Ex-Works Delivery: Is It Seller-Friendly?

4 April 2023

EXW, or Ex Works, is one of the Incoterms ® 2020 rules published by the International Chamber of Commerce (ICC). Initially, it may seem like the most advantageous delivery term for sellers, but many find FCA to be a better option. Let's explore why and how:

EXW may appear seller-friendly since the seller is not responsible for transportation or insurance, and the risk of damage to the goods is transferred to the buyer early on. Sellers also appreciate EXW due to the following reasons:

• Cost savings: The seller incurs minimal costs as they are not responsible for shipping or insurance.
• Control: The seller retains control of the goods - at their warehouse or other convenient place in the country of origin - until they are picked up by the buyer. The goods condition is known and this is also usually a low-cost easy-to-access temporary storage location in case the buyer is delayed in picking up the goods.
• Flexibility: EXW can be used regardless of the buyer's chosen transportation method including sea, road and air.
• Simplicity: The buyer is responsible for arranging transport and export clearance.

Experienced traders understand the importance of specifying the "named place" as either the seller's premises or another suitable location in the country of origin. Additionally, they clarify whether the seller or the buyer's forwarder/carrier is responsible for loading the goods.

If the seller does not have to ship or insure under EXW and the pickup is clear, what is left to discuss?

• Export controls: The seller remains responsible for fulfilling obligations related to export controls, such as classifying the goods, obtaining export licenses in a timely manner, and screening for denied parties and embargoes.
• Documentary Proof of Export: While the seller may not have contractual responsibility for export clearance, the buyer is not allowed to be the exporter under UCC regulations. If the seller fails to obtain documentary proof of export, they may may be exposed to paying sales tax, and the absence of clear documentation can have implications for the business.

What do people do?

Typically, the buyer engages a freight forwarder in the country of origin to handle export clearance. To do that, the forwarders needs information from the seller, but is contracted by the buyer. This might seem fine if nothing unusual ever happens, but communications can get fraught if something does go awry.

Even in routine situations, if the seller does not receive proof of export consistently, accountability becomes unclear. This is because the seller is not responsible for arranging for export clearance, and the buyer is not obligated to provide the seller with any documentation.

EXW or FCA?

To address this issue, the buyer and seller can include amendments to the EXW terms that establish an obligation for the buyer to collaborate with the seller and provide proof of export as soon as it becomes available. Although this does not relieve the seller of their export control obligations, many sellers consider it an acceptable compromise, especially in low-risk industries.

Alternatively, sellers can avoid problems associated with documentary proof of export by using FCA delivery terms, which stands for Free Carrier. In this case, the seller still delivers the goods to the carrier designated by the buyer, and it can still be at the seller's premises, similar to EXW.

There are further advantages:

• Control: The export clearance responsibilities rest with the seller under FCA. By assuming this responsibility, the seller gains greater control over the export process and can ensure the proper documentation is obtained promptly and accurately. This minimizes the challenges associated with relying on the buyer for proof of export.
• Clarity: Both parties have a shared understanding that the seller is responsible for export clearance, facilitating smoother workflow and minimizing potential misunderstandings. Effective communication ensures timely provision of necessary export documentation.
• Broader market: Selling EXW limits the seller to the subset of customers that can arrange export clearance in the UK - either through their own formal presence or with strong logistics partners who will take on the potential liabilities of making declarations to HMRC. In most industries, there are many other buyers who do not have that wherewithal and sellers can more easily acquire or arrange access to expertise in export procedures and documentation requirements in their home market. By taking on export clearance responsibilities, the seller can access a wider global market and a stronger negotiating posiiton.

Conclusion

When proof of export is required, companies should carefully evaluate the benefits and drawbacks of both delivery terms and consider adopting FCA to ensure smoother export processes, efficient communication, and compliance with documentation requirements. Effective collaboration between buyers and sellers remains crucial for successful international transactions under any chosen delivery terms.

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