The acronym EXW is one of the globally recognized commercial conditions developed by the International Chamber of Commerce (ICC) and known as incoterms. Incoterms (an acronym that defines international commercial terms) are used in imports and exports to unambiguously define, and without being able to fall into error, the rights and duties of the parties involved in the transfer of goods from one country to another.
These terms also define:
- the breakdown of transport costs,
- insurance coverage
- customs.
All this is fundamental because it is established when the ownership of the goods passes from one party to another, the respective responsibilities for any losses, damages and costs of the goods in question.
EXW or Ex-Works Shipment
The term Ex-Works or Ex-Works, abbreviated as EXW, is understood as departure from the factory, in the sense that the buyer must arrange transport directly from the seller’s factory.
Specifically:
- the seller’s task is to make the goods available on a date agreed within his factory, accompanying the goods with the documentation necessary for export from the country of origin;
- the buyer’s task is to take care of customs in both the country of origin and in the final one, paying for both customs clearance processes and organizing transport from the seller’s warehouse to his warehouse in Italy.
EXW in the European regulation
Article 1 of EU Regulation 2446/2015 gives a new look to the EX Works, in which the provisions of the Union Customs Code are integrated. In practice, a new definition of exporter is given, meaning this figure as “the person established in the customs territory of the Union who, at the time of acceptance of the declaration, is the holder of the contract concluded with the consignee in the third country and has the power to decide that the goods must be transported to a destination located outside the customs territory of the Union“.
On the basis of this rule, it is clear that the seller, in the event of EXW negotiation, cannot be considered as an exporter with regard to the customs declaration. This means that if the buyer is not resident in the EU, he must appoint a customs representative who is established in the territory of the Union. In this case, note 70622/2016 of the Customs Agency establishes that in box 2 of the DAU the Eori code of the customs representative who is the holder of the sales contact with the buyer who resides outside the EU and who can decide on the transport of goods beyond the EU borders must be indicated as the exporter.
Simplifying everything, an exporter is considered the one who is responsible for bringing the goods to customs in order to export them; in the case of EXW, it will be the buyer who takes over the exporter’s share by assuming this responsibility in foreign customs.
FOB Shipping
The FOB, short for Free On Board, is instead a shipment called “port to door”, i.e. from the port of embarkation to the port of delivery.
FOB conditions stipulate that the supplier assumes responsibility for all local charges, transportation of goods, cargo handling, customs in the country of origin
If this type of shipment is chosen, the buyer will have to liaise with a carrier, who will agree to take delivery of the goods at the defined port and transport them to the Italian customs.
Differences and advantages between Ex-Works and FOB
Goods purchased at EXW conditions generally have a cheaper cost, so in some cases it can be an advantage for those who decide to buy the goods directly in the non-EU country. However, the situation changes if transport costs increase, nullifying the savings on the cost of goods. If you choose this type of shipping it is true that you can pay less and save on the total cost, but you take all the responsibilities of shipping, customs clearance, you have to make sure that the supplier has the necessary authorizations for export and you finally have to find a freight forwarder that offers an Ex-Works service.
On the other hand, even though FOB shipping may appear less advantageous than the EXW condition, the reality may be different. The price estimated by the supplier to deliver the goods to the port of departure may in fact be lower than that of the freight forwarder; customs clearance and therefore the documents for export are then the responsibility of the supplier, making the process easier. However, things could go wrong if the supplier refuses to pay local charges as agreed or calculates additional expenses that can increase the previously agreed cost.
Is EXW or FOB better?
Certainly the choice of the type of Incoterms cannot be underestimated when negotiating with the supplier, in principle the best choice always falls on the FOB, in this case the buyer has fewer responsibilities and incurs fewer problems as he does not have to deal with Chinese customs. He will probably have to be willing to spend slightly more, but the practical advantages of this choice are obvious.
It is a different matter if the buyer also has an office in China: in this case, being on site can be much easier to deal with all the customs procedures, and the EXW cost is certainly more advantageous.
In summary, we would like to recommend, in most cases, the terms FOB as they better protect the Italian company that intends to buy outside the European territory, which, however, must be willing to invest a small part of money more to protect the success of the operation.
