Why Buyers Typically Avoid Ex Works and a Preferred Alternative In the intricate dance of international trade, the choice of delivery terms can significantly impact both the cost and risk borne by the parties involved. One such term that often comes under scrutiny, particularly from the buyer’s side, is ‘Ex Works’ (EXW). In this post, we’ll delve into why buyers typically avoid this term and explore a more balanced alternative.

Why Buyers Typically Avoid Ex Works

Understanding ‘Ex Works’ (EXW)

Under the Ex Works (EXW) Incoterm, the seller fulfills their obligation once the goods are made available for pickup at their premises or another named place (factory, warehouse, etc.). From that point on, the buyer assumes all costs and risks associated with transporting the goods to their final destination.

Why Buyers Typically Avoid Ex Works (EXW):

• All Responsibility on Buyer: With EXW, the onus of responsibility for almost everything falls on the buyer. This includes export duties, shipping charges, insurance, and unloading at the destination.
• Lack of Control Over Export Formalities: The buyer is responsible for export clearance. However, since they aren’t present in the seller’s country, it can be challenging to manage these formalities, which might even lead to legal complications.
• Potential for Hidden Costs: As the buyer is liable for all transportation costs from the seller’s location, any unexpected expenses that arise can quickly inflate the total cost of procuring the goods.
• Increased Risk: The buyer bears all the risks right from the seller’s door. This includes risks associated with handling, transportation, and potential damage or loss of goods.
• Complexity for Inexperienced Buyers: For buyers new to international trade, managing all the aspects of shipping, customs, insurance, and transportation can be overwhelming.

A Preferred Alternative: ‘Free Carrier’ (FCA)

Given the complications associated with EXW, a more balanced alternative that buyers might consider is ‘Free Carrier’ (FCA).

Benefits of FCA over EXW:

• Shared Responsibilities: Under FCA, the seller is responsible for delivering the goods, cleared for export, to a carrier appointed by the buyer at the seller’s premises or another named location. This distribution of responsibilities can make the process smoother for the buyer.
• Flexibility: The buyer still has the freedom to choose their preferred carrier and route, giving them control over costs and logistics.
• Clearer Costs: Since the seller handles the initial stages of transportation, the buyer has a clearer picture of the associated costs up to the FCA delivery point.
• Reduced Risks: The risk transfers from the seller to the buyer only when the goods are handed over to the carrier, ensuring the seller is responsible for the initial stages of handling and transportation.
• Simpler Export Formalities: Sellers, being in their home country, can more easily manage export formalities, reducing potential legal or procedural complications for the buyer.

In conclusion, while EXW might seem attractive due to its apparent simplicity, the complexities and risks it places on the buyer often make it a less favorable choice. FCA, on the other hand, offers a more balanced distribution of costs and responsibilities, making it a more harmonious option for both parties in an international trade scenario.

If you want to learn more about the proper content of a Purchase Order, please visit our online course. A Purchase order is the most important document at a Procurement function. This online course will provide you an introduction to the content and purpose of a PO.

We also recommend reading Delivery terms not found in Incoterms. In this blog post, we explore ten delivery terms not found in Incoterms and suggest the most closely aligned Incoterm alternatives for each.

Explaining Incoterms

Incoterms, an abbreviation for “International Commercial Terms,” are a set of standardized terms published by the International Chamber of Commerce (ICC). They play a crucial role in global trade by clarifying and reducing the uncertainties of differing interpretations in various countries. More than just a glossary, Incoterms offer an essential framework to delineate the responsibilities and liabilities between buyers and sellers in international trade transactions.

Key Areas Regulated by Incoterms:

• Delivery Point: One of the primary functions of Incoterms is to specify the exact point at which the risk of loss or damage to goods shifts from the seller to the buyer. For instance, under the term “EXW” (Ex Works), the risk is transferred to the buyer as soon as the goods are made available for pickup at the seller’s premises. Conversely, with “DDP” (Delivered Duty Paid), the seller bears all risks and responsibilities until the goods are delivered to the buyer’s designated location.
• Transportation Costs: Incoterms outline who – buyer or seller – is responsible for each segment of transportation. This clear demarcation ensures that there’s no ambiguity regarding who pays for the main carriage, onward transportation, or any other associated transport costs.
• Export and Import Formalities: International shipments often involve a multitude of customs procedures, inspections, and paperwork. Incoterms determine who is responsible for managing and paying for these procedures. For example, under terms like “FCA” (Free Carrier), the seller handles export formalities, while the buyer manages import duties.
• Insurance: The responsibility for insurance can vary based on the selected Incoterm. Some terms, like “CIF” (Cost, Insurance, and Freight), explicitly state that the seller must procure and pay for cargo insurance on behalf of the buyer, while others leave the decision to the involved parties.
• Packing and Handling: Incoterms also touch upon matters like packaging, marking, and inspection. They outline who is responsible for ensuring that goods are adequately packed, marked for shipment, and, if necessary, inspected before dispatch.

Why Are Incoterms Vital for Buyer-Seller Relations?

• Clarity and Predictability: With Incoterms, both parties have a clear understanding of their roles, reducing the potential for disputes and misunderstandings. They offer a shared language that’s consistent across different countries and legal cultures.
• Flexibility: While Incoterms provide standardized terms, they offer a range of options to cater to various types of transactions, allowing buyers and sellers to select the most suitable terms for their specific needs.
• Cost Efficiency: By defining responsibilities and risks clearly, Incoterms enable traders to accurately estimate costs and set prices, ensuring transparency in budgeting and financial planning.
• Facilitating Global Trade: By providing a universally recognized set of guidelines, Incoterms ease the process of international trade, making it more accessible and less daunting for businesses of all sizes.

In the intricate web of international trade, Incoterms serve as vital signposts, guiding buyers and sellers through their mutual obligations and responsibilities. They form the foundation upon which solid, transparent, and efficient trade relationships are built, fostering trust and cooperation in the global marketplace. Whether one is a seasoned trader or a newcomer to international commerce, a thorough understanding of Incoterms is indispensable. In short avoid Ex Works. 

International Chamber of Commerce (ICC): This official source offers an overview of Incoterms® 2020, including their purpose and basic definitions. Download a free wall chart.

Note Illustration to Blogpost “Why Buyers Typically Avoid Ex Works” is created by Chat-GPT on October 17, 2023.