International trade is essential for today's global economy, but it also opens shippers up to the risk of costly mistakes and errors. The International Chamber of Commerce introduced Incoterms (international commercial terms) to facilitate global trade by clearly outlining the obligations, risks, and costs of the buyer and seller under different contractual terms.
There are 11 different Incoterms. Seven of them apply to any type of transportation, and the other four only apply to shipping via inland waterways or seas. One of the most commonly used Incoterms is Ex Works (EXW), which places most of the responsibility, cost, and risk with the buyer.
If an international trade contract includes an Ex Works Incoterm, the seller’s primary responsibility is to have the goods ready for the buyer to pick up — usually at the seller’s warehouse, factory, or plant. The buyer assumes all risks and costs for loading and transporting the goods from the seller’s premises to their own.
In global trade, Ex Works simplifies transactions, particularly for sellers, since it limits their obligations, costs, and risks. Although the buyer assumes more costs and risks, Ex Works also simplifies their terms and can give them more control over the process — often at a lower cost of goods.
Ex Works differs from other Incoterms in that it places the majority of the risks and obligations on the buyer. In most other Incoterms, the seller has more responsibilities, such as transporting the goods to the first carrier and paying for part of the transportation costs.
Although the seller’s responsibilities are minimal under EXW, they do have some obligations.
The seller is responsible for preparing and packing the goods for the buyer to pick up.
The seller needs to provide invoices, packing lists, and any certificates needed to export the goods.
The seller has to notify the buyer when the goods are ready to be picked up.
Depending on other terms of the contract, the seller may also need to provide additional assistance or information to the buyer.
In contrast, the buyer has the majority of the responsibilities, including the following.
Although the obligations under EXW are lopsided, there are times when it makes the most sense. If a buyer is making multiple purchases and wants to consolidate them into one trip, EXW allows them to do so with fewer carriers and shipping containers.
EXW can also be the best option if the seller isn’t an exporter, and the buyer wants to buy from a domestic market. Buyers who have economical shipping options in place can often negotiate lower prices from sellers by taking on more responsibilities.
Despite its benefits, there are also times when EXW isn’t the best option.
Inexperienced buyers or those without extensive knowledge of international shipping issues or a dedicated logistics team probably shouldn’t use EXW.
Situations where the logistics are complex and include multiple carriers and types of transportation may not be suitable for EXW. Buyers who aren’t in a position to handle the risks associated with complex global transportation also shouldn’t use EXW.
Some countries have much more challenging export regulations than others. In cases like these, it may be safer for sellers with knowledge of their country's regulations to manage the risk. Similarly, geographical barriers may be easier for local sellers to handle than foreign buyers.
EXW primarily benefits the seller because the buyer takes on the majority of the risks, costs, and obligations. It allows the seller to maximize their profit because they don’t have to handle costs associated with transporting goods. With EXW, buyers can often get goods for cheaper in exchange for bearing the bulk of the responsibility.
For experienced buyers, the EXW Incoterm rule can be the best option. However, you should be aware of potential pitfalls and challenges associated with it before you commit.
These include coordination challenges, higher transportation costs, regulatory and compliance risks, and limited seller responsibilities. EXW terms can significantly affect the cost of both buying and selling goods, so it’s important for both parties to clearly understand them.
Working with an expert logistics partner can help you overcome these challenges and find out if other rules might be more beneficial for you.
When you’re choosing the best Incoterm rule for your shipments, working with an experienced logistics partner such as Deringer can facilitate the process and minimize your costs and risk exposure. We have extensive experience in international trade and are accustomed to navigating global trade challenges.
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