Ex Works Shipments Explained: (in 5 Steps)
EX Works is an incoterm (international commercial term). It’s signified by the acronym EXW.
EXW signifies delivery between buyers and sellers.
Through it, sellers deliver to buyers at designated locations. And buyers incur all costs/liabilities for shipment.
It’s an arrangement that’s favorable to sellers.
First - How is EXW Used?
As we mentioned before, it’s an incoterm.
It’s used for “international transactions.” So local laws don’t apply to EXW incoterms regulations.
After all, local regulations only influence one end (buyer or seller), but not the other.
However, there are exception. One is the EU, which enforces rules on export declaration.
But for normal participants, international regulators enforce EXW incoterms – this being the International Chamber of Commerce (ICC).
More on the ICC.
Founded in 1919, this is the world’s largest business organization.
It’s just under 100 years old. And it includes 6 million members, operating from 100 countries, and in all sectors.
The ICC’s activities are diverse. And they include resolving shipment disputes, which they do by classifying shipments through incoterms.
Incoterms grade shipments based on responsibilities between for buyers/sellers.
There are currently 13 incoterms such as FOB most popular. “EXW” represents one type, where the buyer bears most of the shipment responsibility.
Second - Does EXW Affect Rates?
Yes. And specifically for buyers.
While EXW incoterms arrangements are risky for buyers, they come with a financial payoff.
Many buyers use them to cut shipping costs. They eliminate “value added” by sellers for shipping a freight.
“Seller” supplies “Buyer” a shipment of electronics - at $100 a box.
“Seller” then charges an extra $15 for loading and shipping the items.
This totals are $115/per box for “Buyer.”
With an EXW arrangement, the “Buyer” shaves off the $15. After all, they’re responsible for the freight’s delivery.
And this puts the package at $100/box.
In a sense, EXW is for buyers attempting to cut costs. And it suits those that import/export in bulk.
Uses by Sellers.
Sometimes, sellers opt for ex works shipping to avoid dealing with customs.
In matters of export, it’s usually the seller’s responsibility to supply the correct documents. This doesn’t include the “export license” which sellers must have…
With ex works shipping, a seller needs neither. Instead, the buyer incurs all custom costs.
This can be expensive for buyers, especially when producing an export license. And it can nullify the advantages of “value added” shipping.
And this leads us to the next step…
Third – Who Uses EX Works Shipping?
Parties that trust one another.
If two international businesses have a long-term relationship, then EXW is a good arrangement.
Each side is trusted enough to divide freight-handling responsibilities in a certain routine.
In such situations, EXW incoterms makes shipments faster, less costly, and easier on both sides.
Sensitive Profit Margins.
The lower your profit margin, the more you need EXW incoterms.
For a buyer, EXW provides a clear idea of import costs. And this is vital for businesses that sell at bulk, and with soft margins.
They include all forms of retail, groceries, petroleum/mining, automobile spare parts industries, etc.
Industries aside, it’s time to understand the “detailed obligations” of each party. We’ll start with the sellers…
Fourth – Seller Obligation.
Beyond manufacturing the goods, sellers aren’t responsible for much.
For starters, they must ensure product availability at a certain location.
This is usually a warehouse, a shipping port, or a private “agreed upon” spot.
After reaching the location, the seller has a few other responsibilities.
They include checking the quality and quantity of the package. And this ensures they conform to the sales contract. Also, sellers must unload the package upon arrival.
The seller must then provide buyers with a commercial invoice. This is used for customs and tax reporting.
Anything beyond that comes through mutual agreement/requests. This includes…
- Helping the buyer establish an export license.
- Providing information necessary to secure the package.
Fifth – Buyer Obligation with ex works shipping
After receiving the package at the “agreed upon” location, buyers take full responsibility.
This includes licensing and custom documentations. It also includes necessary inspections to pass ports and checkpoints.
Also, buyers incur taxes, duties, and carriage costs.
Beyond that, buyers have obligations to sellers. This includes providing a “proof of delivery” for receiving shipment.
Also, buyers should reimburse sellers for help getting the correct export documentation.
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