Ex Works Incoterm is one of the eleven foreign trade terms that allow shipping parties, primarily the seller and the buyer, to know their responsibilities. These include paying for transportation, arranging for documents, customs clearance, and cargo insurance. Different types of incoterms delegate these responsibilities to the seller or the buyer. Ex Works in shipping suggests that a major part of the shipping responsibility will be given to the buyer while the seller is only responsible for a small part of the shipping process. Let us first learn more about incoterms and then about ex-works incoterm. 

About incoterms in shipping

Foreign trade terms or incoterms (International Commercial Terms) in shipping define the buyer and seller’s responsibility in a shipping contract. Risks, ownership, and cost transfer occur during the transport process, and incoterms help determine the transfer point. The logistics and transport process requires several steps, including cargo insurance, payment, documentation, and packing. All of these processes require the involvement of the buyer and the seller. The buyer or seller takes responsibility for the listed processes based on different shipping contracts. 

Incoterms are globally recognised terms that state the rules and responsibilities that specify the duties of the buyer and seller, making them liable for the logistics activities. For example- In a single shipment, the seller may be responsible for shipping the goods, after which the ownership goes to the buyer, who will make all necessary payments and handle all risks. In certain other cases, the seller is liable for all risks and shipment payments. All of this depends on the type of incoterm the shipping parties choose.

Incoterms are of various types, some of which apply specifically to maritime transportation, while others apply to shipping. Incoterms that apply to all modes of transport, including trains, trucks, planes and ships, include –

•     EXW – Ex Works 
•     FCA  – Free Carrier 
•     CPT  – Carriage Paid to 
•     CIP – Carriage and Insurance Paid To  
•     DAP – Delivered at Place  
•     DPU – Delivered at Place Unloaded  
•     DDP – Delivered Duty Paid 

Foreign trade terms used in maritime shipping are as follows –

•      FAS – Free Alongside Ship 
•      FOB – Free on Board  
•      CFR – Cost and Freight 
•      CIF – Cost Insurance and Freight  

These incoterms are only used at ports and with shipping parties transporting goods via sea routes.

What does ex works mean in Incoterms?

EXW or Ex Work is one of the seven incoterms established by the International Chamber of Commerce (ICC) that applies to transportation using all modes, including trains, trucks, ships, and planes. Under such a type of incoterm, the seller takes minimum responsibility for the transportation of goods, and the buyer is liable throughout much of the logistics and transport processes. Ex Works in shipping is an agreement between the seller and buyer where the seller is only responsible for handling the shipment to the seller at their warehouse. The seller is only obligated to make the goods required by the buyer available at the warehouse, factory, or any other fixed location, after which all responsibilities of transportation, insurance and documentation lie on the buyer. The buyer may choose freight forwarding or hire a 4PL service provider to carry out logistics.

Widely used in international trade, the EXW agreement allows the buyer to customize the logistics process based on their needs. It is also a preferred shipping agreement chosen by sellers who do not wish to ship goods themselves and are only responsible for making the shipment ready for pickup.

How does Ex work incoterm function?

The Ex-works trade term in shipping is quite simplified and narrows the seller’s responsibility to specify that of the buyer.

1. Procurement of goods – The seller’s responsibility is to hand over the designated shipment to the buyer in packed condition so that the buyer can immediately initiate the transportation process. The seller must also provide all essential cargo-related documents and assist in the export formalities. The location for handing over the goods is decided between the seller and the buyer.
2. Transportation of goods – The buyer assumes all responsibility once the seller hands off the goods. This is when the seller transfers costs, risks, and ownership of the goods to the buyer. Now, the buyer is supposed to arrange all necessary documents for customs clearance, cargo insurance, and intermodal transport of goods.
3. Cargo risks – Unlike other incoterms, the seller is released of all responsibilities at the point of delivery of cargo to the buyer. The buyer must bear all shipping costs and is liable for any financial losses caused during transportation. The buyer must file cargo insurance in case of cargo damage or loss.

When to consider an Ex Works-incoterm?

• Buyers usually consider an EXW agreement if the seller cannot export the shipments or if the buyer wishes to combine multiple shipments and then export them as a single shipment. 
• If the buyer has another branch office near the seller’s location, they will most likely ship the goods themselves. Buyers shipping goods via sea to their off-site location can also use telex release for shipping.
• If the buyer wants to ship the goods using Air Express, they may prefer an EXW agreement. Express couriers collect goods from the seller’s location, which helps reduce transportation costs incurred in booking intermodal transport.

Benefits of Ex-Works Incoterm

The advantages of Ex-works incoterms are as follows –

1. Clarity in responsibility – EXW helps provide clear and straightforward terms regarding the point of delivery and the responsibilities of each party. It helps simplify the shipping contract and reduces the likelihood of misunderstandings or disputes between the buyer and seller.
2. Leverages sellers – Sellers choosing an EXW agreement do so to have minimal shipping obligations. Their only task is to make goods available at their premises. This benefits sellers who want to avoid the complexities and costs of arranging transportation, insurance, and export formalities.
3. Cost control for buyers – Since buyers are responsible for transportation or other costs associated with procuring goods, they can easily customise the transport process to better control their expenses. This helps them optimise their profit margins and schedule transport facilities based on their needs and preferences.
4. Global outreach – Ex works incoterms are widely accepted and understood in international trade, making it easier for buyers and sellers from different countries to carry out trade business together. Their simplicity and clarity make them a preferred choice for many transactions, regardless of the shipping parties’ geographical locations.

Ex-works incoterms are used throughout the global trade market to ship goods, which leverages the seller by relieving them of shipping responsibilities and allows buyers to customise the transportation process.

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