Ex Works (EXW) Defined, Pros and Cons, Plus More Incoterms

What Is Ex Works (EXW)?

Ex Works (EXW) is an international trade term that describes when a seller makes a product available at a designated location, and the buyer of the product must cover the transport costs. Ex Works (EXW) is one of the 11 current Incoterms (International Commercial Terms), a mix of standardized international trade terms published by the International Chamber of Commerce.

Understanding Ex Works (EXW)

Ex Works (EXW) requires a seller lớn safely package goods, label them appropriately, and deliver them lớn a previously agreed-upon location, such as the seller's nearest port. The seller must also help the buyer get export licenses or other required paperwork, although the buyer must pay the actual fees for the documents.

Once the buyer has the goods, it is up lớn the buyer lớn cover any expenses and trương mục for any risks that pertain lớn the goods. Risks could include loading the products onto a truck, transferring them lớn a ship or plane, dealing with customs officials, unloading them at their destination, and storing or reselling them. Even if the seller helps the buyer by loading the product onto a ship, it's still up lớn the buyer lớn pay if anything goes wrong during the loading.

Example of Ex Works

Ex Works costs are calculated by businesses that want lớn cut costs by removing the so-called seller's value-added for shipping. For example, suppose company A has priced a pair of printers from company B at $4,000, with an Ex Works shipping cost of $200. To save money, company A finds a third-party shipper lớn deliver the printers for $170. So lớn save the $30 on shipping, they make an Ex Works khuyễn mãi giảm giá with company B.

An Ex Works agreement differs from a Free-on-Board (FOB) agreement, in which the seller covers the cost of getting its goods lớn a shipping terminal and pays all the customs costs lớn get them on board. Meanwhile, the buyer still has lớn pay lớn find, contract, and pay the shipping company, as well as the customs costs incurred when the goods reach their country of destination. In addition, the buyer also pays the insurance costs.

In practice, Ex Works is sometimes not beneficial due lớn the customs rules of certain jurisdictions. In the European Union, for example, a non-resident individual or corporation cannot finish the export declaration documents, sánh the buyer could be left stranded. In such cases, the không tính tiền carrier (FCA) term is preferable. Free Carrier means the seller is responsible for delivering goods lớn a specific destination.

Ex Works vs. FOB

Ex Works is the obligation on the buyer's part lớn incur the costs of loading goods for transport. Free on Board (FOB) is the term used lớn refer lớn the seller's obligation lớn load goods. Generally, FOB transfers ownership of goods lớn the buyer once they are loaded on the buyer's transportation method. However, there is a possibility that the seller might remain responsible for them during transport lớn the final destination—this depends on the contract and the terms the buyer and seller have agreed on.

Responsibilities Under Ex Works

Under EXW, the buyer assumes most of the responsibilities once they collect the purchased goods from the seller. Some of the responsibilities transferred include:

• Loading charges: Any costs for loading goods at the pickup point
• Delivery lớn the port of origin: Costs for transporting goods lớn the port for shipping
• Customs export fees: Any costs associated with duties, tarrifs, 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, tarrifs, and documentation
• Terminal charges: There may be charges at the arrival terminal
• Destination delivery: The costs for delivering goods from the arrival port lớn the final destination
• Unloading: Cost lớn unload goods, such as labor and equipment.

Sellers in an EXW agreement, in contrast lớn buyers, have very few responsibilities. Generally, they are responsible for packing the goods lớn be loaded and transported and providing a place for the buyer lớn pick them up.

Advantages and Disadvantages of Ex Works

Advantages Explained

• Allows buyers lớn consolidate multiple purchases: Consolidating purchases from various suppliers helps buyers with the costs after goods are loaded at pick-up locations. Buyers need fewer containers or transportation methods lớn get the goods lớn the port of arrival and delivery.
• Ability lớn anonymize a supplier: Goods can be shipped under an incoterm or different exporter name lớn keep your supplier anonymous if you have competition that might be watching.
• Least expensive option: The costs lớn the seller are lower, sánh you're not paying for their increased costs through markups lớn cover expenses.
• Allows buyers lớn purchase in the domestic market: If you're sourcing in a market where there isn't a strong exporting presence, you can more easily find the goods you need in the domestic market.

Disadvantages Explained

• Buyer assumes all risk and costs: You're responsible for all costs, damages incurred during transportation, and inheret the risk of loss.
• Need a trusted representative in the country goods are purchased from: Because you're purchasing in another country, you'll need a representative you trust lớn ensure goods are present, delivered as promised, loaded, and shipped.
• You might pay more than thở intended if you're unfamiliar with the process and costs: If you're unfamiliar with the costs and transportation of EXW, you may over up paying more than thở you thought you would.
  

Incoterms

Ex Works, Free on Board, and Free Carrier are all part of the International Chamber of Commerce's Incoterms. They are used in international trade contracts to outline matters, including the time and place of delivery and payment, when the risk of loss shifts from the seller lớn the buyer, and the các buổi party responsible for paying the freight and insurance costs. The Incoterms aren't actual contracts and don't supersede the governing law in their jurisdiction. Incoterms can be modified by explicit clauses in a trade contract.

Incoterms were first established in 1936, and the current version—Incoterms 2020—has 11 terms. These are often identical in sườn lớn domestic terms, such as the American Uniform Commercial Code, but may have different meanings. Additionally, other countries and jurisdictions that govern import and export may have different methods of calculating duties on shipping based on their Incoterms. As a result, parties lớn a contract must indicate the governing law of their terms.

The Bottom Line

Ex Works is an international trading agreement that spells out the responsibilities of the buyer and seller. Under an EXW agreement, the buyer accepts all responsibilities and costs of picking up and transporting goods lớn their desired destination.

Under specific circumstances, an EXW agreement is less expensive than thở the FOB alternative, but the buyer must be prepared for and know the costs of transporting goods lớn the place they want them. The best instances for using an EXW are when the seller cannot export goods or when the buyer intends lớn consolidate purchases lớn reduce costs.