What is Ex Works (EXW)?

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Definition:

Ex works (EXW) is an international shipping agreement in which the buyer in a transaction bears full responsibility for the door-to-door transport of goods.

🤔 Understanding EXW

Ex works (EXW) is one of 11 International Commercial Terms (Incoterms), a set of globally recognized rules used in international trade. Under EXW terms, the seller must ensure that items being shipped are safely packaged, labeled, and made available for collection at their premises or another agreed place. The buyer takes full responsibility for shipping the goods from their origin to their final destination. The supplier isn’t on the hook for any aspect of the shipping process. EXW can benefit sellers, because they have minimum obligations in the transaction and therefore take on less risk. In some cases, EXW can also serve buyers by helping them save money on shipping costs, since they can shop around for a logistics provider.

Example

Let’s say you own a specialty grocery store in Los Angeles and want to order exotic ingredients from abroad. Your supplier might request that you sign an ex works (EXW) agreement as part of the transaction. Under EXW terms, the supplier might be obligated to have all your products ready to ship within two weeks. But you must hire a shipping company to pick the ingredients up from the supplier and get them to your store safely. You will need to pay the shipping costs, and if your ingredients get lost in transit, your supplier won’t be liable.

Takeaway

An ex works agreement is like ordering groceries online for pickup…

The grocery store is responsible for bagging your items and placing everything at a collection point. But as the buyer, you’re responsible for driving to the shop, loading the groceries, and taking them home. If your eggs get cracked on the journey, the store isn’t liable. But you might save time and money by assuming that risk and picking up everything yourself instead of paying for delivery.

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What is ex works (EXW)?

Ex works (EXW) is an international trade term and contract option in which the buyer or consignee (the party that’s financially responsible) of a shipment takes full responsibility for its transportation. In an EXW agreement, the shipper or supplier must safely package and clearly label goods, and make them available for collection at a previously agreed location. The buyer must then arrange and cover the cost of transporting that shipment to its final destination.

EXW is one of the 11 International Commercial Terms (Incoterms) created by the International Chamber of Commerce (ICC). Incoterms are a set of standardized global trade terms that offer guidance for importers and exporters.

Ex works terms are often considered to benefit sellers, because they bear no liability for goods that are lost or damaged in transit. Sellers aren’t responsible for loading the goods or clearing the goods for export, either. Instead, buyers or consignees assume the full risk of shipping and are responsible for getting clearance for export if needed.

In practice, sellers may request EXW terms when they don’t want to assume the risks involved in transportation. This could be because of the nature of a shipment, or because the seller lacks the knowledge or resources to get involved in the shipping process.

What is the difference between EXW and FOB?

Ex works (EXW) is similar to another ICC Incoterm known as “free on board” (FOB), but there’s a key difference.

Under FOB terms, the seller of a shipment delivers goods to a pre-agreed port and onto a vessel nominated by the buyer. The risk of loss or damages then passes to the buyer, but not until the goods are aboard the ship. After that, the buyer accepts full liability until the shipment reaches its final destination.

FOB is slightly riskier for sellers than EXW, because they are responsible for some aspects of transport. Under EXW rules, the buyer would be responsible for picking up a shipment, loading it, and taking it to port if needed. The seller bears no liability and isn’t obligated to help load or transport goods at any stage.

What is the difference between EXW and FCA?

“Free carrier” (FCA) is another of the ICC’s 11 Incoterms. It’s similar to both ex works (EXW) and free on board (FOB), but there’s one major difference.

Under FCA terms, a seller must deliver goods to the carrier or another person the buyer nominates, either at the seller’s premises or another predefined location. That leaves the seller with a certain degree of transport risk. This differs from an EXW agreement, under which the seller just has to make the items available to the seller and isn’t responsible for loading the shipment.

FCA also differs from FOB slightly in that FCA terms only require the seller to deliver goods to the carrier at an agreed location. FOB terms require the seller to transport and load the shipment onto a vessel of the buyer’s choosing.

Does EXW include packaging?

Under ex works terms, the seller of a shipment is responsible for safely and securely packaging the items. The buyer is not responsible for packaging items for shipment. That being said, it’s worth noting that sellers may include the cost of packaging as part of the total fee for a transaction. Although the buyer isn’t responsible for packaging an item, he or she may pay for the task indirectly.

How is EXW price calculated?

When purchasing under ex works (EXW) terms, prices are typically lower than other shipping options. That’s because, under EXW, the seller assumes no responsibility for any element of the shipping process. That’s why companies looking to cut costs by hiring their own logistics carriers sometimes request EXW agreements.

EXW prices are then calculated according to the number of resources the buyer wants to deploy around the shipment. Every EXW transaction starts with the wholesale cost of items involved in a shipment, which include packaging and labeling. The seller then sets those items aside on-site for collection, and all other expenses to ship them will fall upon the buyer.

Those include the cost of handling from the seller’s address to a transit point such as a port or airport, any customs paperwork, and loading the shipment on and off transport. From there, the buyer has to pay for transportation itself, plus any customs duties or import tariffs. Buyers may also want to add insurance coverage.

The price of an EXW agreement can vary depending on the complexity of the shipment, the steps involved, and the carriers a buyer chooses to fulfill the shipment. If you need help estimating the cost of a prospective EXW contract, many financial institutions offer free EXW calculators.

What are the advantages and disadvantages of using EXW?

One advantage of ex works (EXW) for buyers is that a consignment of goods (a batch of items prepared for shipment) will often be slightly cheaper than goods bought under other terms. That’s because, under EXW, the seller won’t include the cost of transportation to a port or customs fees. If the buyer can outsource transportation to a cheaper logistics provider or has the expertise in-house to settle customs obligations, EXW could save the buyer money on shipping costs.

On the flip side, EXW benefits sellers because they take on minimum obligations and do not have to assume any risks that go hand-in-hand with logistics.

The disadvantage for buyers under EXW terms is that they need to cover the full risk and cost of shipping. Under EXW agreements, the buyer is responsible for hiring a transport company, managing export clearance, obtaining insurance coverage, and more.

Why do shipping Incoterms matter?

The Incoterms matter because they offer both importers and exports a standardized set of guidelines. Incoterms establish distinct roles for buyers and sellers in global transactions. That enables all parties to clearly understand how a contract should be carried out, which tasks they need to complete, and which tasks are somebody else’s job.

Incoterms often become part of contracts and provide guidance for exporters, importers, lawyers, transporters, and insurers. By ensuring that all parties are on the same page about their role in a transaction, the Incoterms help prevent expensive mistakes that slow shipments down.

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New customers need to sign up, get approved, and link their bank account. The cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at rbnhd.co/freestock. Securities trading is offered through Robinhood Financial LLC.

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This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy.

Robinhood Financial LLC (member SIPC), is a registered broker dealer. Robinhood Securities, LLC (member SIPC), provides brokerage clearing services. Robinhood Crypto, LLC provides crypto currency trading. All are subsidiaries of Robinhood Markets, Inc. (‘Robinhood’).

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© 2022 Robinhood. All rights reserved.