exw-incoterm

Do you encounter EXW Incoterm in your trading experience and would like to know more about it?

EX works or EXW is the common term in international trading, which refers to when a seller makes their products available at a specified location. The buyer is responsible for the transportation costs.

When negotiating the shipping agreement, buyers should understand freight charges and the advantages and disadvantages of various incoterms to determine the implied and explicit price.

There’s a need to understand how EXW Incoterm can clarify the obligations between buyers and sellers.

This article will guide you about how EX Works play a significant role in your trading, the pros and cons of EXW, how it’s different from FOB or Free on Board, the obligations of sellers and buyers, and the frequently asked questions about EXW Incoterm.

Most importantly, this article will simplify the trading terms to understand the things you need to know in a straightforward, simple guide about EXW Incoterm.

Table of Content

Chapter 1:  What is The Meaning of EXW Incoterm?
Chapter 2: When to Use EXW Incoterm Shipping
Chapter 3: EXW Incoterm Vs. FOB in Shipping: Which is Better and Why
Chapter 4: Obligations of Seller and Buyer in EX Works Incoterm
Chapter 5: FAQs About EXW Incoterm

Chapter 1:  What is The Meaning of EXW Incoterm?

1. Meaning of EXW Incoterm in International Trade

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EX Works is one of the 11 current International Commercial Terms (INCOTERMS). The International Chamber of Commerce publishes these as a set of standardized international trade terms.

EXW shipping meaning is when a buyer covers the transport costs of the commodity if the seller makes the products available at a specific delivery address.

Then, once the buyers have the commodity, they bear the risks—e.g., meet customs regulations, ship the items, load the goods, etc.

Usually, it means that as a buyer you are taking responsibility of the goods from their factory. So let’s say the supplier from China gives you the price and says this is EXW price.

It means he will produce the goods in his factory and then store them in the warehouse. Then you will have to visit his warehouse and take the goods. After that everything is to be handled by you.

2. How to calculate EXW Incoterm Price

As an importer, it’s your job to know how much would cost the shipment. You may get quotes from other suppliers for reference. But when calculating the EXW cost, the supplier can only provide the buyer with the quote for the cost of products.

Now, it’s the buyer who is responsible for researching the expense of an export license, potential customs fees, and shipping and insurance costs.

The EXW price is usually provided by the supplier and it mostly the product’s production cost. It does not include any Inland shipping charges, custom clearance charges, etc. Think of it as a cost of the product which you are buying directly at the factory.

3. Why understanding EXW incoterm is important

It’s essential to understand how EXW incoterm works. It shows the buyer’s scope and

responsibility in terms of the EXW shipping meaning which processes under the EXW terms. It covers how the sellers are only responsible for making the products available at the agreed location for shipping.

Still, the buyer must pay the transportation costs and bear the risk of shipping. So before making any import or export, you need to know these terms in international trade. It is important to make sure when the buyer is taking charge of the goods.

Chapter 2: When to Use EXW Incoterm Shipping

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1. How does EXW work? What is the meaning of EXW in shipping terms?

EXW works when the seller safely packages the goods and makes the labeling appropriately, then stores the goods are their warehouse or at the factory.

It’s also the seller’s responsibility to help the buyer obtain relevant documentation needed, such as export licenses. Then, the buyer needs to pay the actual cost for the paperwork.

2. EX Works Responsibilities and Risks

The buyer will cover the expenses and bear any risks about the goods. The buyer’s responsibilities come with certain risks, from loading the commodities to truck and transfer them for shipping, either in a plane or in a ship.

Then, the buyer needs to work with customs and ensure that the commodities reach the agreed destination and store them or resell them. The most considerable risk comes when a buyer needs to cover all the expenses if anything goes wrong during the Shipment loading.

3. Pros and Cons of EXW Incoterm for the Buyer

The pros are more for a seller who can save costs of shipping and complicated processes in customs. Most importantly, the seller can secure the goods are delivered smoothly.

Pros of EXW for the buyer  Cons of EXW for the Buyer
  • Shipping prices are transparent for the buyer since he is organizing it.
  • Buyer can organize for the transport of goods and can have better control over the whole shipping process by himself.
  • Supplier is unable to inflate their local costs or add a margin to the delivery fee
  • Challenges in customs clearance
  • Additional costs for buyers
  • Buyer bears total responsibility for the shipping process
  • Buyer is liable for damaged goods

To sum up, it’s more cons on the side of the buyer since he bears the risk from transporting the goods, ensuring that the commodities are safe, and paying

the cost for shipping— or else he needs to take the risk in covering all the expenses for damaged goods.

4. Special Considerations

Ex works, free carrier, and free onboard are incoterms and used in international trade contracts.

They cover essential matters like the risk of loss from the seller to the buyer, the place and time of delivery, including the payment, and which party is responsible for covering insurance and freight costs.

Incoterms can still be modified because they are not actual contracts which don’t supersede the governing law in every state and jurisdiction that governs export and import.

The incoterms are varied based on different calculating duties on shipping. Both parties in a contract have to indicate the governing laws applied.

Chapter 3: EXW Incoterm Vs. FOB in Shipping: Which is Better and Why

exw-incoterm-fob-shipping

1. Meaning of FOB

FOB or Free on Board is another incoterm which means port-to-door shipment. Under the FOB term, the supplier will cover the local charges from transport to port, freight handling, and customs clearance.

It means that you have to look for your freight forwarder to deliver your shipment to the agreed point of destination.

However, as soon as your shipment board the aircraft or ship, the transport responsibility shifts from supplier to buyer. So, choose a reliable freight forwarder to carry out the transportation of your goods.

2. Difference between EWX Incoterm and FOB

difference-between-exw-incoterm-fob

Both EXW and FOB have their advantages and can be used effectively when buying wholesale from China. The most frequently used shipping word is FOB, which stands for Free on Board. This term reasonably distributes liability and expense between the buyer and seller.

On the contrary, Ex works shipping terms shift all costs and responsibilities to the buyer. The only advantage is that you can save more in EXW when transporting cargo under these terms.

To sum it up, the buyer is responsible for all the transport costs under EWX incoterm. While under the FOB agreement, the buyer is only accountable for the expenses only after the goods have boarded the ship or aircraft. The supplier is responsible for all the local costs.

3. Why FOB is much better than EXW incoterm for the Buyer

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For the apparent reason, FOB is better for the buyer since the liability and expense are shouldered by both supplier and the buyer. But you have to keep in mind some risks when you choose the FOB term.

The supplier may charge you a ‘buffer’ to save from the local cost he needs to cover, which increases the total shipment cost. This means that he can add some more profit margin for himself in the local costs apart from taking his fee or commission.

In this way the price per unit can be expensive compared to EXW price. But in FOB you are taking fewer risks as compared to the EXW option.

Chapter 4: Obligations of Seller and Buyer in EX Works Incoterm

1. The Seller’s Obligation in EX Works Incoterm

Here’s the list of seller’s obligations stipulated in a sample contract. This would serve as a guide regarding the responsibilities of both parties.

A1. Provision of Goods in Adherence to the Agreement The seller must deliver the goods and the commercial invoice or alternative electronic communication under the terms of the sale agreement and any other evidence of compliance required by the contract.
A2. Licenses, authorizations and formalities Render the buyer, at the latter’s request, risk and expense, every assistance in obtaining any export license or other official authorization necessary for the exportation of the goods.
A3. Agreement of Insurance and Carriage No Obligation
A4. Delivery The seller must deliver the goods within the buyer’s reach at the specified delivery, unloaded into any collecting vessel, on the date or within the period agreed upon, or, if no such time is agreed upon, within the normal duration delivery of such merchandise.

If no specific point within the specified location has been decided upon, and if multiple points are available, the seller can choose the point at the delivery location that best suits its intention

A5. Transfer of Risk In accordance with B5, the seller must bear all risks of loss, damage, or theft until the delivery is completed in accordance with A4.
A6. Division of Costs According to the provisions of B6, the seller is responsible for all costs associated with the goods before distribution is completed in accordance with A4.
A7. Notice to the Buyer The seller must provide sufficient notice to the buyer about the time and location at which the products will be placed within their control.
A8. Evidence of Delivery, Transport Documentation, or Alternative Electronic Message No obligation
A9. Checking-Packaging-Marking The seller is responsible for all costs associated with the checking procedures (including quality control, measurements, weight, and counting) necessary for supplying the product to the buyer.

The seller must include, at their own expense, packaging (except where it is customary for the specific trade to deliver the goods specified in the agreement unpacked) necessary for the goods’ transportation, to the extent that transportation conditions (for example, destination, modes of transport) are communicated to the buyer before completing the agreement.

The seller should ensure that the packaging is labeled correctly.

A10. Other Obligations The seller must assist the cost and risk, buyer’s demand, obtain any documents or alternative electronic messages given or relayed in the country of origin that the importer may require for the exportation and importation of the products as, where necessary, transit across international borders.

The seller must provide the importer with the details required needed to obtain insurance upon request.

2. The Buyer’s Obligation in EX Works Incoterm

Here’s the list of buyer’s obligations stipulated in a sample contract. This would serve as a guide regarding the responsibilities of both parties.

A1. Provision of Goods in Adherence to the Agreement The buyer is responsible for any costs not covered by the agreement of sale.
A2. Licenses, authorizations and formalities The buyer is responsible for obtaining any export or import licenses or additional official permits and, where applicable, for all customs procedures associated with the exportation of the products.
A3. Agreement of Insurance and Carriage No Obligation
A4. Delivery The buyer must accept the goods supplied in accordance with A4 and A7/B7.
A5. Transfer of Risk All risks of damages to the buyer, loss of the goods, or theft must be taken on by the buyer as soon as the delivery is completed in compliance with A4; and from the agreed date or the date of expiration of any period fixed for the receipt of delivery, which results from the failure to notify in compliance with B7.
A6. Division of Costs The buyer shall cover all costs in respect of the goods from the time the delivery is made in compliance with A4, and all additional costs arising from not accepting, either at the time of their arrival or in accordance with B7, the delivered goods, provided.

However, that the goods have been correctly assigned to the agreement, that is, separate from them. In providing support in compliance with A2, the buyer must refund all costs and charges covered by the seller.

A7. Notice to the Buyer The buyer must provide appropriate notice to the seller whenever it is permitted to determine the time and place of delivery within an agreed period or location.
A8. Evidence of Delivery, Transport Documentation, or Alternative Electronic Message The buyer must provide ample proof to the seller that they have acknowledged delivery.
A9. Checking-Packaging-Marking The buyer must bear all charges related to any pre-export inspection
A10. Other Obligations The buyer is responsible for all expenses and fees related to obtaining paperwork or electronic communication included in A10 and compensates the seller for assisting with the costs associated with selling A10.

Chapter 5: FAQs About EXW Incoterm

faqs

1. When EXW is an ideal option for shipping incoterm?

There are several things to make EXW your option.  Many businesses still opt to choose EXW incoterm when the seller can’t export.

At times, the seller has not met the necessary standards to export goods or do not have an export license. As a result, such vendors make it challenging to ship their products from their sites outside of the country.

You can bundle several shipments and then export them under a single name. As a rule, importers obtain various types of goods from multiple suppliers.

Just instruct the supplier to ship the goods when ready at a warehouse and prepare them as one shipment. The advantage of this arrangement is for your convenience and cost-saving.

2. What are the risks of transfer from the seller to buyer in EXW?

Ex-Works means that the seller fulfills his obligation when he makes the goods available for the buyer to collect at their premises. Any other action is not the seller’s responsibility. In other words, the seller’s task under the term

EXW is to make the products available at their place. The importer arranges for the transportation of the goods. As a result, uncertainties and related costs are passed to the buyer immediately upon delivering the goods.

Once the buyer receives the product from the seller’s premises, the buyer assumes all risks and associated costs.

3. Are there any loading limitations of EXW shipping?

For vendors or exporters who are new to shipping, EXW is the most preferred incoterm. Simply because If the seller has finished packing and shipping the items from China, the responsibility stops there. But at times, it could be challenging for the importer.

This is complex because the buyer might not be used to the location of import. Also, all the liability lies with the buyer when products are in transit. Being apparent, this means that the importer has a greater risk of suffering a significant loss.

4. What is better EXW or FOB?

For the buyer, FOB is must better because all supplier bears all the risks until the goods are provided at the port of destination of the seller.

In  EXW the buyer has to take responsibility of the goods from the supplier’s factory or warehouse and then arrange shipping, insurance as well as the whole customs declaration and clearance process.

5. What is the opposite of EXW?

The opposite of EXW will be DDP. This means delivery, duty paid. It means that the buyer is responsible from everything step until the goods are at the seller’s country in his destination like his warehouse.

This also means that the seller is also responsible to clear the goods in the buyer’s country.

Conclusion

As a buyer, it’s important to know the EXW terms of shipping because both the seller and the buyer must agree and define the law governing the trade contracts.

While EXW is a legal term in which definition may vary depending on the jurisdiction, it’s essential to know all the aspects involved in shipping under EXW terms.

Here at EJET Sourcing, we can help you with your shipping challenge. Contact us today and get a consultation.