EX Works Incoterms: What EXW Means And Pricing

What is Ex Works & what does it mean in shipping terms?

EXWorks, an Incoterm, shifts most risks and responsibilities to the buyer. Here, the seller merely makes goods available at their location. After collection, the buyer shoulders all further tasks, including transportation to the destination port.

This term applies universally to shipping, irrespective of mode or transport legs. Once packed and collected, all shipment responsibilities transfer to the buyer.

EXW necessitates the buyer to handle transport, export paperwork, freight charges, and importation. Risk shifts upon collection from the seller’s premises.

This arrangement places all burden on the buyer, hence, newcomers and those unfamiliar with exporting are urged to enlist freight and logistics companies to avert errors and unforeseen expenses during shipping.

Let’s delve into the responsibilities of buyers and sellers in EXW agreements.

Seller’s Responsibilities

In EXW agreements, sellers have minimal duties. Their main task is to package the cargo for export and ensure it’s ready for collection at their location. Typically, goods are packed into export cartons. Once prepared, the cargo must be accessible for the buyer to collect from the seller’s premises.

Once the buyer collects the goods, they take on various responsibilities:

1. Loading Charges: Loading the cargo at pickup to move it to the export port.
2. Delivery to Port/Place: Transporting goods to the origin port for export.
3. Export Duty, Taxes & Customs Clearance: Handling export paperwork and paying export duties.
4. Origin Terminal Charges: Paying terminal fees.
5. Loading on Carriage: Responsibility for loading onto the carriage.
6. Carriage Charges: Covering freight costs between ports.
7. Insurance: Optional, but advisable for protecting against damage, theft, or loss.
8. Destination Terminal Charges: Paying fees at the destination port.
9. Delivery to Destination: Transporting goods from the port to the final destination.
10. Unloading at Destination: Covering costs of unloading from the final carrier.
11. Import Duty, Taxes & Customs Clearance: Paying duties and taxes for importing into the destination country.

Buyers bear these responsibilities once they collect the goods.

Advantages and Disadvantages for the Buyer

Advantages EX  Incoterms

EXW proves highly practical for shipping in certain scenarios. For instance, businesses sourcing from one country can utilize EXW to consolidate products from multiple suppliers, streamlining the export process.

Another benefit arises when buyers seek to conceal their suppliers. By employing EXW, they can ship under this incoterm and use a different exporter’s name on shipping documents.

In terms of cost-effectiveness, EXW typically emerges as the most economical choice. While there are cases where sellers may gain tax returns on exported products, EXW usually involves minimal seller effort, making it cost-effective for both parties.

For companies regularly purchasing from a specific country with an export license, EXW can be ideal. However, given the associated risks, buyers are advised to enlist trusted companies to manage the process.

Certain countries like China offer quality, cost-effective domestic manufacturing options. With EXW, international buyers can tap into these markets, leveraging their own export methods when sellers lack export capabilities.

Moreover, many manufacturers focus solely on the local market, neglecting export licenses. Savvy buyers can capitalize on this by sourcing from such factories, benefiting from local prices and securing purchase contracts under EXW terms.

Disadvantages EX  Incoterms

While EXW may initially seem attractive to buyers due to its lower unit cost compared to other Incoterms, it carries significant disadvantages for the buyer.

Primarily, the buyer bears all risks and expenses related to export, transportation, and importation of the cargo. Most International Commercial Trade Agreements allocate some responsibility to the seller in this process, but EXW absolves the seller of loading, delivery, and export to the terminal.

While loading, delivery to the origin terminal, and exporting are not inherently risky with a reputable seller, issues that arise in the seller’s country must be handled with care. If cargo cannot be exported from the origin country, the buyer assumes the risk, as possession has already transferred.

Additionally, if a buyer is unfamiliar with exporting processes or costs, EXW may result in unexpected expenses.

If a supplier insists on EXW incoterms, it’s advisable to engage a third-party logistics company or freight forwarder for export assistance. For instance, when exporting from China, our company can nominate an entity to act as the exporter on your behalf, provided they possess the necessary export licenses. Effective communication with your forwarding agent is crucial to ensure compliance and smooth export procedures.

When to Use an EXW Agreement?

Businesses typically choose an EXW agreement when the seller cannot export, or the buyer intends to consolidate multiple shipments under a single name for export.

Another scenario where EXW proves beneficial is when shipping via Air Express. Express couriers often collect cargo from the seller’s location, providing transport and export formalities as part of their service. Therefore, buyers opting for express shipments may save costs by switching to EXW terms.

Alternatively, established importers may establish offices in their export country for streamlined shipment processing. However, unless there’s a valid reason, most experienced sellers in international trade prefer to offer different Incoterms.

How to calculate EXWorks pricing?

Calculating EXWorks (EXW) pricing involves considering several factors. Here’s a simplified guide:

1. Product Cost: Start with the agreed-upon price for the goods between the buyer and seller.
2. Packaging and Handling: Determine the cost of packaging the goods for export, including any materials and labor required.
3. Transportation to Seller’s Premises: If applicable, calculate the cost of transporting the goods to the seller’s location, where they will be made available for collection by the buyer.
4. Export Documentation: Estimate the expenses associated with preparing export documentation, such as invoices, packing lists, and certificates.
5. Export Customs Clearance: Factor in any costs related to customs clearance at the export location.
6. Insurance: While not mandatory under EXW terms, consider whether insurance is necessary to protect the goods during transportation.
7. Additional Charges: Depending on the agreement between the buyer and seller, other charges such as export taxes or terminal handling fees may apply.

Once you’ve determined these costs, sum them up to calculate the total EXW price. It’s essential to have clear communication and agreement between both parties regarding these costs to avoid misunderstandings.

What is the difference between EXW and FOB?