What Is Ex Works (EXW)?
Ex works (EXW) is an international trade term that describes when a seller makes a product available at a designated location, and the buyer of the product must cover the transport costs. Ex works (EXW) is one of the 11 current Incoterms (International Commercial Terms), a set of standardized international trade terms that are published by the International Chamber of Commerce.
- Ex works (EXW) is a shipping arrangement in which a seller makes a product available at a specific location, but the buyer has to pay the transport costs.
- Once buyers have 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.
- Ex works is an Incoterms (International Commercial Terms), one of 11 standardized international trade terms that are published by the International Chamber of Commerce.
Understanding Ex Works (EXW)
Ex works, as a contract option, is particularly good for the seller and not so good for the buyer. The seller is only required to safely package the goods, label them appropriately, and deliver them to a previously agreed-upon location, such as the seller's nearest port. The seller must also help the buyer get export licenses or other required paperwork, although the buyer must pay the actual fees for the documents.
Once the buyer has the goods, it is up to the buyer to cover any expenses and account for any risks that pertain to the goods. Risks could include loading the products onto a truck, transferring them to a ship or plane, dealing with customs officials, unloading them at their destination, and storing or reselling them. Even if the seller helps the buyer by, for example, loading the product onto a ship, it's still up to the buyer to pay up if anything goes wrong during the loading.
With ex works, the seller can load the goods on the buyer's designated method of transport, but is not required to do so; all the seller is required to do is make the product available at a selected location, while the buyer pays for transport.
Example of Ex Works
Ex works costs are calculated by businesses that want to cut costs by removing the so-called seller's value-added for shipping. For example, suppose company A has priced 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 them the printers for $170. So to save the $30 on shipping, they make a deal with company B that is ex works.
An ex works agreement is different from a free-on-board (FOB) agreement, in which the seller covers the cost of getting its goods to a shipping terminal and pays all the customs costs to get the goods on board. Meanwhile, the buyer still has to pay to find, contract, and pay the shipping company, as well as the customs costs incurred when the goods reach their country of destination. The buyer also pays the insurance costs.
In practice, ex works is sometimes a bad choice due to the customs rules of certain jurisdictions. In the European Union, for example, a non-resident individual or corporation cannot finish the export declaration documents, so the buyer could be left stranded. In such cases, the free carrier (FCA) term is preferable. Free Carrier means the seller is responsible for delivering goods to a specific destination.
Ex works, free on board, and free carrier are all part of the International Chamber of Commerce's Incoterms. They are used in international trade contracts to outline matters including the time and place of delivery and payment, the time when the risk of loss shifts from the seller to the buyer, and the party responsible for paying the costs of freight and insurance. The Incoterms aren't actual contracts and don't supersede the governing law in their jurisdiction. Incoterms can be modified by explicit clauses in a trade contract.
Incoterms were first established in 1936 and the current version—Incoterms 2020—has 11 terms. These are often identical in form to domestic terms, such as the American Uniform Commercial Code, but may have different meanings. Additionally, different countries and the jurisdictions that govern import and export may have different methods of calculating duties on shipping based on their Incoterms. As a result, parties to a contract have to indicate the governing law of their terms.
Frequently Asked Questions
What is ex works?
Ex works is a term used in shipping arrangements where the seller is only required to deliver goods at a predetermined location, and the buyer bears responsibility for shipping costs. Along with these costs, the buyer assumes responsibility for the related risks of the goods which may include anything from customs regulations to loading and transferring to other ships. Ex works falls under the set of Incoterms (International Commercial terms) which are a standard framework of 11 terms that are designed to clarify various trade contracts.
What is the difference between free on board and ex works?
In shipping arrangements, the difference between free on board and ex works centers around transferring liability of goods between the buyer and seller. In free on board contracts, the seller takes responsibility for bringing goods to a terminal in addition to customs costs and loading the goods onto the ship. The buyer, meanwhile, is liable for shipment costs, insurance, and customs costs at the final point of arrival. In other words, once the goods are shipped, the buyer assumes liability and ownership of the goods, known as “FOB origin” or “FOB shipping point”. By contrast, in an ex works agreement, the seller is only responsible for the delivery of goods to an agreed upon location.
What are the pros and cons of an ex works agreement?
With an ex works agreement, the seller saves costs on shipping and customs, along with liability for damaged goods after being delivered, packaged, and labeled at the shipping terminal. While this may be optimal at times for sellers, it is not always possible due to customs requirements in certain jurisdictions. Take the European Union, for example, which restricts non-resident corporations from completing export declaration forms. In this case, an ex works contract would be detrimental to both the seller and the buyer, while a free carrier contract, that bears shipping responsibility on the seller, could offer a more suitable alternative.