International Commercial Terms (Incoterms) are standardized rules published by the International Chamber of Commerce (ICC) defining the responsibilities of buyers and sellers in contracts for the sale of goods. These rules clarify responsibility for costs, risks, and tasks associated with delivery in global trade. Ex Works (EXW) is a foundational term representing the seller’s minimum obligation. This article details the duties and implications of using EXW terms.
Defining Ex Works (EXW)
Ex Works (EXW) signifies the seller’s minimum obligation. Under Incoterms 2020, the seller must make the goods available at a named place, typically their factory or premises. Once the goods are at the buyer’s disposal, all subsequent costs, risks, and responsibilities for moving the goods transfer to the buyer. EXW is applicable to any mode of transport.
EXW is part of the “E” group, meaning the seller’s responsibility ends immediately upon dispatch. The seller is not obligated to load the goods onto the buyer’s collecting vehicle or clear them for export. This places maximum responsibility on the buyer, who must manage virtually every aspect of the shipment process.
Seller Responsibilities Under EXW
The seller’s duties under EXW are straightforward and limited. The primary obligation is ensuring the goods are ready for collection on the agreed date at the named place of delivery. This includes providing the goods in necessary packaging for transport and supplying the commercial invoice.
The seller must notify the buyer of the date and location for pickup. The seller is not responsible for loading the goods onto the buyer’s transport vehicle or completing export customs formalities. If the seller assists the buyer with obtaining documentation, it is done at the buyer’s risk and cost.
Buyer Responsibilities Under EXW
The buyer assumes extensive duties under EXW, managing nearly the entire logistics chain. The buyer is responsible for arranging and paying for the loading of the goods onto their collecting vehicle; any damage during this process falls under the buyer’s risk.
The buyer must cover costs of main carriage, including freight charges, and obtain necessary transport insurance. The buyer is obligated to handle export documentation and clearance procedures in the country of origin, including obtaining export licenses and completing formalities required by the seller’s government.
Furthermore, the buyer manages transit clearance and all import procedures, duties, and taxes in the destination country. The buyer must reimburse the seller for any costs incurred while assisting with documentation. This comprehensive responsibility requires the buyer to be familiar with the logistics, customs, and regulations of both the exporting and importing countries.
The Transfer of Risk and Cost
The transfer of risk and cost occurs when the seller places the goods at the disposal of the buyer at the named place of delivery, typically the seller’s premises. This point is when the seller fulfills their contractual obligation, happening before the goods are loaded onto the transport.
If the goods are damaged or lost while awaiting collection or during loading, the buyer bears the financial consequences. The seller is considered to have delivered the goods simply by making them ready for collection, regardless of whether the goods successfully arrive at their final destination. This immediate transfer of liability makes EXW the trade term with the lowest risk for the seller.
Practical Use and Common Pitfalls
EXW is best used for domestic transactions or when the buyer has a robust logistical presence in the seller’s country. It suits buyers who consolidate shipments and prefer to control the transport chain from the source. For the seller, EXW minimizes administrative overhead and liability, making it attractive for sales without involvement in shipping or customs.
A major pitfall arises in international trade because the buyer is responsible for export clearance. The seller often lacks the official proof of export required by local tax authorities to substantiate a tax or Value Added Tax (VAT) exemption. If the buyer fails to secure proper export documentation, the seller may be liable for taxes on the sale, turning a low-risk transaction into a financial liability.
Comparing EXW to Other Trade Terms
EXW is the least seller-friendly option and is often compared to Free Carrier (FCA), the next level of seller obligation. Under FCA, the seller must load the goods onto the buyer’s vehicle and handle export clearance formalities. This difference resolves the most common practical problem with EXW for international shipments: the seller’s need for proof of export.
FCA provides a more balanced distribution of responsibilities for international trade, making it a preferred alternative for cross-border transactions. EXW is the only rule where the buyer is responsible for export clearance. This places EXW at the extreme end of the “E” group, contrasting sharply with “D” group terms, such as Delivered at Place (DAP), where the seller assumes nearly all costs and risks until the goods reach the destination country.