Understanding Incoterms: FOB vs EXW Explained
When you receive a factory quote from an international manufacturer, you'll often see terms like "FOB Shenzhen" or "EXW Guangzhou". These are Incoterms (International Commercial Terms) that define who pays for shipping, insurance, and customs.
What is FOB (Free On Board)?
With FOB, the seller (factory) is responsible for delivering the goods onto the vessel at the port of shipment. Once the goods are on board, the risk transfers to the buyer (you).
- Seller pays: Inland transport, export clearance, origin terminal charges
- Buyer pays: Main carriage (ocean freight), insurance, import duties, VAT
What is EXW (Ex Works)?
With EXW, the seller only makes the goods available at their premises. You (the buyer) are responsible for everything else - from pickup to delivery to your UK warehouse.
- Buyer pays: EVERYTHING - inland transport, export clearance, ocean freight, insurance, import duties, VAT
Which is better for UK indie brands?
FOB is usually better for UK indie brands because:
- You don't need to arrange pickup from the factory (complex in China/India)
- The factory handles export clearance
- You can use a UK freight forwarder for better rates on ocean freight
Quick Calculator
For a £10,000 order:
| Cost Type | FOB | EXW |
|---|---|---|
| Factory Price | £10,000 | £10,000 |
| Inland Transport (China to Port) | £0 (included) | £300 |
| Export Clearance | £0 (included) | £150 |
| Ocean Freight (China to UK) | £800 | £800 |
| UK Import Duties (varies by product) | £300-£1,000 | £300-£1,000 |
| UK VAT (20%) | £2,000 | £2,000 |
| Total Estimated Cost | £13,100-£13,800 | £13,550-£14,250 |