The difference between FOB and EXW
Under EXW (Ex Works), the seller makes the goods available at its own premises and the buyer takes over every step from there, including loading, Chinese export clearance and freight. Under FOB (Free On Board), the seller clears the goods for export, moves them to a named port and delivers them on board the vessel the buyer has booked; risk passes to the buyer at that moment.
Both are rules in Incoterms 2020, the trade terms published by the International Chamber of Commerce (ICC). In each, the seller is the party named on the sales contract as supplying the goods, whether a factory or a trading company. The delivery point (the place and moment at which the seller has performed its delivery obligation and risk of loss passes to the buyer) is what separates the two rules. ICC places EXW among the seven rules usable for any mode of transport and FOB among the four rules for sea and inland waterway transport only (ICC, Incoterms 2020 Introduction, para. 42).
The practical gap for an importer is the stretch between the factory gate and the ship: truck loading, inland haulage, the Chinese export declaration and origin terminal handling. Under FOB the seller handles that stretch. Under EXW the buyer does, often from thousands of miles away.
FOB and EXW side by side
| Point of comparison | EXW (Ex Works) | FOB (Free On Board) |
|---|---|---|
| Transport mode | Any mode, including air | Sea and inland waterway only |
| Delivery point | Agreed collection point, usually the seller's premises | On board the vessel at the named port of shipment |
| Risk passes to buyer | When goods are placed at the buyer's disposal, before transport starts | When goods are placed on board the vessel |
| Loading at seller's premises | Not the seller's obligation unless agreed | Seller |
| Inland haulage to port | Buyer | Seller |
| Chinese export clearance | Buyer (seller assists only) | Seller |
| Origin charges up to loading on board | Buyer | Seller |
| Main ocean or air freight | Buyer books and pays | Buyer books and pays |
| US import clearance and duties | Buyer | Buyer |
The last two rows are the same. Under both rules the importer chooses the carrier, usually through its own freight forwarder or an NVOCC (non-vessel-operating common carrier, a company that sells ocean transport on ships it does not operate), and under both the importer clears US customs. ICC states the shared principle for the F rules: "it is the buyer who makes such arrangements" for main carriage (para. 25).
How EXW works at a Chinese factory
ICC describes EXW delivery precisely: "the delivery point in EXW is an agreed point for collection of the goods by the buyer… In… EXW, risk transfers before the transport cycle even starts" (para. 21). If a pallet is dropped while being loaded onto the buyer's truck in Dongguan, the loss sits with the buyer.
A buyer on EXW terms, or its forwarder, must arrange:
- loading at the factory, unless the contract assigns it to the seller;
- trucking from the factory to the port or to a container freight station;
- the Chinese export customs declaration;
- origin terminal handling and documentation;
- main freight, insurance if wanted, and everything after arrival.
EXW quotes therefore exclude every cost from the factory gate onward. The rule is the minimum obligation a seller can take on, which is why it appeals to buyers who believe they can buy origin logistics more cheaply than the factory can.
How FOB works at a Chinese port
Under FOB, delivery occurs "when the goods are placed on board the vessel at the port of loading" (ICC Introduction, para. 24). "On board" means physically loaded onto the ship, not merely delivered to the terminal. A contract on FOB Ningbo terms obliges the seller to pay inland trucking to Ningbo, clear the goods for export, and cover origin charges up to the point the goods are loaded. The buyer books and pays the ocean freight and bears risk once the goods are on the ship.
FOB's appeal is that the party closest to the goods, with the local trucking arrangements and the export paperwork, does the origin work. Its weakness is equally specific. FOB ties risk to the on-board moment, yet a container is usually handed to the carrier at a container yard days before it is lifted onto the ship. During that gap the seller no longer holds the goods but still bears the risk.
Two drafting points follow. FOB needs a named port, ideally a named terminal: "FOB Shenzhen" could mean Yantian, Shekou or Chiwan. And origin terminal handling charges and documentation fees should be allocated in writing, because ports and forwarders bill them separately and how they are split in practice was not confirmed from a primary source for this page.
The export-clearance problem with EXW in China
ICC's own caution against EXW is direct: "with EXW the seller has to merely put the goods at the buyer's disposal. This may cause problems for the seller and the buyer, respectively, with loading and export clearance. The seller would be better advised to sell under the FCA rule" (para. 22).
China sharpens that problem. Forwarders widely report that a Chinese export declaration must be filed by an entity registered with China Customs (the General Administration of Customs, GACC) as a consignor or consignee, and that a foreign buyer generally holds no such registration. A GACC regulation confirming this was not retrieved for this page, so it is stated here as reported practice rather than as law. Where it holds, the factory, its agent or the buyer's forwarder's Chinese agent files the export declaration anyway, and the paperwork no longer matches the EXW term the contract names.
The mismatch matters when something goes wrong. A contract that says the buyer cleared export, alongside an export declaration that names the seller, gives both parties an argument about who was responsible for a delay or an error in the declaration.
Why the ICC points to FCA instead of either rule
ICC recommends FCA (Free Carrier) in both directions. Against EXW, it says the seller "would be better advised to sell under the FCA rule" (para. 22). Against FOB for containerized cargo handed to a carrier before loading, it says the seller "is well advised to sell on FCA terms rather than on FOB terms" and, asked whether FCA should be used in that case, answers: "Yes" (para. 66).
FCA at the seller's premises keeps the EXW structure but puts loading onto the buyer's truck and export clearance on the seller, who is better placed to do both. FCA at a named container yard or terminal moves the risk handover to the point where the box actually leaves the seller's control, rather than the later on-board moment. FCA also works for air freight, which FOB does not.
The traditional objection to FCA was that letters of credit often require an on-board bill of lading, which a seller delivering before loading could not obtain. Incoterms 2020 added an FCA option under which the buyer's carrier issues an on-board bill of lading to the seller after loading, removing that objection (ICC, Incoterms 2020). The ICC Introduction itself, the source of every paragraph cited here, is available from ICC's download page.
Comparing EXW and FOB quotes, and common mistakes
An EXW price and an FOB price from two suppliers cannot be compared directly. The FOB figure already contains inland transport to the port, export clearance and origin charges up to loading; the EXW figure contains none of them. Add those items to the EXW quote before deciding which is cheaper.
The errors that recur in China purchase contracts are consistent:
- "FOB factory" or "FOB Shenzhen" with no port or terminal. ICC calls an FOB contract at an inland point one that "makes little sense" (para. 48).
- FOB for air freight. FOB is a sea and inland waterway rule; FCA is the any-mode equivalent (para. 42).
- EXW chosen to save money. The factory often still loads the truck and arranges export clearance, the exact problems ICC lists, without the contract saying so.
- Assuming FOB keeps risk with the seller until arrival. Risk passes on board in China.
- Leaving origin terminal charges unallocated. These are billed separately and are a common source of disputes.
- Assuming the Incoterm sets US customs value. How freight is treated in a US entry is a US valuation question, not an Incoterms function; a licensed customs broker should confirm it.
Frequently asked questions
What is the difference between FOB and EXW?
Under EXW the buyer collects the goods at the seller's premises and bears risk from collection, handling loading, export clearance and all transport. Under FOB the seller clears the goods for export and delivers them on board a vessel at a named port, and risk passes to the buyer once they are on board. In both, the buyer books the main freight.
Which is better for importing from China, FOB or EXW?
Neither is better in every case, and ICC recommends a third rule. Its Incoterms 2020 Introduction advises FCA rather than EXW, and FCA rather than FOB for containerized goods handed to a carrier before loading. The choice turns on who can practically file the Chinese export declaration and who should control freight booking.
Who pays for export customs clearance under EXW?
The buyer, under the rule's allocation; the seller only assists. ICC itself notes that this causes practical problems with export clearance and suggests sellers use FCA instead. In China, forwarders report that the export declaration is in practice filed by a locally registered party, often the factory, which can leave the paperwork out of step with the contract.
Can I use FOB for air freight?
No. ICC classes FOB as one of four Incoterms 2020 rules for sea and inland waterway transport only, because its delivery point is a vessel. For air freight from China, an any-mode rule such as FCA at a named airport or forwarder warehouse fits the transport. ICC calls an FOB contract at an inland point such as an airport one that makes little sense.
When does risk transfer under FOB?
Risk transfers when the goods are placed on board the vessel at the named port of loading. Before that moment, including the days a container may sit at the container yard, the seller bears the risk. After it, the buyer bears the risk for the entire ocean voyage, so cargo insurance for that leg is the buyer's decision.
Does FOB include loading costs?
Loading onto the ship is within the seller's delivery obligation under FOB, because delivery occurs on board. Separate origin terminal handling charges and documentation fees are a different matter: ports and forwarders bill them separately, and the contract should state which party pays them rather than relying on the three letters alone.