What it means
EXW is one of the Incoterms, the standard trade delivery terms published by the International Chamber of Commerce and referenced in contracts worldwide. The terms exist so that a two or three letter code, plus a named place, settles who pays for what and where risk passes.
In an EXW quote the named place is the seller's factory, warehouse or yard. The practical consequence is that an EXW price is not comparable with a delivered price, and treating the two as if they were is one of the most common purchasing errors.
A quote of $50,000 EXW and a quote of $56,000 delivered to your door may well mean the delivered offer is cheaper once freight, insurance and duty are added to the first. Buyers need a landed cost calculation before they can compare anything.
Risk transfer is the other half of the term. Once the goods are available at the agreed place at the agreed time, damage or loss is the buyer's problem even if the goods have not moved, which makes cargo insurance from that moment onwards essential.
Loading is a particular grey area, since strictly the seller need not load the buyer's vehicle, and many contracts add wording to deal with this. Export clearance is the trap that catches inexperienced importers.
Under EXW the buyer is responsible for export formalities in the seller's own country, where it may have no legal presence, no local agent and no ability to file the paperwork. For this reason many exporters quote FCA, or free carrier, instead, which is otherwise similar but puts export clearance back with the seller.
EXW still has a proper place: it suits domestic sales, sales to buyers with their own established freight operation, and situations where the buyer wants complete control over routing and carrier choice. What it does not suit is a first-time importer who assumes the price on the invoice is the price they will pay.
In practice
Real-world examples.
Example
A furniture importer buys $80,000 of oak frames EXW from a workshop and arranges its own consolidated container. Because it ships four suppliers together, its freight cost per supplier falls, and EXW gives it the control it needs to plan the consolidation.
Example
A small online retailer accepts an EXW quote from an overseas supplier without checking export requirements. It cannot file export paperwork in the supplier's country, so the goods sit in the factory for three weeks until a local freight agent is appointed at extra cost.
Example
A machinery seller quotes EXW to keep its price headline low against competitors. Its buyer runs a landed cost calculation, discovers that heavy lift handling adds $6,400, and negotiates a switch to FCA with loading included at the port.
Formula
Calculation
Landed cost = EXW price + inland haulage + export clearance + international freight + insurance + import duty + import clearance and final delivery
A buyer purchases 1,000 units of laboratory glassware for $50,000 EXW the seller's factory. Inland haulage to the port is $1,200, export clearance is $400, ocean freight is $2,800, and cargo insurance is $300. That gives a value for duty purposes of $50,000 + $1,200 + $400 + $2,800 + $300 = $54,700.
Import duty is charged at 5%, so duty = $54,700 x 5% = $2,735. Import clearance and delivery to the buyer's warehouse cost a further $900.
Landed cost = $54,700 + $2,735 + $900 = $58,335, or $58,335 / 1,000 = $58.34 a unit once rounded
The EXW price alone was $50,000, or $50.00 a unit, so the true cost is $58,335 - $50,000 = $8,335 higher, an uplift of $8,335 / $50,000 = 16.7%. A rival supplier quoting $56,000 delivered and duty paid would have been the cheaper option.Case study
Seen in the real world.
Kettleford Instruments is a fictional laboratory equipment distributor created to illustrate this term. Its buying team compared two quotes for the same glassware: $50,000 EXW from an overseas manufacturer and $56,000 delivered duty paid from a supplier two countries closer.
The EXW headline looked $6,000 cheaper, so the first draft of the purchase recommendation favoured it. A more careful landed cost build-up added $1,200 of inland haulage, $400 of export clearance, $2,800 of ocean freight, $300 of insurance, $2,735 of duty and $900 of import clearance and delivery, taking the total to $58,335.
In this illustrative comparison the delivered quote was therefore $58,335 - $56,000 = $2,335 cheaper, and it carried no exposure to freight rate movements or port delays. Kettleford changed its purchasing template so that every international quotation had to be converted to landed cost before any comparison was signed off.
Watch out
Common mistakes.
- Comparing an EXW price directly with a delivered price, which understates the real cost of the EXW option by everything between the factory gate and your warehouse.
- Assuming the seller will load the goods onto the collecting vehicle, when under a strict reading of EXW that is the buyer's responsibility.
- Overlooking export clearance in the seller's country, which the buyer must arrange even though it usually has no presence there.
Questions
People also ask.
What is the difference between EXW and FCA?
Both leave most of the journey with the buyer, but FCA puts export clearance and usually loading back with the seller, which removes the main practical problem with EXW.
When does risk pass under EXW?
Risk passes when the goods are placed at the buyer's disposal at the named place on the agreed date, whether or not they have been collected.
Does EXW always work out more expensive?
No, it can be the cheapest option for a buyer with its own freight arrangements or consolidation, but only a landed cost calculation will show whether that is true.
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