Importing and exporting cargo across international borders can get complicated without the right agreements and mechanisms in place.
Buyers and sellers can choose from myriad incoterms to establish accountability, risks, and responsibilities associated with a specific shipment. Incoterms establish the tasks and responsibilities that fall into the purview of both parties and how they should navigate them.
Deciding the right incoterm to implement for your shipments requires you to weigh the pros, cons and requirements before making a decision.
In this article, we will talk about EX works incoterm definition and the responsibilities, advantages and disadvantages that buyers and sellers should consider.
What Does EX Works Incoterms Mean?
EX Works Incoterms meaning usually refers to a routed export transaction.
EX Works Incoterm is an agreement between buyers and sellers that stipulates that the seller will make their goods available only in their warehouse facility or dock, maximising the risks and responsibilities associated with the buyer.
With this kind of agreement, the buyer will assume all the risks and responsibilities associated with the cargo once they collect it from the seller’s warehouse.
EX Work Incoterms apply to all modes of transport and shipping. Once the cargo is packed in export packaging and collected, the buyer will take over all the responsibilities.
However, an EX Work Incoterm still requires sellers to follow through on their end of the responsibilities completely and effectively.
Sellers must ensure that the goods delivered to the buyers are in perfect condition and packaged properly.
Even if the buyer assumes the risk of collecting and transporting the shipment, if they don’t receive it in perfect condition, they can ask the seller to pay financial remuneration or replace it.
That said, it’s a good idea to get a deeper understanding of the responsibilities associated with buyers and sellers as part of an EX-Works Incoterm Agreement.
Buyer Responsibilities With EXW Agreements
As specified before, the buyers assume a predominant part of the responsibilities and risks associated with shipments under EX-Works Incoterms.
They are also responsible for transporting the shipment from the seller’s warehouse or facility to its destination.
That said, here are some of the primary buyer responsibilities under EX-Works Incoterm that you should know about:
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After the buyer receives the goods, they are obligated to cover all the expenses and risks associated with them.
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Buyers should also cover for any damage or losses to product that happens in transit
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Buyer needs to deal with all kinds of shipping operations and freight transfers and the costs associated with them
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Loading the shipment and goods into the transport vehicles, paying the related loading, carriage and terminal charges
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Buyers will also be responsible for delivering shipments to the destination terminal, unloading them in the terminal, and paying the fees associated with these processes.
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Buyers will also pay the taxes, customs duties and clearance charges associated with the international shipment.
Basically the buyer will take care of all the responsibilities, risks and charges starting from collecting and loading the shipment onto a transport vehicle to delivering it safely to the destination.
Seller Responsibilities With EXW Agreements
Now that we know about the responsibilities and risks associated with buyers in EX Works Incoterms, let us look at the seller-side responsibilities too.
Even though buyers assume most responsibilities in EXW agreements, sellers have to deal with some of the responsibilities and risks too.
Here are the primary ones that you should know about:
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The shipment should meet the required quality criteria specified to be deemed as being in ideal condition
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The shipment should be packaged properly and prepared to be exported so that the goods can be seamlessly collected from their warehouse or facility
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Once the cargo is ready for dispatch, it should be placed at a location that is easy for buyers to access and collect from the seller
Since the documentation related to the EXW agreement will also be prepared by the buyer, sellers simply have to get the aforementioned parts of the process right.
Advantages and Disadvantages for Buyers
Now that you know about the risks and responsibilities that buyers and sellers have to fulfil and what EX works incoterms means, let us look at the advantages and disadvantages that buyers can get by entering into an EX Work Incoterm:
4 Advantages for Buyers
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EXW is the most practical shipping solution for buyers who want to buy products from multiple suppliers in a country and consolidate the cargo to be exported as a single shipment.
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Buyers who don’t want to highlight their suppliers’ information or want to hide it are more likely to benefit from using an EXW agreement.
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For buyers, EXW is one of the least expensive alternatives when they are looking to reduce purchase prices
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Buyers get the option of purchasing specific products from specific sellers even if the latter does not provide shipping services for the destination location - whether domestic or international.
6 Disadvantages for Buyers
EXW can definitely be an appealing shipping option for buyers but you need to consider the following disadvantages in the process:
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The obvious disadvantage is that the buyer needs to assume all the risks, responsibilities and costs associated with the shipment.
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Buyers need to find legitimate sellers who can pack and prepare goods for shipment and for the buyers to collect.
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Buyers may need to employ a local shipping agency or company to deal with the movement of goods and any related problems that take place in the seller’s country.
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Once the transfer of possession takes place from seller to buyer, the latter is responsible for dealing with any issues and risks in the origin port terminal.
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If buyers are unaware or unsure of the costs associated with shipment under EXW agreements, they might end up paying more than they initially planned or budgeted for.
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Buyers should account for the services of a freight forwarder or 3PL service provider especially when dealing with international logistics.
Advantages and Disadvantages for Sellers
Now that you know the advantages and disadvantages for buyers in EXW agreements, here are some of the primary ones associated with the sellers.
4 Advantages for Sellers
As you may have already realised, an EXW agreement is more beneficial to the sellers and has limited risks for them. Let us look at these advantages:
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The sellers’ part of responsibilities come to an end as soon as the buyer collects the cargo or shipment
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The majority of responsibilities and risks in an EX Works Agreement are put on the buyer, comparatively freeing up the sellers
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Even if sellers help buyers take care of some of the responsibilities, the onus of taking the process forward and accountability falls on the buyers
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While sellers can volunteer to help out buyers with collecting and loading goods and transporting them to the destination, they are not required to do so
3 Disadvantages for Sellers
While there are minimal or no major disadvantages for sellers when they enter an EXW agreement, here are a few they must consider:
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While sellers will benefit in every way with EXW agreements, they will have limited visibility into the supply chain once the shipment is collected by buyers
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Communication breakdowns on the seller’s side are common in EXW agreements as they may not receive updates or confirmations from the carriers and buyers once the shipment has been collected.
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Like other incoterms such as DDP or FCA, EXW agreements often require a lot of documentation to be prepared, but sellers will have no say in how they are prepared and face more difficulty in acquiring them.
When is an EXW Agreement Ideal?
Even though you have a better understanding of the EX Works Incoterm meaning and the pros and cons associated with the buying and selling side of EXW agreements, it is important to assess whether it is right for your shipping requirements.
While most businesses will execute an EXW agreement only when the seller is unable to export or transport the cargo, they may also choose to do so when they are looking to combine multiple shipments into a container under a single export name.
As a buyer, if you find yourself dealing with one of these situations, you may want to consider entering an EXW agreement with the seller. You may also want to do so if your 3PL partner or logistics service provider includes collecting cargo from the seller’s premises within their service scope.
Since the service providers are likely to deal with all the export formalities and documentation, this is a convenient option for buyers.
In certain special scenarios, buyers may also prefer to set up offices in an export country to process their shipments easily. If none of these apply to a buyer, they are more likely to choose another incoterm instead of EXW.
Wrapping Up
EX Works Incoterms is a form of shipping agreement wherein buyers collect and transport the cargo from the seller’s premises, and take over all the responsibilities, risks and costs from that point forward. However, this incoterm is not for everyone, businesses must weigh the pros and cons mentioned in this article and assess whether it is the right shipping agreement for their requirements.
To ensure that your international shipping processes and related documentation are always on track, get a quote from the PACK & SEND website and get in touch.