FOB vs: EXW - Two Buying/Shipping Methods for Your Green CoffeeWhether you're roasting 70kg or 10'000kg per week a green buyer should know their options when it comes to purchasing, shipping and storing present and future coffee.
I’ve been in coffee for some 14 years and have been fortunate enough to have had the opportunity to work for some of the most respected, pioneering Australian roasteries. During my time I was exposed to the tears, toil, joys and good surprises of each method. I have witnessed companies steer close towards FOB for their Ethiopian purchasing but then edge towards EXW for their Latin American program due to the ease of an exporter lovingly financing and storing the coffee on the roaster’s behalf.
At the time the EXW package just seemed to simplify the whole fickle buying/shipping document-this-document-that process. The roaster had a continual sigh of relief knowing that their coffee was being stored in a 3PL secure temperature controlled warehouse environment and guarded by a friendly, professional freight forwarder company. Talk about lead my coffee to greener pastures!
Deciding on what shipping method you believe is the right one is hugely important. Unfortunately, one size doesn’t fit all. Coming to that important understanding depends on which way your coffee buying pendulum swings and not necessarily how much you’re roasting . You’ll want to assess and consider where your business is in regards to volumes and quantities used quarter to quarter, your financial savviness, the destination of the product relative to your location, and how expediently you are able to get documentation ready to ship on time and in full.
So, you might be asking:
What is FOB and EXW… hello!?
FOB stands for Free On Board. Put into practice, FOB means the buyer pays for the delivery of the goods shipped by an exporter once those goods leave the exporter’s shipping dock, ie. as soon as they are on the ship.
There are a few considerations for this method. First, the buyer needs to pay for the coffee as soon as they receive the shipping documents. The buyer also needs to find a location for storing it once it lands. A customs broker or freight forwarder will need to to clear the coffee. Most importantly, you’ll need money available immediately.
Basically FOB is like the DIY of shipping/buying/importing coffee or coffee paid direct deposit. Get a foot wrong and it’s probably going to be your fault. Get it right and you’re like Bruce Willis in Die Hard yelling yippee ki yay..! well, you know the rest.
FOB pros and cons:
– A greater amount of ownership, oversight, and supervision over the coffee movement from port to destination
– More administrational control over shipping and storage
– Freedom to choose the fastest shipping route
– Draw down coffee as you please from your chosen warehouse facility
– Shipping arrangement responsibilities are challenging and often stressful to manage
– Exporters will get better rates for shipping due to the volume of coffee moved
– Freight forwarders or shipping agents often outsource their work at origin. This lengthens the chain and can cause delays and can require a lot of admin time chasing up documents.
– Being the consignee means you carry higher risks throughout the whole shipping process
– A large amount of finance is required to ship coffee
EXW stands for ex-warehouse or ex-works. In this model, the Exporter/Importer facilitates the whole coffee adventure. The exporter/importer finances the complete coffee journey to the warehouse and all a green buyer needs to do is evaluate and approve a pre-shipment or landed sample. In other words, it’s an agreement in which the merchant is required to make goods ready for pickup at his or her own place of business. Coffee is sold and ready for pick up at the Warehouse door.
There is of course a ‘con’ associated with EXW’s ‘carry fees’ (1-2% interest per month charge; call it rent ). Yet, in the big scheme of things, going the path of EXW is like having a Coffee Credit Card with way less interest and more benefits for you and your coffee business regardless of size. It’s the ‘ease’ of mind that somebody you trust is taking care of the nitty-gritty administrational stuff, and you won’t need too. Buying and dealing in EXW sales is a relationship, in which ALL parties involved need to do their part to make the experience a win-win.
So as you recline at your cupping table and ponder your next coffee purchase, consider what is going to add simplicity and minimalism to your future buying, and ask yourself this question: tears and toil or serenity now?