Shipping goods around the world is tricky business. There are language barriers to contend with, as well as confusion about who is responsible and pays for delivery at which point of the trade.
That's why it's important to familiarise yourself with the standard shipping terms - if you're new to importing, it could help you avoid expensive mistakes. Ex Works (EXW) Shipping is one of those terms. EXW shipping has its pros and cons, all of which every buyer should be aware of before entering into a contract.
What Does EXW Mean in International Trade?
Ex Works (or EXW) Shipping is an Incoterm that means the importer is responsible for delivery of the goods from door to door. The buyer (importer) bears all costs and responsibilities including shipping, freight, insurance, and import duties and taxes. The seller’s only responsibility is to have the goods ready for collection from their premises.
This is one of many Incoterms, which are internationally recognised shipping terms that define the rules and responsibilities of sellers and buyers for the delivery of goods. Incoterms are published by the International Chamber of Commerce, which is based in Paris, France.
Calculating the Costs Associated with Ex Works Freight
As a buyer, you'll want to know the full cost of shipment. This can take some time, as it involves getting quotes from multiple suppliers before you make your decision.
EXW and FOB - What's the Difference Between These Terms?
When you're selecting your supplier and looking through the terms of international trade contracts, you're likely to come across a few, including EXW and FOB. While EXW terms place most responsibilities on the buyer (importer), FOB (Free on Board) terms place responsibility on the seller to load the goods on the buyer's method of transport at the shipping point. This means that the seller is responsible for and owns the goods until they are loaded on to the buyer's vessel. Additionally, the seller should provide the buyer with a quote that covers the cost of goods and delivery to the buyer's nominated port. The buyer knows the exact cost.
However, when it comes to calculating the costs associated with Ex Works shipping, the seller only gives the buyer a quote for the cost of the goods alone. The buyer must then research the cost of an export licence, any potential customs of origin costs, shipping and insurance costs. If you are a first time importer, it can be difficult and risky if someone makes a mistake. FOB or CIF are often safer options for inexperienced importers.
What Does EXW Factory Mean?
Ex Works Factory means the seller will make the goods available, in suitable packaging, for the buyer’s collection at the factory door. The seller doesn‘t need to load the goods onto the truck at the factory but, if they do, it’s at the buyer’s risk.
What are the Advantages of Using EXW Shipping?
There are many advantages of using EXW shipping for all parties involved:
To the Buyer
Some buyers prefer to use Ex Works terms because they want complete control over transport of the goods and would prefer to keep communication with the seller minimal. When a buyer organises the shipment, they can contact the shipping line rather than having to go through the seller.
Another benefit of Ex Works terms for buyers is that it allows them to shop around for the best price on shipping and know they aren’t paying any markup that a seller may impose to cover their time.
The downside to using other sets of terms, such as FOB, is that the seller can charge you a markup for handling all or most of the shipping process, so for experienced importers with the right connections, EXW terms could work out to be cheaper.
To the Seller
When an order uses EXW international trade terms, the seller doesn’t get involved in the delivery of goods - it’s the Incoterm with the minimum obligation for the seller. The seller can also concentrate their time and effort on producing more goods, which gives them the opportunity to increase profitability. They can concentrate on manufacturing and not have to worry about using a staff member that understands freight costs.
After collection of the goods, the seller shouldn’t need to have any further communication with the buyer about the order. They can spend their time dealing with the next customer, rather than dealing with buyer enquiries about the transportation of their goods. This makes the process on the seller's end more efficient.
Some sellers use Ex Works shipping terms because they don’t have an export licence. An export licence can be very costly, so a shipment that uses EXW terms means the buyer has to pay for one.
What Risks Do Ex Works Shipments Present to the Buyer?
Once the goods leave the factory, the buyer takes full responsibility for the product and should take out insurance in case any goods are damaged or lost during transit.
Not all goods clear customs in the country of origin. With Ex Works shipping, it is the buyer’s problem if the customs paperwork isn’t in order, or if the goods need inspecting before leaving the dock. The seller isn’t responsible for any additional costs incurred at customs; the buyer is, which means an increase in Ex Works shipping cost for the buyer.
In some countries, customs requires the seller to assist with the reporting and clearance of goods, so Ex Works shipping terms may not be the best option and a Free Carrier contract (FCA) should be considered. An FCA contract means the seller agrees to arrange delivery of goods from the factory to a warehouse, port or terminal. The risk transfers to the buyer once the vehicle arrives.
The goods also have to pass customs at the destination port - so if the seller makes an error on the paperwork, the buyer is held responsible for any additional costs.
If a buyer is new to importing, they may not have factored in all costs such as the export licence. It takes time to organise the paperwork, quotes and deal with multiple suppliers; time a busy buyer may not have.
If you are strapped for time or you aren’t getting the best deal on your manufacturing and shipping, call Vara Allied on (08) 6115 0118 or contact us online.
