Ex works terms or ex factory terms are commonly used in the business of import and export. Understanding these terms is important to undertake any import/export business from any country successfully. If a buyer agrees to ex works terms, he/she would be liable to undertake all the shipping costs from the buyer’s place of business till it reaches his/her point of delivery. The entire work of loading the goods onto the truck from the seller’s warehouse, forwarding them to the vessels, planes or trains, taking care of all the customs procedures, unloading them at the destination, and finally delivering them at the respective location is performed under the guidance of the buyer only. The cost incurred in the process along with the risks are to be borne by the buyer if he/she agrees to the ex works terms of business.
What Are Ex Works Terms?
Ex works terms, also known as ex factory terms, are common international commercial terms aka Incoterms for agreement between the buyer and the seller. According to this agreement, the seller agrees to provide the goods for the pickup at his/her own place of business. The seller just provides the goods for the business and does not perform any other task for the export. As per the ex works terms, it is the buyer who would be incurring the transportation cost and even be responsible for any type of damage made to the goods during transportation. All the responsibilities of the shipment and the costs incurred in it fall on the buyer. These terms divide the responsibilities between the shipper or supplier and the consignee or the buyer. While the buyer has to bear all the cost and work of shipment, the seller only has to ensure that the goods are available at his/her premises for collection by the buyer.
What Is Ex Works Price?
Ex works price or the ex factory price is the price at which the seller is making the goods for shipment available at his/her warehouse or place of business. Any other expense, apart from the cost of the goods, is born by the buyer. Suppose you are a supplier of goods in Chennai and have agreed for business with a client in Dubai. You are providing the goods to the buyer at an ex works price of 5,000 AED. This price that the buyer would have to pay to you in order to collect the goods from your place of business is called the ex works or EXW price. Any other cost incurred while shipping the goods from Chennai to Dubai would be borne by the buyer only.
When Should You Undertake Ex Works Agreement?
While a seller mostly wants to undertake the ex works terms owing to the low risks and costs involved in the agreement, a buyer needs to be very thoughtful while making the decision. A buyer should only agree to the ex works terms if he/she is willing to bear the additional cost of shipping along with the risks that are involved in it. The import export procedure could be very hectic requiring a number of custom and shipping documents. If the buyer agrees to the ex works terms, he/she would have to take care of the documentation and the risk involved in it.
What Are The Advantages Of Using Ex Works Terms?
A buyer can get a clear picture of all the costs incurred in the import/export of the goods when agreeing to the ex works terms. The buyer can also eliminate any chances of the seller adding extra cost or inflating the cost in disguise of customs etc. the seller’s value added for the shipment are also excluded when the buyer agrees with ex works terms and undertakes the entire shipping procedure. A buyer can save money by getting his/her in house shipping team of a third party shipping company to perform the task of transporting the goods from the seller’s place of business to the buyer’s location.
What Are The Disadvantages Of Using Ex Works Terms?
The main disadvantage of agreeing to the ex works terms is the complicated customs clearance process at the country of origin. There can be a number of risks included in the customs clearance and the buyer would have to bear any additional cost incurred during this process. The seller needs to provide clear information of the goods for clearance and if the information stands incorrect, the buyer might have to pay extra for complete clearance. The buyer might also be lured by the seller who does not have an export license for agreeing to ex works terms. In such cases, the buyer might have to pay huge sums for the seller’s license while making the shipment.
Know everything about the ex works terms before getting into an agreement with the buyer for the same. Understand your export requirement and compare the shipping cost from the seller’s as well as the in house/third party’s perspective.
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