What is EXW?
EXW shipping is one of the incoterms commonly used when transporting goods from your manufacturer to your location, but this time you, the buyer, take almost all of the responsibility for the order aside from getting it made, packed, and ready for shipping.
If you agree to ship EX Works, this means that your vendor, the manufacturer, perhaps, will pack the goods in export packaging that they have to provide and handle, but then you arrange everything from pick up at their facility, export fees, loading, sea freight charges, unloading, import charges, and domestic delivery. The risk becomes yours as soon as you have collected the goods from the vendor’s facility.
EXW can also be used for all forms of transport, not only sea freight.
Who is responsible for what when using EXW shipping?
The responsibilities are pretty simple for EXW because the vast majority falls on the buyer’s shoulders.
- Manufacture the goods to the buyer’s specifications
- Provide the goods ready-packed and labelled for transit in export packaging (as specified by the buyer)
- Make the goods available for collection at an agreed-upon location
Basically everything else! Here’s a list:
- Loading and transport from the vendor’s facility to the port/airport/station (your vendor may load the goods onto the truck for free at your own risk upon request).
- Export charges and customs paperwork (duties, fees, etc)
- OTHC (origin terminal handling charges)
- Loading onto the ship/plane/etc.
- Shipping charges
- DTHC (destination terminal handling charges)
- Unloading fees
- Import charges and customs paperwork
- Domestic delivery fees
- Unloading at your final destination/s
Why agree on Ex Works with a supplier?
Many vendors will quote their customers FOB as standard rather than EXW, but there are a number of reasons why you’d select EXW over it or other incoterms:
- You have your own buying office in China, India, etc, and so you just need to collect the goods and will handle the rest of the process yourself (including the export process).
- Your vendor doesn’t have an export license and so can only offer to manufacture the products.
- You buy components from a number of vendors and want to assemble or kit them in their country of origin before shipping out the completed products or sets (doing this can help protect IP, too).
EXW VS FOB
If we compare EXW vs FOB then FOB is a lot ‘safer’ for most buyers. The vendor bears responsibility for the goods until they’re loaded to the ship. The vendor also pays domestic shipping and export costs.
With Ex Works shipping the vendor does none of this. Vendors may like bearing less responsibility and costs, so negotiating this with them could improve your costs.
In some cases, a country sets restrictions on the export of certain commodities. That was the case in 2020 with covid-related medical supplies, for example. Many suppliers refused to bear that risk and said “we only sell EXW”.
Benefits of EXW
- The buyer has total control over the shipping process, which companies are used, and its costs.
- If you have a buying office with an export license in the country your suppliers are based in, EXW shipping may be useful if you decide to handle pickup, export, and shipping without your supplier’s involvement.
- Your suppliers don’t export anything, therefore their names can remain private as they aren’t named on any shipping documents.
- If a supplier doesn’t have an export license you can still buy from them.
- Products or components from different suppliers can be kitted or assembled by you separately before they’re shipped meaning suppliers don’t know who else is in the supply chain which protects your IP.
- If you are dropshipping then products should be bought on EXW terms, not FOB, as it allows you to dropship and export the products per order. Otherwise, if using FOB, the supplier needs to export all of the goods themselves as per the PI.
- EXW is usually the least expensive option when purchasing from abroad as the vendor doesn’t need to account for any shipping costs etc in the unit price you pay.
Drawbacks of EXW
- The unit price may be the lowest, but the buyer still needs to pay all of the transport and customs costs.
- It goes without saying, but the buyer’s risks are highest when using EXW, as you take responsibility for the goods as soon as they’ve left your supplier.
- If there’s a problem during transit to the port it could be difficult for you to handle it remotely. Many of the “special cases” happen in places like China, rather than North America or Europe.
- If customs refuse to allow the export, for whatever reason, the buyer is left with goods in limbo.
- Inexperienced buyers may struggle to handle the shipping process or get reasonable prices without the help of a 3PL or freight forwarder.
An example of when EXW isn’t a good choice
One reader of our CEO’s blog provided this example:
A supplier requested Ex Works (EXW) terms; we found that this means that the factory would have the goods available on their loading dock… but we would be responsible to load on the truck! Not very user friendly. Some websites suggested that “FCA” – free carrier – would be a better choice, and from what I could see that makes sense.
So lesson learned – check out the incoterms details, and make sure you know what the implications are. And, negotiate differences as you need.