Trading has been one of the most important processes since earlier times, and trading has been possible only because of imports and exports. In the modern sense, we are able to buy furniture, fruits, vegetables, clothes, and many more things only because of imports and exports.
Goods bought from the other countries are known as imports. On the other hand, goods sent to the other country are known as exports. Our country from which we are sending the goods is a domestic country, and the country from which we receive the goods is known as a foreign country. One of the majorly used terms in the process of imports and exports is ex-works. In this article, we will learn more about ex works incoterms meaning.
Did you know?
In Ex Works terms, the buyer is liable for all shipping risks. Consequently, the buyer is responsible for any additional costs incurred, such as those incurred during customs clearance. To avoid problems, make sure you are aware of any export documentation the seller can provide, as well as local customs regulations.
Defining Ex Works (EXW)
Ex Works is a wide term used in shipping. The term ex-works distinguishes the responsibilities between the shipper and the consignee during the process of shipping goods from one place to another. It shows that the seller has successfully delivered the goods to the buyer at his premises or the other place as mentioned by him. Most of the responsibility in the entire process remains on the side of the buyer. Ex-works can be used across all the modes of transport.
The buyer’s risk and responsibility are the maxima under this agreement. As soon as the buyer collects the cargo, all the responsibilities from the transport to the port of destination lie with him. They have to arrange all the transportation, documents, freight charges, and the entire delivery process. In this article, we will know more about ex works incoterms meaning.
Understanding Ex Works (EXW)
Ex Works means selling the goods directly from the warehouse or factory to the place of the buyer in which the buyer has to hold the maximum responsibility. The ex-works incoterms are applicable in all the forms of shipping irrespective of the transport used. The entire risk of goods or services is transferred to the buyer once the goods are collected from the seller's property. Since the buyer has to bear all the risk, it is often advised to the buyers to use a logistics or freighting company to avoid the errors in the shipping process if they don’t have much knowledge about the exports.
The seller's responsibility is extremely low in the ex works shipping terms. Firstly, they have to ensure that the cargo is well packed and ready to export. Secondly, they also have the responsibility to confirm that the goods are available at the location to be collected. After the collection, the cargo must be in the area from where the buyer can collect it.
Many businesses take the help of EXW when the seller is not able to export, and the buyer wants multiple shipments under a single name.
Examples of Ex Works
The cost involved in the ex works is mostly calculated by the buyer to reduce the burden of added cost imposed by the buyer in the shipping process. The ex works agreement is often done when the buyer agrees that he can bear the shipping and additional costs himself.
1. The seller of furniture is located in California, and the person who wants to buy the furniture is located in New Delhi. Both the buyer and seller agree on the furniture price, and finally, they enter into an ex-works shipping term. The buyer says that he wants the product in two weeks. So it becomes the seller's duty to make the products ready for transportation. But, the responsibility for further costs of the transportation and delivery of goods is of the buyer. The buyer has to bear all the transportation costs. The buyer is not even liable if the goods are lost along the way at any stage in between.
2. The cost of ex-works is calculated by the business that wants to cut the cost of value-added of the seller for the shipping.
For example – The company ‘X’ has priced its mobile phone from the company ‘Y’ at the price of ₹40000. It also has an additional ex-works shipping cost of ₹2000. The company ‘X’ wants to save its money and finds a third-party shipper who can deliver the mobile phone at ₹1700. So to save ₹300, it makes an agreement with the company ‘Y,’ and this is known as ex-works.
Contracts that involve international transportation generally include special considerations that state the ex works shipping terms such as time and place of delivery, payment, and the cases when loss shifts to the seller from the buyer. Other considerations include who pays the amount of insurance and the freight. They are also known as intercoms.
Also Read: What is Ex Gratia Payment?
What is the difference between Free-on-Board and Ex-Works?
Both the terms, Free-on-Board and Ex-Works, are used in international trading and are known ad Intercoms. They state the responsibilities of the buyer and the seller, including the cost they are required to cover for selling and transportation.
• In the case of an ex works transactions, the loading of goods to the buyer’s designated method of transport is not the duty of the seller. The seller just has to make the goods available at the location, which the buyer tells, and the transportation costs are paid by the buyer.
On the other hand, in the case of free-on-board shipping, it becomes an obligation of the seller to load the goods at the buyer’s designated transport. He is completely responsible for the goods till they reach the buyer. The ownership of the goods remains with the seller till the goods are loaded on the shipping vessel. When the goods reach the ship, all the responsibility goes to the buyer.
• The goods shipped through EXW will be cheaper since, in the free-on-board shipping, the seller has to bear all the transportation costs, customs clearance, and the costs of handling the goods.
• Ex works is the more risky method for the buyer since the burden and risks associated with the goods remain with him.
What are the pros and cons of the Ex Works agreement?
Advantages of Ex Works Agreement
• EXW is considered one of the most practical shipping methods. It is beneficial for businesses who want to combine their multiple shipments into one. If the business wants to consolidate the goods purchased from multiple suppliers, then it can go for ex works shipment method. This is because the buyer can export the ship as a single export.
• The ex-works method is also beneficial if the buyer doesn’t want to show the name of his suppliers. They can get their goods shipped through ex-works incoterm and can get the different names of the exporter on their shipping documents.
• When it comes to the option of cost of purchase, exw sometimes becomes the least expensive option. If the seller of the product opts for the tax return on the goods they are exporting, then exw can be the cheapest option as it requires very little work to be done by the sellers.
• If the company purchases the goods from a specific country in a routine, ex-works can be an ideal option, provided the company has an export license.
• Ex-works helps international buyers to purchase the products in the domestic market.
• There are so many manufacturers whose main aim is to develop their products, and they don’t obtain an export license. They don’t even market their products outside their country. In this case, you can enter into an ex works agreement with them and take advantage of local prices.
Disadvantages of Ex Works Agreement
• The buyer has to bear all the risks and responsibilities associated with the product till the product reaches him.
• The processes like loading the cargo and delivering it to the terminal take place in the country of the seller. Ex-works become riskier when the seller is not legitimate. The possession of the goods is transferred right when the seller loads the goods. So the buyer is responsible even if the cargo is not exported from the country of the seller.
• If the buyer doesn’t have knowledge about ex works shipping terms, then it can result in payment of more than the actual amount by the buyer.
It must be noted that if the supplier is willing to ship the goods only through exw, then you must hire a third-party logistics company who can help you in the entire process.
Imports and exports have become a crucial part of the growth of a nation since no country can be 100% self-sufficient. Import and export of goods or services are one of the easiest ways to enter the global market. They also offer a large number of employment opportunities. Compared to the other methods of earning, it requires less investment in terms of time and money. It is also less risky compared to the other international business options.
For the sellers, the ex-works method of shipping is the most convenient because of negligible risks and responsibilities. The seller just has to make the goods available for the buyer to collect. The desired place can be a warehouse, factory, or headquarters. The seller doesn’t even pay for the packaging of the goods.
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