Definition
Ex Works (EXW) is a term used in international trade agreements to define a deal in which the seller is only responsible for making the goods available at their premises, which can be a factory, workshop, or warehouse. Essentially, the seller is not obligated to load the goods on the buyer’s transport or clear them for export. The buyer then assumes all responsibility for transport, import, and export of goods.
Phonetic
The phonetic pronunciation of the keyword “Ex Works (EXW)” would be: “Eks Wurks (E-X-W)”
Key Takeaways
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- Responsibility and Risks: Ex Works (EXW) is an international trade term that places the majority of the shipping responsibility and risks on the buyer. This means that the seller delivers when they place the goods at the disposal of the buyer at the seller’s premises or at another named place. The buyer is therefore responsible for loading the goods onto a vehicle, all export procedures, onward transport, and all costs involved thereto.
- Seller’s minimum obligation: Under EXW, the seller fulfills his obligation to deliver when he has made the goods available at his premises for the buyer to pick up. The seller doesn’t need to load the goods on the collecting vehicle or to clear them for export. This means the buyer has to bear all costs and risks involved in taking the goods from the seller’s premises to the desired destination.
- Limited obligations for the Seller: EXW minimizes the seller’s responsibilities more than any other International Commercial Term (Incoterm). It is the only one that requires the buyer to take care of import and export customs declarations, making it particularly advantageous for sellers – especially if they are not familiar with the customs rules of the buyer’s country.
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Importance
Ex Works (EXW) is a crucial term in international trade, a subset of Incoterms (International Commercial Terms), which defines the responsibilities of buyers and sellers. It is important because it stipulates that the seller is only responsible for making the goods available at their premises, or another named location. This means the buyer assumes all the risks and costs associated with the transportation of goods, including loading, transit, import/export duties, insurance, and other logistics. As such, EXW minimizes the seller’s obligations and risks, which can be beneficial in certain business scenarios. For the buyer, understanding this term is significant to accurately calculate the total cost of a procurement decision, considering all expenses beyond the product price alone. Therefore, EXW plays a key role in shaping the dynamics and agreements in global trade.
Explanation
The purpose of Ex Works (EXW) in finance and business primarily involves the stipulation and division of costs, risks, and responsibilities between a seller and buyer in international trade transactions. EXW is an international trade term that indicates that the seller’s obligations are fulfilled once the goods are made available for collection at their premises or another specified location (factory, warehouse, etc). Essentially, the buyer is responsible for transporting the goods from the seller’s location to their destination, bearing all costs and risks associated with that transport.EXW is used to provide clarity and coordination in international trade, making it easier to navigate the complexities of global logistics. For example, it is used by companies doing business overseas to ensure that they adhere to agreed contractual terms. Under EXW, the seller is only required to package the goods and make them available at a designated location, and then all other responsibilities including loading, shipment and insurance costs, fall on the buyer. Therefore, the usage of EXW clearly defines what is expected of each party, minimizes the risk of misunderstandings, and protects the parties involved in the transportation of goods.
Examples
Example 1: Timber IndustryA timber company in Canada sells logs to a furniture manufacturer in the United States under Ex Works terms – meaning the furniture company is responsible for the shipment, loading, and insurance of the goods from Canada to the U.S. The risk and costs are placed on the buyer once the seller has made the goods available for pick up at their premises.Example 2: Ceramic ProductsA ceramic producer in Portugal is selling its products to a retailer in England using EXW terms. That means all costs and risks involved in picking up and transporting the goods from the Portuguese location to the England store are taken care of by the English retailer. This includes relevant taxes, shipping and handling costs, insurance, and any other costs associated.Example 3: Electronics MarketAn electronics company located in Japan sells its products with Ex Works terms to a dealer in Australia. The Australian dealer is responsible for all transportation costs, loading costs, and insurance for the shipment. The Japanese company only ensures that the goods are ready for collection at their factories, thus the risks and costs are placed on the buyer once they are prepared for dispatch.
Frequently Asked Questions(FAQ)
What does Ex Works (EXW) mean?
Ex Works (EXW) is an international trade term that describes an agreement where the seller is required to make goods ready for pickup at his/her own place of business. All other transportation costs and risks are assumed by the buyer.
In which Incoterm category does EXW belong?
Ex Works (EXW) belongs to the E category of Incoterms. The categories range from E-terms (the minimum obligation for the seller) to D-terms (the maximum obligation for the seller).
When is the EXW term typically used?
EXW is typically used when the buyer wants to have full control over the goods’ transportation and is capable of handling all logistics and transportation risks and costs. It is also commonly used for small value shipments.
Does the seller need to load the goods onto a collecting vehicle under EXW?
No, under an Ex Works agreement, the seller is not responsible for loading the goods onto a collecting vehicle, it only has the obligation to make the goods available for the buyer at his premises.
Who is responsible for insurance under EXW?
Under the terms of Ex Works, the buyer is responsible for insurance once the goods have been made available at the agreed place. The buyer needs to bear all the risk and any costs associated with transporting the goods thereafter.
Why should one choose EXW as a trade term?
Choosing EXW is beneficial for the seller since it means less obligation and less risk. Sellers have minimum responsibility in terms of cost and risk of loss or damage to the goods. It also benefits the buyer who wants maximum control over the goods and transportation.
Can EXW be used for all modes of transport?
Yes, Ex Works (EXW) can be used regardless of the mode of transport chosen. This includes sea freight, air freight, road freight and rail freight. It is one of the few incoterms that can be used for any mode of transport or even multiple modes of transport.
Related Finance Terms
- Incoterms
- Freight Forwarder
- International Commercial Transaction
- Shipping Terms
- Buyer’s Responsibility
Sources for More Information
