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EX works shipping terms explained

What Is Ex Works (EXW)?

In simpler words, Ex-works (EXW) can be defined as an international trade term, it describes that the seller ensures the availability of the product at a designated location, then the buyer of the product must cover the transport costs. Ex-works (EXW) comes under the 11 current Incoterms (International Commercial Terms), a set of standardized international trade terms that are published by the International Chamber of Commerce.

The 11 types of incoterms 2010 are

  1. EXW (Ex Works)
  2. FCA (Free Carrier)
  3. FAS (Free Alongside Ship)
  4. FOB (Free on Board)
  5. CFR (Cost and Freight)
  6. CIF (Cost, Insurance and Freight)
  7. CPT (Carriage Paid to)
  8. CIP (Carriage and Insurance Paid To)
  9. DAT (Delivered at Terminal)
  10. DAP (Delivered at Place)
  11. DDP (Delivered Duty Paid)

Understanding Ex Works (EXW)

Ex-works as a contract, not particularly for the seller or the buyer. The seller requires 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 should also help the buyer to attain export licenses or other required paperwork, although the buyer must pay the actual fees for the documents.

Whereas, once the buyer holds the product, then it is up to the buyer to cover any expenses and account for any risks that pertain to the goods. Risks may include everything from loading the products onto a truck, transferring them to a ship or plane, dealing with customs officials, unloading them at their destination, to storing or reselling them. Even though the seller may help the buyer. For example, loading the product onto a ship, but still, it is up to the buyer to pay up if anything goes wrong during the loading.

An ex-works agreement is often dissimilar from a free-on-board (FOB) agreement, in that agreement the seller will cover the cost of getting its goods to a shipping terminal and pays all the customs costs to get the goods on board. Meanwhile, on the other hand, the buyer 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, if the client wants to keep the commodity safe and secure while shipping.

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.

Special Considerations

Ex-works, free on board, and free carrier they all are a major part of the International Chamber of Commerce's Incoterms. They have been used in international trade contracts with the sole purpose of outlining matters that includes time, place of delivery and payment. The time is when the risk of loss is moved from the seller to the buyer, and even the party responsible for paying the costs of freight and insurance. Although incoterms are not actual contracts, therefore they should not supersede the governing law in their jurisdiction. One more thing about Incoterms is that they can be modified by explicit clauses in a trade contract.

Incoterms were first established in 1936, and the current version in practice was published in 2010. The renewed or ongoing incoterms has 11 terms. The mentioned terms are often identical in form to domestic terms but may possess different meanings. Additionally, different 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 have to indicate the governing law of their terms.

Ex-works have an essential place in the international marketplace. Therefore, the Buyer must remember what he/she is responsible for:

  • Loading the goods at the factory
  • Transporting to the port
  • Clearing customs
  • Shipment/ main transport
  • Unloading of the goods at the destination port
  • The final leg of the transport from the port to the buyer’s warehouse/ shop.

Ex Works Price

The price of Ex-Works – much like FCA – is dependent on the journey that is required for the goods. However, the following costs are to be considered when applying an Ex-Works arrangement:

  1. export working capital financing,
  2. with the help of programs run by the government which guarantee export working capital,
  3. insurance, and
  4. export factoring.

Open account supply chain financing

Extending an open account transaction may be a financially strenuous choice for the exporters lacking sufficient funds to sustain their business without the immediate payment. In the global market, such a transaction would require working capital financing the export which covers the entire cash flow right from purchasing the raw material involved to the final collection of the sale proceeds. One can get support in the form of loans or line of credit based on assets, or any other personal guarantees. So as the exporter essentially accepts deferred payment, he may have to:

  • Loading/ docking fees
  • Shipping Costs
  • Customs Duty
  • Any relevant Taxes
  • Insurance
  • Warehouse Storage