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 the11 currentIncoterms (International Commercial Terms), a set ofstandardized international trade termspublished by the International Chamber of Commerce.
Key Takeaways
- 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 them onto trucks, transferring them to a ship or plane, and meeting customs regulations.
- Ex Works is anIncoterms (International Commercial Terms), one of 11 standardized international trade termspublished by the International Chamber of Commerce.
What Is International Trade?
Understanding Ex Works (EXW)
Ex Works (EXW) requires a seller to safely package 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 loading the product onto a ship, it's still up to the buyer to pay 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 to deliver the printers for $170. So to save the $30 on shipping, they make an Ex Works deal with company B.
An Ex Works agreement differs 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 them 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. In addition, the buyer also pays the insurance costs.
In practice, Ex Works is sometimes not beneficial 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 vs. FOB
Ex Works is the obligation on the buyer's part to incur the costs of loading goods for transport. Free on Board (FOB) is the term used to refer to the seller's obligation to load goods. Generally, FOB transfers ownership of goods to the buyer once they are loaded on the buyer's transportation method. However, there is a possibility that the seller might remain responsible for them during transport to the final destination—this depends on the contract and the terms the buyer and seller have agreed on.
Responsibilities Under Ex Works
Under EXW, the buyer assumes most of the responsibilities once they collect the purchased goods from the seller. Some of the responsibilities transferred include:
- Loading charges: Any costs for loading goods at the pickup point
- Delivery to the port of origin: Costs for transporting goods to the port for shipping
- Customs export fees: Any costs associated with duties, tarrifs, and documentation
- Loading on carriage: Costs for loading goods on the shipping method
- Carriage charges: Any shipping costs for moving goods between ports
- Insurance: If needed or desired
- Customs import fees: Any costs associated with duties, tarrifs, and documentation
- Terminal charges: There may be charges at the arrival terminal
- Destination delivery: The costs for delivering goods from the arrival port to the final destination
- Unloading: Cost to unload goods, such as labor and equipment.
Sellers in an EXW agreement, in contrast to buyers, have very few responsibilities. Generally, they are responsible for packing the goods to be loaded and transported and providing a place for the buyer to pick them up.
Advantages and Disadvantages of Ex Works
Advantages
Allows buyers to consolidate multiple purchases
Ability to anonymize a supplier
Least expensive option
Allows buyers to purchase in the domestic market
Disadvantages
Buyer assumes all risk and costs
Need a trusted representative in the country goods are purchased from
You might pay more than intended if you're unfamiliar with the process and costs
Advantages Explained
- Allows buyers to consolidate multiple purchases: Consolidating purchases from various suppliers helps buyers with the costs after goods are loaded at pick-up locations. Buyers need fewer containers or transportation methods to get the goods to the port of arrival and delivery.
- Ability to anonymize a supplier: Goods can be shipped under an incoterm or different exporter name to keep your supplier anonymous if you have competition that might be watching.
- Least expensive option: The costs to the seller are lower, so you're not paying for their increased costs through markups to cover expenses.
- Allows buyers to purchase in the domestic market: If you're sourcing in a market where there isn't a strong exporting presence, you can more easily find the goods you need in the domestic market.
Disadvantages Explained
- Buyer assumes all risk and costs: You're responsible for all costs, damages incurred during transportation, and inheret the risk of loss.
- Need a trusted representative in the country goods are purchased from: Because you're purchasing in another country, you'll need a representative you trust to ensure goods are present, delivered as promised, loaded, and shipped.
- You might pay more than intended if you're unfamiliar with the process and costs: If you're unfamiliar with the costs and transportation of EXW, you may end up paying more than you thought you would.
Incoterms
Ex Works, Free on Board, and Free Carrier are all part of the International Chamber of Commerce'sIncoterms. Theyare used in international trade contracts tooutline matters, including the time and place of delivery and payment, when the risk of loss shifts from the seller to the buyer, and the party responsible for paying the freight and insurance costs. 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, other countries and 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 must indicate the governing law of their terms.
What Does Ex Works Mean in Incoterms?
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 Incoterms (International Commercial Terms), a standard framework of 11 terms designed to clarify various trade contracts.
What Is the Difference Between Ex Works and FOB?
In shipping arrangements, the difference between Free on Board and Ex Works is based on transferring the 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 shipping 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 delivering goods to an agreed-upon location.
What Does Ex Works Mean for Shipping?
With an Ex Works agreement, the seller saves on shipping, customs, and liability for damaged goods after being delivered, packaged, and labeled at the shipping terminal. While this may be optimal sometimes 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. In contrast, a free carrier contract that bears shipping responsibility on the seller could offer a more suitable alternative.
The Bottom Line
Ex Works is an international trading agreement that spells out the responsibilities of the buyer and seller. Under an EXW agreement, the buyer accepts all responsibilities and costs of picking up and transporting goods to their desired destination.
Under specific circ*mstances, an EXW agreement is less expensive than the FOB alternative, but the buyer must be prepared for and know the costs of transporting goods to the place they want them. The best instances for using an EXW are when the seller cannot export goods or when the buyer intends to consolidate purchases to reduce costs.
FAQs
Key Takeaways. 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.
What are the pros and cons of an ex-works agreement? ›
Pros and Cons of EXW
The shipping method is favorable to subsequent local transportation. Additionally, buyers can also better forecast the costs and avoid sellers charging a higher shipping fee. One major disadvantage of EXW to buyers is related to customs clearance.
What does EXW in Incoterms stand for? ›
EXW (Ex Works) means that the seller delivers when it places the goods at the disposal of the buyer at the seller's premises or at another named place (i.e., works, factory, warehouse, etc.). The seller does not need to load goods or clear them for export. EXW is one of many important Incoterms.
What is an example of ex-works Incoterms? ›
Ex Works Incoterms Example
Now if the buyer can arrange for a shipping cost lower than what company A is charging him, say at a minimum rate of $70, then he saves $30 for every generator and he can thus manage his cost of importing.
What is the disadvantage of using EXW? ›
The disadvantage for buyers under EXW terms is that they need to cover the full risk and cost of shipping. Under EXW agreements, the buyer is responsible for hiring a transport company, managing export clearance, obtaining insurance coverage, and more.
What are the responsibilities of the seller under EXW? ›
EXW, short for “Ex Works,” places most responsibility with the buyer. The seller is expected to have the goods ready for collection at the agreed place of delivery (commonly the seller's factory, mill, plant or warehouse).
Which Incoterm is best for buyer? ›
For an international purchase operation, the most advantageous Incoterms for the importer will be DAT (Delivered At Terminal), DAP (Delivered At Place) and DDP (Delivered Duty Paid). The buyer is only responsible for customs formalities in the country of arrival, inland transport to his premises and unloading.
What are the advantages of ex-works Incoterm? ›
Advantages. The EXW incoterm means that the buyer, and the buyer alone is responsible for the goods. As a result, EXW terms allow the buyer to receive a clear picture of the costs required to ship their goods.
What is EXW pricing? ›
It is a widely used international shipping term. The ex-works price includes the value of all the materials used and all other costs related to its production, minus any internal taxes, which are, or may be, repaid when the product obtained is exported.
Does EXW include insurance? ›
The freight charges, import and export customs clearance fees, charges for loading and unloading goods, and any other shipping costs are paid by the buyer. The buyer also pays the insurance premium if they opt for it.
Is Ex Works or Free on Board Better? Goods shipped EXW will usually be cheaper FOB, since Free on Board would have the supplier bear the costs of transportation, handling, and customs clearance. EXW terms, however, are often riskier since the supplier is responsible for the goods until they reach their location.
Who covers insurance in ex works? ›
Ex Works (EXW)
When the buyer collects goods from the premises, they are responsible for everything until the goods arrive at their final delivery point. Insurance coverage: If you're a buyer under this term, you are responsible for loss and damage under the so-called 'main carriage' of the journey.
What is the difference between FOB terms and EXW? ›
Another significant difference between EXW and FOB is that under FOB terms, the seller is the one that pays for transporting the goods to the vessel before loading them. Under EXW, once the seller makes the goods available at the designated location, any further transport costs are borne by the buyer.
What is ex ship shipping terms? ›
Delivered Ex Ship (DES)
DES means a seller has fulfilled a delivery agreement when the goods are delivered to the port specified by a buyer. The seller only bears the risks and costs related to the delivery from the point of origin to the named port.
Why not to use Exworks? ›
Ex Works assigns the buyer with the risk for loss and damage to the goods during loading. Though the seller normally loads the merchandise as common procedure, under Ex Works, it is the buyer who's at risk if the goods are damaged during loading.
How does ex-works work? ›
When goods are bought or sold "Ex Works" (EXW) it means that the Seller is making the goods available at their factory or warehouse. The buyer is then free to come and pick up the goods. Ex Works places full responsibility for cost and risk with the buyer, as the buyer has to arrange everything.
Who is responsible for export clearance under EXW? ›
EXW (Ex Works) is an incoterm that only requires the seller to make the goods available for pickup by the buyer at the seller's premises or another named location. The buyer is responsible for export clearance, loading the goods at the named location, and bearing all cost and risk to the destination.
What documents are required for ex-works? ›
The seller must provide the goods and the commercial invoice in conformity with the contract of sale and any other evidence of conformity that may be required by the contract. Any document to be provided by the seller may be in paper or electronic form as agreed or, where there is no agreement, as is customary.
Which Incoterm provides most responsibility to seller? ›
Delivered Duty Paid (DDP) – This Incoterm places the most responsibility on the seller, who is responsible for all transportation, costs, and risk to a named place, typically the buyer's warehouse.
Which Incoterm has the greatest responsibility on the seller? ›
Delivered Duty Paid (DDP)
Under this incoterm, it is the seller who is responsible for delivering the goods to the destination/buyer's door. This means that the seller has to deal with all the tasks involved in transferring the goods throughout the shipping process.
Under ex works (EXW) the buyer pays for all aspects of the shipping process. This includes loading charges, delivery to port, export duties and taxes, origin terminal charges, loading on carriage, carriage charges, destination terminal charges, delivery to destination, and import duty and taxes.
Who pays for insurance in Incoterms? ›
With the exception of CIF and CIP terms, INCOTERMS place no burden on the seller or buyer to provide insurance. However, depending upon the actual term used for each shipment the seller or buyer bears responsibility for loss or damage to the goods at some point during transit.
What is the cheapest Incoterms? ›
Generally, EXW is the cheapest, CIF is the most expensive, and FOB is somewhere in between. If two suppliers give you nearly identical prices but one quotes EXW shipping incoterms and the other quotes you FOB, the second quote will cost you significantly less.
Who pays shipping costs with FOB? ›
In FOB shipping point, the seller pays for the shipping costs to bring the goods to the shipping point. The buyer is then responsible for paying the shipping costs to take possession of the goods.
Who pays for FOB shipping? ›
In FOB shipping point agreements, the seller pays all transportation costs and fees to get the goods to the port of origin. Once the goods are at the point of origin and on the transportation vessel, the buyer is financially responsible for costs to transport the goods such as customs, taxes, and fees.
What does FOB mean in insurance? ›
Free onboard or freight on board (FOB) comes under marine insurance and implies that the seller would be held responsible till all the goods are placed on the vessel as designated by the buyer.
What are Incoterms for dummies? ›
Incoterms, widely-used terms of sale, are a set of 11 internationally recognized rules which define the responsibilities of sellers and buyers. Incoterms specify who is responsible for paying for and managing the shipment, insurance, documentation, customs clearance, and other logistical activities.
What are the three main Incoterms? ›
Some common examples of Incoterms rules for any mode of transportation include Delivered Duty Paid (DDP), Delivered at Place (DAP), and Ex Works (EXW).
What are Incoterms in simple words? ›
Incoterms® (International commercial terms) are the world's essential terms of trade for the sale of goods. They are used to clearly define the obligation of cost, risk and responsibility of the transportation of goods between a buyer and seller.
What is CIF vs FOB contracts? ›
The main difference between CIF and FOB is the party that is responsible for the goods while they are in transit. With a CIF agreement, the seller is liable for the goods during transit, and with a FOB, the buyer is liable for the goods during transit. Other than that, there is not a major difference between the two.
Who Pays Freight for FOB Origin? If the terms include the phrase "FOB origin, freight collect," the buyer is responsible for freight charges. If the terms include "FOB origin, freight prepaid," the buyer assumes the responsibility for goods at the point of origin, but the seller pays the cost of shipping.
What CFR means? ›
The Code of Federal Regulations (CFR) is the codification of the general and permanent rules published in the Federal Register by the executive departments and agencies of the Federal Government.
What is the meaning of FOB price? ›
The FOB (Free On Board) price is the price of goods at the frontier of the exporting country or price of a service provided to a non-resident. It includes the values of the goods or services at the basic price, the transport and distribution services up to the frontier, the taxes minus the subsidies.
Who is the shipper in Ex Works? ›
Ex Works (sometimes shown as EXW or ExWorks) ✔️ is a widely used international shipping term or Incoterm. The terms allocate the division of responsibility between the Shipper (usually the supplier) and the Consignee (usually the buyer) in the process of shipping the goods from one to the other.
What is a CIF contract? ›
What does CIF contract mean? A CIF (cost, insurance and freight) contract is a contract of sale of goods by shipment where the seller pays for the cost of transport and insurance of the goods to the destination and the legal delivery is when the goods cross the ship's rail in the port of shipment.
Is the seller responsible for paying the shipping charges? ›
In FOB shipping point agreements, the seller pays all transportation costs and fees to get the goods to the port of origin. Once the goods are at the point of origin and on the transportation vessel, the buyer is financially responsible for costs to transport the goods such as customs, taxes, and fees.
What does the EXW price include? ›
The ex-works price includes the value of all the materials used and all other costs related to its production, minus any internal taxes, which are, or may be, repaid when the product obtained is exported.
Does the buyer or seller pay for shipping? ›
The seller typically covers the shipping arrangements and costs in FOB Destination arrangements. If other terms are negotiated, however, the buyer may be liable for the expenses. The shipping company requires payment before shipping the goods, so the process of arranging and paying for shipping is all done in advance.
Does the shipper pay for shipping? ›
FOB destination, freight prepaid & charged back: The shipper pays the shipping fees and is responsible for the freight until delivery. The buyer deducts the shipping fees from the invoice, which lists the freight cost paid by the shipper.
Who should pay the freight charges? ›
More (typically the buyer to whom goods will be delivered) pays all freight charges when their goods arrive. The consignee. When transporting freight (by ocean, air, or land), there are two parties involved — one who is shipping and the other who is receiving the freight.
If the terms include the phrase "FOB origin, freight collect," the buyer is responsible for freight charges. If the terms include "FOB origin, freight prepaid," the buyer assumes the responsibility for goods at the point of origin, but the seller pays the cost of shipping.
What happens if seller doesn't ship? ›
If the seller hasn't shipped the item within the timeframe they promised when you bought it, you can cancel the order. If you never got your order and the charge appears on your credit card statement, you can dispute it as a billing error. File a dispute online or by phone with your credit card company.
What are the pros of EXW? ›
Simplicity and flexibility. One of the main advantages of using EXW for exporters is that it is the simplest and most flexible Incoterm. It allows the seller to avoid any involvement in the export formalities, customs clearance, or transportation arrangements.
What are the advantages of ex-works? ›
Ex Works is frequently the most cost-effective option for transporting goods abroad. Since merchants pay a low price for Ex Works, they often pass these savings on to the consumer. Mostly it is in the form of reduced prices for the items they offer. Access to sellers who do not provide shipping is an advantage.
Are sellers responsible after shipping? ›
The seller will always be responsible for the package containing their product until it gets to the purchaser. This essentially means that as an e-commerce seller, you are responsible for the package until it is officially delivered– even though the package is no longer in your possession.
What does FOB mean in shipping? ›
FOB means Free On Board and is when the seller takes care of all shipping documentation and delivers the goods to the ship. Once aboard, the transportation risk passes from the seller to the buyer. You then pay for the freight to get to your destination, but the seller pays for the export customs clearance.
Is a shipper always the seller of the goods? ›
Many believe “Shipper” is the supplier or owner of the goods being supplied. It is true but not always. The business directory defines shipper as the party responsible for the shipment.
Does customs check every package? ›
Shipments will typically be inspected by customs to ensure that the contents match what is being declared and the value of the goods is also declared correctly. There's not much you can do to speed up these customs inspections so it's often the best idea to wait.
How do I know if a shipping company is legit? ›
Check the company's website
- Check spelling and grammar. ...
- Check for a business address and landline number. ...
- Check for a Privacy Policy. ...
- Check for a company number. ...
- Check the WHOIS database.
The amount of import tax and duties to be paid depends on the country from which the goods are imported. Duty tax rates are between 0 to 37.5% with the typical rate being 5.63%. A flat rate of 3% applies to e-commerce purchases that are in excess of the US import tax threshold limits.
