What is Ex Works (EXW)? - 2022 - Robinhood (2024)

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An ex works agreement is like ordering groceries online for pickup…

The grocery store is responsible for bagging your items and placing everything at a collection point. But as the buyer, you’re responsible for driving to the shop, loading the groceries, and taking them home. If your eggs get cracked on the journey, the store isn’t liable. But you might save time and money by assuming that risk and picking up everything yourself instead of paying for delivery.

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Ex works (EXW) is an international trade term and contract option in which the buyer or consignee (the party that’s financially responsible) of a shipment takes full responsibility for its transportation. In an EXW agreement, the shipper or supplier must safely package and clearly label goods, and make them available for collection at a previously agreed location. The buyer must then arrange and cover the cost of transporting that shipment to its final destination.

EXW is one of the 11 International Commercial Terms (Incoterms) created by the International Chamber of Commerce (ICC). Incoterms are a set of standardized global trade terms that offer guidance for importers and exporters.

Ex works terms are often considered to benefit sellers, because they bear no liability for goods that are lost or damaged in transit. Sellers aren’t responsible for loading the goods or clearing the goods for export, either. Instead, buyers or consignees assume the full risk of shipping and are responsible for getting clearance for export if needed.

In practice, sellers may request EXW terms when they don’t want to assume the risks involved in transportation. This could be because of the nature of a shipment, or because the seller lacks the knowledge or resources to get involved in the shipping process.

Ex works (EXW) is similar to another ICC Incoterm known as “free on board” (FOB), but there’s a key difference.

Under FOB terms, the seller of a shipment delivers goods to a pre-agreed port and onto a vessel nominated by the buyer. The risk of loss or damages then passes to the buyer, but not until the goods are aboard the ship. After that, the buyer accepts full liability until the shipment reaches its final destination.

FOB is slightly riskier for sellers than EXW, because they are responsible for some aspects of transport. Under EXW rules, the buyer would be responsible for picking up a shipment, loading it, and taking it to port if needed. The seller bears no liability and isn’t obligated to help load or transport goods at any stage.

“Free carrier” (FCA) is another of the ICC’s 11 Incoterms. It’s similar to both ex works (EXW) and free on board (FOB), but there’s one major difference.

Under FCA terms, a seller must deliver goods to the carrier or another person the buyer nominates, either at the seller’s premises or another predefined location. That leaves the seller with a certain degree of transport risk. This differs from an EXW agreement, under which the seller just has to make the items available to the seller and isn’t responsible for loading the shipment.

FCA also differs from FOB slightly in that FCA terms only require the seller to deliver goods to the carrier at an agreed location. FOB terms require the seller to transport and load the shipment onto a vessel of the buyer’s choosing.

When purchasing under ex works (EXW) terms, prices are typically lower than other shipping options. That’s because, under EXW, the seller assumes no responsibility for any element of the shipping process. That’s why companies looking to cut costs by hiring their own logistics carriers sometimes request EXW agreements.

EXW prices are then calculated according to the number of resources the buyer wants to deploy around the shipment. Every EXW transaction starts with the wholesale cost of items involved in a shipment, which include packaging and labeling. The seller then sets those items aside on-site for collection, and all other expenses to ship them will fall upon the buyer.

Those include the cost of handling from the seller’s address to a transit point such as a port or airport, any customs paperwork, and loading the shipment on and off transport. From there, the buyer has to pay for transportation itself, plus any customs duties or import tariffs. Buyers may also want to add insurance coverage.

The price of an EXW agreement can vary depending on the complexity of the shipment, the steps involved, and the carriers a buyer chooses to fulfill the shipment. If you need help estimating the cost of a prospective EXW contract, many financial institutions offer free EXW calculators.

One advantage of ex works (EXW) for buyers is that a consignment of goods (a batch of items prepared for shipment) will often be slightly cheaper than goods bought under other terms. That’s because, under EXW, the seller won’t include the cost of transportation to a port or customs fees. If the buyer can outsource transportation to a cheaper logistics provider or has the expertise in-house to settle customs obligations, EXW could save the buyer money on shipping costs.

On the flip side, EXW benefits sellers because they take on minimum obligations and do not have to assume any risks that go hand-in-hand with logistics.

The disadvantage for buyers under EXW terms is that they need to cover the full risk and cost of shipping. Under EXW agreements, the buyer is responsible for hiring a transport company, managing export clearance, obtaining insurance coverage, and more.

The Incoterms matter because they offer both importers and exports a standardized set of guidelines. Incoterms establish distinct roles for buyers and sellers in global transactions. That enables all parties to clearly understand how a contract should be carried out, which tasks they need to complete, and which tasks are somebody else’s job.

Incoterms often become part of contracts and provide guidance for exporters, importers, lawyers, transporters, and insurers. By ensuring that all parties are on the same page about their role in a transaction, the Incoterms help prevent expensive mistakes that slow shipments down.

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