Thursday, May 7, 2009

FOB, Ex-Works (EXW) CIF, and Freight Forwarders

The incoterms in international trade can be, quite honestly, overwhelming, and in negotiating with your overseas suppliers, it's critical to factor in these items. If one already has logistics support in China, for example, it can be OK to negotiate an Ex-Works price with the factory. If one is new to this type of business, lacks contacts, or simply, doesn't have the resources to manage domestic transfers/transit issues, then an FOB, or even CIF price would be more appropriate.

With EXW, one is responsible for picking up the freight at the dock of the factory. It sounds simple, but what if it's for export, what about the paperwork, what about the shipping company? Without fully understanding or planning for these processes, a cheaper EXW price will turn out to be a nightmare compared to the higher cost FOB or CIF price. With FOB, the freight can be delivered to your freight forwarder, who in turn, will manage the shipment of your products. With CIF, the freight will be delivered directly to the port in your destination country. A key factor to remember though, as you pass more and more processes directly to the factory (and their vendors), you lose more and more control (or arguably, visibility) of your costs.

Lastly, when searching for freight forwarders, one must think carefully about who that company is, their length of time in business, their main routes they handle, their costs, etc. If you're not physically located in Asia, it's best to retain the services of an Asian business partner to manage all these seemly impossible, but mission critical tasks.

4 comments:

  1. Great post Andy! This can be a tricky thing to understand. Can you explain what each acronym stands for, and what exactly it means?

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  2. No problem, thanks for the clarification request. There are 13 types of Incotems, which are:

    Origin Terms

    EXW - Ex-Works, named place where shipment is available to the buyer, not loaded.
    The seller will not contract for any transportation.


    International Carriage NOT Paid by Seller

    FCA - Free Carrier, unloaded at the seller's dock OR a named place where shipment is available to the international carrier or agent, not loaded.
    This term can be used for any mode of transport.

    FAS - Free Alongside Ship, named ocean port of shipment.
    Ocean shipments that are NOT containerized.

    FOB - Free On Board vessel, named ocean port of shipment.
    This term is used for ocean shipments only where it is important that the goods pass the ship's rail.


    International Carriage Paid by the Seller

    CFR - Cost and Freight, Named ocean port of destination.
    This term is used for ocean shipments that are not containerized.

    CIF - Cost, Insurance and Freight, named ocean port of destination.
    This term is used for ocean shipments that are not containerized.

    CPT - Carriage Paid To, named place or port of destination.
    This term is used for air or ocean containerized and roll-on roll-off shipments.

    CIP - Carriage and Insurance Paid To, named place or port of destination.
    This term is used for air or ocean containerized and roll-on roll-off shipments.


    Arrival At Stated Destination

    DAF - Delivered At Frontier, named place of destination, by land, not unloaded.
    This term is used for any mode of transportation but must be delivered by land.

    DES - Delivered Ex-Ship, named port of destination, not unloaded.
    This term is used for ocean shipments only.

    DEQ - Delivered Ex-Quay, named port of destination, unloaded, not cleared.
    This term is used for ocean shipments only.

    DDU - Delivered Duty Unpaid, named place of destination, not unloaded, not cleared.
    This term is used for any mode of transportation.

    DDP - Delivered Duty Paid, named place of destination, not unloaded, cleared.
    This term is used for any mode of transportation.

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  3. could we mention in l/c, incoterm ex-work without name of place like warehouse or factory (only state EX-WORK)

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  4. Hello Susyfn,

    Thank you for your question. For L/C (Letter of Credit) the Ex-Works location should be named, and will probably be insisted upon by the issuing bank. Also, the bank may require a transport document to be attached to the L/C. Here is a another resource for you to read about it:

    http://www.letterofcreditforum.com/content/exworks-orders-and-transport-documents

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