Ex Works

Article byKosha Mehta
Reviewed byDheeraj Vaidya, CFA, FRM

Ex Works Meaning

Ex works (EXW) is an international trade term that refers to the situation in which a seller makes a good accessible in a certain area. Still, the buyer of the goods is responsible for covering the expenses of transporting the item. Ex works is one of the 11 prevailing incoterms (International Commercial Terminology), which are a set of standardized phrases for use in international trade.

Ex Works

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Source: Ex Works (wallstreetmojo.com)

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For eg:
Source: Ex Works (wallstreetmojo.com)

Once a buyer has their products in their possession, they are accountable for other risks associated with the transaction, such as putting the items into trucks, moving goods to a ferry or plane, and complying with the laws imposed by customs. Therefore, it is preferred by buyers who have had previous exposure to international trade.

Key Takeaways

  • The International Chamber of Commerce publishes Ex Works (EXW) as an international trade shipping agreement.
  • When using EXW terms, purchasers have complete control over the shipping process and can take advantage of somewhat lower prices on items; however, this gain may be negated by the expense of clearing customs and obtaining export permits.
  • Once a buyer has their products in their possession, they are accountable for other risks associated with the transaction, such as putting the items into trucks, moving them to a ship or plane, and complying with the laws imposed by customs.

Ex Works Explained

Ex Works is an Incoterm in the form of an agreement that requires the seller only to make the items accessible for the buyer at their warehouse or port. This ensures that the buyer assumes the most significant amount of risk and responsibility for the transaction. Once the buyer has taken possession of the cargo, they are responsible for all further tasks, including transportation to the destination port.

The term “Ex Works” is utilized for all types of shipments. It is used independently of the manner of transportation or the number of transport lags. After the goods are secured in export packaging and collected, the buyer is responsible for all shipmen’s obligations.

EXW indicates that the buyer is responsible for arranging modes of transportation, obtaining all necessary export papers, paying all freight costs, and completing the importation and delivery procedure. Therefore, the buyer assumes all responsibility for the transaction as soon as the products are removed from the seller’s premises.

As the buyer assumes all risk and responsibility in ex-works, first-time exporters unfamiliar with the process get benefitted. Working with a freighting and logistics company reduces the likelihood of making mistakes. Also, it eliminates unanticipated costs related to shipping and transporting the goods.

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Examples

Let us have a look at examples to understand the concept better:

Example #1

Consider that the location of the individual seeking to buy the furniture is in China. At the same time, the person selling the furniture is in San Francisco, California. The buyer and the seller agree on the price of the furniture and then engage in an ex-works shipment arrangement. The buyer said he wanted to get the item in two weeks.

Therefore, the seller’s responsibility is to get the merchandise packed and ready for shipment. The buyer is responsible for any extra costs related to the shipping and delivery of the products. The customer is responsible for paying for all of the shipping charges. Even if the products are lost along the route at any point in between, the customer is not responsible for paying for replacements.

Example #2

An article published by trade global finance explains how the ex-works may mean a cheaper cost. However, it may also confront importers with several hurdles to overcome. For example, shipment in a foreign region when the customer is required to make arrangements for both export and import clearance.

It also explains in detail how it is beneficial for UK exporters to use FCA Incoterms rather than EXW. One benefit is fast access to the proof-of-export papers necessary to support zero-rated import VAT charged to international purchasers.

Advantages And Disadvantages

Following are the pros and cons of ex-works:

Advantages

  • A seller can save money on shipping expenses by combining purchases made from merchants into a single ex-works package.
  • Buyers who don’t want the name of their seller to be made public have the option of changing the name that appears on their shipping paperwork. Thus ensuring that the identity of the seller is never revealed.
  • Ex Works is frequently the most cost-effective option for transporting goods abroad. Since merchants pay a low price for Ex Works, they often pass these savings on to the consumer. Mostly it is in the form of reduced prices for the items they offer.
  • Access to sellers who do not provide shipping is an advantage. Thus, customers utilize their delivery methods and may purchase items from sellers not offering shipping services.
  • An expanded choice of items is available to Ex Works customers. Some vendors only sell their wares in their immediate area. It is so as they don’t wish to export their products overseas or participate in international marketplaces. In addition, buyers may be able to obtain these items at lower costs in neighborhood markets and acquire them utilizing ex-works conditions.

Disadvantages

  • Customs clearance is a significant drawback of EXW for customers. According to EXW agreements, sellers are expected to support export clearance procedures.
  • If the information provided by sellers is erroneous, the purchasers are still responsible for any additional expenses and delays that arise. Thus, necessary fees remain the customer’s responsibility if the items are selected for export customs inspection.
  • In addition, a seller will often choose EXW condition if he lacks an export license. It is so that the purchaser will be obligated to pay for it. Under EXW agreements, purchasers must seek freight forwarders that can provide both door-to-door and customs (export and import) clearance services.

Ex Works vs FOB vs FCA vs DDP

Let us examine the differences between Ex Works, FOB, FCA, and DDP.

Ex WorksFOBFCADDP
It is generally abbreviated as Ex-Works in International Trade as one of the Inco Terms. FOB is an abbreviation that stands for “free on boardFCA stands for Free CarrierDDP is the abbreviation of the term Delivery Duty Paid
Ex Works is an incoterm that refers to the situation in which the buyer of a shipping product is responsible for making payment for the items once they have been delivered to a certain location.FOB means that the buyer is responsible for the items as soon as they are loaded into the ship.“Free Carrier”), the responsibility for obtaining export approval and delivering the items to the carrier at the designated delivery site is with the seller.Delivered Duty Paid means that the seller is liable for and pays all fees and taxes associated with the transaction. The buyer is responsible for paying any charges, while the seller is responsible for any risks.
The seller assumes the least risk possible, shifting most of the duty to the buyer.In FOB, the responsibility for the goods lies on the buyer in the case of ‘FOB Destination’ and on the seller in the case of ‘FOB Shipping.Responsibility is considered to have been transferred either when the seller loaded the products onto the conveyance owned by the buyer or when the seller delivered the items to a designated delivery site.DDP stipulates that the seller is the one who is responsible for delivering the products and paying any costs, beginning with the seller’s warehouse and continuing to the destination specified by the customer.

Frequently Asked Questions (FAQs)

What is ex works price?

The selling price of a good calculated at the seller’s factory is referred to as the “ex-works price.” The customer is responsible for additional costs incurred between the seller’s factory and the buyer’s location. The buyer, therefore, is the one who is responsible for transporting the items from the factory to the vendor.

Who pays in ex-works?

It would appear that EXW is more advantageous for the seller because he is not obligated to pay any additional fees after the products have left the premises. On the other side, the buyer gains certain benefits if he successfully cuts down on shipping expenses and manages the shipping process more effectively.

Is Ex Works or Free on Board Better?

Free on Board requires the provider to pay for shipping, handling, and customs clearance, thus goods exported EXW are often less expensive than those shipped FOB. Although, EXW terms are often riskier because the provider is liable for the products until they arrive at their destination.

This article has been a guide to Ex Works and its meaning. Here, we explain its examples, advantages, disadvantages, and differences with FOB, FCA, and DDP. You may also find some useful articles here –