Global commerce is a constantly moving machine, with goods being exchanged between buyers and sellers at every hour of the day. However, beyond the financial transaction is the process of making sure the good from one global location makes it to the buyer at another. How this process occurs, however, does vary depending on the method utilized for the exchange.
The international terms (known as Incoterms) define various methods of trade as classified by the International Chamber of Commerce. Among 11 such terms is Ex Works (EXW). In this post, we will define what Ex Works is, how it’s applied in terms of shipping, its advantages and downsides, associated costs, and several other aspects.
What Does Ex Works Mean?
Thinking of a commerce transaction in linear terms, one that begins at the purchase being made to the end where the buyer received the purchased product, Ex Works is a term that burdens the buyer with the liability for nearly every step along the way. In other words, the seller is only responsible for making available the product purchased and providing it to being the transit to the buyer. Ex Works entails the buyer taking on the responsibility of the product’s delivery from that point forward.
What Does Ex Works Mean In Shipping Terms?
In shipping terms, Ex Works puts the burden of cost and shipping arrangements on the buyers. It means that once the product is supplied for shipping, the buyer assumes the responsibility of paying for shipment, arranging for a mode of transport, and ensuring that they receive the order. As long as the seller can provide the product, they have no other responsibilities to assure the product’s arrival.
What Are Ex Shipping Terms?
Regardless of transport mode, Ex Works shipping terms dictate that the buyer is responsible for arranging the product’s transport, including any required documentation, fright charges, import fees, and assurance of delivery. The sellers are responsible only for making the product available and picked up for transit.
EXW Responsibilities And Risks
The seller is absolved of almost every responsibility under EXW terms. As long as the cargo is packaged in a way that has it ready to be exported and can be picked up for transport, the seller has fulfilled their obligations in the EXW agreement.
The buyer on the other hand assumes the liabilities and risks of the transport process entirely once the purchased product is taken out of the seller’s hands. With the burden of safe and timely arrival shifted away from the seller, the buyer is responsible for:
- Arranging for the goods to be picked up in order to bring them to their actual shipping location.
- The arrangement of the transport of goods to the port of transit.
- Finance any customs fees, export duties, and taxes, as well as the acquisition of all necessary documentation.
- Finance all of the terminal fees.
- Responsible for having the cargo loaded onto the freight transport and financing all of the freight fees.
- If the buyer prefers, they are responsible for ensuring the cargo in case of loss or damage during transport.
- The destination port where the cargo arrives will likely have changes associated with unloading it from the carriage and the transfer to the next point of pickup.
- The delivery costs from the port to the buyer’s preferred location.
- Once the goods are at their destination, the buyer is responsible for the costs of unloading them.
- Any import taxes and fees associated with receiving the cargo (varies nationally).
What Are The Pros And Cons Of An Ex Works Agreement?
If the burden of responsibility is almost solely on the buyer, why would buyers take on such an agreement as Ex Works? Surprisingly, there are some upsides for the buyer in this situation, but also some definite disadvantages. First, let’s consider the pros of an Ex Works agreement.
- If buyers are purchasing from various vendors in the same area or country, it may make it easier to consolidate all of the products into one cargo. Rather than have multiple cargo shipments exported, all with their own fees and taxes, it could be advantageous to combine them and pay all of the fees on just one load of cargo.
- Some buyers might be trying to save money by buying parts in bulk from another country. To protect their brand, they may wish for this fact to not be very public. By utilizing EXW, they are able to keep the names of the suppliers under wraps by controlling the names of exporters on the documentation.
- Because EXW requires so little effort and work from the seller, it might be the seller’s preferred option. For this convenience, they are likely to provide a discount on the purchased products. The advantage to the buyer here is that means that the product purchase may be reduced enough to make EXW their cheapest purchase alternative.
- Many countries have excellent production values on their goods but do not have the resources for worldwide shipping If a buyer’s company has a routine export license for products from a particular country trusts the vendor that they trust to produce high-quality products, this translates into a potentially good, long-term deal for the buyer.
Of course, there are some serious disadvantages to buyers with EXW as well:
- Every aspect of the process once the goods are made available to be picked up for transport puts the risk on the buyer.
- Buyers must take a chance on the exporting conditions and operators. Since the export happens in a different country, there is low reliability and next to no accountability for any damages or losses incurred during shipment, the buyer may purchase the product only to receive it damaged and unusable. Worse yet, they may not receive it at all, and the seller is wholly absolved of it being their problem as they have already performed their part of the agreement.
- The buyer not well versed on fees, freight charges, and other export-related matters could actually end up paying more than they would otherwise out of sheer lack of consideration for the numerous fees involved in the process.
When To Use EXW Agreement?
EXW could be a solid option if the buyer wants to purchase a product from a seller in another country, but that seller, while producing a reliable product, is not financially equipped to export it. This will allow the buyer to still purchase the product while allowing the seller to not have to handle any of the shipping costs or shipment logistics.
Ex Works Transportation Options
Ex Works is applied to international purchases and any type of transport may be used to deliver products. The choice depends on the distance, terrain, and preferable delivery speed only. So in order to deliver goods across the ocean, one should use an air or ship cargo carrier. Close distance transportation may be done by truck or rail.
The risks and liability a buyer assumes, have to be deemed as worthwhile financially. If the difference is negligible, and if other options are available, the buyer may choose to find a less risky shipment option. To figure out the financial viability of EXW the buyer must fully calculate the estimated price. To do so, the purchasing party will need to add up the costs they will incur with EXW. These include costs to:
- Collect cargo at the selling point
- Transport to are of export
- Export fees
- Import fees
- Transportation to the final destination
- Duties, taxes, and other applicable costs
There is one often unthought of advantage to calculating this price. The seller cannot impose any hidden fees or their own charges on the buyer because the buyer is already responsible for everything else. This takes the mystery out of calculations of costs, allowing the buyer to access the prices, and see if the EXW option is their best alternative.
Ex Works Freights Tips And Tricks
As noted earlier, this approach gives the seller basically most of the upsides, while burdening the buyer with the liability. So, for the buyer, the main trick is to weigh the cost against the risk. If a supplier cannot afford to ship the products, the buyer should explore to see if the country or area they are purchasing from has other parts or products that would be useful to them as well. If there are, setting up a package deal could work out. The buyer will be responsible for having multiple products picked up at seller-available points, but on the flip side, it will allow for the shipment to be included all in one, resulting in only a single set of import taxes and duties, as well as shipping charges that are calculated by cargo weight.
Another tip for buyers assuming the EXW risks is to establish a good working partnership with the seller. If a seller wants to retain a repeat buyer, they will assure that the packaging and quality for their products are high, assuring them of repeat business. They will likely do as much as they can on their end to convenience the buyer in that manner.
Credo Trans is ready to help you out with EXW service from Russia to any port in the world. For all details about export from Russia, please contact us via email email@example.com