What Is Ex Works (EXW)? Ex Works (EXW) Defined, Pros and Cons, Plus More Incoterms
What Is Ex Works (EXW)?
Ex Works (EXW) is an international trade term coined with the intention that the product is made available at the specified point by the seller and the buyer has to incur the transportation costs of the same. Ex Works (EXW) is one of the 11 current Incoterms (International Commercial Terms), a standardised set of international commercial terms, published by the International Chamber of Commerce.
Ex Works (EXW) is a type of shipping where the seller simply makes the product available at a certain place at the buyer’s expense.
Because a sale is not complete until the buyer receives the goods, the seller accepts most of the other risks in the transaction, including loading it on to a truck for transfer to a ship or plane, or meeting the requirements of customs agents.
Ex works is an Incoterms (International Commercial Terms), one of 11 such internationally standardised trade terms that are published by the International Chamber of Commerce.
Understanding Ex Works (EXW)
In an Ex Works (EXW) transaction, the buyer handles all shipping and documentation in addition to bearing the export cost of transporting goods from the seller’s location to a previously agreed-upon overseas point, such as the seller’s nearest port. And the seller will most likely provide assistance to the buyer in obtaining export licences or other necessary paperwork, but the export licenses will be paid for by the buyer, and the seller would incur the documentation fees.
And once the goods are in the possession of the buyer, any relevant expenses and attendant risks fall squarely on the buyer’s shoulders. These risks could include loading the product on to a truck, or loading it on to a ship or plane, passing through customs, unloading it, storing it, or selling it. Even helping the buyer load the product on to a ship is no excuse for the seller not to get paid if something goes wrong with the loading.
Ex Works might be where the goods are put at their disposal on the buyer’s means of transport, but serviced by the seller – otherwise the seller is under no obligation to do any of these things; all they are required to do is put the product at the buyer’s disposal at a nominated location – at which point it’s the buyer who pays and accepts responsibility for transport.
Example of Ex Works
Ex Works is when businesses work to reduce the costs by turning over products without the ‘added-value’ by the seller. Example: Company A purchases two printers at $4,000 from Company B shipping Ex Works for $200 from Company B’s warehouse. Company A decides to use a 3rd party shipper to deliver it for $170, so rather than pay the $30 to company B, they make an Ex Works deal to not include any delivery charge.
An Ex Works contract differs from a Free-on-Board (FOB) contract on which the seller bears the cost in getting his goods to a shipping terminal and the sum of all the costs it pays to get the goods on board and all the customs it pays until the goods reaches the port of the buyer’s destination. The buyer nevertheless has to pay all the costs of finding, contracting and paying the shipping company, and paying the amount allotted to the clearing agent for insurance and customs fees until the goods arrives in his country of destination.
Ex Works vs. FOB
Ex Works is the buyer’s obligation to bear the cost of loading the goods; Free on Board (FOB) is from the seller’s point of view the obligation to load the goods.
FOB is applicable only for sea or inland waterway transport. FOB means that the seller has to deliver the goods on board the ship nominated by the buyer to the named port of shipment, and to deliver the export documents against payment of the price. The seller also has to bear the risk and cost of export clearance. The risk transfers to the buyer when the products pass over the ship’s rail and the buyer will bear all costs from that point onwards.
Normally, the FOB terms communicate that ownership transfers at the time the goods are loaded onto the transportation that the buyer will use to transport them to their final destination. The buyer and seller can agree otherwise in a contract.
It means that ex works puts almost all responsibilities on the buyer but FOB requires the net work and the Initial transportation responsibilites on the the seller. In gerencl, compared with EX WORKS, FOB is more benificial for the buyer.
Responsibilities Under Ex Works
EXW transfers to the buyer most of its duties starting from the moment the goods are available for collection from the seller and, as mentioned, the buyer shall bear all risks for the loss or damage to the goods occurring from the time that the seller delivers it. Therefore, the goods will be carried at the buyer’s risk. Here’s a non-exhaustive list of duties that are transferred to the buyer under EXW:
Loading charges: Any costs for loading goods at the pickup point
Cost of taking the goods to the original port of destination: Transport costs to get the goods to the original port for shipping out.
Customs export fees: Any costs associated with duties, tariffs, and documentation
Loading on carriage: Costs for loading goods on the shipping method
Carriage charges: Any shipping costs for moving goods between ports
Insurance: If needed or desired
Customs import fees: Any costs associated with duties, tariffs, and documentation
Terminal charges: There may be charges at the arrival terminal
Destination delivery – From arrival port to final destination.
Unloading: Cost to unload goods, such as labor and equipment.
Sellers in an EXW transaction – unlike buyers – have minimal obligations to perform. Typically, they’re responsible for packaging goods to be loaded and shipped, and allowing the buyer to pick them up at the seller’s premises.
Advantages and Disadvantages of Ex Works
Advantages
Allows buyers to consolidate multiple purchases
Ability to anonymize a supplier
Least expensive option
Allows buyers to purchase in the domestic market
Disadvantages
Buyer assumes all risk and costs
Need a trusted representative in the country goods are purchased from
You might pay more than intended if you’re unfamiliar with the process and costs
Advantages Explained
Facilitates concentration of multiple purchases: Pooling purchases from many suppliers allows buyers to handle the expenses once the goods are put in place at the place of collection. Buyers need fewer containers or transportation modes to move the good to the port of arrival and delivery.
Anonymising ability: Freight can be booked under your own incoterm or various exporter names so your supplier is kept hidden if you have competition who might be watching.
Least expensive option: to the seller your costs are lower, so the seller doesn’t pass on his increased costs by building in markups for his outlays.
If you source in a market where there is little or no exporting, you are more likely to find what you want in the domestic market: 5. Allows buyers to purchase in the domestic market.
Disadvantages Explained
All risk and cost are on the buyer: You are responsible for all costs, including freight, accidents, and you assume any loss.
Someone to represent you and be there where the country goods are purchased: Since you are buying in another country, you need a representative you can trust to make sure the goods are there, that they are delivered as promised, and that they are loaded up and shipped.
You might end up paying more than you thought you would if you do not know the costs and how to transport in EXW: You won’t know what the EXW shipping costs and delivery will look like, so you may end up paying too much.
Incoterms
Ex Works (EXW), Free on Board (FOB) and Free Carrier (FCA) are unquestionably INCOTERMS issued by the International Chamber of Commerce to govern relations in international contracts of purchase or sale, laying down the time and place of delivery and payment, the moment the risk of loss passes from seller to buyer, and the party responsible for bearing freight and insurance costs. INCOTERMS are not contracts in themselves, but do not govern over the law of the land where they are in force: the law of the land prevails. In other words, INCOTERMS can be amended by clauses in a trade contract.
First implemented in 1936, Incoterms today consists of 11 terms, often structurally identical to the United States’ domestic terms, such as under the Uniform Commercial Code, but with different meanings. Further complicating the situation, the Incoterms used by various international countries and jurisdictions governing import and export are likely to have different manners of assessing duties on shipping based on their Incoterms. Consequently, the parties to the contract must designate their governing law.
What Does Ex Works Mean in Incoterms?
If you have ever bought something that was marked ‘Ex Works’ you would likely have been the unlucky recipient of the seller paying only to ship the goods to a named location. From this point, the buyer of the goods pays shipping costs and can be held liable for the accompanying risks, which can range from customs regulations to loading and transferring to other ships and boats. Ex Works, or EXW is short for Ex Works, is one of 11 Incoterms (International Commercial Terms), a widely accepted classification of trade agreements.
What Is the Difference Between Ex Works and FOB?
The difference between shipping agreements Free On Board and Ex Works has to do with the passing of liability between parties (the buyer and the seller). With free-on-board contracts, the seller assumes liability for the goods all the way to a terminal on top of the customs cost and loading the goods on to the ship. The buyer is liable for the shipping cost, cost of insurance and cost to customs at point of arrival. Essentially, once the goods are shipped, the buyer assumes liability/ownership of the goods (this is called or FOB origin or FOB shipping point). Conversely, in the case of an Ex Works agreement, the seller is only responsible for delivering the goods to an agreed upon destination.
What Does Ex Works Mean for Shipping?
This saves the seller from paying for shipping, clearing through customs, and the risk of liability for damaged goods after delivery, packaging, and labelling at the shipping terminal. In some cases, this might be optimal for the seller – provided it is legally possible. For example, different jurisdictions impose different restrictions on non-resident corporations completing export declaration forms; in the European Union, they are forbidden from doing so. On this basis, an Ex Works contract could be terribly suboptimal for the seller and buyer alike. A free carrier contract that places the shipping responsibility on the seller might be a better choice.
How Does Insurance Work with Ex Works Terms?
When agreeing to Ex Works terms, the buyer is made entirely responsible for insurance coverage. The risk to the goods passes to the buyer as soon as the goods are available at the seller’s premises, and therefore the buyer must arrange insurance from that point.
Who Arranges Customs Documentation in Ex Works?
Furthermore, under Ex Works terms, the buyer is responsible for producing all of the customs documentation necessary for export and import. This includes, for example, the production of any necessary export licences or permits in the seller’s country as well as those required for import in the destination country.
The Bottom Line
Ex Works (sometimes abbreviated as EXW) is an International Commercial Term that indicates the responsibilities of the seller and the buyer. When you enter into an EXW agreement, you, the buyer, assume all costs and liabilities for collecting goods and shipping it where you want it to go.
If you are going to arrive earlier than the vessel arrives at its final destination.Secondly, an EXW is cheaper than FOB in certain situations, but the buyer needs to be aware of and account for and pay for the cost of getting those goods to the place of destination they wish to have the goods. The best situations to use an EXW is either when a seller cannot export the goods or when the buyer is going to consolidate an order from different places to save on costs.