Incoterms_® and Commercial Contracts

Preliminary remark: The graphic representation of the EXW rule suggests that the seller is to make the goods available at the seller’s premises for transportation to the buyer by the buyer’s carrier. Note however that:

1. the Guidance Notes to the EXW Incoterms® 2010 rule stipulate that “‘Ex Works’ means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place.’ The named place of delivery therefore does not have to be the seller’s address but may be another place, and may even be situated outside the seller’s country.
2. in accordance to Article A3a)/B3a) of the EXW Incoterms® 2010 rule, neither the seller nor the buyer has an obligation to make a contract for carriage.

The EXW Incoterms® 2010 rule thus may cater for transactions in which the goods:

1. are already transported to a place of collection prior to the contract of sale (e.g. consignment sales and call-off stocks), representing the ‘mirror image’ of the DAT-rule that applies to goods being transported to that place of collection after conclusion of the contract of sale;
2. will not be transported under the contract of sale; e.g. string sales in a (bonded) warehouse with the last customer in the chain collecting the goods at the warehouse and clearing the goods out of the warehouse;
3. are collected by the buyer with its own means of transportation.

As such, the EXW Incoterms® 2010 rule will often be unsuitable for situations in which a carrier nominated by the buyer comes to collect goods at the seller’s premises for international transportation. For such situations FCA is usually more appropriate. When referred to in international contracts, the EXW Incoterms® 2010 rule, representing the ‘selling price of goods alone’, is indeed a reference value for the seller to calculate its sales prices,¹ but will often not be appropriate as a contractual delivery term.

How are goods handed over to the carrier?

‘Ex Works’ means that the seller delivers the goods when it places them at the disposal of the buyer at the named place (seller’s premises or another place).

The seller does not need to load the goods on any collecting vehicle.²

The EXW buyer and the carrier contracted by the buyer should agree on the place of delivery of the goods. If this place of delivery allows for different pickup points, and the seller and buyer have not agreed on a specific point, the seller may select the pickup point that best suits its purposes. The buyer then needs to enquire from the seller where the goods will be placed at its disposal. The buyer must notify the seller of the name of the carrier, the selected time within the period agreed for delivery when the carrier or person nominated will take the goods, and the mode of transport. This must be done within sufficient time as to enable the seller to make the goods available.

The EXW buyer should instruct its carrier to pick up the goods on its behalf and accomplish any action (lifting, placing on board, stowing, trimming, lashing, securing,…) required to load and secure the goods on board the collecting vehicle. The buyer must advise the carrier in advance of any special requirements regarding any equipment needed for the loading, securing the cargo, etc. The seller has the obligation to give the buyer any notice in this respect.

Under EXW, it is common practice for sellers to load goods as the seller will usually be in a better position to do so. If the seller loads the goods, it does so at the buyer’s risk and expense. However, sellers should note that when loading, they may assume a mandatory liability under transport law, health and safety law and other laws that cannot be avoided in the contract. Such law may indeed override any aspect of the sale contract, including the chosen Incoterms® rule.

If the seller is to load the goods onto a collecting vehicle provided by the buyer, FCA should be preferred.

When and how are goods made available to the consignee?

The Incoterms® rules do not deal with the receipt of the goods by the EXW buyer (or any other consignee) from a carrier that it nominated.

Who shall pay the price for transport?

The carrier (if any) acts on the basis of a contract of carriage entered into with the EXW buyer. Therefore, it is for the buyer (usually also the consignee) to pay the price for transport.

What additional costs can be added to the price for transport?

The EXW buyer has to pay all costs from the moment that the goods are placed at its disposal at the agreed place of delivery (price for transport + additional costs).

Is there a variable part to the price for transport (i.e. ‘adjustment factors’)?

Not applicable to EXW.

When is the price for transport payable?

The contract of carriage between the EXW buyer and the carrier will normally specify when the freight is payable. The buyer and the carrier may agree that freight is payable upon departure, usually indicated by the words ‘freight prepaid’ or ‘freight in advance’, or upon arrival — ‘freight collect’ or ‘freight payable at destination’. This will typically be agreed on booking, be included in the transport contract, and subsequently be restated in the transport document. It should be noted that the transport contract often contains further provisions with respect to the payment of freight.

How are the goods to be packaged?

Unless agreed otherwise, as the goods travel at the risk of the buyer, the goods must be packaged in a manner ‘appropriate for their transport’. ‘Appropriate for their transport’ is not equal to ‘reasonable’ or ‘usual’ but refers to a fitness for the purpose of transportation. This comprises qualities such as ‘apt’, ‘becoming’, ‘befitting’, ‘belonging’, ‘right’, ‘suitable’, and to this purpose verifiable by the carrier.

So-called ‘any mode’ Incoterms® rules may be used for any type of transportation. In an EXW sale, as the seller is not party to the contract of carriage, it may not know the final destination of the goods or the means of transportation the buyer will use. The EXW buyer should therefore inform the seller in advance of the destination, the transport modes used, the route and/or the regulatory packaging requirements if any.

In the absence of such instructions or knowledge from previous dealings, the seller is not at liberty to choose ‘any’ type of transport packaging but may choose a packaging ‘appropriate’ for the means of transportation used to collect the goods at its premises (most commonly road transportation).

Unless the goods are handed over to the carrier in a container or otherwise not verifiable by the carrier, the party best placed to verify whether a packaging is appropriate for transport of the goods is the carrier. Whether the carrier is obliged to verify the packaging of the goods depends on the contractual obligations of the carrier under the contract of carriage and the applicable law.

The indication on the transport document ‘unpacked’ does not automatically mean that the goods have not been ‘appropriately’ packed for their transport. It may be ‘usual for the particular trade to transport the type of goods sold unpackaged’ (some agricultural goods, mineral products, breakbulk…).

Is the seller or the buyer responsible for customs clearance?

The EXW Incoterms® rule provides that when selling goods leaving for a destination outside of the customs territory in which the goods have been made available to be collected, it is up to the buyer to carry out all customs formalities at its own risk and expense. This includes formalities necessary for the export of the goods from the named place of delivery (including any export license, security clearance or other official authorization that may be required). A buyer purchasing goods for export on an EXW basis needs to be aware that the seller has an obligation to provide only such assistance as the buyer may require to effect that export, but that the seller is not bound to organize the export clearance. Buyers are therefore well advised not to use EXW if they cannot directly or indirectly obtain export clearance.

On the other hand, the buyer has limited obligations to provide to the seller any information or documentation regarding the export of the goods. However, the seller may need this information for, e.g., taxation (VAT/GST exemption) or reporting purposes.

In most countries, only companies and persons that are registered for tax purposes within the territory are allowed to have customs formalities accomplished in their name. After collection of the goods at the seller’s premises, the buyer’s carrier (or freight forwarder) therefore often fulfills the export formalities in the name of the EXW seller, although acting under the instructions and at the expense of the EXW buyer as documented in the contract of carriage. However, sellers should note that when export formalities are fulfilled in their name, they may assume a mandatory liability under customs law that cannot be avoided in the contract. Such mandatory law may override any aspect of the sale contract, including the chosen Incoterms® rule. In such circumstances, the FCA rule should be preferred.

To avoid inconsistency, the instructions to the carrier, customs broker or freight forwarder and their actions should be in line with the assignment of obligations of seller and buyer regarding customs clearance under the EXW Incoterms® rule .

Who is responsible for stowage and cargo securing?

The Incoterms® 2010 rules do not deal with the parties’ obligations for stowage and cargo securing and therefore, whenever relevant, the parties are advised to deal with this in the sale contract.

The seller is responsible to provide the goods available so that the buyer can arrange their collection. This usually means that the goods are packaged suitable for transport according to what is known by the seller, unless the goods are usually sold unpackaged or the seller and buyer agree on some other specific packaging. When the seller packages the goods by aggregating smaller items, whether packaged or not, into a larger package more suitable for efficient transport (such as by palletising or crating), the seller is responsible for ensuring that those goods are safely and securely stowed within that larger package.

What sort of transport document should be issued by the carrier?

In EXW sales the seller has no obligation to provide the buyer proof that the goods have been delivered (A8). Instead, it is the buyer that must provide the seller with appropriate evidence of having taken delivery after the goods are placed at its disposal at the named place of delivery, not loaded on any collecting vehicle (B8).

The EXW buyer, when contracting for carriage, should stipulate that the carrier must provide an acknowledgment of receipt to the seller. If no obligation as to issuing an acknowledgment of receipt has been agreed between the buyer and its carrier, the carrier might refuse to issue such an acknowledgment. In such situation, the EXW seller might refuse to hand over the goods provided no other document is available to prove delivery. In this event, the carrier must require instructions from the buyer. If the buyer issues no instructions, the carrier may not request the goods from the seller and the seller may request reimbursement of expenses or demurrage – as the case may be – from the buyer. As in practice, EXW sellers often load the goods on behalf of the buyer, the documents referred to in Question 10 of the FCA rule will be issued. Parties should be aware that such practices are inconsistent with rights and obligations laid down in the EXW Incoterms® 2010 rule.

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