What Is the Incoterm EXW (Ex Works)?

Definition of EXW (Ex Works) Incoterm

Ex Works is an International Commercial Term (incoterm) that outlines a specific shipping arrangement concerning international trade. Incoterms are 11 global standards published by the International Chamber of Commerce (ICC) that outline the roles and responsibilities of sellers and buyers in international trade.

Under the EXW incoterm, the seller’s responsibility is fulfilled once the goods have been prepared for the buyer to collect. The pickup point is usually the seller’s premises, such as their factory or warehouse, or any other agreed-upon location.

This arrangement places minimal responsibility on the seller while the buyer has to handle the logistics, customs clearance, and insurance costs associated with the shipment.   

Key Features of EXW

Here are the key features of the EXW trade agreement:

Seller’s Minimal Obligations Under EXW

EXW is popular among sellers as it transfers risk from them to the buyer when the goods have been set aside for collection. They must create a sales contract and a commercial invoice, and ensure the goods are packaged and marked properly. They bear no responsibility for loading the goods onto the buyer’s vehicle. However, the seller must provide a notice to the buyer about confirmation of delivery.

Buyer’s Responsibilities Under EXW

The buyer bears the burden of handling all of the logistics, liabilities, and fees associated with the delivery. They must pay the costs of loading the goods at the seller’s location and delivery to the port of origin. Any other costs associated with moving the goods until they reach the final destination, such as transfer between ports, arrival at the import country terminal, and loading/unloading, are also on the buyer.  

Under EXW, buyers are also responsible for customs export and import clearance, including all tariffs, duties, and documentation. They must ensure compliance with the regulations in both the origin and destination countries. Additionally, buyers might face insurance charges if applicable.

Point of Delivery and Transfer of Risk

In EXW, the seller fulfills their obligation to deliver the goods once they are set aside at the agreed-upon location. They do not need to load the goods on any carrier or clear them for export — their role ends at the initial pickup point.  

Unlike other incoterms, any liabilities and risks associated with the delivery are transferred to the buyer as soon as the goods are made available.

Advantages of EXW

While the advantages of EXW to the seller are evident, the buyer can benefit from this incoterm as well. Here is the breakdown:

Advantages for the Seller

• No responsibility for shipping and logistics, only required to package and mark the goods

• Not obligated to arrange transportation

• No need to pay for shipping, loading/unloading, or customs duties and tax

• Not responsible for any loss or damage to the goods

Advantages for the Buyer

• Greater control over the transportation and logistics processes

• Freedom to choose the most cost-effective shipping option

• Flexibility to combine multiple purchases from different suppliers into one shipment, minimizing total costs

• Supplier anonymity — a buyer can choose their own freight forwarder and keep their supplier anonymous to maintain a competitive edge

• Access to the seller’s domestic market, allowing buyers to explore local resources

Disadvantages of EXW

Here are the possible pitfalls of using EXW for sellers and buyers:

Challenges and Risks for the Buyer

• Bearing all transportation, customs, and loading/unloading costs

• Assuming all risk and liability for any damages incurred during transportation

• Responsible for obtaining export and import clearance and preparing documentation

• Requiring a trusted representative to be present in the exporting country to ensure the loading and shipment of goods

• Having to pay more than intended if unfamiliar with the logistics process and costs

• Enduring additional costs and delays if the seller makes a mistake in the export clearance paperwork

• Paying for an export license if the seller does not have one

Possible Disadvantages for the Seller

• Less control over the delivery process, leaving room for customer satisfaction issues

• Facing challenges or not receiving payment if the goods arrive at the destination in an unacceptable condition

• Liable to financial and reputational damage if unable to provide export evidence due to incorrect paperwork submitted by the buyer

• Limited market access as EXW discourages most buyers, especially if they are unfamiliar with the exporting country’s regulations

• Failure to obtain the proper export license, leading to stiff penalties and potential loss of export privileges

• Getting fined and losing payment if the bill of lading has any discrepancy

When to Use EXW

The EXW incoterm is the only arrangement where the seller’s responsibilities terminate once the goods are prepared. They might choose it when they want to minimize their liability in the shipping process and avoid getting involved in export customs clearance procedures.

Buyers might consider this option when they have a strong logistics infrastructure and prefer to maintain control of the entire shipping process. It also offers transparency in terms of costs as buyers arrange their own services. Additionally, if they have a physical presence in the export country, they can manage the pick-up and shipment more efficiently.

EXW is also preferred if the buyer wishes to consolidate multiple shipments from different sellers in the export country. It offers flexibility in coordinating the logistics and, ultimately, saves costs.

FAQ

What costs are included in EXW?

For sellers, the only costs are associated with making the goods available at the agreed-upon location. All other costs, including transportation, customs, handling, and insurance, are the buyer’s responsibility.

Who is the exporter in EXW?

The exporter in EXW is the seller who supplies the merchandise to the buyer. While the term might indicate otherwise, the seller is only responsible for export labeling and packaging. The importer (buyer) must handle all export and import responsibilities.