Delivery terms are the most important aspect of trade negotiations. After all, you may have a profitable deal, but if you choose the wrong delivery method, you may incur losses and end up with a completely unprofitable offer. To help you navigate the various delivery methods and choose the right one, here are some concepts such as EXW Incoterms 2020 and ex works.
What is EXW (Ex Works)
In 2020, the International Chamber of Commerce adopted rules for international trade. Their general name is Incoterms 2020 exw.
Incoterms 2020 is a key element of domestic and international trade, which defines its “rules of the game” for all participants in the process. This helps to avoid most misunderstandings.
A total of 11 terms of carriage have been approved in the Incoterms 2020 set of official rules. They are designated by three-letter abbreviations. Incoterms 2020 delivery terms vary by mode of transport and allocation of responsibility. For example, there are FAS and FOB for water transport, and CPT and CIP are suitable for any type of transport.
One of the most popular delivery methods under Incoterms 2020 is EXW. We will tell you more about it.
EXW Incoterms 2020: main delivery terms
To explain EXW terms in simple terms, it would sound like this: the seller fulfills their obligations to a minimum, and the buyer to the maximum.
To better understand the terms, it is worth knowing what else EXW is called:
- EXW is the official abbreviation.
- EX Works is the full name in English.
- Franco-factory is the Ukrainian translation for the terms EXW and EX Works.
EXW delivery terms: the buyer assumes most of the responsibilities for the proper transportation and receipt of the goods. All risks, costs, and responsibilities are borne by the buyer. The seller is only required to pack the goods and notify the buyer that they are ready.
What must be specified in an EXW (ex works) contract:
- place of transfer of goods;
- exact destination;
- description of goods;
- delivery terms;
- payment terms;
- transfer of risks and ownership;
- liability for damages;
- dispute resolution.
If the seller transfers the goods not at their premises (not EXW supplier’s warehouse), but at another agreed location, this will be called free warehouse, not free at factory. This option is only available by agreement between the parties. Free warehouse is mainly used for domestic deliveries and does not have official international Incoterms status.
What does delivery on Ex Works terms look like?
The EXW Incoterms 2020 delivery terms clearly distribute the responsibilities for the transportation of goods.
The seller’s obligations under EXW Incoterms:
- production of goods in the agreed quantity;
- packaging;
- marking;
- informing the customer that the goods are ready for shipment and transportation;
- providing access to the cargo and documentation required for export/import (this may include invoices and certificates of conformity or quality);
- transferring the goods on the specified date and time.
The buyer’s obligations under EXW Works:
- loading the goods onto their own or rented transport;
- paying for loading and unloading;
- paying for customs documents for export/import;
- taking out insurance (if necessary);
- covering transport costs and delivery to the destination.
EXW delivery terms only define commercial agreements, but not legal procedures. The contract itself has legal force.
Advantages and disadvantages of EXW
It is safe to say that the obligations of the parties under EXW terms are not equal. However, this does not mean that the buyer does not benefit from EXW Incoterms 2020. For example, they have the opportunity to purchase goods from several suppliers, combine them into one shipment, and thus save on EXW delivery. Goods can also be combined into one export and save time at customs.
Advantages of EXW:
- the buyer has full control over the goods and their transportation;
- clearly defined areas of responsibility under the agreement;
- transparency of all prices and costs.
Disadvantages of EXW Works:
- the buyer assumes all risks (in case of loss or damage to the goods);
- the buyer has to coordinate all stages of transportation, which is quite energy-intensive;
- all costs related to paperwork are paid by the buyer (customs declarations, insurance).
It can be difficult for the seller to clear customs in other countries, especially the EU, but Incoterms 2020 EXW relieves them of this hassle.
Examples of EXW application
EXW delivery is suitable for experienced importers and exporters who have been working with trusted logistics companies for a long time. Ex works is also beneficial for small manufacturers who sell their goods and have no experience in international transportation. For example: a Ukrainian farmer sells grain to a foreign trader. He simply places the bags in the warehouse — the trader takes care of the rest. This will be even faster and easier in cases where a large foreign buyer has its own logistics company in Ukraine. Then EXW delivery is beneficial to the buyer and allows him to control costs.
Examples of short formulations in an EXW contract:
- The seller makes the goods available to the buyer at the specified place within the agreed time. All risks and costs after this point are borne by the buyer.
- The seller assists in loading the goods at no extra charge.
- Payment shall be made by bank transfer to the seller’s account within three days of invoicing.
- The seller is not obliged to carry out export customs clearance, but shall provide the necessary documents and advisory assistance at the buyer’s request.
- The seller shall notify the buyer that the goods are ready for export three days before the delivery date.
Example of delivery under EXW terms: A farmer in the Vinnytsia region sells grain to a trader in the Netherlands. The farmer has no experience in exporting and cannot arrange it himself. The trader sends his carrier to pick up the grain from the farmer’s warehouse. All transportation, customs clearance, and insurance costs are borne by the trader.
Conclusions
EXW is considered one of the simplest delivery terms for the seller, but it imposes serious obligations on the buyer, who must control the delivery from start to finish. It is quite difficult to organize such a multi-level process on your own — from reliable packaging to communication with carriers. In order not to waste time on this and focus on business processes, it is better to contact logistics companies. They already have a well-established transportation system and can calculate costs and the optimal route. And to ensure that export-import documents are completed without errors and customs clearance is completed without delays, we recommend using the services of customs brokers.
Professionals will do everything quickly and efficiently, and most importantly, they will do it on behalf of the buyer, saving them unnecessary hassle.
