Do you also purchase based on the Incoterm FOB?

At The Freight Hero, we experience this regularly. The FOB agreement that is suddenly presented by the supplier as EXW. Just a reminder for those who don’t have the Incoterms memorized: If you purchase goods from your supplier under the Incoterm FOB, your supplier is responsible for and bears the costs of transport from the factory to the container ship. Proper packaging, local transport to the port, and customs clearance are therefore the responsibility of your supplier.

Under FOB, you arrange the reservation of space on the container ship through your freight forwarder, either as a part load in a container or as a full container. With FOB, you are responsible for the remaining transport to the delivery address in the Netherlands, Belgium, or Germany and bear the costs from the moment the goods are secured on the ship. It is the most commonly used Incoterm for imports via sea.

With EXW, or Ex Works, the supplier makes no arrangements whatsoever. He opens the door of his warehouse and wishes you the best of luck with the goods. You’re lucky if the products are reasonably well packed.

Now that we’ve focused again on these two Incoterms, let’s return to the order that suddenly switches from FOB to EXW. In practice, you agree with your supplier on the price you will pay for the goods. If you agree on the FOB Incoterm directly with your supplier, the supplier includes the costs of his part of the transport and customs clearance in the price. The supplier will offer you a good price for the products and his part of the transport – after all, he wants to win you over as a customer.

Your supplier can also combine inland transport to the port with the transport of products from other customers, keeping the transport costs to the port low for all involved.

Unfortunately, at The Freight Hero it happens several times a month that customers have not clearly indicated that they are buying on the basis of the Incoterm FOB. You will often communicate with your supplier in English, since your knowledge of Chinese, Portuguese or Hindi is probably not that great. Your English may be fair to good, but your supplier may rely on the skills of Google Translate. So check carefully in your purchase contract that you are buying on an FOB basis. There should be no ambiguity between you and the supplier on this point!

Customers report to us that they have bought the products on an FOB basis, and then we hear from our representatives in the country of origin that the supplier is adamantly claiming that the purchase was made on an EXW basis. If you cannot prove the agreed FOB arrangement, you have a problem.

Fortunately, in most cases, suppliers will make you a new and reasonable offer on an FOB basis. You pay your supplier a little extra and the issue is resolved.

Unfortunately, many suppliers – especially in countries like China – are very commercially oriented and adhere to the principle: "A deal is a deal." You can collect your already purchased goods from the warehouse. You can ask your supplier to arrange the transport from the factory to the port and the customs formalities. However, you’ve already bought the goods, and the seller sees his chance and of course charges you the maximum price for this service.

In this case, you can also ask the freight forwarder to organize the entire transport from the factory. The transport and customs formalities in the supplier’s country are then handled by the forwarder’s agents. These costs will be significantly lower than your supplier’s offer, but they are still expenses you did not factor in when purchasing the goods.