise an Ex Works shipment


If you’re planning on buying goods on EXW terms, it’s important to be very clear on the exact
contractual terms you’re agreeing with your seller. Seemingly small details – such as getting hold of
the paperwork needed for customs clearance – are very important, and under EXW terms you might
find that your buyer adds a charge for providing some of the information you need.
Once you’ve agreed a contract with your supplier, you’ll need to set up the shipment of your goods.
You can do this via a freight forwarder, or by making arrangements yourself directly with transport
and haulage companies. If you use a freight forwarder, you’ll usually only need to deal with the one
company to get your goods all the way from their origin to the UK. The freight forwarder will set
up all of the arrangements on your behalf, which can save time – they’ll often even act as a customs
broker, to ensure your goods get smoothly through the import and export processes.
If you’d rather make arrangements for transport yourself, you can go direct to local shipping
companies – and it’s still possible to employ a customs broker to help with that stage of the process,
if you’d like.
As we’ve seen, there’s a lot to think about if you’re going to import goods from overseas to the UK.
As well as finding the right supplier, and negotiating a good price for the goods you want, you have
to agree how to get them to the UK.
Agreeing EXW terms might suit you, if you want to have complete control over your shipment.
However, it’s not the only option out there. Doing a bit of research to make sure you understand the
different Incoterms on offer is essential, if you want to get the best deal to suit your needs.