The International Commercial Terms, known as Incoterms, are a globally recognized set of standardized rules that define the responsibilities of buyers and sellers in contracts for the sale of goods. These rules establish clarity regarding who is responsible for the costs, risks, and tasks associated with the delivery of goods from the seller to the buyer. Ex Works (EXW) is one of the eleven Incoterms rules and is recognized as the term that places the least amount of obligation on the seller, representing the minimum burden for the exporter.
What Ex Works (EXW) Means
Ex Works is a trade term governed by the Incoterms 2020 rules, which applies to any mode of transportation. Under EXW, the seller completes their delivery obligation when they make the goods available to the buyer at a named place, which is typically the seller’s own premises, such as a factory, warehouse, or workshop. This named location marks the precise point of delivery where the transfer of responsibility occurs.
The seller is required to ensure the goods are packaged appropriately for the intended transport and ready for pick-up by the buyer. Once the seller notifies the buyer that the goods are ready for collection, delivery is considered complete. The delivery point is fixed at the origin, meaning the seller does not transport the goods elsewhere to fulfill their primary duty.
Seller’s Minimal Obligations Under EXW
The seller’s duties under Ex Works are minimal. The primary obligation is supplying the goods and the commercial invoice as required by the contract. The seller must also ensure the goods are placed at the disposal of the buyer at the specified location and time.
The seller is generally not responsible for physically loading the goods onto the buyer’s collecting vehicle, nor do they bear the cost or risk of that loading. Furthermore, the seller is not obligated to arrange or complete any customs formalities for the export of the goods. While the seller must provide the buyer with any information or documents required for export, obtaining necessary licenses or permits is done at the buyer’s risk and cost.
Buyer’s Extensive Responsibilities Under EXW
The buyer assumes nearly all logistical burdens and costs from the moment the goods are made available at the seller’s facility. The buyer is responsible for arranging and paying for the initial loading of the goods onto their transport, followed by all domestic transportation necessary to move the goods from the seller’s premises to the port or terminal of export.
The buyer must also secure and pay for the main international carriage, whether by sea, air, rail, or road, to the final destination. Securing insurance coverage against damage or loss during transit is the buyer’s sole responsibility, as they bear the risk for the entire journey after collection.
A significant responsibility for the buyer in international transactions is handling all customs procedures. This includes preparing and submitting documentation for export clearance in the seller’s country, managing any transit customs formalities, and completing all import clearance procedures and paying duties and taxes in the destination country. The buyer must also pay for any assistance requested from the seller to obtain necessary documents, such as export licenses.
Understanding the Transfer of Risk and Cost
The Ex Works rule establishes that the transfer of risk and cost occur simultaneously. This transfer happens when the seller places the goods “at the disposal” of the buyer at the named place of delivery. Once the goods are segregated, packaged, and ready for pickup at the seller’s premises, the risk shifts completely to the buyer.
Any loss or damage to the goods that occurs after this moment, even if the goods are still physically located on the seller’s dock or warehouse floor, is the buyer’s liability. Since the buyer assumes all costs from the point of delivery onward, the seller is not responsible for any subsequent charges related to the goods’ movement or handling. The cost of delivery, including any potential loading damages or delays, rests entirely with the buyer.
When to Choose Ex Works
EXW is a suitable choice for sellers who possess minimal resources or experience in handling export logistics and customs formalities. This term is also commonly used in domestic trade where no export or import procedures are involved.
For the buyer, choosing EXW can be advantageous when they have a strong, reliable logistics network or a superior understanding of the export procedures in the seller’s country. It is also beneficial when a buyer is consolidating multiple purchases from several suppliers in the same country. By controlling all logistics, the buyer can potentially optimize freight costs by negotiating directly with carriers and forwarders.
EXW Versus Other Common Incoterms
To understand the unique position of EXW, it is helpful to contrast it with the Free Carrier (FCA) Incoterm. Both EXW and FCA can be used for any mode of transport and involve delivery at or near the seller’s premises. The primary difference lies in two major obligations: loading and export clearance.
Under FCA, the seller is responsible for physically loading the goods onto the buyer’s collecting vehicle at the seller’s premises and completing the export clearance formalities. In contrast, EXW explicitly avoids these duties, requiring the buyer to handle the loading and all export documentation and processes. This distinction makes FCA a safer option for international trade, as the seller, who is registered in the country, handles the export declaration.