29 May INCOTERMS 2020: EXW Explained
What is “ExWorks” EXW
Ex-works, EXW, or ex-factory delivery method is the least risky and most straightforward mode of transportation for exporters and vendors among the 11 different delivery methods included in Incoterms 2020. The term “EXW” means that the seller delivers the goods at the buyer’s disposal at his own place or another named place (such as a factory, warehouse, workplace). EXW represents the minimum obligation for the seller.
In terms of exporters, the two main risks in international trade are not being paid for the goods sold or risks that may occur in processes such as transportation and customs. All risks are eliminated if an exporter who sells EXW also works with a cash payment method. However, the situation is the opposite for the importer.
EXW is the most effective incoterms for sellers, but it has a significant disadvantage for buyers. According to the terms of ICC Incoterms, EXW, the seller’s companies are obliged to assist the buyer company for the export customs procedures to take place in their countries, but there is no compelling condition regarding this. Costs and delays that may occur due to the exporter’s incomplete or incorrect information sometimes put the buyer company in a difficult situation.
As it is known, with Incoterms 2020, substantial changes have been made to incoterms. However, there was no change in the EXW delivery method. The only reference to EXW in Incoterms 2020 is: “According to the Exworks delivery method after the goods are received from the seller’s address, all risks and
responsibilities, including loading on the transport vehicle and customs clearance in the seller’s country, belong to the buyer company.” Therefore, it was emphasized that it is a difficult form of delivery for the buyer company.
How to Calculate EXW Price
EXW is the form of delivery in which the buyer takes delivery of the goods from the seller’s factory or warehouse and undertakes all costs such as customs clearance, shipment, and insurance until the final destination.
Ex-works price of the exporter refers to the base price of the goods. In other words, the exporter sells the packaged goods and is not a party to any costs in the following processes. Therefore, the unit price on the Ex-works invoice includes only the production costs of the goods and the profit share of the seller.
EXW- Seller’s Responsibilities for “Ex Works” Delivery
• The exporter is responsible for preparing the commodity in accordance with the conditions specified in the contract and making it ready to be loaded into the buyer’s vehicle at the address specified in the contract (factory or warehouse belonging to the seller) within the date or time defined in the contract.
• Generally, importer companies do not have the authority to carry out customs procedures in the country where the exporting company is located. At this point, the exporter carries out the customs procedures on behalf of the importer. The exporter can add the customs consultancy costs to the invoice.
• Transport is the importer’s responsibility, but the exporter is obliged to provide the transport company with the documents and information needed during the preparation of the bill of lading. It enables exporting companies to communicate with customs brokers and shipping company officials. In this way, exit transactions occur under the coordination of both parties.
EXW- Buyer Responsibilities for “Ex Works” Delivery
• The importer takes delivery of the goods from the address specified in the contract in accordance with the terms of the sales contract signed with the exporter.
• All processes, including export operations in the exporter’s country, international transport organization, transportation insurance, and import operations in his own country, are the importer’s responsibility.
• It is the buyer’s responsibility to organize the customs processes related to the export and import transactions of the products and pay the customs duties that will occur.
• All damage to the cargo is the buyer’s responsibility from the moment the goods are received from the seller. Therefore, in EXW delivery, it is recommended that the receiving company take out a full coverage shipping insurance. Therefore, insurance costs are on the buyer’s side.
• International transportation of goods, intermediate transportation costs, and warehouse and storage costs that may be required in the buyer’s and seller’s country are the buyer’s responsibility.
How EXW Work
In EXW delivery, the seller is responsible for picking up the goods ready for shipment at the buyer’s warehouse and transporting them to their final destination. However, in general practice, exporting companies assist the buyer company in loading the goods from the warehouse and carrying out customs clearance. For example, suppose a forklift is required to load the goods. In that case, the exporter company provides this service and invoices the buyer. In addition, his own customs broker does the customs clearance and adds it to the invoice as a customs broker fee.
According to the Ex Works delivery method, the buyer, the importer, is responsible for arranging all customs documents and customs costs. At this point, the seller (the exporter) is responsible for preparing his invoice and packing list and sending it to the customs consultant authorized by the buyer. It means that the importer provides the shipping company licensed by the seller with information about the products to be loaded, such as container, quantity, weight, description of goods, and packaging.