Ex Work Shipments is an INCOTERM shipping arrangement that places the highest degree of responsibility to the buyer to arrange the end-to-end transportation of the cargo. The seller only had to agree with the buyer a place of delivery, deliver it at the pre-agreed time, conform to the buyer’s purchasing requirement, and the job is done. The rest is up to the buyer, the risk of transportation is also shouldered by the buyer.
Ex Work INCOTERMs exists, but is it widely applied in global trade?
Why would the buyer take the risk of transportation, when there are other instances where sellers take up more of the transportation responsibility?
In this article, let us get into understanding what Ex Work, or Ex Factory, or Ex Warehouse.
We also argue that Ex Work does not entirely favor the seller because when the seller does not have some level of control over the delivery of goods, they also do not have a level of control over the payments due to them.
Seller Responsibility in Ex Work Shipment
Let us get the obvious details out of the way, before getting into the more nuanced concept of Ex Work INCOTERM.
INCOTERMs are revised regularly by the International Chambers of Commerce. It is revised once every 10 years to keep up to date with the ever-changing global trade landscape.
Having said that, the INCOTERM Ex-Work (EXW) is a regular feature of ICC INCOTERM guidelines.
There are no specific law requiring buyers and sellers to adhere to the INCOTERM rules. But the INCOTERM allows a level of transparency that the Customs, Trade Financiers, and Chambers of Commerce rely heavily on INCOTERM.
In a shipment arranged in an Ex-Work INCOTERM, there are 4 main factors that requires both parties to agree upon: –
- Cargo Packaging and Labelling requirements
- Conformity to the contract of sales
- Date of Cargo’s availability
- Named location of cargo ownership transfer
Coincidentally, these four basic criteria that the seller and buyer must agree upon prior to shipment delivery are also the 4-core responsibility of the seller as well.
Cargo Packaging and Labelling
Cargo packaging and labelling requirements are in place to adhere to customs requirements and Partner Agency’s requirements.
For example, US Customs and Border Protection requires that: –
“… every article of foreign origin entering into the United States must be legibly marked with English name of the country of origin”
Hence, an importer from the United States that is arranging under Ex Work INCOTERM, requires the seller to lay out the marking “Made in (Country of Origin)” prior to taking delivery.
The US FDA also stipulates strict labelling requirements for cosmetics, which are intended for personal use and consumption. The labelling requirements includes: –
- Name of the Product
- Direction of Use
- Name and Place of Importer
- Ingredient lists
These labels must feature prominently on the container of the cosmetic commodity.
The importer should take this under consideration when importing finished product that has the intention for direct distribution for human consumption.
On the other hand, the INCOTERM rule rations that if the packaging, labelling, and marking requirements are given to the seller after the cargo’s delivery date, then it is entirely not the seller’s obligation or cost to adhere to those requirements.
Conformity to Contract of Sales
This is a non-negotiable stipulation. The seller has to deliver on what is promised.
Since the buyer has a harder time inspecting the goods after the seller’s delivery, the seller has to provide evidence such as pictures, Safety Data Sheets, catalogues, inspection reports, or any support documents that help guarantees the importers that the cargo is up to satisfactory requirement.
Date of Cargo’s availability
Date of cargo’s availability simply means the date and time the cargo is made ready for the buyer’s transporters to collect the cargo. The seller is however not responsible for loading the cargo onto the vehicle of transport, merely making the cargo available at a time both parties agreed upon.
Difference between Ex Work and FAS, FOB, and FCA
Here is where Ex Work differentiates itself from other INCOTERMs.
In Free Along Ship (FAS), Free on Board (FOB), and Free Carrier (FCA), the first point differentiating Ex-Work with these other INCOTERMS is that the seller is not expected to perform custom clearance for the exporting country.
This leads to another differentiating factor is that, in FAS, FOB, and FCA, the buyers have more flexibility and control over the named destination. It has to be conveniently placed “Along Ship”, “On Board” or on “Carrier”.
On the other hand, Ex Work shipments allows the seller to place at the named location that the seller has more control over, mostly in the seller’s own premise of work (Hence Ex Work). But equally likely is that the seller can store the cargo at a warehouse appointed by the seller. It is still considered an Ex Work shipment.
Buyer’s Responsibility in Ex Work Shipment
Ex Work shipments place the buyer in the highest possible position of responsibility.
Transfer of Risk
The most prominent fact about Ex Work which all buyers must be aware is that, once the 4 criteria above are met by the seller, they have effectively transferred the risk of transportation to the buyer.
The cargo is may still be in the seller’s premise, but if the cargo is lost, stolen, or damaged after the date of delivery, the sellers are not hold responsibility for those monetary losses.
So, it is safe to assume that the buyers are responsible for every aspect of transportation and the risk involved with it. Including: –
- Choosing modes of transportation
- Purchasing Insurances
- Custom Clearance at Port of Loading
- Custom Clearance at Port of Discharge
- Freight Charges
- Transportation to and from the entry and exit ports
Sellers are still held accountable in Ex Work Shipment
However, it is not entirely an unfair practice to arrange shipments in Ex Work INCOTERM.
Even though all the risk and responsibilities of transportation lies on the buyer. The seller has to offer their full cooperation in order not to hinder the process of end-to-end transportation. Which includes: –
- Provide supporting documents for any export license requirements
- Provide supporting documents for any import license requirements
- Provide said documents at a timely manner
Why would Importers choose Ex-Work Shipment?
There are several reasons why importers still opt for Ex-Work shipments. Here are some of the rational reasons why: –
Ex-Work shipments feature more prominently when it is a domestic cargo transfer, even more if the transportation is over a short period of time.
When there are not many moving parts in play, for instance, the customs officer, the freight forwarders, and partner governing agencies. The shipment does not necessarily require a detailed approach in separating the risks and responsibilities of transportation.
Furthermore, if the importer has its own transportation infrastructure in place already, it makes sense for the seller to arrange the shipment as an Ex-Work shipment.
Seller will invariably factor in the cost of transportation to the degree of the risks the seller undertakes. The more involved the seller is in the transportation, the higher the cargo invoice price.
Savvy importers might determine that the seller is charging too high for the cost of transportation and prefers to arrange the transportation on its own via an intermediary service provider stationed in the port of loading.
This is one effective way to reduce cost of transportation, provided that the importer has a trustworthy service provider such as a freight forwarder that is able to provide a more affordable and reliable service.
Control over Shipping Documents
In an Ex Work shipment, the seller cannot dictate how the contract of affreightment is arranged.
Global trades are financially settled in stages. For example, 50% upon order completion, 50% upon delivery.
Should the cargo be arranged as an Ex Work shipment, the seller does not have a document of lien to hold importers for payment for delivery. The document of lien we are referring to is, of course, the bill of lading.
Hence, for cargo shipments where the importers have longer credit arrangements with the seller, the importers would prefer the shipment arranged in an Ex Work shipment, so the seller does not hold the bill of lading as lien in exchange for payments due.
It must be stated that this is not a common occurrence where sellers are willing to take up such a risk.
Although Ex Work shipments may seem like the transportation risk is entirely transferred over to the buyer, the seller has to be aware of the credit-control element of the trade.