Ex Works (EXW): Meaning, Responsibilities, Costs & Risks

What Is Ex Works (EXW)?

Ex Works (EXW) specifies that the seller makes the goods available at a designated location to the buyer. For example, the seller’s warehouse or factory. The key aspect of this trade term is the point/place of delivery since the risk transfers from the seller to the buyer at the agreed destination.

At the same time, the seller is not obliged under EXW to load the goods on the buyer’s collecting vehicle or take any other export-clearing steps. Once the goods are at the disposal of the buyer as per the contract, the onus of the shipment and its risks lies with the latter. For instance, if an Indian buyer purchases machinery from a German manufacturer:

EXW Berlin Warehouse, Incoterms 2020

The German seller will have to make the machinery available at the aforementioned warehouse. The buyer, on the other hand, usually takes over from there and arranges for the onward movement, export and import formalities, carriage, and insurance.

How Does EXW Work?

EXW follows a relatively simple division of responsibility:

The seller has minimum obligations, while the buyer takes on most of the logistics and costs.

Seller's Responsibilities Under EXW

The seller will generally have to:

• Provide the goods in accordance with the sales contract.
• Provide the commercial invoice and any required evidence of conformity.
• Package the goods appropriately for the transaction.
• Make the goods available at the named place and agreed time.
• Provide reasonable assistance or information upon request by the buyer, at the buyer's risk and cost.

Buyer's Responsibilities Under EXW

The buyer will generally be responsible for:

• Taking delivery of the goods from the named place.
• Loading the goods onto the collecting vehicle.
• Arranging and paying for transportation.
• Carrying out export, transit and import customs formalities where applicable.
• Paying duties, taxes and associated charges.
• Arranging insurance, if required.
• Handling the shipment from the named place through to its final destination.

What Costs Does the Buyer Bear Under EXW?

As the buyer takes responsibility for the shipment from the point of delivery onwards, the total landed cost can potentially involve many more costs beyond the purchase price.

Typical EXW-Related Costs

These may include:

• Loading and collection: Costs incurred in collecting the goods from the seller.
• Origin transportation: Movement from the seller's premises to the port, airport, terminal or other point.
• Export formalities: Applicable export customs procedures, duties, taxes and related charges.
• Main carriage: Sea, air, road, rail or multimodal transportation to the destination.
• Destination charges: Terminal, handling and other applicable charges.
• Import clearance: Import duties, taxes and customs-related costs.
• Final delivery: Transportation from the destination point to the buyer's warehouse or final location.

The exact costs will depend on the shipment, route, mode of transport and contract.

Advantages of Ex Works

Increased Control for the Buyer

Since the buyer manages transportation arrangements, including the selection of the freight forwarder, carrier and even routing, it gives greater control particularly to firms with established logistics systems.

Flexibility in Shipping

The buyer has full control over the transportation schedule, carrier and mode of shipment.

Potentially Transparent Purchase Pricing

With limited obligation from the seller, the designated EXW price may allow for easier identification of the supplier selling price from the cost of shipping and other logistics.

Ideal for Experienced Importers

Firms that have the infrastructure in terms of customs, freight and logistics management may find EXW attractive since they have the systems already in place to deal with the shipment.

Disadvantages of Ex Works

Increased Responsibilities for the Buyer

The buyer takes on most of the shipment responsibilities including transportation logistics, customs and other costs.

Early Risk Exposure

One of the main cons of using EXW is the risk transfer occurs as soon as the goods are available at the specified location rather than at the port of departure or when loaded for transport.

Export Clearance Challenges

When exporting internationally, the buyer may run into challenges with arranging and securing the export clearance in the seller's country. The ICC guidelines note that where the buyer anticipates exporting the goods and expects challenges with the export clearance, Free Carrier (FCA) would be a better choice since under FCA, the seller is responsible for the export clearance.

When Should a Business Consider EXW?

EXW can be ideal when the buyer:

• Has the expertise and experience in dealing with international logistics and customs.
• Has dependable freight forwarder or logistics partners.
• Desires greater control over the transportation of the goods.
• Can effectively deal with the export-clearance process in the seller's country.
• Is comfortable assuming the risk from the seller's location.

Without the necessary systems in place to deal with export procedures in the seller's country, it may be worth considering other Incoterm such as FCA.

EXW vs FCA: A Quick Comparison

Under the ICC's Incoterms 2020 guidelines, FCA can be more beneficial for situations where the buyer wants to manage the main carriage but does not want to deal with the export clearance procedures.

Other Popular Incoterms

EXW is only one of the Incoterms used in international trade. Other commonly encountered terms include:

• FCA - Free Carrier
• FOB - Free on Board
• CFR - Cost and Freight
• CIF - Cost, Insurance, and Freight
• CPT - Carriage Paid To
• CIP - Carriage and Insurance Paid To
• DAP - Delivered at Place
• DPU - Delivered at Place Unloaded
• DDP - Delivered Duty Paid

Each one changes the division of costs, responsibilities and risk between the buyer and seller.

Read More: Explanation of Marine Insurance Incoterms

Conclusion

Ex Works (EXW) gives the seller one of the simplest responsibilities under Incoterms: make the goods available at the named place. The buyer then takes on most of the logistics, customs, transportation costs and transit risks.

For experienced importers with strong logistics capabilities, this can provide greater control over the shipment. But that control also comes with responsibility.

And because the buyer bears the risk from an early stage, marine cargo insurance can be an important part of an EXW shipment's risk-management strategy, depending on the goods, route and coverage required