Sometimes when you import from overseas, you will find that your suppliers prefer to use EXW quotations for air cargo, and some suppliers can only provide EXW quotations, but some suppliers insist on using the FOB term, what is the reason, Let’s learn about EXW this Incoterms.
What are EXW mean?
EX Works (… named place),.It means that the seller has the responsibility to deliver the prepared goods to the buyer at its location, such as workshop, factory, warehouse, etc., but is usually not responsible for loading the goods into the vehicle prepared by the buyer or clearing the goods. Buyer assumes all costs and risks of shipping the goods from Seller’s location to the intended destination. It is also the most common trade term in Incoterms, and it is also the most flexible trade term. It is usually used together with the FOB term when you carry out buyer consolidation.
Why is EXW term said to be the Incoterms with the least responsibility for the seller?
Buyer must bear all costs and risks of taking delivery of goods at Seller’s location.
However, if both parties want the seller to be responsible for loading the goods and bear all the costs and risks of loading the goods at the time of departure, this must be clearly stated in the sales contract.
When to use the FCA term instead of the EXW term?
The term should not be used when the buyer cannot directly or indirectly carry out the export formalities, but FCA should be used if the seller agrees to load the goods at his expense and risk. At this time, the seller needs to provide the relevant export license and complete the export declaration procedures, that is, complete the delivery,
What knowledge and resources should buyers have if using the EXW term?
An experienced freight forwarder who can operate customs declaration and customs clearance at the port of departure and destination, and understand all customs declaration documents.
Buyers are proficient in some EXW term fee details, as well as the EXW term operation process
Learn to buy insurance, when the goods are shipped using EXW term
Plan well in advance
Why is when you do EXW term, your Chinese supplier must insist you use their export declaration documents, and they will complete the declaration when you ship from China?
Because of this clause, factories can obtain tax rebates from the Chinese government. Is the export declaration form an important document for obtaining tax rebates?
This is why many goods are actually contracted on EXW terms, but shipped on FOB terms.
The following introduces EXW shipping’s obligations and risk transfer between sellers and buyers, and the cost calculation of EXW term. The following content is based on Incoterms 2010
A1 Provide goods that comply with the contract
The seller must provide the goods in compliance with the contract of sale and a commercial invoice, as well as any other documents that the contract may require to prove that the goods comply with the contract.
A2 Export licenses, other licenses, and formalities
To help the buyer obtain the export license or other official permission required for the export of the goods, the seller must give all assistance and provide all documents required for an export declaration.
When goods are exported from China, sometimes some factories are workshop-scale and can only produce products. They do not know anything about freight, so the importer’s freight forwarder can only purchase an export license at the port of departure, which is limited to ordinary goods.
Export licenses for the export of dangerous goods or the export of automobiles cannot be purchased.
A3 Contract of carriage and insurance contract.
The seller must deliver to Buyer, at the place specified, on the date or period agreed upon in the contract, or, if no date or period is agreed, at the time customary for the delivery of such goods, at the place specified.
If no specific delivery point has been agreed upon within the designated locations, or there are several delivery points available, the seller may choose the delivery point that is most suitable for its purpose among the delivery locations. This usually occurs when the importer purchases products in many places, and the suppliers are located in different addresses, so you can choose the nearest delivery. Usually, this is buyer consolidation and sent to the destination together.
A5 Risk transfer
Except as provided in B5, the seller must bear all risks of loss or damage to the goods until delivery has been made in accordance with A4.
A6 Fee division
Except as provided in B6, the seller must bear all costs associated with the goods until delivery has been made in accordance with A4.
A7 Notify the buyer
The seller must give the buyer notice of when and where the goods will be at the buyer’s disposal.
A8 Delivery document, transport document, or equivalent electronic message
A9 Check, pack, mark
The seller must pay the cost of checking the goods (such as checking the quality of the goods, measuring, weighing, and counting) in order to deliver the goods to the buyer for disposal.
The seller must provide at its own expense the packaging required for the shipment of the goods known to the seller prior to the conclusion of the contract ( mode of transport, destination) (unless in accordance with relevant industry practice, the goods referred to in the contract generally do not need packaging). Packaging should be appropriately marked.
A10 Other obligations
At Buyer’s request and at Buyer’s risk and expense, Seller must give Buyer all assistance in obtaining the goods issued or transmitted by the Country of Delivery and/or Country of Origin that may be required by Buyer for export and/or import, Or any documents or equivalent electronic messages required for transit from another country if necessary.
At Buyer’s request, Seller must provide Buyer with the information required for insurance.
B1 Arrange payment
The buyer must pay the purchase payment in accordance with the sales contract.
B2 Permits, other permits, and formalities
The buyer must, at its own risk and expense, obtain any export and import licenses or other official licenses, and when required, conduct all customs formalities for the export of the goods.
B3 Contract of Carriage and Insurance Contract
The buyer must take delivery of the goods when the seller delivers in accordance with A4 and A7/B7.
B5 Risk transfer
The buyer must bear all risks of loss of or damage to the goods as follows: from the time of delivery in accordance with A4; and since the buyer fails to notify the seller in accordance with B7, from the agreed delivery date or the date of expiry of the delivery period, but only if the goods have been formally assigned to the contract, clearly set aside or otherwise determined as the goods under the contract.
B6 Fee division
The buyer must pay all costs associated with the goods from the time of delivery in accordance with A4, and any additional costs incurred when the goods are placed at the buyer’s disposal and the buyer does not accept the goods or give the seller corresponding notice in accordance with B7, but such The goods have been duly assigned to the contract, that is, clearly set out or otherwise identified as the goods under the contract; and when customs formalities are required, all duties, taxes and other charges payable for the export of the goods, and the cost of customs formalities.
The buyer must reimburse the seller for all costs incurred in providing assistance in accordance with A2.
B7 Notify the seller
Once the buyer is entitled to determine the specific time and/or place to take delivery of the goods within the agreed period, the buyer must give the seller sufficient notice of this.
B8 Delivery document, transport document, or equivalent electronic message
The buyer must provide the seller with proper proof of receipt of the goods.
B9 Cargo Inspection
Buyer must pay for any pre-shipment inspections, including inspections mandated by the relevant authorities of the exporting country.
B10 Other obligations
The buyer must pay all costs incurred in obtaining the documents described in A10 or equivalent electronic messages, and reimburse the seller for assistance.
EXW’s most common FAQs:
How to use EXW, CIF, FOB, when you arrange to ship:
When your supplier cannot provide an export license, you can use EXW shipping to let your forwarder buy an export license.
Many Chinese suppliers can only produce products, cannot provide export and any services about freight. They do not have any knowledge of international shipping.
When you import from China, you have a lot of suppliers, you will combine these goods in a warehouse, called buyer consolidation, then some suppliers you will choose EXW, some you will choose FOB.
Usually, when multiple suppliers are combined into one shipment or one container, buyers usually use FOB terms or FOB terms + EXW terms.
You can use EXW terms when you want to know exactly all the shipping costs from the supplier’s warehouse to the destination port.
When your cargo is very small, such as only 40kgs or 0.2CBM, and your supplier doesn’t want to offer a CIF term quotation, then you can choose the EXW term.
When you have a very compliant and experienced freight forwarder who is proficient in all documents at the port of departure and destination, as well as the customs clearance process, then you can also choose the EXW term with confidence.
If you import from other countries in Asia, such as Thailand, Vietnam, India, Pakistan, Philippines, Malaysia, EXW terms are very suitable, no matter for LCL or FCL, an experienced shipping company, they will help you deliver the goods safely Destination.
If you trust your supplier very much, and the quantity of your imported goods is very small, 3cbm,45kgs, such as 2 containers a year, and you don’t care much about the shipping cost, you can use CIF shipping.
If the goods are very small, the CIF term makes it very convenient for you to ship.
For LCL goods, we strongly recommend using the FOB term, because the port of destination fee for the CIF term is very expensive.
If you want to strictly control your logistics costs, then FOB shipping is the best choice.
If you have goods from multiple suppliers that need to be consolidated into one container, FOB shipping is the best solution for buyer consolidation, because it can be combined with EXW term, which is a perfect match.
FOB shipping is the best choice if you want to transfer the risk of customs declaration at the port of departure and the storage fees and terminal fees caused by the failure of customs declaration to the shipper.
In the case of COVID-19, global shipping delays, lack of containers, local fee costs at the port of departure have become higher, and the risk is also greater, FOB term is very beneficial from the terms of importers.
If you have a good shipping agent, then boldly use FOB shipping, and FOB is most suitable for Incoterms of mature importers.
When to use EXW?
EXW is available for all shipping methods.
CIF vs EXW
Importers bear relatively high shipping costs and risks
The seller only needs to prepare the goods and wait for the buyer’s forwarder to pick up the goods and load them into the container
Shipper bears relatively high responsibility and transportation risk
But when the goods arrive at the port of destination, the importer is responsible for customs clearance and pick up the goods from the port of destination
EXW is the most beneficial Incoterms for sellers, but Chinese shippers, usually cannot get tax rebates under EXW terms, so most Chinese suppliers still choose Incoterms of FOB or CIF. Tax rebates are very important for current low-profit trading businesses.
CIF terms seem to be beneficial to importers, but CIF’s high shipping costs are also a headache for importers.
FCA vs EXW
What is FCA? The FCA shows the final point of handover of the goods to the buyer or its representative. The cargo will then begin its main journey from that location. The seller is responsible for loading the goods onto the buyer’s means of transport.
Typically, this location is the port of origin or the freight forwarder’s storage facility. Without mentioning the place, the seller can deliver the goods to the buyer at his convenience. But really, this will be a place for buyers and sellers.
In FCA Incoterms, it is the seller’s responsibility to pack, label, and complete all formalities related to export at the origin.
From a risk and convenience standpoint, many businesses see FCA as a better alternative to Ex-Works.
EXW vs FOB
Both Incoterms have their own advantages and are widely used when you import from China and Asia.
Of course, the most commonly used is FOB, free on board. FOB fairly distributes the responsibilities and costs of the seller and the buyer, and the EXW Term allocates both costs and responsibilities to the buyer.
Advantages of FOB term:
Make sure you can get better ocean shipping, no hidden fees
Better control of your own cargo rights and delivery progress
Disadvantages of FOB term:
When the goods are on board, the risk begins to pass to the buyer
Disadvantages of Ex-Works term:
Buyer is responsible for all risks from supplier factory to own warehouse
The buyer needs to have a very reliable freight forwarder, otherwise, the customs declaration at the port of departure and the customs clearance at the port of destination will easily run into trouble.
All the logistics cost details can be very confusing to those new importers, we do not recommend newcomers to use EXW terms.
A large number of export documents and customs clearance procedures can be very confusing for new traders.
There may be some extra costs from the warehouse of the port of origin to the warehouse of the destination port or the destination port, which needs to be confirmed in advance, and the buyer is also responsible for the damage, loss, and responsibility during the transportation.
Advantages of Ex-Works term:
All the costs are listed at the beginning, and all the shipping costs are very clear, which is convenient for statistics of import costs.
Importers can flexibly combine goods from different suppliers
The seller only needs to produce the goods and wait for the buyer’s forwarder to pick up or load the goods
Buyers will not worry about being overcharged for any shipping costs and have complete control over the delivery process
The delivery time and delivery location can be flexibly determined.
How is EX Works pricing calculated?
Shipping via EX Works requires the buyer to bear all shipping costs, including pick up from the factory, inland shipping, exporting, importing, and shipping to the final destination. To calculate the cost of this type of transportation, each segment of the journey must be considered. If you are importing from China or other countries in Asia, Bestforworld can provide a detailed EXW quote for your unique shipment.
Do EXW Incoterms include duties and taxes?
The buyer is responsible for all import duties, taxes, and customs clearance when shipping under EXW Incoterms. EXW requires the buyer to handle all aspects of the export, freight, and import process. The seller is only responsible for export packaging.
Why is EXW term not a good choice when you import from European countries?
Because in the EU, individuals or non-company cannot provide export licenses, then E XW terms cannot be used, the best terms are FCA or EXW, or FOB.
Who handles the customs clearance procedures of EXW shipping?
The buyer needs to find a reliable freight forwarder to complete the customs clearance at the port of departure and the customs declaration at the port of destination. The seller is responsible for providing all the documents required by the buyer, such as commercial invoices, packing lists, and export licenses.
Is EXW shipping suitable for L/C?
L/C is not suitable for EXW incoterm as it has loopholes and is prone to documentation issues that can easily keep banks from not paying suppliers.