What Is An Ex Works Contract?

The Ex Works (EXW) contract is the first and only INCOTERM of the E group.

Obligations under EXW Ex Works

The EXW is the most convenient contract for the seller because its only obligation under EXW is to make the goods available for collection by the buyer at the seller’s premises. These can be a factory, a warehouse, the seller’s headquarters itself.

According to the standard trade term, the seller does not even have to make packaging for the goods nor does it have to provide export license; under Ex Works INCOTERMS 2020 however, the seller is obliged to package the goods at its own expense if it is common for that particular trade to do so; in any case, even under Ex Works INCOTERMS 2020 the seller is not obliged to provide for export license but it has to give any relevant information to the buyer in order to do so. Now over this point there is a little bit of disconnection among the domestic laws. Some countries require the exporter to register the exportation in the public registry: for example, that is the case for the United States.

Therefore, notwithstanding what is stated in the INCOTERMS 2020, an exporter in the United States will have to provide the export license because it will have to do so anyway according to its domestic law. As we stated already in our introductory article about INCOTERMS, we always need  to distinguish between the Ex Works INCOTERMS 2020, i.e. what is written in the INCOTERMS 2020 provision, and what is stated into the statutory domestic laws of the countries where the parties carry on business (or the country whose body of law the parties have chosen to regulate the transaction).

Transfer of risk under EXW Ex Works

The Ex Works INCOTERMS is very convenient for the seller also in terms of risk. The graphic below represents an example: an Italian company just bought machinery from a German seller, let’s say it is a million euros deal of machinery under Ex Works INCOTERMS 2020.

Accordingly, the Italian buyer must come at the seller’s premises in Germany and collect the goods. It is at the collection of the goods that the transfer of risk takes place. This is the central point, because anything that happens to the goods after they have been picked up by the buyer, so it means while they have been transported if they get stolen or damaged or whatever, it does not matter whether that happens in Germany or in Italy, it is going be on the buyer anyway. Under Ex Works INCOTERMS, the seller bears essentially no risk: when the goods are collected by the buyer, then it is at that time that the risk is transferred from the seller to the buyer.

It is very important under INCOTERMS, that is something we stated also in the previous article, to understand what the parties are signing up for: what are their obligations and who bears the risk. This is a contract which is so convenient for the seller that if you are the buyer you might be able to negotiate, because you are gonna have to incur into quite some burdensome costs perhaps and also you might want to be remunerated for the risk, the additional risk that you are carrying.

Of course, the buyer is not obliged to provide for insurance or anything but since it is carrying the risk it may be better if it does so.

Globartis Research

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