A Look into EXW – Ex Works in Customs Brokerage

In the complex world of international trade and customs brokerage, precise understanding of trade terms is essential to ensure smooth and efficient transactions. One of the most fundamental and sometimes misunderstood terms is EXW, which stands for Ex Works. In this article, we will delve into what the Incoterm EXW entails and how it can impact customs brokerage operations.

Group E: Most costs and risks are the buyer's responsibility.

What Does EXW Mean?

EXW: Ex Works is a term used in Incoterms (short for International Commercial Terms) and establishes that the seller fulfills their delivery obligation when they make the goods available to the buyer at their premises or another agreed-upon location (factory, warehouse, etc.). From this point onward, the buyer pays for and is responsible for transporting the goods at every step of the journey, from door to door. All the seller needs to do is prepare the products for collection.

This Incoterm gives the buyer full control over freight costs but also means they are responsible for everything that happens in the country of origin, which is typically not their country of residence. Experienced shippers can benefit from using this Incoterm.

The Role of Customs Brokerage in an EXW Term

For companies specializing in customs brokerage, understanding the EXW term is crucial to providing accurate and efficient services. When a shipment is handled under EXW, the seller not only has the responsibility of making the goods available to the buyer but also ensuring that all customs documentation is in order.

The customs broker plays a vital role at this point. Their expertise becomes essential in ensuring that all necessary documents, such as the commercial invoice, bill of lading, and certificates of origin, are properly prepared and submitted to customs authorities both in the country of origin and the destination country.

What Obligations Does the Seller Have?

In the EXW term (Ex Works), the seller's main obligation is to make the goods available to the buyer at their own premises or another designated location (such as the factory or warehouse). However, the seller's responsibilities under EXW are limited compared to other Incoterms. The seller's specific obligations under an EXW term include:

Goods Preparation: The seller must prepare the goods for collection by the buyer. This involves ensuring that the goods are available at the agreed-upon location and ready for loading.

Costs up to Delivery Point: The seller is responsible for all costs and risks associated with bringing the goods to the agreed-upon location. This includes packaging costs, loading, transport to the agreed-upon location, and any other related expenses.

Documentation: The seller must provide the buyer with the necessary documentation, such as the commercial invoice, bill of lading, and other documents related to the goods.

Licenses and Permits: It is the seller's responsibility to obtain any necessary export license or permit for delivering the goods to the buyer.

It is important to note that, under the EXW term, the seller assumes no responsibility for international transportation or the costs and risks associated with importation into the destination country. These aspects fall entirely on the buyer.

It is crucial for the parties involved to clearly understand their roles and responsibilities when using the EXW term in a commercial contract, as this will affect efficiency and cost management in the international supply chain.

What Obligations Does the Buyer Have?

Under the EXW term (Ex Works), the buyer assumes a series of obligations and responsibilities from the moment the goods are made available to them by the seller. The main obligations of the buyer include:

Goods Collection: The buyer must arrange and cover the costs associated with collecting the goods at the agreed-upon location with the seller. This involves planning transportation and necessary logistics to take the goods from the seller's location to their final destination.

International Transportation: The buyer is responsible for arranging and paying for the international transportation of the goods from the collection point (seller's premises) to the destination country. This includes hiring carriers and managing the supply chain.

Import Costs: All costs associated with importing the goods into the destination country, such as customs duties, taxes, fees, and any other related expenses, are the buyer's responsibility.

Customs Documentation: The buyer must take care of all necessary customs documentation for importing the goods into the destination country. This includes preparing and submitting the required documents to customs authorities.

Risk Management: From the moment the goods are made available to them, the buyer assumes all risks associated with the goods, including any damage or loss that may occur during international transportation.

Transport Insurance: It is the buyer's responsibility to insure the goods during international transportation. This involves purchasing cargo insurance to cover potential losses or damages.

It is essential for the buyer to be well-informed and prepared to assume these responsibilities when negotiating a contract under the EXW term. Clarity in the obligations of both parties ensures efficient execution of the international supply chain and avoids misunderstandings or complications in the business process.

Advantages

This sales method is convenient for cases of small volume, where the buyer can transport the merchandise by their own means. For example, in their own vehicle.

It is widely used for sales made within the same country or intracommunity sales where customs clearance is not required. It is also beneficial for operations carried out within the same organization, such as franchises, branches, or subsidiaries.

Disadvantages

The seller is not obliged to load the merchandise onto the transportation means contracted by the client. In some cases, the seller may load the merchandise onto the transportation indicated by the buyer as a favor. However, in the event of damage to the goods, the buyer is responsible. Therefore, the seller is taking on a risk that they shouldn't.

Export Clearance

Export clearance is the responsibility of the buyer. Therefore, the seller does not have any legal proof that the goods have left the country. The seller would have to request this clearance from the buyer, who is not obligated to provide it.

Simple Payment Methods

The EXW method usually does not involve banking entities. This could pose a problem when the seller works with bank accounts, as they may have difficulties in collecting the sold merchandise.

Logistics Service

The seller who operates under this method does not offer any type of logistics service. It is the buyer who must take care of transporting the merchandise. This can be a disadvantage for the seller, as the buyer may choose a competitor that offers a logistics service.

One of the challenges of sales under the Incoterm EXW is that the seller's responsibility ends with the delivery of the product. Therefore, we advise you to learn about warehouse management in logistics.

Potential Challenges of the EXW Term

Although EXW offers simplicity by placing the cargo in the hands of the buyer early in the process, it can also present challenges. The buyer must coordinate and finance international transportation, assume risks associated with damage during transportation, and handle logistics and customs costs in the destination country.

For customs brokerage companies, this means a proactive and collaborative approach. Effective communication with the buyer is essential to anticipate any potential challenge and offer solutions that maintain efficiency and legality at all times.

Conclusions

The use of the EXW term can be beneficial in certain business scenarios, especially when seeking a quick transfer of responsibilities and costs. However, it imposes certain logistical and customs challenges that must be handled with care.

In customs brokerage, the key is understanding. A thorough understanding of the meaning of EXW and its impact on logistical operations allows companies to offer services tailored to the specific needs of their clients. Ultimately, customs brokerage under terms such as EXW is about collaboration, anticipation, and precise execution to ensure international transactions proceed smoothly and seamlessly.