A Guide to Understanding Exw Shipping and The Buyer Risks

Importing

A large text sign that spells EXW on three animation wood pallets next to a loading tray

Shipping goods around the world is tricky business. There are language barriers to contend with and confusion about who is responsible and pays for delivery at which point of the trade. 

Familiarise yourself with the standard shipping terms if you are new to importing, it could help you avoid expensive mistakes. Ex Works (EXW) is one of those terms that has pros and cons that every buyer should be aware of before entering a contract.    

 

What Does EXW in Incoterms Mean?

The International shipping term EXW stands for Ex Works. EXW 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. 

EXW is an Incoterm, an international set of shipping terms that define the rules and responsibilities of sellers and buyers for the delivery of goods. The International Chamber of Commerce publishes the Incoterms. 

Used worldwide, these three letter acronyms reduce the chance of disagreements between parties. The 11 Incoterms are divided into two groups – one group of terms applies to any mode of transport and the other which only applies to sea and inland waterway transport. 

 

How to Calculate an Ex Works Price? 

As a buyer, you want to know the full cost of shipment and this will involve some time in getting quotes from other suppliers besides the seller. 

With FOB (Free on Board) terms, the seller provides 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. 

But, when calculating the EXW price, 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 is often a safer option 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 to the Buyer of EXW Shipping?

Some buyers like EXW (or ExWorks) terms because they want complete control over transport of the goods. 

When a buyer organises the shipment, they can contact the shipping line rather than having to go through the seller.

They buyer can 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 FOB or CIF is the seller will charge you a markup for handling all or most of the shipping process, so for experienced importers with the right connections EXW could be cheaper.

 

What are the Advantages to the Seller of EXW Shipping?

When an order is EXW Shipping, 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 concentrate their time and effort on producing more goods. 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. 

Some sellers use EXW shipping because they don’t have an export licence. An export licence can be very costly so exw shipment means the buyer has to pay for one. 

 

What are the Risks to the Buyer of EXW Shipping?

Once the goods leave the factory, the buyer takes full responsibility for the product and should take out insurance in case it’s damaged or lost during transit. 

Not all goods clear customs in the country of origin. With EXW it is the buyer’s problem if the customs paperwork isn’t in order or the goods need inspecting before leaving the dock. The seller isn’t responsible for any additional costs incurred at customs; the buyer is. 

In some countries, customs requires the seller to assist with the reporting and clearance of goods so ex works may not be the best option and Free Carrier (FCA) should be considered. FCA means the seller arranges 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 and if the seller makes an error on the paperwork, the buyer is held responsible for 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) 6161 8041 or contact us online.