This time, let’s look at Ex-works. We will go through the advantages and disadvantages from a seller and a buyer’s perspective.
You can minimize both seller’s and buyer’s trading troubles, by understanding INCOTERMS correctly. So, it’s important for you to understand. Let’s take a look!
Explanation of EXW by Animation Video
What is INCOTERMS?
Ex-works is a one of INCOTERMS which explains terms and conditions on trading. There are 11 different types of trading terms.
Ex-works is the smallest risk term with a smaller logistic responsibility for a seller. We will attach a website link for our previous video and blog contents as below, which explains the characteristic of INCOTERMS.
Ex-Works – Risk and Payment
Let’s take a look at the cost and responsibility of a cargo in Ex-works.
With Ex-works trading terms, it is the responsibility of an Importer (the buyer), to take cost and risk responsibilities of transportation, from the exporting factory to the imported delivery location.
Roll of Importers/Buyers
Once the seller has delivered the cargo to the transportation truck at their factory or a warehouse, the cost and risk responsibilities will be moved to the buyer.
This means the Importers are responsible for cost and responsibility for the following;
・Pick up and Transportation
・Export customs clearance
・Sea and Air shipment
・Import Customs clearance
・Transportation to the final destination.
However, the seller is required to provide support when obtaining export certificates from related ministries, and to provide information for an importer with regards to import customs clearance.
Ex-Works from Exporter’s point of view
What is Ex-works from an exporter’s point of view?
For an exporter, who has completed the order within the deadline and then handed the cargo to a buyer at their factory, the buyer (importer), will deal with all other processes.
Advantage for Exporters
The largest feature here, is that the seller can focus on production and purchase of stock.
Therefore, Ex-works offers more suitable terms when starting a new export business destined to overseas and when exporting to a new trading country.
Ex-works may be a better option for inexperienced business owners, as there is increased risk and unknown factors when shipping to countries you are unfamiliar with.
・Exporters can focus on production and purchase of stock.
・Risks responsibilities are at minimum.
・Trading process is not needed.
Disadvantage for Exporters
Now, let’s take a look at the disadvantage of Ex-works.
The importer is required to make all transportation arrangements once the cargo is handed over at exporter’s premises, when importing using Ex-works terms.
Therefore, the Importers(buyers) should be familiar with the Ex-works trading terms.
Importers using Ex-works are most likely very experienced traders. Importers using Ex-works offer less opportunity for exporters to negotiate reduced cost and increased benefits.
If an inexperienced exporter using Ex-works, it may be difficult for them to achieve larger profit by using both domestic and international logistics.
・Exporters are unable to choose their own transportation.
・Exporters may not be able to negotiate cost.
Ex-Works from Importer’s point of view
Alternatively, what is Ex-works terms from an importer’s point of view?
An importer(buyers) will be required to make arrangements for transportation in the exporting country.
Therefore, Ex-works terms will require for them to know the local practices, and have knowledge and experience of transportation in the exporting country.
Advantage for Importers
An importer can control their transport arrangements and choose a transportation company and insurance. Therefore, for an Importer(buyer) can minimize the importing cost when using Ex-works terms.
Also, an importer can make transportation arrangements and take risk responsibilities, which may enable them to negotiate reduced cost to a buyer.
・Importers can minimize the cost of importing.
・Importers can control logistics
Disadvantage for Importers
On the other hand, the disadvantage of Ex-works is that they need to take more risk responsibility of transportation.
They will need to take responsibility for all risk, from an exporter’s premises to the designated domestic destination.
Also, they need to check that the freight forwarder they use is experienced and able to make arrangements for transportation and customs clearance in exporting country.
If the freight forwarder is unable to make these arrangements, they need to find other freight forwarder, or avoid using Ex-works.
・Importers need to take all risk responsibilities.
・Importers may not choose to use Ex-works if their freight forwarder is inexperienced.
This time, we looked at Ex-works terms.
You can understand more if you can look at Ex-works from both an exporter and an importer’s point of view and compare with the status of your company.
Ex-works is a term with minimum responsibility for exporters.
If you are considering exporting overseas, it may be a good idea to speak to your business partner of the exporting company with regards to using Ex-works terms.
Alternatively, if you would like to minimize the cost of importing, you could discuss using Ex-works terms with a freight forwarder.