Video of This Article
Hello, it’s IINO.
This time, we focus on EX-Works in Incoterms, and explain the advantages and disadvantages from the standpoint of both buyers and sellers.
I have produced a video with the same content before, but I will explain it more clearly.
So, let’s get started.
What EXW Is
First of all, Incoterms are the terms and conditions of trade. It indicates the freight transportation price from where to where is included and the responsibility for the transaction to what extent lies.
Ex-Works is usually written in EXW.
There are 11 types of Incoterms in total, and Ex-Works is the one with the smallest scope of responsibility for sellers.
There is a video explaining the features of Incoterms, whose link here.
Now let’s take a closer look at EX-Works.
In Ex-Works, the buyer, the importer, bears all transportation costs and risks associated with the transportation of the goods from the seller’s factory to the importer’s delivery address.
The exporter’s responsibility ends when the cargo is handed over to the truck at the exporter’s own factory or warehouse.
In other words, the importer bears the entire cost and risk of transportation in the exporting country, export customs clearance, freight charges for ships and airplanes, customs clearance at the importing country and delivery to the destination.
However, it is defined that the exporter is also obligated to support the importer when obtaining approval for export from the relevant ministries and agencies and providing the information required by the importer when conducting import customs clearance.
In trade transactions, human relations with the other party are very important.
Advanteges and Disadvantage from Exporter and Importer
Now, let’s take a look at the advantages and disadvantages of Ex-Works transactions from the perspective of both exporters and importers, while confirming actual transactions.
Advantage For Exporters
First, let’s look the point of view from the exporter.
Once the exporter produces the goods on time and delivers the cargo at own premises to the importer, the importer will take care of all the rest of the trade.
The biggest advantage is that the exporter can concentrate only on production and purchasing. For the exporter, it is not much different from domestic transactions except for the collection of payment.
In this sense, the terms of trade are suitable for those who are about to start exporting to foreign countries or for exporting to countries they have never done business with before.
Disadvantage For Exporters
Now let’s consider the disadvantages of Ex-Works from the exporter’s point of view.
The buyer in Ex-Works has to receive the cargo at the other party’s premises and arrange all transportation services by itself.
This means that the buyer should know well in trade transactions. In other words, the importer in Ex-Works is likely to be the well experienced in trade.
It may be difficult for an exporter to make a large profit by taking advantage of domestic and international logistics costs against such a trading partner.
Advantege For Importers
On the other hand, what are the advantages of Ex-Works from the importer’s point of view?
Ex-Works allows the importer to control the logistics and choose their own shipping and insurance companies. In this sense, it is the cheapest condition for the buyer to import.
In addition, the importer could offer a discount to the seller by bearing all the risks and practices of shipping.
Disadvantage for Importers
The disadvantage for the importer is, that they have to bear the most extensive risks associated with transportation.
The importer must be responsible for all risks, from the exporter’s premises to a designated location in the country.
In addition, the importer has to arrange transportation and export customs clearance in the exporting country.
Since it is difficult for the importer to make these arrangements himself, he has to leave it to the forwarder with whom he does business. However, it depends on the ability of the forwarder.
The importer needs to find out, if the forwarder is able to make those arrangements and if good enough to give the importer good terms on price.
In case that the forwarder dealing with is not able to perform those tasks, the importer must find another forwarder or sign a contract other than Ex-Works.
In actual transactions, in what situations is Ex-Works used?
Sending Sample of Product
It is often used when sending products to try them out, or in the first transaction in Ex-Works which is just the price of the product.
You can arrange Ex-Works transaction by shipping a small amount of cargo with a courier. With a courier, they can arrange to pick up the goods from a specified location, clear export customs, transport by air, clear import customs and deliver in the country.
The fees are fixed at a package rate which makes it easy to understand. Even beginners in trade can make arrangements quickly.
Delivering to the Region Where a Buyer is Good at
The next most common use when delivering to the region where a buyer is good at. If the forwarder has a very competitive price, there is no reason not to take advantage of it.
Many forwarders serve intermodal transportation. If you ask for a forwarder who can take care of everything from transportation to customs clearance in the destination region, you can receive attractive prices and services.
In this video, I have explained about Ex-Works, and the advantages and disadvantages of Ex-Works can be summarized as follows.
In Ex-Works from an exporter’s side, the advantages are;
-Possible to concentrate on production and purchasing
-Lowest risk of logistics
-Almost no trade procedures required
-Not choice of transportation
-Some difficulty for price negotiation
On the other hand, from an importer’s side, the advantages are;
-The cheapest way to import
-Possible to control by own logistics
-Need to bear all the risks of logistics
-May not work depending on the ability of the forwarder
I considered the conditions of Ex-Works from the standpoint of both exporters and importers. Therefore, I think you will be able to understand them better if you compare them to your own situation.
Ex-Works is the least burdensome of the Incoterms for exporters. Then if you are planning to expand your business overseas, it would be good to ask importing partner to trade under Ex-Works.
In case that you are an importer and want to keep the price low, you may want to consider consulting with forwarders whether you can import in Ex-Works.
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I’ll see you in the next video. Thank you very much!
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