In this article, we go through some of the pitfalls of Ex-works and the benefits of using other Incoterms and taking ownership of the freight.
Ex-works places minimum responsibility on the seller, who merely has to make the goods available, suitably packaged usually at the seller’s factory or depot.
Why using Ex-works when exporting overseas not always best?
As the exporter has limited responsibility when arranging the freight using Ex-works, many prefer to use this term and avoid the perceived headache of arranging the freight and instead pass the buck onto their customers.
However, we at Pinnacle do not always believe that this is the correct approach, and would encourage shippers to be flexible when supplying to their overseas customers and consider using other shipment terms such as CIF/CPT/DAP or even DDP, therefore taking control of the freight.
When you are spending time and resource in manufacturing your product, why would you then leave your goods reaching your customer to chance?
So when negotiating terms with your overseas customers, consider negotiating other terms such as FCA/CIF/CPT/DAP or even DDP, rather than just offering EXW.
What are the benefits of considering other shipment terms and keeping control of the freight?
Being HMRC Compliant
It is a myth that if using EXW terms, the exporter is not responsible for Export Customs Clearance, you are.
As the exporter, HMRC expects you to ensure any licences are obtained and goods are declared correctly, regardless of which party is paying for Customs Clearance.
Simply switching to FCA terms and taking responsibility for the export customs entry would ensure you control this element. Pinnacle help all of our customers manage this process efficiently and in full compliance with HMRC rules.
Improving Service and visibility in the supply chain
Service is crucial. By offering your customer a more comprehensive solution, you can simplify the process for your customer who can take a more hands-off approach.
This can potentially help you secure more business and orders from them. Pinnacle can help manage your shipment for you and monitor your shipments’ progress through every milestone, keeping you and your customer fully updated.
Consequently, this ensures that your customer gets the best level of service and are adequately prepared to take receipt of the shipment. When you supply Ex-works you are often left with no idea where your shipment is, and you can receive unwanted surprises along the way such as requesting further paperwork for customs clearance, which can result in more stress for both you and your customer, and make them more likely to order from elsewhere in the future.
Reducing the Risks,
By controlling the freight you know that the service on which your shipment is booked is adequate to meet the needs of your shipment. You can make sure that the service meets any transit time demands and deadlines, travels on a secure, reliable route and is not handled excessively.
Pinnacle has flexibility across multiple services, ensuring the best options in both transit and price are being offered to you and your customer.
You also minimise the risk of the unexpected happening, and therefore issues arising between you and your overseas customer.
Finally, Pinnacle can also ensure that your shipment is adequately packed for the method of shipping you are using to export your goods to your customer. This will ensure that your precious shipment arrives to your customer in exactly the same condition as it was collected from your facility.
We offer a full and extensive export packing service, reducing the chances of damage being sustained during the shipment’s transit. Also, in the event of any damage being sustained, it will not invalidate your insurance as suitably packed for transport.
Profitability and control of the costs
Unsurprisingly, by offering more than just the incoterm Ex-works to your overseas customer, you have more opportunities to increase your business and potential future orders, as some buyers will prefer the freight is arranged by the supplier/shipper.
Offering multiple Incoterms based on your customers’ demands, result in you being more flexible and therefore having the potential of securing more business. Some buyers may not consider your product if you cannot arrange the freight, and therefore look to alternative options.
With more freight control, not only can you give your customer a better service, whilst increasing the potential to secure more business, you can also maximise the profitability and revenue of your company. Arranging the freight gives your company another revenue stream, and you have the opportunity to make profit on the freight itself.
Getting back control of your shipment
To put it bluntly, under Ex-works, as the seller you have no control over multiple aspects of your shipment, such as when and who will be collecting it. You also surrender the knowledge of whether it is secure, how it will be transported and where your shipment is and when your customer receives it.
Therefore, next time you are supplying your overseas customers or negotiating terms, consider using terms such as DAP/DDP rather than just Ex-works. Whichever shipping term you negotiate, be sure to set out the parameters clearly to your customer, to avoid any confusion with them.
If you need any quotations or advice on shipping and use of Incoterms, please feel free to contact Pinnacle at firstname.lastname@example.org or call 0845 6216 111.