Ex Factory vs Ex Works: A Comprehensive Guide

Ex Factory vs Ex Works is a crucial distinction for businesses involved in international trade. Ex Factory refers to goods being delivered from the factory gate, with the buyer responsible for loading and transporting them.

The key difference between Ex Factory and Ex Works is the level of responsibility transferred to the buyer. Ex Factory means the seller's responsibility ends once the goods are delivered to the buyer's premises.

In an Ex Works transaction, the seller's responsibility ends when the goods are made available at their premises, and the buyer is responsible for loading and transporting them. This can be a cost-effective option for buyers who have the resources to handle transportation.

However, Ex Works transactions can be riskier for buyers, as they assume the costs and risks of transportation, including any damage that may occur during transit.

Incoterm rules are a crucial aspect of international shipping. The EXW Incoterm, or Ex Works, requires the seller to prepare the goods for collection at their premises, with the buyer having nearly full control over the ocean freight shipment.

The seller's obligation under EXW Incoterm is minimal, with the buyer taking on more responsibilities. This is why EXW is recommended for experienced buyers who are familiar with the ins and outs of the origin country and can complete full import procedures.

The Incoterm contract is signed by both parties, with the buyer issuing a Purchase Order. The seller then begins making goods, packages the finished product, and stores it in their loading dock.

The buyer receives confirmation of the date the goods left the factory and contacts local freight forwarders to make a container booking. They provide information about the date of ex-factory, product details, quantities, and measurements.

Freight forwarders may not have offices in both the destination and origin countries, so they require a counterpart or agent in the origin country to manage the shipment and organize local transportation, container operations, and clearance.

The local freight forwarder relays information to their agent in the overseas area and counterpart, who contacts the seller to ask for the exact date and time of loading. In parallel, they book containers and vehicles.

Ex Works (EXW) is a shipping agreement where the seller makes the product available at a specific location, and the buyer is responsible for loading the goods.

This term is one of the 11 Incoterms published by the International Chamber of Commerce (ICC).

The seller's responsibilities end with preparing the goods and making sure it's ready for pick up, which can be convenient for sellers with little experience in logistics.

In fact, sellers are not responsible for loading the cargo, which can be a relief for inexperienced exporters.

However, this can be inconvenient for the buyer, who will have to arrange for separate loading services on the seller's loading ground, which they may or may not be familiar with.

As a result, damages that occur during loading are technically the buyer's responsibility.

This is why Ex Works is considered a good choice for sellers but not for buyers.

In fact, it's one of the Incoterms that places the least amount of responsibility on the seller.

As a buyer, you have several responsibilities when dealing with ex factory vs ex works transactions.

You must inspect the goods before taking delivery, as the seller is not responsible for inspecting the goods at the factory.

This responsibility is explicitly stated in the Incoterms 2020 rules, which state that the buyer is responsible for inspecting the goods at the place of delivery.

You should also ensure that the goods are properly packaged and secured for transportation, as this can affect the cost and efficiency of the delivery process.

The buyer is also responsible for arranging and paying for the transportation of the goods from the factory to the buyer's location.

This can be a significant cost, and buyers should factor this into their budget when making a purchase.

The buyer should also ensure that they have a clear understanding of the payment terms and conditions, including any applicable taxes and duties.

Ex factory sales often come with a lower price tag, but buyers should be aware that they're responsible for arranging their own transportation and insurance, which can add up quickly.

In contrast, ex works sales include the cost of insurance, which can be a significant savings for buyers who don't want to handle this extra expense.

Insurance is a crucial aspect to consider when shipping goods. Under EXW Incoterm, cargo insurance is not mandatory.

It's industry practice for both the buyer and seller to acquire their own insurance to cover their respective responsibilities. This ensures that both parties are protected in case of any unexpected events.

Make sure to list the insurance terms and conditions in your sales contract.

Loading charges can be a significant expense for buyers, especially if they're not prepared. In some cases, the seller may pass on the loading charges to the buyer, which can add up quickly.

In the EXW (Ex Works) shipping method, the buyer is responsible for loading the goods at the seller's premises, which can be a logistical challenge. This means the buyer must arrange and pay for the loading process.

The cost of loading charges can vary depending on the type of goods and the equipment needed to load them. For example, if the goods are heavy or require specialized equipment, the loading charges may be higher.

In general, loading charges are a separate expense from the cost of the goods themselves, and buyers should factor them into their overall budget.

Ex factory and ex works are two terms that can be confusing, especially for those new to the world of international trade.

The main disadvantage of ex factory is that it can lead to misunderstandings about the point of delivery, as seen in the example of the buyer and seller in the "What is Ex Factory?" section.

This can result in costly delays and disputes, as the buyer may assume the seller is responsible for transporting the goods to their doorstep.

In contrast, ex works is a more straightforward term that clearly indicates the seller's responsibilities, as explained in the "Key Differences" section.

However, this clarity comes at a cost, as the buyer may not be able to take advantage of any transportation discounts or services offered by the seller.

Ultimately, it's essential to carefully consider the implications of each term to ensure a smooth and successful transaction.

Organising and managing the entire transportation process can be daunting and risk-prone, particularly for those new to international shipping.

Buyers are responsible for shipping insurance of goods from the point of collection, which can add to the overall cost of procurement.

Shipping costs can vary based on market conditions, potentially impacting the buyer’s budgeting and costing.

Inexperienced buyers may not realize the full value of a shipment if they don't check the Incoterms properly. This can lead to nasty surprises.

Always double check the quotation details carefully to ensure the correct Incoterm information is indicated. It's easy to overlook important details, but this can have costly consequences.

The cost of the shipment will be different under EXW and FCA terms because EXW does not include charges for port clearance or inland transportation. This is a critical distinction to understand.

Managing import declaration is also important, as some countries will accept EXW value, but many use Cost Insurance Freight (CIF) as the basis for import declaration. This means the invoice value may not be sufficient.