With Incoterms, navigating the waters of responsibility and risk can feel a lot like sailing through uncharted territory without navigation assistance.
Enter Ex Works (EXW), an Incoterm that clarifies responsibility and risk for buyers and sellers. This Incoterm shifts the responsibility of logistics and risk management onto the buyer, providing a unique perspective on the shipping process.
Join us as we chart a course through the ins and outs of Ex Works, helping you understand when it’s the right choice for your business and how to navigate its challenges with confidence!
Definition of ExWorks (EXW)
EXW, also called Ex Works, assigns minimal responsibility to the seller, whose key role is to package and deliver goods to a designated location. From there, the buyer handles loading goods, export procedures, and pays all shipping costs incurred.
EXW is versatile and can be used with any type of transportation—air, sea, road, or rail. It gives buyers full control over their shipments and choice of logistics partners. It may even help them save money if they have existing freight contracts.
The downside is, unlike Free Carrier (FCA), EXW shifts all risks and costs from the seller's premises to a specified location on to the buyer.
As you can see, EXW comes with its pros and cons. Prior to incorporating EXW in a contract, sellers and buyers should exercise caution, evaluate their capacities and preferences, and seek guidance from trade experts.
Key Responsibilities in Ex Works Incoterms
EXW assigns specific duties to buyers and sellers. Before entering a contract, it is crucial to understand the responsibilities of both.
Sellers Responsibilities
An EXW agreement limits a seller's obligations to preparing goods for collection at their warehouse or specified location. Sellers are not responsible for loading the goods or arranging export clearance.
With this Incoterm, sellers must:
- Properly package, mark and label goods to prevent damage and comply with export regulations.
- Provide products that meet the agreed-upon quality and quantity.
- Submit required paperwork to clear Customs, including a commercial invoice, packing list, certificates of origin, inspection certificates, and more.
- Provide goods at an agreed location on a specific date and time.
- Pay all duties and taxes, and handle Customs inspections, pre-shipment inspections, and other Customs clearance criteria.
Cargo transfer takes place once sellers' obligations are fulfilled. Here, the buyer assumes all risks in the next steps of the logistics process.
Buyers Responsibilities
The buyer handles most logistics and financial aspects of the shipment, including pickup, transportation, shipping coordination, carrier selection, and Customs compliance.
With EXW, the buyer:
- Pays for goods following payment terms outlined in the sales contract.
- Provides written proof they have accepted the goods, such as a signed delivery receipt.
- Loads goods at the seller’s premises.
- Gets all export licenses and permits, prepares Customs documentation, and handles Customs clearance in the seller’s country and destination country.
- Arranges transportation to the designated terminal or point of export.
- Pays terminal charges for loading, unloading, transferring, and holding the load at the port of origin and port of destination.
- Covers loading charges required by the shipping line.
- Pays freight charges when moving cargo from the port of origin to the port of destination.
- Insures cargo as it moves to its destination.
- Pays to transport and unload cargo at the requested delivery location.
How Ex Works Incoterms Affect Shipping Costs and Risks
Although Ex Works (EXW) may seem simple, it can create significant challenges for buyers and sellers in international trade.
Under EXW, the buyer takes on all export responsibilities, including obtaining necessary licenses and security clearances. This can be daunting for buyers who lack the logistics expertise and resources to manage these tasks.
Sellers can offer assistance, but most risks and costs fall on the buyer. This situation can drive up shipping costs when buyers are unfamiliar with the process or face unexpected fees. The buyer takes on risk from loading to transport until goods reach their destination.
While buyers may negotiate lower shipping rates with carriers, they also take on the risk of cost fluctuations. Likewise, choosing a less experienced carrier may lead to delays or additional charges.
Buyers also must navigate intricate export regulations and procedures, where non-compliance can cause delays, fines, or even confiscation of goods. Although the seller makes sure documentation is in place, the buyer must verify all export documents to avoid complications with Customs or tax authorities.
Sellers generally incur fewer costs because their responsibility ends once they make goods available. However, they may face expenses when providing assistance, which might not be fully reimbursed by the buyer.
A key concern for sellers is proving that goods were exported, especially since tax authorities often demand proof of export for Value Added Tax (VAT) or sales tax compliance.
In short, while Ex Works offers flexibility, it places significant responsibilities and risks on the buyer. Understanding these dynamics is essential for effective cost management and risk mitigation in international shipping.
Advantages of Using Ex Works Incoterms
Before choosing EXW as an Incoterm, it is important to understand its advantages and disadvantages.
Benefits for the Seller
EXW benefits sellers by reducing their responsibilities. Sellers no longer have to arrange international shipping or pay export duties. It also lowers their risk. They are not involved in transport or insurance arrangements. Finally, it eliminates the need for sellers to handle transport or insurance.
Benefits for the Buyer
Buyers benefit by gaining maximum control over their shipments and their logistics costs. They may even save money if they already have freight contracts in place. The ability to choose preferred carriers and shipping methods also enables buyers to develop customized logistics solutions.
Challenges of Using ExWorks Incoterms
Still, EXW is no panacea for buyers or sellers. It’s an Incoterm that carries plenty of risk and must be navigated properly.
For the Seller
Lack of insurance during pre-shipment could leave the seller financially accountable for the value of goods. Significant financial losses, especially for high-value items, can result from this.
Depending on the jurisdiction, there also may be legal mandates for insurance coverage during shipping. Failing to follow these regulations can result in penalties or legal issues for the seller.
And, without insurance, sellers cannot file a claim with an insurance provider, which leaves them with no recourse for recovering any losses.
For the Buyer
EXW has disadvantages for buyers too. Buyers bear all risks and responsibilities for loading, transportation, and export/import processes as soon as the seller makes goods available.
Inexperienced buyers also may make mistakes with EXW that drives up costs. Other Incoterms® share costs more evenly between buyer and seller. The likelihood of errors and miscommunication is higher, which can cause delays and increase expenses.
When to Use Ex Works Incoterms
EXW (Ex Works) is best for buyers with the expertise and resources to manage international logistics and customs. However, EXW may not be suitable for cross-border transactions between parties unfamiliar with export procedures. In those cases, Free Carrier (FCA) may be better.
EXW works well in domestic transactions where both buyer and seller understand local logistics and regulations. It is also convenient for goods with minimal packaging and handling requirements.
EXW is advantageous for buyers who want complete control over transportation and have expertise in international logistics, as it enables them to lower costs and transit times. This Incoterm gives buyers the option to select carriers or routes of their choice.
Ex Works vs. Other Incoterms
It can be complex to determine when EXW will work better than other Incoterms. Let’s look at how EXW stacks up when compared to Free on Board (FOB) or FCA.
EXW vs. FOB
- Transport Modes: EXW applies to any mode of transportation. The seller makes the goods available at their premises, and the buyer assumes all responsibilities from that point. But FOB is specifically used for sea freight. The seller delivers goods to the port and loads them onto the vessel.
- Cost Distribution: With EXW, the buyer handles all costs from the seller’s location to the final destination, including transportation, loading, and customs. But with FOB, the seller covers the costs of transporting the goods to the port and all loading expenses. The buyer assumes responsibility once cargo is loaded onto the ship.
- Control and Responsibilities: With EXW, the buyer has complete control over the logistics process, including all export and import duties and formalities. But with FOB, the seller handles export duties and documentation, while the buyer manages import duties and paperwork after cargo is loaded.
- Risk Transfer: With EXW, risk transfers to the buyer as soon as they pick up goods from the seller's premises. But with FOB, risk transfers when the cargo is loaded onto the vessel. The seller arranges insurance up to the port, while the buyer covers insurance from the port to the final destination.
Suitability
EXW is ideal for buyers with strong logistics capabilities who want full control, especially for raw materials, components, or finished products. FOB works best for buyers shipping bulk cargo and non-containerized goods who want the seller to manage initial shipping tasks.
EXW vs. FCA
- Transport Modes: Both EXW and FCA can be used in air, rail, sea or road transport.
- Cost Distribution: With EXW, the buyer handles loading goods, export procedures, and costs incurred after receiving the goods. With FCA, the buyer covers costs once the goods are delivered to a carrier.
- Control and Responsibilities: With FCA, the buyer takes responsibility once the goods are delivered to the carrier, making it easier for those unfamiliar with export regulations. With EXW, the buyer handles most logistics and financial aspects, including pickup, transportation, shipping coordination, carrier selection, and complying with import regulations.
- Risk Transfer: With FCA, risk transfers to the buyer once the seller delivers cargo to a Named Place. With EXW, risk transfers to the buyer once they receive the goods.
Suitability
FCA is recommended for buyers new to international trade, as it simplifies the process by delegating initial export responsibilities to the seller. It also works well for containerized goods, where managing initial export steps is crucial. In contract, EXW is suited for raw materials and components, but not for fragile or hazardous items requiring special handling.
By understanding these distinctions, buyers can make informed decisions about which Incoterm best meets their logistics needs.
Why Consulting a 3PL is Essential for Ex Works Transactions
EXW is a complex Incoterm that requires expertise to apply correctly. Third-party logistics (3PL) providers, like AN Deringer, specialize in logistics management and can offer that expertise.
AN Deringer excels at logistics management, compliance, and shipping coordination. Through our established carrier relationships, we can negotiate better rates and optimize shipping routes to potentially lower your costs. We also can provide guidance on insurance coverage to help you mitigate transportation and Customs risks. And our 3PL services streamline international shipping documentation to prevent Customs delays.
Partnering with a 3PL for Ex Works transactions makes sense. It can help you navigate the choppy waters of EXW transactions with greater efficiency, lower costs, and peace of mind.
