EXW: Understand Factory Delivery Risks & Telex Release

Responsibilities and Transfer of Title under EXW Terms

EXW (Ex Works) is a commonly used trade term in international trade.According to the "International Commercial Terms" (Incoterms),the seller’s (manufacturer’s) obligation is limited to delivering the goods to the buyer or their designated carrier at the specified location (usually the factory or warehouse).Once the goods are loaded onto the vehicle,ownership transfers to the buyer,who then assumes responsibility for subsequent transportation,customs clearance,and all associated risks.

However,in actual operations,if the manufacturer declares customs under its own name or is required to cooperate in providing a telex release guarantee,the boundaries of responsibility may become blurred,leading to additional obligations.

The meaning of a telex release guarantee and the conventional allocation of responsibilities.

A Telex Release Letter is a written document issued by the shipper to the freight forwarder or shipping company,authorizing the electronic release of cargo to the consignee,typically used as an alternative to the physical handover of the bill of lading.

Under the EXW terms,the manufacturer is theoretically not involved in transportation arrangements,and the responsibility for the telex release letter of guarantee should be borne by the buyer or their designated freight forwarder.However,when the manufacturer declares customs under their own name,the freight forwarder may require the manufacturer to issue a letter of guarantee to ensure compliance with the cargo release process.

Case Analysis: The Rationality and Risks of Manufacturers Issuing Telex Release Guarantees under EXW Terms

Assuming you,as the manufacturer,adopt the EXW terms,the ownership of the goods has been transferred upon loading onto the truck.However,as required by the designated freight forwarder,you declare customs under your own company name and are requested to issue a telex release guarantee with the following content: "Our company applies for the telex release of the above-mentioned goods to the aforementioned consignee,and all responsibilities and risks arising therefrom shall be borne by our company."

Reasonableness Analysis:

• Iftheconsigneeonthebillofladingisthemanufacturer,itisastandardprocedureforthefreightforwardertorequestaletterofguaranteefromtheshipper,astheshipperneedstoprovidewrittenconfirmationoftheirintenttoreleasethegoods.
• However,underEXW,theownershipofthegoodshasalreadybeentransferredtothebuyer,andthemanufactureroriginallydidnotneedtobeinvolvedinthetransportationorreleaseofthegoods.Thisrequirementmaystemfromamismatchbetweenthecustomsdeclarationentityandtheactualresponsibilities.

Risk points:

• Expandedliability:Thephrase"allresponsibilitiesandrisks"intheletterofguaranteemayexposethemanufacturertoriskssuchastransportation,customsclearance,orlossofgoods,whicharenotinherentobligationsunderEXWterms.
• TitleConflict:Iftheconsigneeonthebillofladingisthebuyerwhilethecustomsdeclarationisunderthemanufacturer’sname,itmayleadtocustomsclearancedisputes,andthefreightforwardercouldusethisasanexcusetoevaderesponsibility.
• Thepaymenthasnotbeensettled.:Ifthepaymentisnotreceivedinfull,issuingaletterofguaranteemayresultinthemanufacturerreleasingthegoodswithoutbeingabletorecoverthepayment.

Risk Avoidance Recommendations

To avoid unnecessary liabilities and losses,manufacturers may take the following measures:

• Ensurepaymentsecurity:Issuetheguaranteeonlyafterconfirmingthefullpaymenthasbeenreceivedtomitigatefinancialrisks.
• Clarifythecontentoftheguarantee.:Negotiatewiththefreightforwardertorevisethewordingoftheletterofguarantee,suchaschangingitto"onlyauthorizedtoreleasethegoodselectronically,notresponsiblefortransportationandsubsequentliabilities,"inordertolimitthescopeofresponsibility.
• Pleaseverifythebillofladingheader:Ifthebillofladingisissuedinthenameofthebuyer,itisrecommendedthatthebuyerortheirfreightforwarderissuealetterofguaranteetoavoidmanufacturerinvolvement.
• OptimizeCustomsProcedures:Ifconditionspermit,itisrecommendedthatthebuyerdeclarecustomsundertheirownname,withthemanufactureronlyprovidingthenecessarycustomsclearancedocuments,adheringtothe"minimumresponsibility"principleofEXW.
• Weighingcustomerrelationships:Whenthepaymenthasbeenfullyreceivedandtherisksareundercontrol,aletterofguaranteemaybeissuedasappropriatetomaintaincooperation,butacarefulevaluationisrequired.

Conclusion

Under EXW terms,the manufacturer is generally not required to issue a telex release guarantee after the transfer of goods ownership.However,if practical needs such as customs declaration requirements necessitate cooperation,the manufacturer must ensure full payment is received and clarify that the guarantee is solely for cargo release authorization.Additionally,thorough communication with the freight forwarder and buyer is essential to avoid assuming responsibilities beyond EXW obligations.By handling the matter appropriately,risks can be mitigated while maintaining good customer relations.