Incoterms guide #2: What is Ex Works (EXW)?

If your business is involved in international trade and your operations include importing or exporting goods, being aware of the intricacies and implications of your transactions and trade deals is essential. Hence, the importance of having a sound understanding of the various Incoterms that state who is responsible for the transportation and delivery of goods.

After covering FOB in our last Incoterms Guide, today, we tackle another frequently used Incoterm: Ex Works, or EXW.

Which costs and responsibilities are born by the seller and the buyer under this Incoterm, and what are the other implications of this trade agreement? Read this guide!

What is Ex Works?

Under EXW, the seller is typically only responsible for making the goods available at a designated location (typically, their factory or warehouse). They thus only have to ensure the goods are preparedpackaged, and ready to be loaded at the said location on the agreed date.

In turn, the buyer assumes all the costs and responsibilities of transporting the goods to their destination.

Under standard EXW, the buyer is in charge and bearing the risks of loading the goods at their pick-up location, transportation, arranging export/import formalities, and customs clearance, if any.

What about in pratice? A real life example of Ex Works

What does Ex Works imply? The pros and cons

1. Ex Works advantages the seller

Transportation costs and associated risks are borne by the buyer. Hence, this Incoterm favors the seller since they only have to package and make them available at a designated location. In contrast, the buyer has to bear all the costs, responsibilities, and risks associated with the transportation of the goods.

 

2. The buyer is responsible for exporting the goods

In other words, they have to obtain or have in their possession an export license to ship the goods.

 

3. The buyer is responsible for customs clearance in the origin country

This means that if the seller's information is incorrect, the subsequent additional costs are the buyer's responsibility.

4. EXW is one of the cheapest Incoterms for the buyer (even though one of the most burdensome)

EXW can be one of the least expensive options first because buyers can control their costs and select and arrange the most cost-effective transportation option. This includes having the possibility to consolidate purchases from several sellers, i.e., optimizing shipping costs through needing fewer containers. Second, EXW is one of the cheapest options when purchasing goods because the seller bears no costs or obligations and does not reflect them in the pricing.

 

5. The buyer works with trusted representatives and logistics providers

Trusted representatives can make a huge difference in ensuring the goods are made available in the agreed terms by the seller and effectively shipped from the country of origin. Similarly, partnering with a reliable logistics provider is essential for the buyer when they bear all the costs and risks of the associated steps.

At ASI Logistics, our goal is to make navigating your logistics operations easy! Customer centricity is part of our DNA, and so is ensuring you access the most adapted logistic solutions to fit your needs.

We provide you with all the necessary resources, information, guidance, services, and operational reliability to ensure that you keep your peace of mind under Ex Work or any other Incoterm!

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Incoterms guide #1: What is FOB?

Incoterms act as the foundation pillars of international trade: they codify it while ensuring the legal responsibility of the parties involved is clearly stated. As your logistics & freight forwarding partner, ASI Logistics designed a handy Incoterms guide to help you navigate your international business operations. Today, we tackle one of the most commonly used Incoterm: FOB.

What are Incoterms?

Incoterms, or International Commercial Terms, are a series of internationally recognized trade terms that define the responsibilities of buyers and sellers in international transactions.

They are published by the International Chamber of Commerce (ICC) and specify the responsibilities of both parties in the delivery of goods, including tasks such as transportation, insurance, and the transfer of risks. Incoterms are widely used in international trade and are a key part of any international sales contract.

Why does being familiar with incoterms matter?

Incoterms help to clarify the responsibilities and obligations of both the buyer and the seller in international trade transactions. Using them ensures that both parties clearly understand who is responsible for the goods or tasks, such as arranging transportation, providing insurance, or paying customs or import duties. This can help to avoid misunderstandings and disputes between the buyer and seller.

In addition, being familiar with the implications of a given incoterm used in a contract ensures that the buyer and seller more accurately estimate the transaction cost and make informed decisions about their purchasing and selling activities. For example, if the seller is responsible for arranging transportation, this will impact the overall cost of the goods.

What is FOB?

FOB (Free on Board) is likely to be the Incoterm you will most often come across in international trade.

If two parties agree on FOB terms, it means the goods are the supplier's responsibility until loaded on the shipping vessel, and this responsibility transfers to the buyer thereafter.

The implications of FOB can be further clarified by the terms FOB Origin and FOB Destination.

  • FOB Origin (or shipping point): all the risks transfer to the buyer once the goods are shipped by the seller, i.e., once they leave the shipping point and begin their transport to the customer.
  • FOB Destination: the risk of loss transfers to the buyer when the goods reach them, i.e., the seller bears this responsibility until the buyer receives the goods.

In addition, being familiar with the implications of a given incoterm used in a contract ensures that the buyer and seller more accurately estimate the transaction cost and make informed decisions about their purchasing and selling activities. For example, if the seller is responsible for arranging transportation, this will impact the overall cost of the goods.

At ASI Logistics, customer centricity is part of our DNA. Our priority is to ensure our customers' peace of mind and that they access all the necessary information to make informed decisions regarding their international operations!