The is a common belief that the sale under EXW conditions is the most favorable for companies that sell in foreign markets since it implies the least effort / risk for the seller.
Nothing furtherfrom thetruth, the EXW sale entails a large number of drawbacksin the international sales of goods.
How many companies include in their conditions of sale a clause that indicates the maximum term available to the buyer to withdraw the merchandise, once notified they are made available?
This omission leads, in many cases, to the exposure of an uncontrollable risk (while the merchandise is in the store of the seller, whose is the risk?) And the generation cost of storage (who should beat the costs?) Furthermore , the risk of non-compliance with the deadline for the departure of goods from the Customs Territory of the Union (TAU) or the Territory of Application of the Tax (TAI), according to an intra-community export or delivery, for the purpose of exemption from VAT.
Logistical disadvantage
In the term of sale EXW the seller has only to leave the goods in the loading dock base on the agreed facilities (factory, warehouse…), perfectly packaged and labelled, on the day and time agreed.
In most cases, it is the seller who assumes the cost and risk of loading and stowing the vehicle (usually due to the lack of knowledge of the rights and responsibilities in the term EXW between seller and buyer and / or not to "violate" the buyer). Without being aware of the responsibility he is assuming in the event that during loading, or as a result of improper stowage, the merchandise may suffer damage.
In such cases the buyer will hardly want to take responsibility for a load and stowage (it must be taken into account that in case of an incorrect stowage and if it is shown that this has caused the damage to the merchandise, the insurance does not take care of it) that he does not has made, neither directly nor indirectly through third parties.
One of the causes of the situation described above, is caused by a contradiction between the term EXW and what the CMR agreement establishes, as to who has the responsibility regarding to who is responsible for loading the vehicle (the CMR agreement exempts the carrier from such liability, for this makes it is indispensable the presence for loading and stowing, of an assistant acting on behalf of the buyer).
Fiscal inconvenience
In the term EXW, the clearing formalities export are at the buyer's risk (the CCI advises that it is the exporter who must normally dispatch the goods for export, while the importer must dispatch them for importation).
In the European Union, the document that is generated in the administrative act of customs clearance for export is the DUA (Single Administrative Document) of which the freight forwarder or customs representative is depositary who has made the release of goods, so that in the term EXW acts on behalf of the buyer, consequentlyhe will be the person who will receive the merchandise.
This document shows that the merchandise has been cleared from customs and must be retained in the possession of the seller. If this circ*mstance does not occur, the seller will not be able to demonstrate the customs clearance of the merchandise and the exemption of the VAT in the export, leaving him in a complicated situation with the administrative system (if the seller does not show the customs clearance and thedateof the actual removal of thegoods of the European Union (Union Customs Territory), the Administration will understand is subject to VAT, with the corresponding income in the Tax Office not charged, plus a sanction and the interests of delay, if there were.
This situation is further aggravated when the export customs clearance is indirect (customs office is different from the customs office of departure) since, the control of the exit of the goods from the TAU, through the Export Accompanying Document (EAD)and the fulfillment of the term established in the Law of the VAT is essential to make effective the exemption of the export.
Whatis statedabove, is the guideline in almost any part of the world. The exporter, wherever he is located, must demonstrate that the goods left their Customs Territory in order to demonstrate the exemption from the VAT or similar tax. Therefore, under EXW conditions, it is complicated to the buyer because he assumes the export clearance and he is who gives the Forwarder the Export Customs Document.
Commercial disadvantage
Every time you sell EXW the company weakens against the market and competition. In EXW position you do not add any added value to the sale, being the buyer who must make all the effort in the purchase.
Every time you sell EXW you compete with all your competitors because, all of them are in position to sell EXW, you do not have the possibility to differentiate yourself in the service. In a market of products with similar characteristics you will be in a disadvantaged position since you can only compete for price.
Each time you increase the level of commitment in the "delivery" you are increasing your sales potential, eliminating those competitors who are not in the same conditions as you.
EXW = More Competitors | DDP = Fewer competitors
A higher level of commitment, the greater the level of risk, which implies knowing and managing this risk in an appropriate manner. The assumption of "controllable" risk and rejection of "uncontrollable" risk positions your company in a privileged way in your market. Export Manager = Risk Manager.
If you can not compete in costs of theforeign trade logistic chain, it is suitable to change your EXW to FCA in the factory, you will avoid the logistical and fiscal inconveniences.
EXW = poop, sorry
Author: Alberto Rino | Trainer, Consultant, Auditor Foreign Trade | Specialist in Customs, Taxation and Cross Trade | Managing Director Educatio Humanum | ESNI Business School | www.esni.es
Partner and translation: Mar Martin | Specialist in Purchasing, Foreign Trade and Marketing
