Lesson 3 - EXW and why you should NEVER use this rule!

Summary

In this lesson on EXW (Ex Works) Incoterms 2020, Bob Ronai dives deep into the complexities of the rule, addressing key elements like delivery, taking delivery, export/import clearance, cost allocation, and notices. He explains the seller's and buyer's responsibilities, risks, and practical challenges associated with EXW transactions. Special attention is given to the intricacies of documentation and compliance, including the complications when using Letters of Credit. Ronai cautions against using EXW as a trade term, emphasizing its suitability only for cost calculations. The lesson aims to equip trade professionals with a thorough understanding of EXW for better decision-making.

Takeaways

• 😀 ExW (Ex Works) is a complex Incoterm where the seller's responsibility ends once the goods are made available for pick-up by the buyer at the agreed location.
• 😀 The seller is not responsible for loading the goods onto the buyer's vehicle but must ensure that the goods are available at the agreed delivery point.
• 😀 The buyer assumes responsibility for loading the goods and bears the risk during transportation from the seller’s premises.
• 😀 The seller may impose conditions on the buyer’s carrier, such as requiring evidence of insurance, proper permits, and training, before allowing them onto the site.
• 😀 If the seller is requested to load the vehicle, it does so at the buyer's risk and cost, with all such conditions outlined in the contract.
• 😀 For ExW, the seller has no control over where the buyer sells the goods after they are delivered, which could lead to reputational risks for the seller.
• 😀 The seller must assist with export and import clearance at the buyer's request, but the buyer is responsible for carrying out and paying for all export/import formalities.
• 😀 The seller is not liable for any customs violations or formalities under ExW; the buyer must ensure compliance with the exporting country's regulations.
• 😀 The buyer must provide the seller with appropriate evidence of having taken delivery, but the seller does not have any contractual arrangements with the buyer's carrier.
• 😀 ExW transactions are not compatible with Letters of Credit (LC) since the seller’s responsibility is limited, and no transport documents are typically involved, leading to potential payment risks for the seller.
• 😀 ExW should be avoided in trade contracts as it places too much responsibility on the buyer and exposes the seller to significant risks, particularly regarding delivery and payment.

Q & A

What is the main purpose of this lesson on Incoterms 2020?

The main purpose of this lesson is to provide a comprehensive understanding of Incoterms 2020, specifically focusing on the EXW (Ex Works) rule, its complexities, and the related articles such as delivery, taking delivery, export/import clearance, allocation of costs, and more.

What is EXW (Ex Works) in Incoterms 2020?

EXW (Ex Works) is a trade term where the seller makes the goods available at their premises or another agreed place. The buyer takes on responsibility and costs for all transport, export/import formalities, and risks once the goods are made available.

What does article A2 (delivery) specify in the EXW rule?

Article A2 specifies that the seller must deliver the goods by placing them at the disposal of the buyer at the agreed point within the named place of delivery, not loaded onto any collecting vehicle, and must do so on the agreed date or within the agreed period.

How is delivery defined in EXW, and what responsibility does the buyer have?

In EXW, delivery occurs when the seller places the goods at the buyer's disposal. The buyer is responsible for loading the goods, which may require providing machinery, labor, and possibly ensuring proper documentation and insurance for the loading process.

What is the seller's responsibility regarding export and import clearance under EXW (Article A7)?

Under EXW, the seller assists the buyer with obtaining documents and information related to export, transit, and import clearance at the buyer's request, risk, and cost. The seller does not bear responsibility for obtaining export or import licenses or clearance.

What risks exist for the seller when using EXW, particularly regarding the buyer's use of the goods?

The seller faces risks such as the buyer potentially selling the goods in the seller's domestic market, to competitors, or to countries under sanctions. These actions could damage the seller's brand image or reputation.

What are the buyer's obligations for export and import clearance under EXW?

The buyer is responsible for carrying out and paying for all export, transit, and import clearance formalities, including obtaining any necessary licenses or authorizations. The buyer assumes the risk and cost if they cannot comply with the regulations.

How does EXW relate to the use of Letters of Credit (LCs)?

EXW is often incompatible with Letters of Credit (LCs) because LCs typically require documents like transport documents, which the seller does not handle under EXW. In EXW, the seller is only responsible for providing an invoice and a copy of the buyer's receipt, making LCs less effective in this context.

What are the implications of EXW in relation to transport documents and proof of delivery?

EXW requires the buyer to provide appropriate proof of delivery to the seller. The seller has no contractual relationship with the buyer's carrier and is not responsible for any transport documents or evidence of export, which may lead to risks for the seller in terms of liability and documentation.

Why is EXW considered dangerous and unsuitable as a trade term?

EXW is considered dangerous and unsuitable because it places too much responsibility and risk on the buyer, making it problematic for international trade. It is advised to be used only for costing purposes, rather than as the basis for a sale contract, as it can lead to complications with logistics, documentation, and payment under LCs.