Ex Works: How it works, price, and risks

By Ben Lobel on Small Business - Advice and Ideas for UK Small Businesses and SMEs

Ex Works – also expressed as the three-letter code EXW – is an Incoterm you might have spotted if you’re involved in buying and selling internationally.

They’re only a few letters long, but using the wrong Incoterm when buying goods from a supplier based overseas can be an extremely costly mistake.

Read on to learn more about what Ex Works actually means, and the advantages and disadvantages of using this Incoterm when buying goods from abroad.

Ex Works meaning

Incoterms or International Commercial Terms, are trade terms defined by the International Chamber of Commerce, used to communicate the tasks and costs involved in international shipping. Having an agreed definition of these terms reduces the risk of suppliers and buyers misunderstanding or misinterpreting what each other wants or needs, when it comes to international procurement of goods.

Ex Works, also known as Ex Works (named place of delivery), or EXW, can be used in relation to any form of transport. This Incoterm puts the full obligation for things like arranging and paying for shipping, and dealing with customs clearance, on the buyer.

EXW is often used when obtaining a quotation for a price of goods, to express the pure cost of goods without any costs included.

How EXW works

Of all Incoterms used, Ex Works places the highest possible obligation on the buyer, and the lowest possible obligation on the seller. It means that the seller simply makes the goods available, at their warehouse for example, and the buyer is then responsible for arranging everything else.

Usually this will mean that the buyer makes separate arrangements to have the products collected and shipped, including completing customs clearance. The seller is then obliged to provide the documents required for export processes, for example, although they can charge for doing so.

Ex Works price

If you’re buying goods from abroad under EXW terms, you’ll be responsible for all of the costs involved in setting up shipping and customs clearance. That can mean that, as well as paying your supplier, you’ll have to arrange and pay for things like air or sea freight, and local haulage. You might also consider employing the services of a customs broker, to help complete all the paperwork needed to get your purchase through customs smoothly.

Importing Ex Works is likely to involve making several international payments – and these cross border transactions can be costly. Not only are there upfront fees to consider, it’s common for banks to add a markup to the exchange rate they offer customers, which can mean you lose out every time you make an international payment.

Instead of using your bank to arrange payments to international suppliers and service providers, you could be much better off choosing a specialist in international payments like TransferWise. TransferWise offers international payments using the real, mid-market exchange rate, and just a low upfront fee – which can mean they’re up to eight times cheaper than using a UK high street bank. Payments can be arranged online for convenience, and the service is FCA regulated – just like your normal bank.

EXW Risks

Under Ex Works terms, the buyer bears all of the risk involved in the shipment. That means that any additional costs incurred when clearing customs, for example, will fall to the buyer. It’s important to be really clear on the export documentation you will be able to obtain from the seller, and make sure you familiarise yourself with local customs regulations, to avoid issues.

Summary of Ex Works

The cost, and in most cases, risks associated with moving the goods from their origin to the UK, fall to the buyer.

Advantages of Ex Works

Using EXW terms means that as buyer, you have complete control of your shipment. The exact cost of goods, and of all elements of transporting them, are clear – which should mean there are no surprises.

Buyer is in control of shipping arrangements and costs

Because you’ll set up all the transportation arrangements yourself you can compare the market to be sure you’re getting the best deal available. You can be confident that the seller isn’t adding a margin or markup to the cost of transport. You might decide to employ a freight forwarder to make all the arrangements on your behalf, or contract individual transport companies to move the goods as needed.

Choose how to clear customs

You can also make your own decisions as buyer regarding customs clearance – whether or not to use a broker to help with the import/export process, for example. If you’re very familiar with customs processes, or have someone in your team who is, you might choose to tackle this step yourself.

Disadvantages of EXW

Ex Works isn’t suitable in all cases. As well as the risks we have noted above, there are some other possible disadvantages you’ll need to be aware of, too.

Check if your supplier has an export license

If your supplier doesn’t have an export license, then you might need to get one yourself, as a buyer using EXW terms. This will then become an additional cost you need to consider.

Country of origin export paperwork

You’ll find that the supplier is responsible for providing paperwork and documentation to make sure your goods clear customs for export in the country of origin. However, under EXW terms you would then be liable, as buyer, for any issues encountered during customs clearance. So for example, if the supplier provides incorrect or incomplete information, you might find the costs of customs duty is higher than expected.

EXW VS FOB

If you’re working out whether or not Ex Works terms will suit your needs, it can be helpful to know what other options are out there. One common alternative to EXW is to use FOB – Free On Board – Incoterms. It’s helpful to know that usually, FOB terms are only available on sea freight shipments, and basically mean the seller is responsible for costs up to the point that the goods are on the ship and ready for transportation.

Here’s a brief comparison of how costs are divided, using EXW and FOB Incoterms – or you can read more about FOB terms in this helpful article.

Who is EXW most suitable for?

Ex Works terms are a good choice if you want to have complete control over your shipment. You can clearly see how the costs of your goods, and their transportation to the UK breaks down, and negotiate on individual elements with different providers to get a good deal.

How to organise an Ex Works shipment

If you’re planning on buying goods on EXW terms, it’s important to be very clear on the exact contractual terms you’re agreeing with your seller. Seemingly small details – such as getting hold of the paperwork needed for customs clearance – are very important, and under EXW terms you might find that your buyer adds a charge for providing some of the information you need.

Once you’ve agreed a contract with your supplier, you’ll need to set up the shipment of your goods. You can do this via a freight forwarder, or by making arrangements yourself directly with transport and haulage companies. If you use a freight forwarder, you’ll usually only need to deal with the one company to get your goods all the way from their origin to the UK. The freight forwarder will set up all of the arrangements on your behalf, which can save time – they’ll often even act as a customs broker, to ensure your goods get smoothly through the import and export processes.

If you’d rather make arrangements for transport yourself, you can go direct to local shipping companies – and it’s still possible to employ a customs broker to help with that stage of the process, if you’d like.

As we’ve seen, there’s a lot to think about if you’re going to import goods from overseas to the UK. As well as finding the right supplier, and negotiating a good price for the goods you want, you have to agree how to get them to the UK.

Agreeing EXW terms might suit you, if you want to have complete control over your shipment. However, it’s not the only option out there. Doing a bit of research to make sure you understand the different Incoterms on offer is essential, if you want to get the best deal to suit your needs.

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