The EXW (Ex Works) Incoterm is a shipping term that defines the seller's responsibility in making goods available at a designated location for the buyer to collect. Under this term, the buyer assumes responsibility for all costs and risks involved in transporting the goods from the seller’s premises to the final destination. By using EXW, buyers gain the flexibility to manage the entire logistics process themselves, giving them more control over shipping arrangements and costs. This article explains the meaning of EXW, provides examples, and outlines how it ensures a smooth transfer of goods from seller to buyer.

What is EXW Incoterm (Ex Works) in shipping?

Ex Works (EXW) is an Incoterm that outlines the responsibilities of buyers and sellers in international trade. Under the EXW Incoterm, most of the responsibilities and risks are transferred to the buyer, according to the rules set by the International Chamber of Commerce (ICC). The seller's obligations are limited to making the goods available for pickup, while the buyer assumes control of the entire shipping process, including transportation and risk management. EXW is typically used when buyers want to manage the logistics and shipping themselves or when they prefer to minimize the seller's involvement in the process.

For example, a toy store in the United States (buyer) places an order with a toy manufacturer in India (seller). Under EXW, the seller's responsibility is to make the toys available for pickup at their factory in Mumbai. The buyer, located in the U.S., arranges for the transportation, shipping, customs clearance, and any import duties upon arrival at a U.S. port.

What are the responsibilities Under EXW Incoterm (Ex Works)?

Under the EXW Incoterm, certain responsibilities are imposed on both the buyer and the seller to facilitate the safety of the goods before reaching their destination. The following are the responsibilities required to be performed:

Buyer's Responsibilities

The following are the key responsibilities of the buyer under the EXW Incoterm:

  • Collection of goods: The buyer is required to arrange to pick up the goods from the seller's drop location and cover all the loading costs.
  • Documentation: The buyer is mandated to handle the availability of exportation documents and any formalities related to customs in the country of origin.
  • Transportation: The buyer has to pay for the transportation costs for the whole trip, from the seller's origin to the final destination for pick up.
  • Taxes and Import duties: The buyer must pay all import duties, customs clearance fees, and taxes in the country where the goods will be delivered.
  • Insurance: The buyer must have the necessary insurance for the goods being transported to ensure safety and be prepared in case of any inconveniences during transit. The insurance covers damages to goods and compensation for goods lost during transit.
  • Payment of terminal charges: The buyer must pay for any charges at the origin and destination terminals to receive the goods.

Seller's Responsibilities

Below are the required responsibilities for the seller dispatching the goods for transit:

  • Preparation: The seller must ensure that the goods are in excellent condition and properly prepared for shipment.
  • Packaging: The seller is responsible for the preparation and packaging of goods before dispatching them for transit to the buyer's destination
  • Availability of goods: The seller must ensure the goods are available at the agreed destination and place of delivery.

Most of the responsibilities lie with the buyer, as the seller must make the goods available and leave the rest of the process to the buyer.

Advantages of EXV Incoterm (Ex Works) for the Buyer

Here are some of the advantages the EXW Incoterm offers to the buyer:

  • Cost Control: The buyer has more control over the logistics cost, including transportation and other necessary expenses. The buyer can customize the transportation process to optimize the profit margins.
  • Flexibility: The buyer can choose the carriers and shipping methods to ship the goods to their destination. The buyer can also make multiple purchases to reduce the number of containers needed or the transportation methods.
  • Anonymity of Suppliers: Buyers can use a different name on the shipping documentation to keep their suppliers anonymous.
  • Additional charges: By using EXW Incoterm, buyers can avoid paying extra charges to intermediaries.
  • Supply Chain: Buyers have maximum control over the supply chain process while shipping goods from one place to another.

Disadvantages of EXV Incoterm (Ex Works) for the Buyer

Below are the disadvantages associated with the use of EXW Incoterm to the buyer:

  • Higher costs: The buyer is responsible for most processes, from dispatching to receiving the goods. By doing so, the buyer incurs high insurance, transportation, and customs clearance costs.
  • Challenges of Logistics: The buyer may have to source the services of a freight forwarder to get door-to-door delivery services and facilitate customs clearance.
  • Complications and Delays: The buyer must be liable for any delays or inconveniences caused during transportation and customs clearance.
  • Additional Costs: If the seller provides inaccurate information on the export clearance, the buyer must pay for the additional costs required to fix the issue.
  • Unfamiliar Buyers: A buyer using EXW Incoterm and is unfamiliar with the costs and transportation, may end up paying more than expected for the goods to be delivered to the destination.

EXW Incoterm is essential in managing the dispatch and receiving of goods for sellers and buyers, as it ensures safety and that all the conditions are met on both ends. The EXW Incoterm ensures the smooth transportation of goods from one place to another without inconvenience.

Frequently Asked Questions

1. When to Use an EXW Agreement?

The EXW Incoterm agreement is used when the seller can not export goods, or the buyer wants to combine several shipments.

2. How to calculate EXWorks pricing?

To calculate EXW Incoterm pricing, add all direct costs related to producing a product; this includes raw materials, manufacturing overhead, labor, and packaging.

3. Does EXW Incoterms (Ex Works) include duties and taxes?

No, the EXW Incoterm does not include duties and taxes. The buyer is liable to pay for all duties and taxes regarding the goods, for both exports and imports.

4. What are the potential issues for the Buyer?

The potential issues for the buyer while using EXW Incoterm are:

  • Increased costs
  • Risk of damaged goods during loading
  • Limited control over shipping processes
  • Unfamiliarity with the export procedure.