Ex works is a term that is often associated with international trade. In fact, ex works (commonly abbreviated as EXW) is one of the standardized terms that are published by the International Chamber of Commerce.
In a nutshell, ex works is a purchasing arrangement in which the buyer receives the purchased goods at the seller’s warehouse. Once the purchased goods are placed at the buyer’s disposal, they are responsible for all the risk that is associated with these goods.
This includes everything from shipping costs to getting the goods through customs, if applicable. You’re probably wondering why a buyer would accept such an arrangement. This is a question that doesn’t have a short answer. There are plenty of reasons that make this arrangement favored by some buyers as well as the sellers.
The reason that makes this arrangement attractive a buyer is the ability to save money, if they have a better and more efficient supply chain than the seller’s. When this is the case, they’ll be able to save money off your purchases, and this is why ex works pricing is important.
For successful ex works pricing, there are things that should always be kept in mind. There are many factors that come into play in ex works pricing, which increases the overall risk of the process.
By keeping an eye out for the following, they significantly lower the risk associated with this process.
Considering all risk factors
Ex works agreements has all kinds of risks involved. These include anything from a higher-than-anticipated transportation costs to damaging the goods during the transportation process.
Having in-house transportation capabilities doesn’t mean that this is something that should be done. To know if an ex works agreement is feasible for your business or not, one must go deeper into the details. Asides from the direct cost of transferring the goods, do they require special handling? Is the staff qualified to do that? These are some of the questions that should be asked.
Transporting the goods on their own might look cheaper on paper. Yet, they must make sure that you’re assuming a reasonable risk in order to have a positive outcome in the end. Taking the time to calculate everything thoroughly can save you lots of trouble along the way.
Considering the legalities
In ex works agreements, the legal aspects are never to be underestimated. There are lots of legal details involved in such agreements. Failing to check these thoroughly can lead to numerous problems in the long term and depending on the size of the business, can cost a small fortune.
Everything from different party liabilities to custom-related details must be covered in the contract. Unless one’s well-versed in contractual laws, getting a lawyer to check things for them is the right thing to do. Saving the lawyer fees might seem like a good idea at first. However, the risk associated with going through the legal paperwork alone is definitely not worth it.
Advantages and Disadvantages
There are plenty of advantages and disadvantages that are associated with ex works agreements. Deciding whether such an agreement is right for the business or not depends on whether the advantages outweigh the disadvantages.
The following are the two main advantage and disadvantage that are associated with associated work that you need to consider.
Being in Control
Being the seller, the advantages of an ex works agreement are almost too obvious to explain. With such an agreement in place, seller takes lots of hassle out of the selling process.
As a buyer though, the advantage of this agreement is having a higher degree of control over the shipments. By controlling everything in the shipping process, one can be sure that the seller isn’t inflating shipment-related costs and charging more money for it. If your business is resourceful enough, ex works agreements can be advantageous.
Uncertainty and Risk
Compared to other types of shipping agreements, ex works is particularly risky to the buyer. Unlike in other agreements like FCA, where it’s guaranteed that goods will be cleared from customs and delivered to the location agree upon in the contract in good shape, one’s promised nothing with an ex works agreement.
Once you take the goods from your supplier at their warehouse, they’re on their own. The seller just takes their money and all the responsibility is on your shoulders. Getting the goods in good shape to your warehouse and getting customs clearance- if needed- are things that has to be worried about.
How can Sniffie help?
In order for ex works pricing to be successful, it’s needed to be aware of the actual cost of the entire process. Conducting a proper market research about the shipping and other types of hidden costs is something that has to be done. Sniffie can make that easier.
By helping you find out about the prices of the competitors’ products as well as the price of other hidden costs, Sniffie makes ex works pricing easier and helps you decide if it’s for you in the first place.
How to use EXW
- Know how much it’ll cost to have the seller ship your good.
- Calculate how much it’ll cost you to ship the goods yourself.
- Take other costs like taxes and customs into your consideration.
- Calculate the total ex works pricing.
- Decide whether it’s a feasible option or not.
- Used when the buyer collects the sold goods from the seller’s warehouse, without any shipping included.
- If you’re the buyer, make sure that an ex works agreement is in your best interest.
- If you’re picking up imported goods, make sure that the customs clearing is covered in your price calculation.
- Make sure you have what it takes to transport the goods before getting into an ex works agreements.