One of the international commercial terms we would be looking at today is Ex Works or EXW. What is Ex Works trade agreement, and who benefits more in an EXW transaction contract? These are the few questions that this article will be answering.
What is EX Works Trade Agreement
The term defines a contract in which the selling party is to make sure goods are ready for pickup at his factory, warehouse or depot.
Exporters often prefer this term because they are only responsible for making products ready for pickup. Also, further obligation such as trucking of goods from the warehouse to the seaport rests on the buyer. Furthermore, the buyer bears the burden of loading and offloading of goods beginning from the seller’s warehouse up to the final destination.
For instance, if you enter into EXW (Bonny Terminal) agreement with the NNPC to buy Bonny Light Crude Oil, you will have to bring your vessel for cargo pick up. The corporation has to get the product ready for pickup at an agreed terminal. Meanwhile, you will be responsible for the shipping, customs charges and other costs.
What Are Seller’s Obligations under Ex Works?
In an Ex Works trade agreement, a seller has very few obligations to fulfil. However, he must make goods readily available for pickup in his factory or warehouse. Also, he must provide all relevant documents to back the legitimacy of the transaction.
But for some products that could be shipped as-is, another obligation a seller has to fulfil is product packaging and wrapping. He must pack them well so that buyer will not end up having a problem with loading. Also, this is to prevent unnecessary damage to goods while on transit.
What Are Buyer’s Obligations Under EXW?
Except there is an express agreement that he can defer payment, his primary obligation is to make payment for goods. Also, he bears both the loading and freighting cost. Another responsibility of the buyer is customs at place of origin as well as customs on arrival. However, this requires a good understanding of how things run in both countries.
Furthermore, he bears the cost of international freight as well as inland transportation at the destination country.
However, the fact that Ex Works agreement demands so much from a buyer does not make it a bad option for him. It is ideal for any buyer who has what it takes to cut cost at the end of a transaction. Make sure you talk to your business lawyer before you opt for any particular trade agreement.
What Are The Advantages of EXW Trade Agreements?
- No Hidden Cost: There is no room for sellers to inflate or add extra hidden cost because all costs are open to both parties from the outset.
- Buyer has the privilege of hiring a trusted shipping company without having to pay extra money.
- Ex-Works places minimal responsibilities on the seller.
- It is rare to incur additional costs.
- Seller is free from charges and other challenges arising from the loading of goods.
- Ex Works does not require the seller to monitor cargo against any form of diversion.
Disadvantages of EXW Trade Agreements
- Buyer is responsible for all risks right from the factory premises to the port of discharge.
- A buyer may incur more costs than expected if he does not understand trade conditions in the country of origin.
- Buyers are liable for all customs charges in both foreign and home countries.
IS EXW Better Than FOB Trade Agreement?
As a merchant, it is not ideal to say that the former is better than the latter without putting other factors into consideration. Although EXW may save you some cash, always think of other factors that may work against you.
The most important thing is to have a safe and hitch-free transaction. Also, make sure you seek proper guidance from your legal advisor with respects to contract terms implications.