Ex works is the same as Freight on Board (FOB) Shipping. The two terms can be used interchangeably because they assume the same terms and agreement between the buyer and seller. The advantage of ex-works from a seller’s standpoint is that the seller is allowed to recognize revenue once the product has been picked up or a contract has been signed. If a contract has been signed then a seller could potentially recognize revenue as the product finishes going through the manufacturing process. On the other side ex works means that a buyer has a potential for loss for the transportation part of the purchase.
Wawadoo Inc. is a company that specializes in the production of widgets. Wawadoo was recently able to sign ex works shipping terms with another company named, Wanna Widget Inc. Due to these terms, Wawadoo can save on the transportation cost associated with the charge focus solely on production. This becomes beneficial to both companies because Wanna Widget has a well established transportation network and is able to transport the products at a lower cost. Therefore, Wawadoo can drop the price of its widgets to Wanna Widget. Wanna Widget can lower its expense and sell widgets for lower because they can buy the product at a lower price and transport it for cheaper than Wawadoo could.