The world of international trade is full of terms and acronyms that can seem intimidating to newcomers. However, understanding these terms is essential to successfully navigate this vast ocean of international transactions.
One of these key terms is“Incoterm“, which is short for“International Commercial Terms“.
Incoterms are a series of standardized definitions created by the International Chamber of Commerce to facilitate global trade.
Throughout this article, we will unravel the intricacies of the EXW Incoterm, from its definition and obligations to the legal aspects to be taken into account. In addition, we will establish a contrast with another common Incoterm, the FCA (Free Carrier), to provide a broader perspective.
So, if you are a seller or a buyer looking to better understand the maze of Incoterms, or just someone curious about the ins and outs of international trade, this article is for you. Welcome to a detailed tour of the EXW Incoterm.
More information about Incoterms:
- INCOTERMS 2020. What they are and what they are used for.
- Types of Incoterms. Which one to choose in each case?
What is the EXW Incoterm?
Incoterm EXW, also known as“Ex Works“, refers to a form of sales contract in which the seller has minimum responsibility for the shipment and delivery of the goods.
In an EXW contract, the seller agrees to have the goods ready for collection at an agreed location, which is usually his own place of business, such as a factory or warehouse. Once the goods are ready for collection, responsibility for the goods and all costs associated with their transportation and insurance pass to the buyer.
This type of arrangement is especially attractive to sellers, as it relieves them of the responsibility of coordinating and paying for the transportation and insurance of the goods. On the other hand, it places a greater burden on the buyer, who must take care of all the logistical details after the goods are picked up at the designated location.
It should be noted that the EXW term is one of the most flexible in terms of the seller’s obligations, and is commonly used in international commercial transactions, especially where the buyer has a large logistical capacity.
However, this flexibility also comes with its own set of challenges and considerations that must be taken into account, which brings us to the next section of this article.
Obligations in the EXW Incoterm
In any contract based on Incoterms, the obligations for the parties involved are clearly defined. In the case of EXW, these responsibilities are shared quite unevenly between the seller and the buyer.
Incoterm EXW obligations for the seller
For the seller, the main obligation is to have the goods prepared and packed for collection at an agreed location, usually his own place of business.
This implies that the seller must prepare and package the goods in accordance with industry standards, and communicate to the buyer when and where the goods are ready for collection.
However, the seller is not responsible for loading the goods on the vehicle provided by the buyer, unless otherwise agreed.
Incoterm EXW obligations for the seller
On the other hand, the buyer assumes a large number of responsibilities in an EXW contract. The buyer must arrange and pay for the transportation of the goods from the seller’s place of delivery to their final destination. You are also responsible for arranging and paying for any insurance required for the goods during transportation.
In addition, the buyer must be responsible for all customs formalities necessary for the export and import of the goods, which may include the payment of customs duties, taxes and other fees.
In addition, it is critical that both parties clearly understand their obligations before entering into an EXW contract. This is especially relevant for international buyers who may be unfamiliar with the export processes of the seller’s country, or for sellers who may be selling to buyers in countries with complex or restrictive import procedures.
Differences between Incoterm EXW and FCA
The Incoterm FCA, or “Free Carrier”, is often compared to EXW because of its similarities in terms of the responsibilities of the parties involved. However, there are key differences that may make one more appropriate than the other depending on the context of the transaction.
In an FCA contract, as in EXW, the seller is responsible for preparing the goods for collection. The main difference is that, under FCA, the seller is also responsible for delivering the goods to the carrier designated by the buyer at an agreed location. This may be the vendor’s own premises or any other designated location.
In addition, the seller in an FCA contract is responsible for export formalities, a factor that may be attractive to international buyers who are unfamiliar with the export procedures of the seller’s country. This contrasts with EXW, where the buyer is responsible for export formalities.
On the other hand, the buyer, in an FCA agreement, as in EXW, remains responsible for arranging and paying for the main transport and insurance, as well as taking care of the import formalities.
In summary, while EXW and FCA appear similar in terms of distribution of responsibilities, the main difference lies in who is responsible for the export formalities and delivery of the goods to the carrier.
These factors can have a significant impact on the choice between EXW and FCA, and parties should carefully consider which of the two Incoterms best suits their needs and capabilities before signing a contract.
Legal aspects to consider
In any international trade transaction, legal aspects play a fundamental role and the use of the EXW Incoterm is no exception. Here are some legal aspects to take into account when using this term:
Export and import formalities
As mentioned above, under the EXW Incoterm, the buyer is responsible for all export and import formalities. This may involve obtaining export licenses, filing customs documentation and paying tariffs and taxes.
However, in many countries, customs laws require the exporter to be a locally registered entity, which can complicate matters for an international buyer. This is a crucial point to take into account when selecting EXW as Incoterm.
Risk transfer
Under EXW rules, risk passes from the seller to the buyer at the time the goods are available for collection at the named place. It is vital that this point is precisely defined in the contract to avoid legal disputes.
Transportation and insurance contracts
Although under EXW the buyer is responsible for transport and insurance, the seller may have to provide assistance, e.g. by providing information for transport documents or providing access for collection of goods.
Conflict resolution
In the case of disputes related to the contract, the parties should take into account the laws of each other’s country and define dispute resolution mechanisms in the contract.
These are just some of the legal aspects to consider. It is recommended that both the seller and buyer seek legal advice before entering into an EXW contract to ensure that they understand and are prepared to comply with all the legal obligations involved. In the next section, we will share some useful tips for using the EXW Incoterm.
Tips for using the EXW Incoterm
The use of the EXW Incoterm can bring with it numerous benefits, but also some challenges. Here are some tips to make your implementation as smooth as possible:
Clarity of obligations: It is critical that both the seller and buyer clearly understand their responsibilities under an EXW contract. This should include not only transportation and insurance costs, but also customs and export/import formalities.
Consider export laws: As mentioned above, export laws can present a challenge to the buyer in an EXW contract. The buyer should thoroughly investigate the export laws of the seller’s country before entering into an EXW contract.
Precise definition of the place of delivery: In an EXW contract, it is crucial that the place of delivery is precisely defined. This can avoid potential disputes about where and when the goods should be picked up.
Risk and cost assessment: The buyer should perform a careful risk and cost assessment before opting for an EXW contract. This should include considerations of transportation and insurance costs, as well as the risks associated with export and import formalities.
Effective communication: Clear and effective communication between the seller and the buyer is essential in an EXW contract to coordinate the collection of the goods and avoid possible delays or misunderstandings.
In conclusion, although the EXW Incoterm may be attractive because of its flexibility and simplicity for the seller, it requires a considerable level of knowledge and preparation on the part of the buyer. Therefore, it is crucial that both parties inform each other adequately and communicate effectively to ensure a successful transaction. In the last section, we will introduce you to how Across Logistics can be your reliable partner in this process.
Across Logistics, your reliable logistics partner
Choosing the right Incoterm is only part of the logistics puzzle. For a smooth international trade operation, a reliable logistics partner is essential. That partner is Across Logistics.
At Across Logistics we are experts in providing customized logistics solutions that meet your needs. Our experience covers a wide variety of industries and logistical situations, and we are always willing to go the extra mile for our customers.
With respect to Incoterms and in particular EXW, we can provide you with expert advice and support. Whether you are a seller looking to simplify your obligations or a buyer willing to take on the responsibility of export and import transportation and paperwork, we can help you navigate the complexities and ensure that your goods reach their destination safely and efficiently.
In addition, thanks to our extensive network of logistics partners, we can arrange the transport of your goods from virtually anywhere in the world to their final destination, no matter how far away.
In conclusion, if you are looking for a partner who can help you get the most out of the EXW Incoterm, look no further. Across Logistics is here to make your international trade experience as easy and hassle-free as possible. Contact us today and find out how we can help you take your business global.
