In terms of costs and risks, the EXW Incoterm requires minimal involvement from the seller and greater responsibilities for the buyer.
The seller makes the goods available at their premises, meaning they limit their role to delivery; they do not assist in transportation or handle documentation.
It is the buyer who assumes the risks from that point onwards. The buyer is responsible for all transportation costs and risks.
EXW is a versatile Incoterm and can be used in various modes of transport (air, sea, etc.)
Let’s examine this Incoterms© in more detail.
Seller's Obligations under EXW
| Aspect | Description |
|---|---|
| Packing | The seller must pack the goods, and if the buyer requires specific packing, they can request it, although they will bear the additional costs. |
| Delivery and Documentation | Provide the goods and a commercial invoice in accordance with the sale contract. The seller must also assist the buyer, upon request, in obtaining any necessary export clearances and provide any transport-related security information. |
| Location and Timing | Deliver the goods at the agreed place, though not required to load them on any collecting vehicle. Must deliver on the agreed date or within the agreed period. |
Buyer's Obligations under EXW
| Obligation | Description |
|---|---|
| Payment | Pay the price as agreed in the sale contract. |
| Clearances | Obtain any export/customs clearances needed. |
| Notification | Notify the seller in adequate time of their intention to take delivery. |
| Taking Delivery | Take delivery of the goods and bear all costs and risks from that point onwards. |
| Pre-shipment Inspections | Pay for any mandatory pre-shipment inspections required. |
Cargo Insurance and Incoterms© Ex Works (EXW)
While not mandatory under EXW, cargo insurance is highly advisable. Incoterms© influences on cargo insurance policies.
It is common for both the buyer and the seller to arrange their own insurance to cover their respective responsibilities within the transaction. However, it’s not unusual for either party alone to secure a policy that covers the entire process.
Under EXW, shipments are typically insured under the buyer’s ocean cargo policy because the buyer bears responsibility for loss or damage during the “main carriage.” Importantly, the buyer should seek an insurance provider that offers comprehensive coverage for periods when the goods may be on the seller’s premises, during loading onto the conveyance, and while awaiting transit, even though the buyer is responsible for loss or damage.
Since most ocean cargo policies typically activate when individual shipments leave the origin warehouse (i.e., under the Warehous e to Warehouse provisions of the Open Policy), there may be a period when the buyer lacks insurance coverage. This gap can occur while the goods are still on the seller’s premises, during the loading onto the conveyance, or even after loading while awaiting transit, despite the buyer being responsible for any loss or damage during these times.
When operating under EXW, it is essential to consider specific types of cargo insurance that can provide comprehensive coverage throughout the various stages of the shipping process. Here are some key types of insurance that buyers should consider:
| Type of Insurance | Description |
|---|---|
| Warehouse to Warehouse Coverage | This insurance is crucial as it covers the goods from the time they leave the seller’s warehouse until they reach the buyer’s premises. |
| Loading and Unloading Insurance | Since the buyer is responsible for loading the goods onto the transport vehicle under EXW, insurance coverage for loading and unloading protects against damage that might occur during these operations. |
| Transportation Insurance | This covers risks associated with the transportation of goods from the seller’s premises to the buyer’s final destination. Transportation can include any mode of transit—sea, air, or land—making it vital for the buyer to ensure that the insurance policy covers the specific modes of transport used in the shipping process. |
| All-Risk Coverage | While more expensive, all-risk insurance offers protection against all risks of loss or damage to goods, except those specifically excluded in the policy. This comprehensive coverage is highly recommended for buyers under EXW to safeguard against unforeseen incidents during transit. |
| Contingency Insurance | Sometimes, even when sellers provide insurance, buyers may opt for contingency insurance as a backup to cover any gaps left by the seller’s policy. This type of insurance is a prudent choice under EXW, providing an extra layer of security in complex international trade scenarios. |
It is advisable to clearly define the terms and conditions of the insurance within the international sales contract to ensure that all stages of risk are covered, especially during critical points where the buyer is most vulnerable. By doing so, both parties can mitigate potential misunderstandings and disputes over responsibility for losses or damages.
Transfer of Risks and Responsibilities
Under EXW, the point at which risks and responsibilities shift from the seller to the buyer is clearly defined, but its implications are profound and require careful consideration.
The EXW Incoterm stipulates that the seller is only responsible for making the goods available at their premises or another designated location. The risks pass to the buyer from the moment the goods are made available at this specified location, even if the buyer has not yet taken possession of them. Legally, this means that the buyer bears all risks of loss or damage to the goods from that specific point in time.
Under EXW, the transfer of risk occurs at a very early stage compared to other Incoterms.
In summary, the legal implications of risk transfer are:
- Liability for Damage or Loss: Once the risk has transferred, the buyer is liable for any damage or loss that may occur, regardless of the cause. The seller is no longer responsible for the goods after they have been made available at the designated location.
- Insurance Requirements: Given the immediate transfer of risk, buyers are strongly advised to arrange insurance cover for the goods starting from the point they are available. This coverage should ideally extend through the transportation and delivery processes until the goods reach their final destination.
- Cost Implications: The buyer should be prepared to bear all costs associated with the transportation, handling, and export procedures. This includes costs related to packing (if specified), loading, customs clearance, and any other logistical expenses necessary to move the goods from the seller’s premises to the buyer’s destination.
- Regulatory Compliance: The buyer must also manage and comply with all export and import regulations. In an EXW arrangement, the buyer typically handles the export clearance, which involves understanding and managing the export regulations of the country where the goods originate.
- Contractual Considerations: Parties using EXW should specify the exact point of risk transfer in their contracts to avoid ambiguity. Additionally, they might negotiate terms that could shift some responsibilities back to the seller, such as assisting with loading or providing specific documentation. However, this deviates from the standard EXW terms.
Common Insurance Claims in EXW Transactions and Key Considerations for Claim Management
| Type of Claim | Description | Key Considerations for Managing Claims |
|---|---|---|
| Damage During Loading | Claims arise when goods are damaged during loading onto the transport vehicle, a responsibility typically held by the buyer under EXW. | Ensure thorough documentation of the loading process and conditions of goods. |
| Total or Partial Loss During Transport | Loss or damage occurring during transportation from the seller’s premises to the buyer’s destination. | Verify that the insurance policy covers the entire transit route and check for any exclusions that might affect coverage. |
| Theft of Goods | Theft can occur post availability of goods to the buyer, especially if security measures during transport or storage are inadequate. | Ensure the insurance includes theft coverage. |
| Damage Due to Poor Packaging | Occurs when the seller’s provided packaging is insufficient to protect the goods during transit, which can be contested under EXW. | Establish clear packaging standards and responsibilities in the sales contract. Consider third-party inspection prior to shipment. |
| Insurance Coverage Issues at Critical Points | Disputes may arise over coverage during critical points such as while goods are still at the seller’s premises or during loading. | Confirm the insurance activation time aligns with the transfer of risk in EXW terms. Adjust policies to cover all critical phases. |
At Marlin Blue, as legal experts specialized in cargo insurance and shipping law, we provide specialized assistance primarily to insurance and reinsurance companies, offering expert legal consultancy, claims handling, and dispute resolution services. Feel free to contact us.
