EX Works and its potential dangers

Date: 28/02/2018
Author: GMCC
Company: GMCC

Amy Cawley, International Trade Coordinator, explains what EX Works is.

EX Works (EXW) is an incoterm® that can be used in an international sales contract, for any transport mode. In the latest 2010 version of incoterm®, published by the International Chamber of Commerce, when using the term EXW, the seller has delivered the goods when they are made available to the buyer. For example EXW Elliot House, Manchester, Incoterms® 2010, the risk and cost is transferred to the buyer when the goods are made available at Elliot House. The buyer is therefore responsible for paying for the transport costs, insurance and clearing the goods for export and import, obtaining any licenses required.

Advantages for the seller

A seller may use EXW as it determines minimum obligations, you do not have to load the goods onto the transport or clear the goods for export. Although the seller does have to provide the buyer with necessary information required for clearing the goods for export, tax and reporting. The second advantage is cost as the seller is not required to source a carrier for transport of the goods or pay the freight costs.

Advantages for the Buyer

When trading on EXW the costs and risk are covered by the buyer. This could also benefit the buyer as they could make savings by organising their own transport, ensuring the seller is not inflating prices; they also have full control over the goods, apart from when they are with customs.

Potential Dangers for Seller

It is important to stress when using EXW the seller is not the exporter of record. The buyer is also not liable for providing the seller with proof of export. This could cause problems if the buyer is outside the EU and VAT is zero-rated.

In 2016, the British Exporters Association published an article stating that a UK company shipped goods to Japan on EXW. The sale was successfully completed but 12 months later Customs inspected the UK Company and discovered they had zero-rated the VAT. Although they had proof of the money being transferred from Japan, they could not produce proof of the goods leaving the country. They tried to contact the freight forwarder, but they had gone out of business and the company was charged the VAT, costing around £90,000.

Other issues that could arise are the buyer being unaware of UK regulations and incorrectly classifying goods which could result in incorrect procedures being followed and delayed shipments. The seller also loses control over the chosen courier. If the courier is unreliable and does not arrive when stated, the goods could become damaged, again reflecting badly on the seller and potentially damaging the future relationship with the customer. If the seller is using a Letter of Credit it may be hard for the seller to obtain the required documents.

What should I use instead of EXW?

It could be advised that a more suitable incoterm® is FCA (Free Carrier) as it is more suited to international trade than EXW. The International Chamber of Commerce states that when using FCA, the buyer still pays the transport costs from the named place of delivery but FCA stipulates that the seller loads and clears the goods for export. This would mean that the potential dangers of using EXW are covered in FCA.

Still confused?

We are here to help with your incoterm® queries and also run a series of training courses to help exporters and importers.

  • Online Training- you can register for our online course dedicated to understanding Incoterms®here.
  • Understanding Incoterms Training- we also have a half day course at our offices on Friday 7th Full details can be found here. Please note this course will be repeated throughout the year.

 If you have any questions or require further information, please email amy.cawley@gmchamber.co.uk.