Within the shipping world, ‘Incoterms’ are a set of standards used within a trade regardless of whether the trade is domestic or international. Published by the International Chamber of Commerce, International Commercial Terms (Incoterms) essentially outline all the important details within the trade including time of delivery, location of delivery, payment, and which party pays all the associated costs. For many, the latter will be the most important term to discuss and this is why we’re introducing Ex Works (EXW) today.
Despite being in the news quite often recently, Incoterms were actually introduced way back in the 1930s. However, the difference in terms from then to now is vast since they’re updated regularly. In each contract, it should specify the latest edition of the terms; for example, Ex Works 2015.
Ex Works (EXW) – So we know that Incoterms lay out the important details of the contract, and Ex Works is one of the set of standards you can choose to have legislate your trades. With EXW, the responsibility for every single process relating to the shipment will fall at the feet of the buyer. Not only does this include all the associated costs, it includes liabilities from the very first point of contact to the delivery.
As you can tell from the title of this guide, we fully recommend going for Ex Works Incoterms and this is because the buyer will be responsible for all the costs and liabilities as we explained before. On both sides, the roles are clear as to who looks after the different stages of the process. With help from the supplier, the buyer can plan their costs in advance; on the flip side, it allows for total supply chain control.
From the buyer’s perspective, they control every stage apart from the time where the goods are with customs. With full visibility, the buyer can be confident there’s no inflation with the local costs or perhaps the supplier adding a little on top of the delivery fee. Often, suppliers might try to squeeze a few more dollars into the delivery cost but this cannot happen if the buyer controls the process.
From the seller’s perspective, they might not be able to scrape a few pennies from delivery but they benefit because they have no responsibility after the product has been produced. As soon as it has left the warehouse, they can concentrate on the next batch without follow-up phone calls and dealing with issues when the cargo doesn’t arrive as expected.
In addition to this, it means the seller can recognize revenue as soon as the stock leaves the factory. This, coupled with the fact they’re able to save money on transportation and delivery costs, means the seller can be more competitive on the global market.
FOB – If you’ve previously heard the term ‘Freight on Board’ (FOB) when on this topic, this is because the terms are essentially the same. Nowadays, they’re used interchangeably and they describe the same terms between seller and buyer.
Whether you’re a seller or a buyer, be sure to assess the pros and cons of choosing EXW as well as the other options such as Free Carrier (FCA). Furthermore, feel free to talk to a professional who can assess your business and see which would be best for you moving forward. If you like the sound of the above, EXW can be a beneficial way to operate for both parties!