EXW (or Ex Works) represents the minimum obligation for the seller. Yet, there is more to it. Learn everything about EXW in this article!
EXW (or Ex Works) represents the minimum obligation for the seller. Its only obligation is to make the goods packaged for export available to the buyer (usually at the seller's premises) and to provide a commercial invoice. It is therefore the buyer who will bear all the costs and risks associated with the delivery of the goods between seller and buyer, such as the transport, customs, and insurance.
The International Chamber of Commerce, responsible for establishing the various Incoterms, considers the EXW commercial typology as that in which the object of a commercial economic operation must be collected at a point designated by the seller.
The meaning of its acronym explains how this type of incoterm is developed. The seller stores his products in a specific place, such as warehouses, points of sale, or directly at the factory or factory so that the seller can collect them. In a sense, an EXW assumes that so many of the costs associated with the sale are borne by the buying agent. In other words, the risk of the operation rests mainly on this part of the business transaction. This means that it is a common export option among export agents with little means or of smaller size, as in the case of SMEs.
The obligations of the buyer under the Ex Works transport rules are multiple: they include everything relating to the transport of goods and the associated risks. This includes the following activities:
In contrast, here are the obligations of the seller:
We can therefore consider EXW as the opposite of the incoterm DDP (Delivery, duty paid). In a contract negotiated under the DDP, the seller bears the maximum responsibility, while the buyer only manages the unloading of the goods at the agreed place. Responsibilities are reversed.
EXW is the preferred option for many companies appealed by its apparent promise of ease. What are the advantages of EXW?
The absence of responsibilities plays a big role in the popularity of EXW. Under this incoterm, the seller hardly takes care of anything, not even customs formalities: his only task is to make the goods available to the buyer, often at the exit of his own premises. Apart from packing (and occasionally loading onto the vehicle, if both parties so agree), the supplier does not have to put in any effort.
For the buyer, EXW also has certain advantages: transport and formalities being his responsibility, he has total visibility on the delivery process. He can therefore better control the goods and the progress of their delivery. It also ensures that the supplier does not increase its local costs or add a margin to the delivery costs.
EXW perhaps seems like an easy option for the supplier, yet it is actually quite risky. Here are the main problems that can occur:
The supplier has very few obligations – but that means they have no visibility into the shipping process. He does not control customs formalities or the choice of customs representative and does not have the slightest authority vis-à-vis the forwarding agent. Whatever the unexpected, it is entirely dependent on the buyer. Therefore, the EXW incoterm is not really suitable for export.
In France, exporters tend to invoice duty-free and appear as exporters on the Single Administrative Document (SAD). However, a contract negotiated with the EXW incoterm bars access to customs procedures, which means that the exporter does not automatically recover the SAD. Without this document, tax-free invoicing is automatically invalidated. With EXW, it therefore becomes much more complicated to obtain proof that the goods have indeed left the territory.
The foreign buyer is probably not very familiar with the regulations of the country of export. This increases the chances of producing an incorrect or insufficient export declaration. The exporter is held responsible in the event of non-compliance with the regulations. If he lacks specific authorization, he is the one who faces penalties – penalties that can include the loss of his export privileges. For this reason, the ICC reserves EXW for national and regional exchanges.
Another scenario: the payment of a letter of credit requires a bill of lading. This bill of lading can only be provided by the freight forwarder. However, the freight forwarder has no obligation to the seller, since he was hired by the buyer. If the documents provided are incorrect or incomplete, the seller has no recourse to have them modified. This can lead the bank to refuse payment of the letter of credit.
Forcing the buyer to take care of customs formalities, transport and insurance mean that the supplier's business will seem much less attractive to customers, especially if other companies in the same market negotiate their contracts with more advantageous terms - such as FCA or DDP, which impose a more relevant distribution of responsibilities.
The EXW incoterm, therefore, makes the seller assume a lot of risk despite the apparent absence of obligations and lends itself more to national or regional exchanges. Which alternative to turn to for export? This obviously depends on the context, your products, your type of business, and the countries concerned. However, two options, in particular, can be retained: FOB and FCA.
FCA (Free Carrier Alongside) means free carrier. Under this incoterm, responsibilities are better shared. The supplier is responsible for customs clearance and the transport of the goods to the port of embarkation. He must provide the buyer with all the necessary documentation for the export, including authorizations and licenses for specific products.
The FCA incoterm is more advantageous for the seller than the EXW because it allows him to manage the customs formalities of his country himself and avoid problems of non-compliance with exports. In addition, the seller can also benefit from an exemption from VAT. The FCA Incoterm is also very flexible regarding the delivery address. This is why it is officially recommended by the ICC instead of EXW for exports.
The incoterm FOB (Free on Board) means “free on board” and applies exclusively to transport by inland waterway or sea. It is very similar to FCA, with some nuances. Where FCA considers the goods delivered as soon as the seller has loaded them onto the means of transport chosen by the buyer, FOB considers them delivered once loaded on board the specified vessel.
The organization of transport and the assumption of costs and associated risks are the responsibility of the buyer. As with the FCA, it is the seller who takes responsibility for the clearance of goods for export. FOB is one of the most used in international trade. If you export by sea, it is a wise choice that will allow you to avoid customs disputes.