Incoterms 2020 rules are the latest revision of international trade terms published by the International Chamber of Commerce (ICC). They are recognized as the authoritative text for determining how costs and risks are allocated to the parties conducting international transactions.
Incoterms 2020 rules outline whether the seller or the buyer is responsible for, and must assume the cost of, specific standard tasks that are part of the international transport of goods. In addition, they identify when the risk or liability of the goods transfer from the seller to the buyer.
In this article, we’re discussing the Incoterm EXW, also known as Ex Works.
There are 11 trade terms available under the Incoterms 2020 rules that range from Ex Works (EXW), which conveys the least amount of responsibility and risk on the seller, to Delivered Duty Paid (DDP), which places the most responsibility and risk on the seller. The Incoterms 2020 Rules: Chart of Responsibilities and Transfer of Risk summarizes the seller and buyer responsibilities under each of the 11 terms.
For a summary of Incoterms 2020 and a short definition of each of the 11 terms, read An Introduction to Incoterms.
Ex Works Responsibilities and Risk
Under the Incoterms 2020 rules, EXW means the seller has fulfilled its obligation when the goods are made available to the buyer, usually at the seller’s location. The seller should package the goods appropriately or as specified in the agreement between both parties. The buyer is responsible for loading the goods on their transport and everything else necessary to get the goods to the final destination.
The risk or liability for the goods transfers from the seller to the buyer when the goods are made available at the named place. That means that if damage occurs while the goods are being loaded on the buyer’s transport, the buyer is at risk even if the seller is assisting with the loading. Precautions should be taken.
Although the U.S. Foreign Trade Regulations (FTR) don’t reference Incoterms and the Incoterms 2020 rules don’t reference any countries’ specific trade regulations, Ex Works is the trade term that is often used during a routed export transaction.
According to the FTR, a routed export transaction occurs when the foreign buyer of the goods contracts with a freight forwarder or other agent to export the merchandise from the United States. That arrangement works with the Incoterm EXW, although it could work with other terms, namely FCA (Free Carrier).
Sellers in the United States often choose EXW because they think it minimizes their responsibilities and risk. EXW is the only term that says the buyer is responsible for export clearance. However, under the FTR and the Export Administration Regulations (EAR), they do not escape their responsibilities for export compliance and the requirement that they provide required data elements to the buyer’s agent (usually a freight forwarder) that has been authorized to submit the electronic export information through AESDirect. (See my article, Why I Hate Routed Export Transactions.)
Ex Works Transportation Options
The ICC has divided the 11 Incoterms into those that can be used for any mode of transportation and those that should only be used for transport by “sea and inland waterway.” That’s because companies were too often choosing Incoterms where risk and responsibilities transferred at a point that made no sense in a non-ocean journey.
Under Incoterms 2020, EXW can be used for any mode of transport.
Using Ex Works
Although EXW is frequently used for exports from the United States, it is almost universally reviled by those who make a living at training others about the use of Incoterms. In most cases, FCA would be a better alternative for these folks, although one of the four C-terms—Cost & Freight (CFR), Cost Insurance & Freight (CIF), Carriage Paid To (CPT), and Carriage Insurance Paid To (CIP)—may be even better yet.
For sellers, using EXW means they give up control of the goods almost immediately at the risk that export controls aren’t being followed or that the goods never actually leave the country.
Some companies insist they use EXW because they want to be able to recognize the revenue for the sale immediately. However, the ICC's Incoterms 2020 book clearly state that the recognition of revenue is independent of any Incoterm rule:
Perhaps most importantly, it must be stressed that the Incoterms rules do NOT deal with the transfer of property/title/ownership of the goods sold. These are matters for which the parties need to make specific provisions in the contract of sale.
From the seller's standpoint, EXW may not be a good choice if a letter of credit is involved. Because the freight forwarder follows instructions from the buyer, the seller may run into trouble satisfying the letter of credit.
When using EXW, the seller may want to consider slight changes to the terms and conditions. For example: "If the buyer does not retrieve the goods within 'x' days of notification of their availability, the seller has the right to charge storage or move them to a public storage facility at the buyer's expense." Without this change to the contract, the seller risks being used as free storage or risks the buyer delaying the payment cycle.
For the buyer, using EXW means they not only have to deal with a foreign country’s export requirements, they also have to arrange to have the goods loaded on a carriage from the seller’s location or another named place.
Learn More about Incoterms 2020 Rules
If you are regularly involved in international trade, you need to understand the risks and responsibilities for each of the Incoterms 2020 rules, not just pick the term you always use. Start by getting a copy of ICC's Incoterms® 2020 Rules book.
- FCA (Free Carrier)
- FAS (Free Alongside Ship)
- FOB (Free On Board)
- CFR (Cost and Freight)
- CIF (Cost, Insurance and Freight)
- CPT (Carriage Paid To)
- CIP (Carriage and Insurance Paid To)
- DAP (Delivered At Place)
- DPU (Delivered At Place Unloaded)
- DDP (Delivered Duty Paid)
If history is any indication, the Incoterms 2020 rules will be around for at least a decade. Now seems like the perfect time to make sure you understand each of the terms, so you can make sure you’re speaking the same language as your international trading partner.
Like what you read? Subscribe today to the International Trade Blog to get the latest news and tips for exporters and importers delivered to your inbox.
This article was first published in February 2017 and has been updated and revised to based on the changes made with the release of the Incoterms 2020 rules.