We often encounter the Incoterm EXW in logistics, which on closer inspection may not be the most appropriate one to use. Langdon’s Customs and Solutions Manager, Erik Meijers, explains what the pitfalls are.
We all know of examples where a small company does not want the burden of creating export documentation or arranging transport. In these circumstances, EXW would be the correct Incoterm to use. Using this, they will not become a party in the transport process. The transport arrangement in this case will be between the buyer of the goods and the transporter.
It all becomes a little less clear when somebody says: “Make it EXW and include the Export Declaration and the CMR”. If we then start loading the goods ourselves as well, we are already talking about the Incoterm FCA.
Many people describe this as a grey area, but how grey is this area exactly?
When using EXW, the seller of the goods cannot derive any rights from a CMR that is signed for delivery nor from the customs clearance of the export document, simply because he is not considered to be an involved party in this process. Once the seller has finished packing the shipment and has notified the buyer of the goods that the shipment is ready for collection, the seller has already fulfilled his part of the terms of delivery.
The problems begin when the seller is asked to provide proof that he correctly claimed the 0% VAT rate for export. If he is not a party in the transport contract that leads to a destination outside the EU, he cannot use this as proof. The seller may also choose to charge VAT on the sale and pay this to the tax authorities making it the buyer’s problem to reclaim the VAT, but this may harm his business.
Problems only increase when dealing with licenses. Consider exporting Dual Use goods by using an export license. For EXW this would mean that the buyer / transporter of the goods becomes responsible for the export of the goods that you are licensed for, but they are not. How can you be sure that the goods are delivered to the correct destination if you are not a party in the transport contract?
If you have a Customs Warehouse and your customer wants to receive the goods via Transit (T1) with the Incoterm EXW, this would effectively mean that the transporter shows up at your warehouse with a Transit document already created by him or the buyer. This document (or a re-export if necessary) would be the customs procedure that will clear your Customs Warehouse procedure. If you didn’t create the declaration, how will you record this customs regulation in your GPA?
In all the above cases, it would be a lot easier and compliant to create the declarations yourself and use the Incoterm FCA. It will provide you with a lot more control and guarantees as a seller/sender. If you already create the export and shipping documents anyway and still ship EXW, it might be time to reconsider. Three letters can make a lot difference, not in your work-processes but in your responsibility.
Langdon Systems has more than 30 years’ experience in the creation, development and implementation of Duty Management Systems throughout Europe. If you have any questions about AGS or other Customs related issues, then send an email to firstname.lastname@example.org or call us on 040 440 0330.