EXW (Ex Works) is the most seller-friendly trade term under Incoterms 2020. Under EXW terms, the seller’s only obligation is to make the goods—properly packed and labeled—available to the buyer at the seller’s premises (such as a factory, warehouse, or office). The seller is not responsible for loading the goods, handling export customs clearance, or managing any part of the transportation process.
Once the seller notifies the buyer that the goods are ready for pickup, delivery is considered complete, even if the goods remain on the seller’s premises. From that point on, all risks and costs transfer to the buyer. The buyer is fully responsible for loading, export procedures, international transportation, and final delivery.
EXW is best suited for buyers with experience in international shipping or those who prefer to use their own logistics providers. However, for buyers unfamiliar with export formalities, working with a professional freight forwarder is highly recommended to avoid costly mistakes or delays.
EXW (Ex Works) – Responsibilities and Risks
Seller’s Responsibilities (Exporter)
Under EXW (Ex Works) terms, the seller’s obligations are minimal. The seller is primarily responsible for:
- Making the goods available: The seller must ensure the goods are ready for pickup by the buyer at the agreed location and date—typically at the seller’s factory, warehouse, or office.
- Proper packaging: The goods must be appropriately packed for safe handling and transportation.
- Providing basic commercial documents: The seller must give essential documents such as the commercial invoice and packing list.
- Optional assistance with export permits: If requested, the seller may assist the buyer in obtaining the necessary export licenses or other required documentation. However, this is not mandatory, and the buyer bears any related costs and risks associated with the transaction.
Buyer’s Responsibilities (Importer)
Under EXW terms, the buyer assumes nearly all responsibility and risk throughout the shipping process, including:
- Loading: The buyer must arrange for loading the goods onto their transportation at the seller’s premises.
- All transportation costs: The buyer covers all freight costs from the seller’s location to the final destination. This includes domestic transport, international shipping (by sea or air), and last-mile delivery.
- All transportation risks are transferred to the buyer the moment the goods are made available at the seller’s site. The buyer bears full responsibility for any loss or damage that may occur during transit.
- Export clearance: The buyer must manage all export formalities in the seller’s country, including obtaining export permits and paying related duties or fees—a complex task that often requires local knowledge or assistance.
- Insurance: Since the buyer bears the risk from the outset, it is their responsibility to secure appropriate cargo insurance for the entire transportation process.
- Destination charges: Upon arrival, the buyer is responsible for all destination-related costs, including unloading, terminal handling, and port fees.
- Import clearance: The buyer is responsible for handling import formalities, including customs clearance and payment of any import duties or taxes in the destination country.
- Final delivery: The buyer is also responsible for arranging and paying for inland transport from the port or terminal to the final delivery location.
When Should EXW Be Used?
EXW (Ex Works) is typically used in the following scenarios:
- The buyer has strong logistics capabilities and experience: If the buyer is well-versed in international shipping and has reliable freight forwarders or their own logistics team in the seller’s country, EXW offers maximum control over the supply chain and may help reduce total shipping costs.
- The seller wants to minimize liability: For sellers who prefer not to be involved in the export process or assume any responsibility beyond making the goods available at their premises, EXW is an ideal choice.
- Local or domestic sales: EXW is also commonly used for domestic transactions, where the buyer picks up the goods directly from the seller’s facility, such as a factory or warehouse.
Key Risks of EXW in International Trade
Using EXW terms can pose several challenges, particularly for buyers. The principal risks include:
- Logistics Risk: The buyer is fully responsible for arranging and paying for transportation. Without proper planning or reliable logistics partners, this can lead to coordination issues and delays.
- Cost Uncertainty: As the buyer covers all costs from the seller’s premises onward, unexpected fluctuations in freight rates, fuel surcharges, and handling fees can significantly impact the total landed cost.
- Export Compliance: The buyer must manage export documentation, licensing, and customs clearance in the seller’s country—tasks that can be complex, especially without local knowledge or experienced agents.
- Risk of Damage or Loss: The risk transfers to the buyer the moment the goods are made available at the seller’s site. If not properly insured, any loss or damage during loading or in transit becomes the buyer’s responsibility.
- Delivery Delays: Delays in securing transport or completing export formalities can postpone the entire delivery schedule, affecting downstream operations.
To minimize these risks, both parties should clearly define their roles and obligations under EXW terms in the sales contract. For buyers unfamiliar with international logistics, working with a trusted freight forwarder or customs broker is highly recommended.
Bottom Line
When choosing a freight transport agreement, the Ex Works (EXW) model offers both advantages and disadvantages for buyers and sellers.
For buyers, EXW can lead to significant cost savings—provided they have strong logistics expertise, a well-established organizational structure, and solid industry connections. However, the model also presents notable risks: longer lead times, complex operational processes, and the burden of managing transportation, export procedures, and customs clearance entirely on their own.
For sellers, EXW is often an attractive option. By transferring responsibility at the factory gate, they significantly reduce their exposure to transportation-related risks and liabilities. That said, one downside for sellers is the loss of potential commissions or margins that might be earned from handling freight or recommending preferred carriers.
Ultimately, both parties must carefully evaluate their internal capabilities and risk tolerance to determine whether EXW is the right fit. A thorough assessment of the model’s opportunities and challenges is essential for making an informed and strategic decision.
FAQ
Who pays freight on Ex Works?
In an Ex Works (EXW) arrangement, the buyer is responsible for all freight costs associated with the shipment. The seller’s obligation is limited to making the goods available at their premises, such as a factory, warehouse, or office. From that point on, the buyer must arrange and pay for all transportation to the final destination.
If you’re the buyer in an EXW transaction, you are fully responsible for managing logistics and covering all freight expenses. To avoid confusion or disputes, it’s essential to define these responsibilities in your trade agreements clearly.
Which is better, FOB or EXW?
Choosing between FOB (Free On Board) and EXW (Ex Works) depends on your specific needs, logistics capabilities, and risk preferences. Here’s a quick comparison:
- FOB: The seller is responsible for delivering the goods to the port of shipment and loading them onto the vessel. Risk transfers to the buyer once the goods are on board. FOB is often favored when the seller has better access to freight rates or expertise in international logistics.
- EXW: The seller’s responsibility ends once the goods are made available at their premises. The buyer is fully responsible for loading, export clearance, transportation, insurance, and all subsequent steps. EXW is ideal when the buyer wants greater control over the shipping process or has established relationships with logistics providers.
Ultimately, the choice between FOB and EXW should be based on factors such as cost efficiency, logistical convenience, control over the supply chain, and how risks are managed. Carefully evaluating your trade conditions and operational strengths will help determine which Incoterm is best suited for your transactions.
How to calculate EXW cost?
Calculating the Ex Works (EXW) cost involves factoring in several components. Here’s a simplified breakdown:
- Product Cost: Begin with the agreed-upon price of the goods.
- Packaging and Labeling: Include any costs associated with preparing the goods for transport, including packaging and labeling.
- Transportation to Seller’s Location (if applicable): Include any expenses incurred in moving the goods to the seller’s premises.
- Loading Costs: Account for the cost of loading the goods onto the buyer’s transport vehicle if the buyer does not handle this directly.
- Export Processing: Factor in costs related to export documentation, permits, and customs clearance, especially if the buyer requests assistance from the seller.
- Insurance: Determine whether insurance is needed and include the cost if applicable.
- Other Fees: Consider any additional charges specific to the transaction or industry.
By summing these elements, you can estimate the total EXW cost. Keep in mind that under EXW terms, the buyer assumes all responsibilities and risks once the goods are made available at the seller’s location.
