Ex Works – A 2019 TFG Guide

EXW Meaning - Ex Works

Ex Works – What is Ex Works?

Ex Works is a form of Incoterm that was developed and introduced to the global trading community in the 1930s by the International Chamber of Commerce. These Incoterms are essentially a set of rules that are globally understood, and reduce many communicational difficulties that international traders face daily.

Definition

Ex Works is a trading scenario in which the Seller of the goods responsible for the production and packaging of the goods at their place of manufacture only. This is In contrast with Free Carrier Arrangements, in which the seller is responsible for clearing the goods through customs at the place of transport – ie a shipping port.

This then means that the buyer (and/ or any co-signers they have involved) is then responsible for the rest of the transaction proceeds. This liability includes aspects such as the loading and transportation of goods, unloading and final transportation.

With domestic trade, Ex-works is preferable to other liability arrangements. This is because, within the domestic market, the buyer is likely to have transport links/ existing supply chains that they may be able to use – potentially being cheaper than the seller’s preferred arrangement.

Responsibility of the Buyer (versus Seller)
Relative Price

Transport Modes:

Rail, Sea, Air, Road

And this is the issue Ex works have in the international marketplace. The Buyer remember, is responsible for:

  • Loading the goods at the factory
  • Transporting to the port
  • Clearing customs
  • Shipment/ main transport
  • Unloading of the goods at the destination port
  • The final leg of the transport from the port to the buyer’s warehouse/ shop.

 

All of the above include many moving variables, that are costly for a business to arrange. For instance, the buyer will need to arrange the relevant licenses/ documents that are required for the goods to be cleared through customs and accepted for export.

Advantages and Disadvantages of Ex Works

AdvantagesDisadvantages
  • The buyer is responsible for all of the fees/ errands associated with the transport of the goods so in this instance, there is much less work.
  • The difficulties surrounding the clearing of customs alone may be enough to put businesses off using Ex Works. In many cases, the buyer is still required to provide communication and proof of purchase documents from the seller in order to have the goods approved for export, meaning a lot of legwork and time potentially wasted.
  • For the Buyer, they receive full transparency with the costs associated with the transaction. This also means that there is no risk of the Seller inflating the costs of transport when building their price.
  • There may be large costs involved as a by-product of the aforementioned issues. Costs such as the price of the necessary licences required for Customs can be a real strain on SME businesses, who may not need the full term of coverage offered by the licence but have no alternative.
  • The very fact that the Buyer is to arrange the transport of the goods may actually be positive. The idea is that they are free to arrange the transport completely on their own terms meaning that the conditions of transport, delivery times and insurance are all open to be chosen by the Buyer.
  • The Buyer is fully responsible for the majority of the transport. This could be complex and incur hidden fees, as well as the liability of faulty or damaged goods.


Ex Works Price

The price of Ex Works – much like FCA – is obviously dependent on the journey that is required for the goods. However, the following costs are to be considered when applying an Ex-Works arrangement:

  • Loading/ docking fees
  • Shipping Costs
  • Customs Duty
  • Any relevant Taxes
  • Insurance
  • Warehouse Storage

Ex Works vs FOB and Free Carrier Arrangement

Ex Works mainly differs from Free on Board pricing (FOB) in that with FOB pricing, the seller will transport the goods to their nearest port or terminal. FOB requires the supplier to ship the goods to their port, handle goods at the port and clear customs.

Find out more about FOB Pricing here:

Testimonials

A seller of clothing items is located in Glasgow, Scotland. The buyer is based in London, England. Both parties agree on the price of the clothing goods and decide to sign an Ex Works contract. The buyer agrees to then pick up the clothes in three weeks, and the supplier of the clothes needs to have these ready for collection from their factory in Glasgow. In this case, the buyer is responsible for all costs associated with loading the clothing pallets onto the truck, transporting the clothes from Glasgow to London (normally by rail or road), and then getting these to their warehouse in London. The buyer will incur all of these costs, including any liabilities such as the items of clothing getting damaged in transit.
Jenny M, Clothes Trader.

Case study

Case Study

Clothing Brand

We wanted flexibility to have our clothes delivered from our supplier in Scotland, as our stock was seasonal and we have limited space in our warehouse in London. Trade Finance Global introduced us to their expert shipping and freight partners so that we could control the delivery times and logistics, knowing that the costs were minimal and not inflated by the supplier, and allowing us the flexibility to organise the logistics and level of risk we wanted to take.

Get in touch with our finance experts. Enquire now.

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First Name*

Last Name*

Your Organisation*

How much trade finance are you seeking?*

Your Email*

Telephone Number*

Briefly, what type of stock or trade are you looking to finance?

(Marketing Terms can be found here)

Benefits

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