EXW Incoterms Shipping from China: The Complete Guide

I know you’re probably looking for the best Incoterm that will help you reduce liability and cost.

Well, the reality is:

Every Incoterm has advantages and disadvantages, depending on whether you’re the seller or buyer.

Also, the circumstances you’re doing the business also play a vital role.

Today, I want to talk about EXW Incoterm.

I will explain what it is and how it works.

Furthermore, I’ll walk you through its advantages and disadvantages.

And, later, you’re going to learn about buyers’ and sellers’ obligations under EXW incoterm.

What is EXW?

EXW is an international trade term that describes when a seller makes a product available at a designated location, and the buyer of the product must cover the transport costs.

What is the Advantages to the Buyer of EXW?

All expenses and charges are the responsibility of the buyer, so they have total control and openness of the entire delivery process.

Buyer enjoys complete control of the costs which would not be overcharged by the seller.

Buyer can organize for the transportation and delivery of goods on their personal terms. For example, they determine the provisions of transport, time of delivery, fulfilment method, and terms of insurance.

What is the Disadvantages to the Buyer of EXW?

Export customs clearance can be complex as on numerous occasions they entail a lot of paperwork from the seller.

There could be extra expenses when transporting across international boundaries. For example, you would need to purchase, export licenses. This is where you do not possess the necessary license to export their merchandise.

Buyer bears total responsibility for the better part of the shipping process. This can complicate the process and even incur hidden charges. The buyer is also liable for damaged, lost or faulty goods. Thus, it is necessary to carry out research prior and exercise due diligence during the whole process.

What does EXW shipping terms mean?

The seller makes the goods available at their premises, or at another named place. … The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a buyer incurs the risks for bringing the goods to their final destination.

If you’re looking for a reliable freight forwarder to help your shipping from China, Tj chinafreight can be your better choice.

What is EXW?

EXW, an acronym for Ex Works. It implies that the delivery of goods is regarded as complete once the seller delivers them to the buyer’s location.

The buyer’s location can be his/her warehouse or factory.

With EXW terms, the seller is not responsible for loading the goods onto the transporting vessel or handling the export customs clearance.

This Incoterms gives the supplier the least responsibilities.

You should avoid it in case the buyer is not in a position to directly or indirectly manage the process of exporting goods.

The EXW shipping term is flexible, you can apply it, despite the mode of transport.

Nevertheless, if both transaction parties choose to share the risks and responsibilities associated with loading the product during shipment, the agreement must be plainly declared.

EXW shipping terms are more suitable for domestic transport of goods.

Where the buyer can employ the services of, their logistic partners or freight forwarding agent to manage the transport.

This way, it will be cheaper and efficient, unlike when the seller manages the whole delivery process.

How EXW Shipping Terms Work

EXW costs are calculated by importers so that they may be able to save money from their purchases.

It gets rid of the value added for shipping by the seller.

An alternative form of EXW terms is the Free on Board (FOB) Incoterms.

Here, the seller bears the cost of carrying its products to a shipping terminal.

Also, the seller covers all the customs expenses to get the consignment on board the vessel.

However, the buyer covers the cost of getting, engaging and paying the carrier.

Furthermore, the buyer pays for the customs fees when the shipment arrives at the country of destination.

The importer as well pays all costs of insurance.

In reality, the majority of buyers sign contract of sales mainly in EXW terms, but in essence end up shipping on FOB terms.

Many times, the export customs declarations are still done in the seller’s name and it is them who enjoy the gains from:

• Foreign exchange
• Tax write-off
• Refund

The costs of export customs clearance are borne by the seller under such an arrangement.

But, in actual fact, this sharing of responsibilities and risks is FOB terms.

You should enter into an Ex works shipping from China term if the buyer is:

i. Capable of meeting all costs

ii. Cover risks during transactions – export and import taxes, alongside the paperwork

Also, this Incoterms compels the supplier in China to:

a) Assist in acquiring the shipping and customs paperwork

b) Ensuring they correctly register the contents of the consignment

However, as soon as the delivery has occurred at the seller’s location, all expenses associated to export violations or damages will be borne by the buyer.

Actually, EXW is at times not a practical Incoterms because of some jurisdictions’ customs rules.

For instance, in the European Union, a non-resident person or company cannot fill out the export declaration documentation.

Thus the importer may be left helpless.

In such situations, the most preferred shipping term is FCA.

Advantages and Disadvantages of EXW

In Ex Works, the importer is liable for all the risks and expenses from the point and time the goods have been made available to them.

So diligence and comprehensive planning are necessary.

EXW can be complicated and tricky for a buyer shipping from China.

This is because they will still require the supplier’s authority or communication in order to clear the merchandise through customs.

Or, give documents to freight partners during the transportation process.

Shipping on Ex Works terms may be the best alternative for sellers with inadequate knowledge in logistics and overseas shipping from China.

Considering that the only responsibility borne by the seller is to make sure that the goods have been packaged properly for delivery to the purchaser’s disposal.

There are minimal consequences for the supplier.

But irrespective of the reduced risk, the EXW terms may not be the most economical choice for the seller.

When you decide to solely use EXW Incoterm as a supplier, a buyer may opt to select another seller with a more appealing and simpler deal.

Obligations of Parties in EXW

Under EXW, the seller avails the goods to the buyer at the supplier’s chosen place of business.

This Incoterms gives the greatest responsibility to the importer and minimum obligations on the exporter.

The seller is not legally bound to do the customs clearance for export.

He/she is not responsible for the loading of goods onto the shipping vessel at the designated point of departure.

The table outlines the 10 responsibilities of both the seller and buyer as expressed in Incoterms 2010.

What is the Difference Between EXW and FOB in Shipping Terms?

Both EXW and FOB are Incoterms dictating various responsibilities of buyers and sellers in international shipping.

However, they vary in a few aspects, which include the following;

Under EX works, the seller is not mandated to load the cargo on buyer’s designated mode of transport.

Instead, it is the buyer’s responsibility to ensure they take the goods to the respective buyer’s selection. While at it, it is the buyer that incurs the transport charges.

Shipping and associated risks are no longer a liability for the seller under EXW option; hence this incoterm tends to favor the shipper.

On the other hand, under FOB, the seller must load goods on the buyer’s preferred shipping method and the selected shipping point.

In some instances, the seller may also be responsible for the goods throughout the trip to the ultimate seller’s destination.

In essence, FOB means the seller retains ownership and liability of the goods until they are loaded “on board” shipping vessels.

But immediately after the goods are loaded on the vessel, the risk transfers to the buyer.

Technically, EXW is more favorable to the seller even though the seller also has limited responsibilities.

However, FOB is relatively more favorable to the buyer than a seller. It incorporates more responsibilities to the vendor.

How do EXW and CIF Compare?

In international shipping, you can choose the specific shipping incoterm, which fits your particular demands.

EXW and CIF are ideal options you decide to explore since they offer great benefits depending on whether you’re seller or buyer.

In EXW, the importer assumes all the costs and risks associated with the shipping of the consignment.

The seller under EXW only has to ensure the goods are ready and available for pick-up at their respective business premises.

On the contrary, the seller assumes all the responsibilities and risks associated with the transportation of the goods under CIF.

In this case, the sellers take care of all aspects revolving around shipping the consignments until it reaches the buyer’s port of destination.

These include freight charges and export customs clearance as well as cargo insurance to the destination port.

But the importer under CIF is responsible for unloading the shipment from the vessel at the port of destination.

Moreover, the buyer will also take care of customs clearance at the port of arrival and pick up of goods.

Nevertheless, the buyer is responsible for cargo insurance and in-land transportation or trucking from the port to their premises.

Essentially, EXW is more favorable to the seller since they are obligated to a few liabilities in the entire cargo shipping.

CIF, on the other hand, tends to favor the importer since most of the liabilities are under the seller throughout the shipping process.

Where does the Risk Transfer from Seller to Buyer in EXW?

Ex-Works implies that the seller accomplishes his role the moment they avail the goods at their premises ready for buyer’s collection.

Any other activity beyond this point is not the buyer’s obligation.

In other words, under the term EXW, the role of the seller is to make the goods available at their premises.

The carriage of the goods is organized by the importer.

Therefore, risks and any associated costs are transferred to the buyer immediately the goods are made available to the buyer.

Once the buyer collects the goods from the seller’s premises, all risks and related costs are transferred to the buyer.

This is arguably the safest incoterm as far as risks and costs associated with the seller are concerned.

The seller is never involved in any activity beyond availing the goods for the buyer to collect.

Can You Use Letter of Credit with EXW Shipping?

Yes, but not necessarily advisable.

EXW is somewhat extremely difficult to arrange payment by a letter of credit.

In many instances, banks always want to see a negotiable airway bill, bill of lading, or copy of rail or road transport document.

However, under EXW, it is clear the seller is not responsible for shipping hence not entitled to receive any shipping document.

As far as the vendor is concerned, to make a feasible letter of credit, you would need a commercial invoice, packing list, and copy of buyer’s receipt.

The seller is also under no obligation to receive a certificate of origin, which should be arranged by the buyer as carrier’s exporter.

In this case, the risk to the seller is that the buyer has already received the commodities.

So if the buyer makes mistakes on the documents, is non-compliant or unscrupulous, they can claim spurious discrepancy and refuse to pay.

Therefore, a letter of credit is unsuitable for EXW incoterm since it presents several loopholes that can easily make the financier not pay the vendor.

Even so, you may consider it under extreme circumstances, especially where the involved parties have established unprecedented trust.

When is it Suitable to use EXW Shipping?

Several circumstances can make EXW shipping a considerable option.

Even so, many businesses often opt for EXW Incoterm when the seller is unable to export.

At times, the seller does not meet the minimum requirements to export the respective products.

Therefore, it becomes difficult for such vendors to take up the responsibility of exporting the goods beyond their business premises.

At times, you can choose this agreement as an importer looking to combine multiple shipments and,after that, export them under a single name.

Of course, this often happens with importers who source different types of products from numerous suppliers.

In such instances, you’ll only need to make your order to the respective supplier and pick it up when ready, and combine all as one shipment.

The advantage of this kind of arrangement is that it allows you to save a considerable amount of money and also offer convenience.

Another instance you would opt for an EXW agreement is when shipping via air express.

Most express couriers typically collect the goods from the supplier’s doorstep and deliver them to the buyer’s premises.

Express shipping, also known as door-to-door shipping, would be the ideal choice for EXW terms.

If you’re an established importer with set up offices in the exporting country, you’d also consider EXW incoterms.

In essence, such importers often use this method to ease the processing of their shipments.

Merely, you’ll need to collect the items and store them in your offices in the export country before shipping them to destination country.

How do you Calculate EXW Price?

As an importer, it is always necessary to know the full cost of shipment.

Ideally, this would involve some time in getting quotes from suppliers other than the seller.

Nonetheless, when calculating the cost of EXW, the vendor only provides the importer with the quote for cost of commodities.

It is the buyer’s prerogative to research the cost of an export license, possible cost of customs and shipping and insurance charges.

Of course, for a first-time importer, this can be relatively challenging and a bit risky in case you make a mistake.

In general, the seller under EXW will quote the price of the goods as decided by him.

And in case the seller and buyer agree that the former will transport the items, then the former must pay back the cost.

The reason here is because it is not the responsibility of the seller to cover such extra expenses.

In a nutshell, when calculating the cost of EXW, you must ensure that each leg of the journey is considered.

What are the Risks to the Buyer of EXW Shipping?

They are quite a number, especially from the importer’s perspective.

For instance, immediately after the items leave the factory or supplier’s premises, the buyer takes full responsibility.

Therefore, it is the obligation of the buyer to take an insurance cover for the goods.

Another risk is that at times not all goods clear customs in the country of origin.

Apparently, under EXW, it is solely the buyer’s problem in case customs paperwork isn’t in order.

Also, this can be problematic in instances where there is a need for inspecting the goods at the customs before clearance.

In such circumstances, the seller won’t be responsible for any additional costs incurred at the customs; instead, it would be the buyer.

When importing in some countries, the customs authorities would need the exporter to assist a few elements regarding goods clearance.

Thus EXW would not be an ideal option when importing such goods since it’s likely to subject you to delays and inconveniences.

Moreover, if the seller makes an error or omits some vital information on the paperwork, the buyer is held responsible.

At times this can be a bit costly, but in the end, it is the buyer will incur such expenses.

For a new buyer, you may have to factor in all the costs, such as obtaining an export license.

This may take a bit of time to process, including other paperwork, quotes, and dealing with multiple suppliers.

Of course, this consumes more time, which a new importer perhaps may not necessarily have.

The bottom line is that EXW has more risks to the buyer hence must be considered diligently.

Are there any Loading Limitations of EXW Shipping?

Arguably, the EXW Incoterm is the most comfortable option for many exporters or vendors, especially with little experience in shipping.

Of course, it is because the seller’s responsibilities end with preparing the commodities and ensuring they are collected.

Even so, in many instances, this could be a bit inconvenient for the importer.

A buyer out of the country or perhaps have a limited understanding of local market will find it difficult to maneuver around.

In such a scenario, the buyer will have to arrange for separate loading services on seller’s loading ground.

And this can be daunting since the buyer may not necessarily be familiar with such surroundings.

Also, any damage, which occurs during loading of goods is entirely the buyer’s responsibility.

Obviously, this can be disadvantageous to the importer since they stand higher chances of incurring a significant loss.

This is often common when handling relatively fragile goods.

Who Handles Customs Clearance Procedures in EXW Shipping?

Technically, the entire responsibility for moving goods from the start rests with the buyer.

Therefore, any other activity involved upon collection of the shipment is the buyer’s obligation.

In short, the buyer is the party handling both export and import customs clearance procedures under EXW.

The vendor only provides the necessary customs clearance documents such as commercial invoices and packing list.

However, at buyer’s request, the seller can facilitate the customs clearance process again at the cost of the buyer.

Furthermore, as a buyer, you can seek services of a reliable freight forwarder to assist you in facilitating customs clearance process.

What are the Ideal EXW Tips and Tricks to know?

When opting for EXW, you must ensure that you use a few but critical tips and tricks such as the following;

• If the exporter will assist in loading the commodities, ensure to include the arrangement somewhere in the contract.

This, however, should never be a problem if you are importing from China, particularly with a reputable freight forwarder such as Tj chinafreight.

• Under EXW, the buyer is not obliged to arrange a contract of carriage. It, therefore, implies that the importer may sell the commodities to a customer who will then organize how to collect the same.
• Always ensure that the exporter hands over a courier receipt or FCR to the buyer’s freight forwarder. This is a better option rather than handing over the Bill of Lading or Airway bill.
• Sellers will never have direct evidence of export in case they should otherwise be able to claim a rebate from domestic sales tax.

Is EXW Agreement Suitable when Importing from China?

Yes.

EXW is a viable option to consider when importing from a Chinese supplier without an export license.

It is also suitable when you are considering an express shipping option.

Nevertheless, you need to carry out due diligence before committing to the particular type of shipping incoterm.

Conclusion

Parties to an agreement must clearly define the law governing their trade contracts.

Ex Works shipping terms is the most preferred term by sellers.

It is because it gives