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EXW incoterm is a method especially preferred by sellers. In terms of international transport, its boundaries are defined by Incoterms.
So, what is the ExWork delivery design, and how is it applied? You can find all the details regarding the subject in the continuation of the article!
What is the EXW Delivery Method?
EXW delivery is a term used in shipping arrangements where the seller is only required to deliver the goods at a pre-designated location, and the buyer is responsible for the shipping costs. EXW or ExWork stands for Ex Works.
The buyer assumes responsibility for the associated risks of the goods, which can include everything from customs regulations to loading and transferring to other vessels.
The ExWork delivery method falls under Incoterms (International Commercial Terms), a standard framework of 11 terms designed to bring clarity to various commercial contracts.
What Are the Main Highlights of the EXW Delivery Method?
• The EXW delivery method is a shipping arrangement in which a seller makes a product available at a specific location, but the buyer has to pay the transportation costs.
• Once buyers receive their goods, they are responsible for other risks such as loading the goods onto trucks, transferring them to a ship or plane, and meeting customs regulations.
How Does the ExWorks Delivery Method Work?
As a contract option, the ExWorks shipping method is particularly good for the seller and not so good for the buyer. The seller only needs to package the goods safely, label them appropriately, and deliver them to a pre-agreed location, such as the seller's nearest port. The seller must also assist the buyer in obtaining export licenses or other necessary paperwork, although the buyer must pay the actual fees for the documents.
Once the buyer receives the goods, it is up to the buyer to cover all costs and account for the risks associated with the goods. Risks can include loading the products onto a truck, transferring them to a ship or plane, dealing with customs officials, unloading at the destination, and warehousing or reselling. Even if the seller assists the buyer, for example, by loading the product onto a vessel, if anything goes wrong during loading, it is still the buyer who has to pay for it.
How is EXW Delivery Method Pricing Done?
ExWorks costs are calculated by businesses looking to reduce costs by removing the seller's so-called value-add for shipping. For example, suppose Company A prices a pair of printers from Company B at $4,000, with an ex-works shipping cost of $200.
To save money, Company A finds a third-party shipper that will deliver the printers for $170. So to save $30 on shipping costs, they make an agreement with Company B which is ex-works.
An ex-works contract differs from a FOB contract, in which the seller covers the costs of taking the goods to a shipping terminal and pays all customs costs to get the goods on board. Meanwhile, the buyer still has to find the shipping company, make the contract, and pay the shipping company as well as the customs costs incurred when the goods arrive in the destination country. The buyer also pays the insurance costs.
In practice, ex-works is sometimes a poor choice because of the customs rules of some jurisdictions. For example, in the European Union, a non-resident individual or entity may face difficulties because they cannot complete the export declaration documents. In such cases, FCA is preferred.
What Are the Pros and Cons of the EXW Transport Method?
With EXW, the seller saves on shipping and customs costs along with liability for damaged goods once delivered, packaged, and labeled at the shipping terminal. While this is sometimes ideal for sellers, it is not always possible due to customs requirements in specific jurisdictions.
Take the European Union, for example, which restricts non-resident companies from filling out export declaration forms. In this case, an ex-works contract would be disadvantageous for both the seller and the buyer, whereas a free carrier contract, in which the seller is responsible for shipping, might offer a more suitable alternative.
What Are the Differences Between the EXW Transport Method and FOB?
The difference between FOB and EXW in shipping arrangements depends on the transfer of responsibility for the goods between the buyer and the seller. In free-on-board contracts, the seller assumes the responsibility of bringing the goods to a terminal and loading the goods onto the vessel, in addition to customs costs. Meanwhile, the buyer is responsible for shipping costs, insurance, and customs costs at the final destination.
In other words, once the goods are shipped, the buyer assumes responsibility and ownership of the goods, which is known as "FOB Origin" or "FOB Destination". In contrast, in an EXW contract, the seller is only responsible for delivering the goods to an agreed-upon location.
