Expeditors International of Washington, Inc. (EXPD) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Expeditors Solving Supply Chain Challenges at the Northern and Southern Border. I hope you all have had a chance to answer the opening poll. Before we get started today, I just wanted to first introduce myself. My name is Gina Suriano. I am the Customer Retention and Development Manager here at Expeditors, Pittsburgh. And today, our webinar will be recorded. [Operator Instructions] We will answer them at the end of the presentation. You will receive an e-mail today with a survey link for the presentation. Once you answer the survey, you will also get a link to the presentation itself and the recording as well. With that being said, I'm going to introduce our speakers today. We have Carolina Galindo. She's the Regional Manager of Transcon; and also Gary Ernest, who is the Regional Manager of Cross Border Solutions. And with that being said, I'm going to turn it over to them to get on with the presentation and what we have on our agenda today.

And I can talk to the opening poll. So let me get my video back on real quick here. So I'm Gary Ernest. Actually, Carolina is going to go first on the Southern border, but since we had this opening poll, thanks for participating in that. So how many land border crossing points of entry are there from the U.S. to Canada? And the proper answer was 120. So a bunch of you got that. It's a really tricky question. You don't think of the border being so vast and so many crossing points, but it is 120. So thanks for that. And I will turn it over to Carolina.

Thank you, Gary. Okay. So moving on, I'm going to start with the southern border. Here's the agenda of the items that we're going to go through. The first one is going to be a brief market update. Then I'm going to jump into some trade statistics and investment between U.S. and Mexico. Then we're going to put in front of you some value proposition and strategies that we have in place in Expeditors and then we're going to wrap things up with the cross-border solution process. So if we move to the next slide, let's start with the market update. Let's start with the economic side of things, right? So inflation has maintained similar numbers this past month. The latest that was published was 7.7% for the U.S. and 8.4% for Mexico. So we're expecting this to be affecting how the spending behavior is on consumers. So because of these, many retailers, they have their inventories bloated as of now, right? Many retailers and also other industries. So this is affecting demand. And that is why we can see more capacity right now in the transportation or the trucking market. So since demand is going down as well, the rejection rates from the carriers are also going down. That means that they are accepting more loads because they have more capacity available. However, I'm going to say that although they have capacity, the cost related to ground transportation for the trucking companies, they haven't been high, right? So starting with the price on fuel, it was steady for quite a while. Then we have a peak between October and November. And then right now, it's already begin to start being a little bit more steady, in a steady level. So regarding the freight rates, I'm going to say that the national average rate to move a dry van and a refrigerator at temperature control on the spot market, they have fell, all the spot market rates have been going down a few cents. However, the contract rates they have maintained as well. And this is, again, because of the fact that many carriers or many trucking companies, they are having their costs really high, related to insurance, related to maintenance, related to driver wages. So these all variables are affecting just how the rates are moving either spot or the contract rates, okay? So moving into the regulation side of things. In the beginning of this year, 2022, in Mexico, it was implemented Bill of Lading Complement. In Spanish, it's Complemento Carta Porte. So although this was started in 2022, the authorities, they have published that all the penalties and all the fines related or not being able to comply with this new regulation, they will be effective until July 2023, okay? So that's a big change there. We're supposed to start this on -- actually December of this year, but they just push it to the next year. So that could be a good thing. However, all the trucking companies, all the shippers, all the parties that are involved with movement in Mexico, they have been compliant in trying to be applying this new requirement since the beginning of 2022. Another important update in Mexico is that there's going to be a harmonized tariff code update, that is HTS codes are going to be updated. Actually, they're going to -- they started or started making some changes in December 12 of this year, a couple of days ago. The only reason to do this is to maintain the codes like more updated, try to get rid of those obsolete codes that probably are from commodities that no longer exist. So it's basically just doing a sweep and trying to be more up to date. Now to the outlook of what we see in ground transportation against Southern border in Mexico. There's been a lot of nearshoring within North America. So that's the trend we are seeing. And that's a good news because that means that probably the demand is going to be -- it's going to go high and we have capacity to respond to that side of things, right, to just the demand going high if the nearshoring continues to be in the trend that we are seeing it. So market is softening. We see, again, capacity available. We need to remember that we are in constant change, just overall in the trucking industry. So our recommendation is just to keep this proactive communication, open communication with your logistics service providers, build relationships, talk around rates just because how they can fluctuate from one month to another or from one week to another. So you need to be really aware and balance out the truck needs against the service that you are seeing from your service provider. So just to keep an eye on that and be sure to be really receptive on how probably the market will be following in the next month and as we start at 2023. Okay. So moving into the next one. I'm going to share with you some statistics between U.S. and Mexico. Mexico is the second largest partner for the U.S. Sometimes, it may make it to the first part. But I mean, it always is on the top 3 along Canada and along China. So naturally, we'll always see more shipments going from Mexico into the U.S. than the other way around from U.S. to Mexico. So we need to remember that this imbalance is just natural directly. However, it directly impacts capacity and just the truck availability in the various markets that we have across both countries. So here, an important message is that the power of negotiation is heavily impacted when a shipper actually has the available or has the ability to have a well-balanced operation and offer both shipments going into the north bound and into the inbound. So if we do a breakdown by regions in the U.S. and how they interact with Mexico, you can see that the Southern region by far has the first part. We expect this to keep growing as well as in the Midwest because we see that these 2 regions, they mainly handle automotive industry. And right now, automotive industry is in the rise just because all the investments that we have seen within Texas with several automakers. So we expect for these 2 regions just to keep their numbers up. Then we have the Western region, then followed by the Northeast. So before we move to our next topic, we would like to have you participate in the next poll question. If you can help me, Julien, with this question. Thank you. So you're going to see in your screens. The question is, in what ways is your company considering nearshoring as part of your supply chain strategy? So you'll see several options. If you can go ahead and please participate and choose the one that best accommodates to your company or to your industry. We'll give it a minute or 2. I'm not sure if everyone has participated. Right here we're going to have the results. Great. Okay. So result, I'll say there was actually a tie between expanding production into Mexico and that you're continuously reviewing your sourcing options. So those 2 make it to the first part. And then we follow by increasing sourcing from suppliers in Mexico and nearshoring is not part of our strategy. So thank you for participating on that. And that will lead us to our next item in the agenda that actually is related to nearshoring. So related to that, as I mentioned a moment ago, nearshoring is actually a major trend that we are seeing right now for many U.S. shippers. So many companies, we know that they have their manufacturing outsourced in Asian countries just because of the low cost that, that represented back then or back in the moment. However, right now, there are some other challenges, right, like the lead times just because how we have seen the Asian market fluctuate, the language barriers, the times on difference. So all of these variables, they have outweighed, I'll say, the initial savings that they foresee. So because of that reason, and taking into account that we also have mechanisms that push for a trade within North America to been more efficient just like the USMCA. So if we take these things into account, nearshoring in Mexico is having a lot of advantages right now for the U.S. shippers, right? For starters, it's a neighbor country. So there's an immediate reduction in lead times, in transit times. Communication is by far a lot easier. If there are any, I'll say, constraints or challenges within an operation or within a supply chain, we're able to proactively react to it and urgently review or resolve whatever is going on with the supply chain. So that is definitely having a huge impact in the U.S. shippers. They are trying to maintain their supply chain within North America. So we are seeing nearshoring not only in the automotive industry. I will say that that's one of the main industries that we are seeing this trend, but also we have other industries like electronics, telecommunications, home appliances, manufacturing. So we are starting to see this across many different industries. A lot of investments in building new factories, new warehouses, mainly in the Bajio area and also in the north part of Mexico. So experts definitely foresee to keep increasing just because of how this nearshoring is focusing for -- it's been the focus for many companies. So Mexico will be the major partner just to strengthen out the supply chains just due to the low production cost and the proximity that we have with the U.S. So now that we see that this is what is currently taking place in the market, we want to share some strategies and solutions that we have available. So if we move to the next slide, please. We have the value proposition that comes as an immediate solution, right, that fits or that could fit your supply chain. So this is based on, obviously, the market that we see in Mexico and the southern water going into the U.S. and also going into Canada. So either if it's ground transportation as a truckload, if it's LTL, pick up or local deliveries in either of these countries if we need just a cross-border or just the service of a cross specialized equipment. So all of these solutions are in accordance to the market that we see within this region. So we have important elements that add value to the supply chain to save current integrity of your shipments just across the border. So there's 2. And visibility, the 24/7 customer service, the dedicated regional teams that manage all the service providers, the brokers and also having local representation -- in Mexico, in both sides of the border, these elements do make a difference when it comes on just seeing the overall process of your supply chain. So as well, just having the flexibility of adding an extra layer of solutions that go beyond just a simple ground transportation like managing purchase orders or minimizing the risk with the security solutions and cargo shipment tools that we have available. So all the beyond drug services. So just bear in mind that this is, again, adequate to the region, adequate to Mexico and the Southern border and comes as a strategic value proposition for the supply chain. So if we move into the next slide, if we focus in the LTL side of things. We have a nationwide dedicated network that we are able to push cargo from Mexico into the U.S. and also all the way to Canada, and also the other way around. So this is a well-structured solution. It's entirely run by Expeditors. We have a dedicated fleet that connects actually all of the major hubs and the branches or the offices in each of these locations are able to manage the local pickups or the local deliveries as you need to. So we moved from 3 million to 4 million pounds a day. We have scheduled departures for each facility. Again, the offices they handle all the pickup in local deliveries. It has been proven that with this dedicated solution, actually, we're able to minimize claims and damages to the cargo almost below to the 0.01%. So this is really important also that we have the ability to scale your operations. So if we have any peaks or searches in volume, we're able to respond to it. So besides the LTL side of things and other type of solutions, if we move to the next slide. Here, we have a few examples. I'm going to go through all of this, obviously. But I mean, working with the major industries that we have within Mexico and southern border has given really -- has given us the leverage just to scale the solutions in accordance to the customer needs. So if that's delivering across the border to ultimate users, if it's picking up the car in Mexico, building truckloads, consolidating, they consolidating, just performing beyond tax services. These stress are a few examples of how we made adequate analysis of the improvement areas and the solutions that we have that we can put in front of the customers, again, that we are able to execute on your supply chains. So if we move to the next slide, I'm going to start wrapping up things with the cross-border solutions that we have with Expeditors. Cross-border can be really complex, really complex model to keep the pace with actually, there are many parties involved. As you can see here, we have shippers, we have companies. We have carriers in the U.S. and in the Mexico side. We have brokers as well in both sides, in both countries in Mexico and the U.S., and we have an actual quarter drayage that moved the shipment actress the boarder. So having a service integration definitely makes things easier. It makes just the path a lot easier. Important to stress out that each party needs to have a clear understanding of what's their activity and what steps they are performing within the process. So it really makes a difference as to manage an effective communication and just to streamline visibility. So as we have identified here the parties that are involved, I want to jump into the process itself. So starting with the north bound process. So the north bound is when we have a shipment going from Mexico into the U.S. Here is a picture of really, I'll say, general and just showing how you're picking up a cargo in Mexico, how you move this shipment into the border, have the customs brokers working to paper work and then based on that, you are able to actually cross the border. And then once you are in the U.S. side, we're able to do any specific accommodations to the cargo if we need to. If not, then the shipment follows its transit and gets rolled out into its final destination. So important things that we need to stress out here in the process is what you need to actually have a shipment moving across the border into Mexico, into the U.S. So commercial documents by the time we are picking up the cargo. Also, those commercial documents are used for the customs brokers. They are able to start working on the customs paperwork. Also, the in-manifest that is transparent process for the customer, that's actually taken care by the carrier, just they be clearing to customs where they're actually physically moving. So we need to have everything match out the commercial documents with the manifest with the customs paperwork that the Mexico broker and the U.S. broker is actually have worked on, which for Mexico it's the [ DODA or the PITA or the perimental ] and for the U.S. broker is actually the entry. So now that we have here the process when going from Mexico into the U.S., now we're moving into the process of having ships moving from U.S. into Mexico. So again, this is a pretty general visual. Again, you're going to see the peak applications starting in the U.S., then moving that cargo into the border. Again, we can do any type of -- we can manipulate the cargoes. We need to do some consolidations or deconsolidations. Then as the shipment arrives to the border, the broker in this case, they need to perform a preview into the freight. A preview basically is a pre-validation to have actually the documents match what we have basically within the shipment. So based on that is how they're able to actually complete any entries, any parameters to have the shipment cross -- go up cross the border into Mexico. And as they arrive into Mexico, then we continue rolling out into the final destination. So important elements that we need, again, commercial documents, always needed when we are picking up the cargo not only to back up with what we are moving within our trucks, but also for the brokers to work on your shipment and on the paperwork based on declaration to the customs. The purview, that is actually performed by the Mexico broker. Carta Porte information, here it's important to stress out that we need additional information besides the commercial documents to actually be compliant with the Carta Porte requirement. And again, that EEI and the ITN, those are elements that are basically completed by the broker as they are moving -- and working with their shipment and the commercial document. So this is, again, just general aspect of things to keep in mind when you are moving any shipments into the southern border. So with that, I'm going to turn it over to Gary, and he is going to talk to us about the northern border. Thank you.

Thanks, Carolina. Nice job. So hi, everybody. We've got a lot to go through in just a little bit of time. But we'll -- so we'll keep it pretty much overview. We'll go into some things I think are really important in more detail. And then, of course, you're going to get a copy of this presentation, we should told you that at the beginning. So you'll have a copy of this to review. I actually have some slides like Carolina had those good slides to review the process flows and things we have the same for the northern border into Canada and out of Canada as well. So today, we're going to cover a quick market update. We're going to look at the viability, especially with the current economy and things that are happening and should you, should you not invest in doing business with Canada kind of thing? Or put more investment in, I think I'll paint a clear picture there. And then we'll look at the U.S. Canada border process flow as well, so similar to what Carolina went through with Mexico. We go through a brief customs and the program overview. And I'm going to pick a few things that I think are really important with doing business with Canada, some of the programs, such as CTPAT, CBSA Com program, the nonresident import program. And then we'll finish up with going through a few of the items from a logistics standpoint, supply chain standpoint, programs that are, what I call, hot buttons that are really in demand and really save money and provide more visibility. So we'll hit one of those. And then we're going to do a really brief tax program overview. Like we know in the past, you could spend days on that, but we'll hit the important topics. One more trade agreement, the CPTPP and then lastly, leave you with a tool to do a little research on your own, figure out where you may or may not be able to grow your business opportunities within Canada. All right. So a quick market update. Good news. The stores are open again. Retail was able to gain, which they didn't know if it would or not, the much needed traction just in time for the approaching holiday and Christmas season. Just last week, the Canadian government hiked the interest rate. And I have more on this on the next slide and what the impact of that is as we teeter around this recession word, both in the U.S. and Canada. The cross-border freight volumes in 2021 were up nearly 20% from 2020 volumes and the 2022 numbers are up over that, showing significant improvement over 2021. So it really creates the supply chain world that we're living in right now. From a regulatory perspective, commercial drivers and travelers entering Canada regardless of their citizenship no longer have to show proof of vaccination or utilize what they had to, which was called the [indiscernible] app. However, it's still a requirement for entry crossing from Canada to the United States for non-U.S. citizens. And the Canadian government has been trying to get the U.S. government to relieve that mandate like Canada did, but nothing yet. We're going to look, like I said, at a program called CARM. This is a program to provide online direct collection of duties and taxes for goods in quoted into Canada. They delayed that from implementation this year to October of 2023. But pay attention to that, that's a mandatory program of how duties and taxes are collected and you will have to be a part of the current program. So we'll go over that a little bit later. The ELD or electronic log devices for commercial drivers, this is a new initiative for Canada. We already have that in the United States. It was announced that domestic candidate and enforcement will begin on January 1 of this year, coming right around the corner. I interestingly noted that the Canadian Trucking Alliance posted that they had been advised by the Canadian Council of Motor Transport administrators that the provinces and territories were firmly committed to enforcing the ELD mandates in January of 2023. So very interesting. Not a lot of happy campers on that piece, but that is coming right around the corner. More on the trucking side of things, driver shortages continue to be a concern, up 11% from the first quarter, which was already at its peak measurement this year. But good news, the government and private industry have some programs in place for hiring and putting drivers in place, and they are making progress. So those numbers are starting to decline a bit, which is good. Unfortunately, right with the same format where once something is good, something is bad, diesel prices are still on the rise. They continue to reach their highest levels in history. Full truckload rates are stabilizing with, I would say, pockets of viability or volatility, I should say, depending on the lane segment that you're talking about. The outlook for Canada for the remainder of 2022 going into 2023, that's not a long time, remains optimistic after dealing with their largest economic contraction since 1945, the Canadian economy is indeed predicted to grow, although they did pull that down a bit, so we'll say grow modestly, if a recession can be held off. So again, same thing we're looking at in the U.S. I have some interesting numbers on that piece about as it relates on the next slide about spending in Canada. So it's interesting. We're in a recession basically, and you'll see what spending is happening. E-commerce and what we call international zone skipping programs remain the #1 supply chain go to in 2022, and we feel that, that will be the same in 2023. And like I mentioned earlier, I have a little bit more about this on an upcoming slide. So again, this is interesting. So the Canadian Feds just raised their interest rates on Wednesday of last week, and again, to their highest level since 2008. The interesting thing is, how the hikes in interest rates haven't even affected consumer spending or having, right? So if we look at the spending graphic, if that comes up -- here we go. If we look at the spending graphic, consumer spending is actually on the increase. So all this during a recession or new recession depending on how you measure that. In August, September and November, we're also on a high pace, so really crazy days. But good news is Canada continues to be a great marketplace for full year business. And then we're going to have a quick poll. So which country you might have gotten a little cheat on this from Carolina, which country in the -- is the United States is largest trade partner and then just make one choice on that. We'll give you a real quick because this should be an easy one for you guys. We'll just wait for those to come in and then Julie and the background, we'll pull the magic button, and we'll see what the results show. And there it is interesting, more interesting for China at 33% and Canada 39% with Mexico 28%. If Carolina wouldn't gave you that information or you weren't paying attention, you might have trick down Mexico. But she was right. It's -- and I should say, it is Canada, by the way. It continues to be the #1. China, Mexico and Canada, you guys are right on spot, all take their turns being #1, sometimes for a month, sometimes not at all. The pandemic made some weird changes to things with Canada going down further and then coming back up. So but it is Canada, it is still the #1, with Mexico #2 right on the heels. There we go, just to prove it, interesting number, that equates to $1.3 million to $1.6 million in cross-border trade every single day going across the borders with Canada, U.S. to Canada. Just to reinforce that it's lucrative and that trading with Canada is lucrative and trading with Mexico is lucrative for the U.S. I just have a slide showing the largest export and import states broken down by state. So remember, if Canada and Mexico is not listed as the #1 in this slide, then that state is, in most cases, ranked it #2 or #3 as well. So it is absolutely huge. So Canada's economy can really help you weather the storm. If you look -- if we look at 2008, 2009, we were in a recession back then as well, many companies laying off people, things were kind of bleak. What we saw was because peanut had right-sized their economy prior to that 2003, 2004, that they were really inflation proof at that time, and their GDP was strong and people had money and they were buying things. And what we saw at Expeditors during that time frame, yes, we saw our customer volumes coming down, just like you would expect. And -- but when we looked at the cross-border in the Canada marketplace, those volumes didn't go down. They actually stayed relatively flat with a little bit of a modest increase. So just like we saw earlier on the slide previous, where during a recession, the Canadian marketplace is just buying, buying, buying. It's a really good thing to have Canada as in your portfolio, if you don't have it now or to increase where you're selling and who you're selling to. And that can help with this slide, just kind of taking a look at the geography. So this is a density map. It just shows that the Canadian population is indeed growing, spreading out or sprawling out to the north. And again, think about all this demographic, I'll say it, that's recorded too. You think about all of these locations are buying services and having orders for and needs for eager products and services. So remember, Canada has some really remote areas and the people that live in those areas order stuff, so be prepared. It's not uncommon to get orders from none of it in Northwest Territories and places that you're like, oh, my god, people live there, right? So go to the next one. So a process low basically will show the events needed to approach the Canadian border and clear customs successfully and compliantly. So I'll just walk through this real quick. Prior to the porter arrival, the carrier submits their ACI up to 2 days in advance. And then the custom broker files, the pars pre-arrival with customs, then the carrier, the forwarder and/or the 3PL submits their e-manifest and remember, with the e-manifest rules that you must match for -- all that must match ports of entry and other required matches on these manifest or you can be now allowed to cross and get and penalties. And those all within the time frames laid out for e-manifest, for example, a truck is only 1 hour prior to arrival across the border crossing point. Once the e-manifest has been approved, the carrier then can proceed to the border, they can then present their ACE or ACI cover sheet and e-Manifest information as retreat. After matching with the broker submission, the carriers all set. However, CBP or a CBS, they off there, depending whether we're talking about a pars, U.S. to Canada or a [ paps ], Canada to U.S. will either release the truck at the primary or refer the truck to secondary for further processing. Finally, and after the truck is cleared the border, a post audit is completed now to ensure all data elements in the those things -- some of those things we just talked about were correct or amped penalty -- these will then be issued. And that is crossing the Canadian border. So I told you, I talked about some programs I thought were really important when doing business with Canada, and one of those is CTPAT. That stands for the Customs Trade Partnership Against Terrorism. It's a worldwide security initiative that came into effect right after our events following 9/11. And becoming CTPAT allows some very attractive benefits, such as reduced number of inspections and reduced border weight times like sending to secondary and things like that. The CBSA says that there are targeting benefits. The CBSA refers to these as credits likely to -- credits likely to -- where CTPAT are likely to have less issues at the border, however, this could be due to their heightened awareness and greater knowledge because they went through and became CTPAT-authorized, right? All good things of though. And the fast lane access to name a few of the other benefits, and we'll just take a look at a couple of these. So this is an actual photo of a fast lane and the driver -- commercial driver flashing their fast card. It's all scanned. Once they flash that card, all that information is put up to the booth and the Border Security Officer has all that information at his or her hands and then make some assessments. Of course, it's not a free ticket into Canada. They still have -- the CBSA officer still has the ability to say, hey, if the driver doesn't look right, something is not right, they sound the secondary for any reason. However, this is a huge benefit, specialized lanes for fast drivers. So while the borders can get really congested and backed up, fast authorized drivers and to be fast, you have to be CTPAT are able to go through a dedicated lane or lanes and get to the border a lot quicker. So a really good program. Another important program is CARM. This stands for the CBSA's Assessment Review Management program project, and it's a new initiative. It promises -- Canada promises to improve and transform the collections of duties and taxes for all goods imported into Canada. This is a mandatory program. However, it had been recently delayed to October of 2023, like you saw in our update. What are the reasons for the delay? Well, there are over 250,000 plus importers. But at the time that it was supposed to go live only 20,000 approximately had registered to the date. So based on the postponement, they are not going to postpone it again. I would get -- if you don't know what this is or you just kind of been putting it off based on the delays, I would get it going. I wouldn't wait much past February or March of next year. If you're still confused on this piece or where to go, we actually have seminars specifically on CARM. We have recorded ones that we can probably share with you as well. And again, any of our team members can kind of get you through that and walk you through that. What are the benefits? So duty and tax accrual opportunity, it allows you to pay the duties and taxes once a month instead of per transaction. That's a big one. Reporting, it now gives you the actual ability to pull your own historic data, includes an HTS classifying tool. It's kind of at the time of release and the things we saw, it was minimalistic. However, it can really help get you narrowed down to it if you're trying to figure out some HTS things. Duty and taxes class or calculator, that will also like above, and there is also a client experience simulation program, which you can join and get a heads up on things as it goes. Again, reach out to the teams, and we can point you towards that. Just a few quick examples for your reference, this slide just shows an example of it. The classification duties and taxes calculator portal within CARM And then I placed a hyperlink on the bottom right of the slide for a video that will give you some more information and more detail on the program. Here's an example of the classification page for the HTS that we just talked about. And remember the caveat, it's designed for the smaller importer, it will not hold up as a ruling, So just some information to get you steered in the right direction, but that can be really helpful. And then this final screen reference shows a result of that previous classification and what it shows. It also provides you information on duties and taxes calculation again. But again, in my warning, it's primitive. It's only for guidance. All right. It was a big one. But NRI, so that's a Non-Resident Importer, so we get a lot of questions about whether to become an NRI and whether to have the additional responsibilities required to be in NRI. So I'll do the best I can to explain this. I'm absolutely for it. We are absolutely for it. And the Non-Resident Importer is simply a business that's located outside of Canada that shipped goods to customers in Canada and assumes the responsibilities for customs clearance and other imported related requirements. So that allows you as the U.S. exporter to include all shipping, customs clearances and duties and taxes and the shipping and handling fees charged to the customer. And then you can even charge in Canadian dollars. In this way, that transaction appears to the Canadian consumer as a normal domestic purchase. That the NRI is designed to take the burden of importing off the Canadian purchaser and allow the U.S. exporter to sell to Canada on a delivered price basis. This then makes the order process much more transparent and stable to the Canadian customer. Again, you want to make it easy on the Canadian consumer and you want them to buy your goods. An important key to achieving the market penetration and expanding export sales to Canada is indeed to minimize your Canadian customers' involvement and the complexity, and you do this by making the transaction resemble a Canadian domestic transaction. Lastly, I'll say the best way for you to register to become an NRI program is through a customs broker. I'd highly recommend Expeditors by the way. But the reason is that customs brokers offer services that can aid a U.S. company as they begin exporting to Canada, where going in on your own, which you can do, you might not get those pieces. I'm not going to go through all these, but if you take away benefits you can review of that program and the benefits of being an NRI in addition to what I have said. And just I'll share a real quick real-life example of a company that a friend of mine in Canada love shoes. And so she bought some shoes from a U.S. manufacturer in the United States and couldn't wait to get them. We heard lots of stuff good about them. They were not an NRI, and they put the obligations of duties and taxes and things on the Canadian consumer on the purchaser. So together shoes, absolutely loved him. Everything was great. About a week later, she got a bill from the Canadian government for taxes, wasn't happy. She didn't expect that. About a month later, she got a bill from the Canadian government again for duties. And again, not happy and actually told me she would never order from them to get. So we ended up actually getting them set up as an NRI and so all of that is behind us. But it was a really cool example on just somebody on the other side in Canada, like you or I, that's buying something, what do we want? We want it fast. We want it simple. We want to get, right? That's what it's all about. And then lastly, I gave you a brochure here, a document on the Canadian Non-Resident Importer program. If you want to further review that or give us a call or whatever, and we can go through it too, but just some more information like I promised. So big program that I've mentioned in the update that we see a lot of activity on and we think we will, again, going through 2023 and beyond is what we call an international zone skip. And this is a big program. It allows you -- the program allows you to zone-skip the first expensive international per shipment portion of the shipment on its way to Canada. So I'll give you an example. So you have 100 shipments going to 100 different places, businesses or consumers throughout all of Canada. So in the normal shipping process, you would ship all of these as per year as individual, international, small parcel shipments to each and every one of those destination customers. In the zone skip model, those same 100 shipments would simply consolidate together. I don't mean physically tied together, but all as one movement and across the border as one international shipment. So you'd have one international shipment. And yes, this is KD-LTL or your store deliveries, bigger orders, they can ride with this consolidation with your courier or your small parcel shipments to get as one consolidation. And then once it's cleared in Canada, you would -- these would then ship as 100 domestic shipments to their final destinations via LTL or carrier or both. So another cost savings frequently enjoyed is then the ability to have a consolidated commercial invoice for this process as well. So instead of 100 separate invoices or entries, even if they're low in their amount, you get one consolidated invoice price. The Caveat Canada has a 999 lines max rule. So if you go over that, you can simply add another consolidated invoice. I have customers saving over $40,000 a month because they went to just from a brokerage perspective on a consolidated invoice. So it can be really lucrative. And if you're considering that, again, give us a call and we'll see if that makes sense. So a couple of examples of the -- I won't go through this in detail for time sakes. But this supply chain example highlights the flexibility of the zone skip model, and it highlights even a big piece that people forget is the consolidated returns portion is piece. So GAAP returns, most people do, it's a real pain to manage and have visibility and getting it back and then getting it back at a price point that makes any sense whatsoever. So the consolidated returns program works very similar, almost the same as the model that we just explained going across. And you can wait. It's up to you, near teams on what that trigger is to send the returns back, for example. You can do it, hey, when we get x number of shipments or whatever we get in a month or whatever we get to this weight or this many pounds, whatever it is and then have it triggered back. And the key on all of this is to have visibility from the time it leaves your door through the border through whatever process, whether it's career LTL and deliver to your customers' hands and vice versa. And that's not an easy piece, but that's something we have put together, and it is working extremely well. So that's a really cool program. This just an example shows an analysis of what we look at and to figure out, hey, are we going to zone skip get all of it to, say, the east and blast everything across East and West once it gets in Canada or are we going to split those shipments, maybe send a consolidation to East, consolidation to West? And remember, like, for example, if you're in parcel, if you have a bunch of customers, you're in, say, the East Coast. You have a bunch of customers in both the East Coast and the West Coast. If you send everything to, say, Toronto on the East Coast, you're going to have a large zone for that transportation all the way across the country from East to West. So if you split that out and you put some to the East and some to the West, then if you inject into the West, those same shipments would start having like a 14 or 15 zone, it would be like a one zone, so local delivery, so to speak. And you can imagine how that impact price, service and visibility. So again, another takeaway, I like this slide as a reference. You can see the features and the benefits we just discussed with your teams for consideration. So this shows at the origin. It shows at cross-border hub and it shows delivery all the features and benefits on having a zone skip program. And then now, so tax 101, we'll just go through this really quick. GST, it's a goods and services tax. It's similar to the VAT in Europe, if that makes sense. It's a 5% tax for all the provinces like our states provinces. So exceptions for certain items like pharma and foods, you need to be GST registered to be able to recoup any amounts levied. You have to be GST registered if you do over CAD30,000 in sales. PST is known as the Provincial Sales Tax that's per state set. The HST is a Harmonized Sales Tax that blends the GST and the PST. I've included a chart on this next slide for your reference. But this does change occasionally. So use this not as a viable but as reference and validate, validate, validate. But it's pretty cool and it kind of shows you how things are split up across Canada. So some instances where you can recoup GST, many importers ignore this, which simply increases their cost. The government doesn't mind if you overpay GST. They will never call you and feel sorry for you and try to give it back, at least not in my experience. So example, you pay GST. However, the distributor selling the final goods also charges GST to the end user, you may be able to recoup that GST that you paid. So things do not take lightly, that could be big dollars for your teams and the difference between very profitable or not. So again, as a GST/HST resident, you can actually claim back what you paid or all on your Canadian operating expenses. The GST/HST pay down your purchases for use in your Canadian commercial activities, and you can even recover anything paid down or owning on goods imported into the Canada that was used by your business for the commercial activity, not the actual goods. So there's a bunch of things. This just highlights a few. It's a very lucrative program. So finishing up here, one more program to talk to you about is [indiscernible]. So it's a tongue twister. It's called the comprehensive and progressive agreement for Trans-Pacific Partnership or CPTPP trade agreement with Canada. So goods from Vietnam, for example, there's multiple countries going direct to Canada would essentially become duty-free, providing they qualify for the agreement. So the goods must go through a procedure to see they make the regional value content and a shift in tariff. So if you're interested in learning more about this program, there's a lot of instances and you can see here, it's the Asia Pacific, Australia, Bernie, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, which we talked about briefly. And so if you're coming from there going into Canada that -- it's really an interesting program you can -- may be duty free. The other thing to think about is if you're bringing in from there, but you're bringing into the U.S., you may be able to enter into a Free Trade Zone, FTZ, a bond to the Canadian border and then pars clear or border cleared then after you cancel the bond into Canada and have that same treatment. There are some things to consider on that piece, and I would definitely get with the teams if that's something you want to pursue. And we'll just end this up with a couple of tools you can take away with you. So lastly, this just provides some intel. It's accessing the Canadian importer market and allows you to research other importers, what they're currently being bringing into the Canadian market. Maybe you're looking at going or entering a market that you've never been in or a province and seeing if anybody else is bringing anything similar or how much is coming in, there's all kinds of things that you can do with this, and I provided a link as well to the tool on the bottom right of this. And here on this slide, it shows a breakdown on what and where, as an example. And this is a government -- Canada government website. And that, even though we went fast, we finished on time, maybe allow some time for some questions and I'll turn it back over to the marketing team.

Thank you, Gary. So before questions, we just wanted to share some informative resources that we do have. You can register for these communications through the QR code or through the subscribe here links once you get the actual presentation. And now Gary and Carolina for the Q&A [indiscernible] go ahead and read it. Can you recoup taxes paid on alcohol that were paid in the U.S. accidentally, that is going to Canada?

They're going to stomp the presenter on that one. I am not the expert on alcohol, tobacco and things. So I apologize, but we will take that and come back to them directly. You have their info, right, Gina.

Yes, that's correct.

Okay. You're not supposed to stomp the presenters today, guys.

Maybe your gift would be alcohol, if you go to…

I'm going to learn. I like alcohol. So I'm going to learn this one. But we'll definitely reach back out with the people that know the answers.

Right, and we'll get back to you on that question. But thank you, everyone, for your time. We really appreciate it, and we hope you have a great rest of your day.

Thanks, everybody.