Ex-Factory (Ex-Works) Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Ex-Factory, or Ex-Works (EXW), is an INCOTERM, one of the 13 international commercial terms used to describe the responsibilities of buyers and sellers in an international trade transaction. Standardized trade terms have a long history to which INCOTERMs are a relatively recent addition. These terms were originally deployed by the International Chamber of Commerce (ICC) in 1936, and have been frequently revised. INCOTERMs help buyers and sellers better understand their roles in terms of costs and risk assumption. As a result, they have reduced international disputes and served as a guide to arbitration of contract disputes. Customs and legal authorities worldwide recognize INCOTERMs.

The term Ex-Works actually appears as “Ex-Works… named place,” where the named place might be the seller’s factory. For this reason, many invoices still bear the term Ex-factory, which is a specific case of the INCOTERM Ex-Works. When the contract specifies EXW, it signifies that the delivery of merchandise occurs when the seller makes the goods available to the buyer at a named place, e.g., the seller’s factory. Under EXW, the buyer bears nearly all of the responsibility and risk associated with the transportation, documentation, and customs clearing portions of the transaction.

Under Ex-Works rules, a seller has a limited set of responsibilities. The primary responsibility is to provide the goods at the specified time and location. Additionally, the seller must provide the buyer (at the buyer’s cost) any required export documentation. For example, the buyer may require a certification that must be notarized or sealed in the seller’s country. The seller can charge realistic expenses (for example, courier service for the documents); they do not, however, invoice for their time. The rules concerning export documentation are clear; while the expense of providing documentation falls to the buyer, the seller must take reasonable efforts to provide the buyer with documentation that is available in the seller’s country (e.g., certificates of origin, pro forma invoices, etc.). It is the seller’s responsibility to properly notify the buyer of the pick-up location and timing. Note that any delays in shipping due to improper notification creates liabilities to the seller. Lastly, the seller must comply with any special terms in the contract.

The buyer in an Ex-Works arrangement has significantly more responsibilities and risks than the seller. First, the buyer must arrange for payment for the goods; EXW accelerates the cash cycle as delivery occurs immediately. Further, the buyer must obtain any necessary export or import licenses. Additionally, the buyer is responsible for loading the goods for transportation abroad. From a risk perspective, the buyer takes all risks associated with the transport of the goods, assumes responsibility for clearing customs, and pays all insurance and transportation costs associated with the transaction. When purchasing with EXW terms, the buyer needs to develop estimates for transportation, insurance, documentation, and customs in order to estimate the landed-cost, the cost when the buyer finally receives the merchandise. The buyer under Ex-Works is also responsible to pay all duty and taxes. Any exceptions to the Ex-Works terms must be specified explicitly in the contract. For example, the buyer may wish the seller to load the goods onto a truck.

Beginning exporters often specify EXW for contract terms. This term does in fact reduce seller transaction complexity, transferring it and its associated risks to the buyer. Sellers who are more sophisticated recognize there are market opportunities by providing more of the services and assuming more of the risk. There are also third-party firms like freight forwarders, customs clearing houses, and insurance firms that can mitigate risk for the buyer.

Bibliography:

Corley, INCOTERMS: Rules for Trade Logistics (Export America, 2002);
Foley, The Global Entrepreneur, 2nd ed. (Jamric Press, 2004);
ICC, INCOTERMS 2000: ICC Official Rules for the Interpretation of Trade Terms (International Chamber of Commerce, 1999);
Ramber, P. Rapatout, F. Reynolds, and C. Debattista, ICC Guide to Incoterms 2000 (ICC, 2000);
A. Zodl, Export Import, 3rd ed. (Better Way Books, 2002).

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