If you are an exporter and/or an importer, you are probably familiar with Incoterms®, a set of commercial terms internationally recognized that define buyer and seller’s responsibilities when shipping goods.
Each step in the shipping process comes with certain costs and risks, which may be split between the buyer and the seller in different ways, each of which is known in Incoterms® as a handy three-letter abbreviation.
Of the most common Incoterms®, Ex Works (EXW) is the one that attributes less responsabilities to the seller, and more to the buyer: let’s see why.
If a shipment is under the terms of EXW, it means that the seller is responsible for packaging the goods so that they are ready for transport and making them available to the buyer at a pre-determined location, typically a warehouse or dock; the seller is also responsible for providing all the necessary documents that allow the buyer to import the goods.
From the moment the buyer takes possession of the shipment, they also take charge of all responsibilities: arranging the shipping process itself (potentially across many modes of transport, such as a combination of air, sea, and land), paying any applicable export and import duties and taxes, loading and unloading the goods where necessary, insuring the cargo against loss, theft, or damage.
While this relieves the seller of most responsibilities, there are other options you may want to consider:
– C&F, which stands for ‘Cost and Freight’, meaning that the seller pays for shipping up to the agreed location, but the buyer remains responsible for the risks of it. This is the smartest way of transporting your goods, since the seller is always in control of the shipment, whereas all the risks are on the importer.
– FOB, which is a term exclusive to transport over sea and inland waterways and stands for ‘Free on Board’: under FOB, the seller is responsible for the goods until they are loaded onto a vessel at a specified port, after which the responsibility shifts to the buyer.
– FCA, which is used for all forms of transportation and stands for ‘Free Carrier’, where the seller’s responsibilities end at the moment when the goods arrive at a specified location, leaving the loading of the shipment onto the vehicle and the handling of any costs or requirements associated with the origin terminal to the buyer, except the customs clearance.
These are different from EXW in that the seller is responsible for at least some of the transportation and handling of the goods, with all the risks and costs therein, whereas with EXW, the seller plays a minimal part in the process, and most of the fees and expectations fall upon the buyer.
The terms of Ex Works, therefore, divide the responsibilities between the two parties in an unequal manner: let’s have a more in-depth look at why EXW is so commonly used in spite of the disparity.
EXW is the most commonly used Incoterm® in Italy, as opposed to France, Germany, and Spain, where other terms are generally preferred.
From the point of view of the seller, EXW is the term that implies the least responsibilities, but it is not without its own downsides, to the point that an explanatory note in the latest edition of Incoterms® explicitly discourages its use for international commerce, stating that it is more suitable to internal shipping and that other options are to be preferred whenever the goods are meant to move across national borders.
Shifting most of the costs and duties onto the buyer certainly means less work for the seller, but even under EXW, the seller is not as exempt from risks as it sounds.
Loading the cargo onto the vessel, for instance, is theoretically up to the buyer, but in actual practice, the seller will often take it upon themselves, even if it goes above and beyond the stated terms of EXW, and end up being liable for damage.
Moreover, if the goods are leaving the EU, the seller will have to face greater difficulties in obtaining documentation that proves the cargo has left the Union for tax purposes, which is only one example of why less responsibility also means less control.
The more responsibilities fall upon the buyer, the less the seller knows about every step of the supply chain, and controlling the supply chain is a key factor in making your business more competitive, let alone the country-wide repercussions of the widespread use of EXW.
When given most of the responsibility over the shipping process, a foreign buyer will most likely employ foreign suppliers and infrastructure, while a more balanced distribution of tasks between the two parties will ensure that the first leg of the journey, at least, offers a business opportunity to the local logistics industry.
Therefore, EXW means lower costs and risks for the seller in the short term, which certainly helps keep prices low and avoid most of the complications, but it can also have far-reaching consequences in the long term that may affect your business and your country as a whole.
In conclusion, if you are unsure which terms work best for your shipment, look no further than Global Shipping for any expertise you may need: we will be happy to put our decades-long knowledge at your service to help you understand which Incoterms® are right for you.