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

Okay. Good afternoon, everyone. We appreciate you joining us today. It is just a minute past 2 o'clock here in Eastern Time zone. So we're going to go ahead and get started, so we'll be respectful of your time. Just as a reminder, you are joining the Incoterms 2020 webinar today. And we've got this booked for about 1.5 hours, just to make sure we have enough time for any questions that you might have, but we'll get through most of that content within that first hour. So just want to introduce myself really quickly. My name is Samantha Hurst. I'm the regional sales and marketing manager for Expeditors Mid-Atlantic. And I'll be your host today to kind of help you navigate through any questions you might have on the side or make sure questions you have about the topic get answered. So we'll go on to the next slide, and I will talk about just a few housekeeping items. Again, I mentioned this is Incoterms 2020 webinar. And I'm just going to let you all know, you will be on mute and your video is off since once we get started this seminar, webinar will be recorded. If you do have questions, we are willing to try to answer some of those throughout the webinar as our speaker seems to find it appropriate. And anything we don't get to, we will actually answer at the end, if it's not answered before we wrap up. So without further ado, I will introduce you to Lyle, our speaker. So if you never joined one of our Incoterms webinars or seminars in person in the past, Lyle is a great speaker on this topic. Lyle McGhin, he's business owner for Global Product Systems and Development. He's been with Expeditors for at least in his 15th year. A lot of that time he spent in our ocean product and has been giving Incoterms seminars for like 10 years now. Right Lyle? Sounding that right? So just a little bit else about his background. Lyle's role has also involved a lot of global training, working with a lot of our ocean teams to make sure that their teams are on top of their job functions every day, and they know all that they need to know to serve you guys well. So I'm going to turn it over to Lyle to get us started.

Thanks, Samantha. I appreciate that. Can you hear me okay? I just want to make sure I'm coming through loud and clear.

Okay. Absolutely.

Well, we appreciate you taking some time to join us today for Incoterms 2020. One thing I always encourage are learners to do as they come through this, whether they're part of our internal organization or our customer base is to make sure you have a hot cup of coffee on hand, you're going to need some sort of caffeinated stimulant going through this materials. The Incoterms is not the jazziest subject that we can explore in the freight world. So I would encourage people to get comfortable, get some caffeine and we'll start moving through this material as quick as we can. So I appreciate that and so I have been with Expeditors about 15 years. And for 10 of those have been teaching Incoterms I find that topic interesting, which probably tells you some things about me that would describe me as more of a freighter than not. But I think it's an interesting topic. I think that our customers and people in the freight world have a hard time understanding Incoterms are really using them effectively. And I'd like to try to help people understand what those are so that you can feel a little bit more confident when approaching that topic in that subject. So somebody asks you who's maybe a vendor or somebody internally asks you about the usage of a particular term over another. You can feel conversational about that or at least you can feel like I know where I can go to find some more information about it. That's kind of the impetus of this whole thing. That's kind of the point of this topic and this webinar is to get you a little bit more comfortable with this topic. One of the things that my lawyers and Expeditors want me to tell you is that we can't inform you or advise you on which Incoterm you should be using for a given scenario. But we want to give you the information you can do to take back and make that decision on your own. I always say that it's a good seminar when there's a little bit of questionable fallout. Maybe some meetings happen after the webinar about hey, we're using this one over another. Maybe we should be exploring a different Incoterm rule versus another. So that said, I know that Samantha has provided you with some materials ahead of time. So we've sent you some materials ahead of time. We are going to send you some materials after the call as well. So one of those is this Incoterm chart and Zoom will let me show that to you like this. This chart is a great desk reference that we have that's available for you to distribute internally, use yourself, keep handy if you're wondering about what an Incoterm at a high level covers versus what it doesn't. Another thing we have provided to you is a learner manual. That learner manual covers every slide that we're going to be talking about today during the webinar, and it also gives you a space to take notes. If you're like me and you'd like to kind of engage with your ears and you'd like to make a little doodle while you're listening, you can do that as well. That's perfectly okay. So we appreciate you sort of consuming those resources and making those to use as you see fit. Another thing I want to show you, which we didn't provide for you, but I want to at least recommend is this book right here. This is the Incoterms 2020 book as published by the International Chamber of Commerce. This book, I recommend everybody. I won't tell you which Incoterm to use, but I will tell you, you need a copy of this. This is a book that I hope that you already have copies of in your organization it's the official licensed publication by the International Chamber of Commerce. And it goes into a great amount of depth. Now we're going to talk through today's seminar about the changes for 2020 because you know that the 2010 Incoterms rules and the 2020 Incoterms rules are slightly different. One of the changes they made in the 2020 cycle was they actually brought in some people to help craft this book differently from the 2010 version. So it doesn't read as legally as you might think it would. So it's a little easier to consume. Now I'm not saying you're going to want to open a bottle of wine with this on a Friday night and really dig in and get comfortable with it like it's a novel or something. It's not that -- it is still Incoterms, but they did make a little bit more consumable, which I think is fun. So we're going to go through some of that information as we kind of go through our topic today. As Samantha shared with you, I will stop periodically to check in with some questions. If you have access to the chat, you can leave some questions there. We might just take some people off mute from time to time as is appropriate or we'll bring up some of those chat questions and address them. So please feel free to put a question in the chat and we'll see about answering some of those during today's time. So without further delay, I'm going to get you into our core objectives today. We do have 1.5 hours, and I'm going to get you through the content within that time. We're going to be covering a lot of ground. So be patient, take some notes. And even if you have questions after the fact or you're going through some materials later, I think tell me some clarification on that. We're always here for you to reach out because we want you to have that -- we want to have that back and forth with you. We want you to feel educated on this topic and point you in the right direction for what your needs are. Today's course objectives. By the end of this course, you're going to be able to list the cost components applicable to an international shipment. We set the stage there. So we want to make you understand what's happening in the international shipment. We don't spend a lot of time talking about that. But I also don't want to make an assumption that everyone on the call understands the A to Z of supply chain. Since the pandemic started in 2020, everybody has been talking about supply chain. And people that weren't interested in it are suddenly very interested in it. So -- we want to make sure we set the stage and just give you a quick overview of what happens in the supply chain, in the shipment and how those things relate to Incoterms so that you can have a good understanding of that. We're also going to define Incoterms rules 2020. So whatever you see colloquially, we refer to them as Incoterms, right? But the correct usage is actually it's an Incoterm rule. Each term itself is considered a rule. So we're going to define those for you. We're going to work through and kind of work ourselves into what those terms are. We're going to also identify the point where carriage risk and costs are transferred from the seller to the buyer. So we'll tell you what those things are. We will show you as we're working through that, how to kind of read that on this chart so that you can use this a little bit better, maybe everybody's got a branded version of this. I've seen a lot of them over the years. Ours is very similar to some others, but it also does a great job of just showing you where those things happen. So we'll go through that as well. So here's the course map. The course itself is split into 2 units. So unit one is international shipment charges. So we're just going to set the stage. And then as we go into Unit 2, we're going to talk about each term itself. So if we're in the middle of the Unit 1, you think and where we're going to start talking about these terms, hang on, we will get to that once we get into Unit 2 and actually start talking about these terms. Now a word of wisdom for you. Unit 1 is super short. So if we get to the end of Unit 1 and you think this is fantastic. The 2 is as quick as Unit 1 goes, I'm going to be out of here in a type 15, and we can call it a day. Unit 2 is much longer. So just buckle up, just to let you know, I always like to set the expectation in the stage to make sure you're not disappointed once I keep going into Unit 2, we're kind of there a while. So let's jump right in to Unit 1. So given an international shipment diagram, and the parties involved, we're going to list the cost components applicable to an international shipment. So as promised, we're going to start at the ground for it. We're going to start with the basics. And this is sort of the happy path for an international shipment that might take place. This is a flow diagram. So on the left hand of your screen, we're starting at a manufacturer could be seller, shipper. This basically represents where is the transaction originating. Is that freight leaving production facility? Is that freight leaving a distribution facility? Where is that freight starting its journey? Then you move on to the right where we've got a pre-carriage point. Now depending on where that freight is starting, that could be any one of those modes, air, ocean, truck, whatever conveyance that we're talking about that moves it, that just helps the freight get started to its next point in the journey. Now the third point in this is the forwarder. Now I like this one. This is -- I got to raise my hand. This is my favorite point in the supply chain for this diagram because you know what, that's what we do. And we love what we do. And we find it interesting. We like to get into the details and a forwarder can help you do all the arranging. So we just came out of the holidays, and I'm always seeing family at the holidays and a lot of them still wonder what it is I do after 15 years, like, what does it you do? Don't you drive a forklift or something for a living. No, I don't drive a forklift, but we do act as sort of a travel agent for freight. So we have relationships and contracts in place that we can help move freight. And even if it's your own contracts that you're using, we have the expertise and the connections available to help facilitate that movement. That's what a forwarder does. Can also help facilitate export customs clearance formalities. Whatever country you're leaving, whether it's the U.S. or the U.K. or Brazil, there's usually an export customs formality that has to take place. A forwarder can help you navigate that. You also might have a handling agent. Some type of way point, stop point where the freight is either going to be consolidated, further processed. When I think handling agent for like an FCL, full container ocean move that might be a port that's moving the goods in and around the port before it's loaded. And then we have the middle part, which is the main carrier. This is the main conveyance that's going to be wheels up in the plane and it's gone or confirmed on board and the anchors up and that shift is out of there. That's sort of that main journey from one point to another. Once you get past that, we're really going to start working backwards from the things we just talked about. So there's going to be a handling agent that's going to get it off the plane, get it off the boat. And there's probably going to be a broker involved. That's bringing that -- those goods into that country and sort of navigating the formalities to allow those goods to be part of that country's commerce. U.S. is no different. We've got import customs formalities that have to -- paperwork has to be filed, duties and taxes need to be paid. The government wants to understand where is it going, who's getting it? What's it going to be used for, these types of things. So they help you navigate those customs formalities. And then we've got on carriage, which is going to happen to sort of get those goods onto the final destination, whoever is going to be consuming those goods, whether it's production facility that's going to further process something, whether it's a retail facility, whatever it is in the transaction that's going to help get it there. Now the reason we start at the basics is because I'm kind of a basics kind of guy. I like to know the lay of the land before I start getting my understanding correct. But everything we just talked about is what it starts right up here. So that chart that we gave you is going to start in the facility. It's going to work its way all the way from left to right. And as we go through that, that's why we talk about this from a basic standpoint is because each 1 of these things that we discuss there's going to be Incoterm rule that talks about that point where a transfer could take place. So that's our basics. This next diagram that we have for you pretty much says this message. And that is, each point we talked about, there's a charge associated with that. So every point we -- I wish I could tell you there were freebies in there that would help protect your margins, but there's a cost associated with each one of those. So what are we talking about? Why is that important to note? That's important to point out because one of the things, carriage risk and cost, that's one of the things that Incoterms talks about. Not only transfer of risk and responsibility for what's happening in the supply chain, but who's paying for that point? Who pays for the pre-carriage, who takes care of the customs needs, who takes care of port handling or airport charges that happen as a result of that shipment, Incoterm rule will help define that. So there's one that covers also the entirety of it, and that's #8, which is called cargo insurance. When -- part of my roles at Expeditors, and I've had a few now, one of those has been training. And we train our employees a lot to ask about different things when they're setting up shipments for customers. And one of those things is insurance. We believe cargo insurance is very important for the life cycle of a shipment because things happen in the supply chain that probably shouldn't happen. You may have 1,000 shipments that go perfectly from A to Z and everything is normal as people get paid, and you get your goods and everything happens the way it should, but if that 1,000 and the first shipment that completely goes off the rails, unintended or just things go the way they shouldn't. And all of a sudden, that's when things get serious and you start wondering, well, how are we going to recover from this? Do we have policies in place that will cover this event that occurred? As best as we can plan things in the freight world, and we really try to plan things well. It never fails, something may happen or occur that leads to an issue that insurance could probably end up handling that. And it's usually -- I'd have to bump this conversation over to an insurance specialist here, but it's usually very affordable for our cargo shipments to have insurance applied to that. So we often have relationships with customers who secure insurance and have their own policies in place, and we have also customers that have policies in place, but also have risk tolerances up until a certain point. So you might call that self-insured up until a certain point. So we have relationships with customers that do all those things. So what is an LSP? LSP services, logistics service provider. These are the 2 slides where I get to pretend like I can be a good salesperson for a few minutes, even though I've never been in sales and they wouldn't let me near a sales conversation to save their lives. Before I get pretend, I can sell something. This is what we do, we are a logistics service provider. That's what Expeditors does. We can help with things like pickup and handling. If you need your cargo move from 1 point to another, even before it gets on the board of the plane and the rail, we can help with that. We have relationships in place. Export customs. Any country you're leaving, we can help in most cases, with export customs as a means of navigating that responsibility. Freight forwarding. This is simply the -- doing the work. If you've got your own contracts in place, we talk about beneficial cargo owners, BCOs, large companies that have negotiated their own contracts for certain lanes, we can help navigate the to and the from. Customs brokerage, and we also talk about insurance. We just talked about that a moment ago. Expeditors has a subsidiary called ECIB-Expeditors cargo insurance brokers, where we can help create and craft a policy that meets your needs. So we have that as part of our platform. So some of the benefits of an LSP, this is where I get to tell you how lucky you are to have been engaged with us. Compliance confidence. We focus very, very keenly on compliance. We train our employees a good amount of time, a lot of hours per year. Just making sure that what we do follows both the letter and the spirit of the law. Anywhere we operate, we want to make sure compliance is part of that. We talked about insurance, but also 1 point of contact. One thing I've enjoyed about working at Expeditors is I get to work with customers from time to time, not so much anymore in my current role, but I get to work with people. If you have a shipment that's going on, you probably know the person or have been in contact with the person that's helping move that. So it gives you 1 point of contact to talk about everything that's going on in that move. And then transportation options. So we work really hard to provide as many transportation options globally that we can that makes sense for our customers. We want to be part of your expansions. If you are going into new markets, we want to be there with options for you to utilize and help build that business for you. So we spend a lot of time making sure that we can be everywhere we are. We try to expand our global reach as much as possible, just to help our customers be where they need to be with their freight. So that's Unit 1. We talked about a shipment. We talked about the basics of a shipment, and now we're going to go into Unit 2. So I did tell you a little while ago, 1 is pretty fast. But Unit 2 is going to take a little more time. So let me tell you how Unit 2 is going to go. Here's the objective for it. So, we're going to give you an Incoterm rule, and then we're going to identify the points where carriage risk and costs are transferred from the seller to the buyer. Before we do that, I want to actually -- remember, I told you I am a basics guy. I like just tell me set me up with a foundation and let's build on it. We're going to tell you about Incoterms first. How they are, where they came from, who runs them, how often do they change, all this stuff. And as we move through the seminar today, we will provide you with some detailed resources after the call that sort of outline some of those changes. So as we're talking about the rules themselves, we will talk about what's changed, what's different from 2010 to 2020 because that's on a lot of people's mind. So before we jump into the meat of Unit 2, I want to check in with Samantha and, see Samantha, do we have any initial questions that we can go ahead and take?

Lyle, I think so far, you covered that first unit very thoroughly and everyone looks to be okay. I did mention I had a couple of people reach out for the materials and I also send that over, if anybody else is still missing them. But I think we're good so far.

All great. So if you run into issues with those materials, you can reach out to Samantha, then we can make sure you have what you need. Okay. Here's the key message around Incoterms. The specific Incoterm rule stipulating the sales contract can change the price of the goods. And what we mean by that is a good example is this right here. So your price to purchase or price to sell. If I sold my goods on Ex Works, and I was a seller, and I sold and arrange to sell my goods on Ex Works, all I would have in my details, my contract information would really be the cost of the goods because as a seller, selling on Ex Works, it's the least amount of obligation on a seller, which means I don't have to include hardly anything. You might have like some limited handling stuff in there. You might have some packaging fee in there or something like that. But really, it's just the cost of the goods. Conversely, if I'm a seller and I sell on CFR, that's the agreed-upon term. Really, I'm selling with the cost of the goods plus transportation. So now my documents, my sales contract, my information for that shipment, the price is going to change. And here's why that's important. When we talk about selling and buying and selling and using Incoterms, really, you have to ask yourself whatever position you're in. If you're a seller, if you're a buyer, if you're a vendor arranging things and trying to provide your services and your goods, you have to think about what am I capable of in our business. Where do I have contacts. If I were to sell on CFR, would I have the necessary contracts and relationships in place to do that. Because if I just sell on Ex Works, I just have to have them packaged and ready, ready to go. But if I choose to sell on CFR and that's what the decision we're making is best for our organization, then I have to make sure that I have the necessary arrangements in place to cover the transportation. And maybe that conversation internally is, yes, we have those things in place. Maybe it's -- no, we don't have those things in place, but we really need to start to do that. Maybe we can do a better job at the transportation than the other party. And maybe you can work the back and forth that way. So that's what we mean by using an Incoterm can change the price of the goods depending on what position you play in the transaction and what Incoterm has been agreed upon. But really, if I were to back out of this slide and just tell you what Incoterms are. In fact, when I started 15 years ago, I had a friend who was at the company, and he kind of helped get me started. And I said, well, I'm coming in. I don't know what I need to know? They said, "Why don't you just read Incoterms. And that would seem like a logical thing to do. But for a person who had no background in freight before I got to Expeditors, that was a very confusing thing. So I started reading Incoterms. I thought I had no idea what this means. Until I really developed a key understanding of how freight moves, did I understand Incoterms were really a shipping language. Some -- I've started some of the seminars in the past, but just asking you if you could know an additional language right now, other than the language or language as you know, what would it be? And people would always say, "I want to know German or I'd like to understand Spanish and be able to speak that fluently or Portuguese. And those responses were always in the spirit of -- I do a lot of business with those destinations. My main office is in Germany or our Brazil LatAm trade lane is off the charts, and it would really help me if I understood that language. And what they're really saying is, I want to communicate better. That's what Incoterms is in its essence, it is a shipping language. It is a language that was designed for a buyer and a seller to come together, make an agreement on who is going to do what and pay for what, and then have business together. And that's really what it is. It's a shipping language that's designed to simplify the transaction. Now does it simplify the transaction? I think in many cases, it complicates some things because I'm going to bring my understanding to the table, and they're going to bring their understanding to the table, and maybe those things don't match. And so it ends up complicating it even more. So that's why we host things like this because I want you to understand what those things are, so that you can have competent conversations to help either protect yourself from a risk standpoint, because that's what Incoterms can do, transfer costs from 1 person, 1 party to another because maybe you don't have the contacts in place to do that, that's really what Incoterms are. It's a shipping language to help both those parties sort of gravitate toward an agreement of how they're going to do business together. Let's talk about what they are. So the INCO -- in Incoterms, INCO is abbreviation which stands for international commercial terms. They are 11 terms published and copyrighted by the International Chamber of Commerce. Now the ICC is an organization that is headquartered in Paris, and they have existed since 1919 and in that time, it was a body of business persons that got together to say, hey, we need to try to create a better means of doing business globally. So the ICC was created to help foster global trade. And in 1936, the ICC created the first set of what they call trade terms. And that's really what we know of as Incoterms today. So since 1936, Incoterm rules have been used in some fashion or another. The rules have obviously changed over the years. A lot's changed since 1936, right? The way and the method and the mode of freight moving has completely changed in that time. Computerization has changed how we do things. So the terms have been around since then. The 0.3 here is really a key point to understand. The reason why trade terms exist is to help parties avoid misunderstanding in their business because I can assume 1 thing on my side and then other party can assume 1 thing on their side. And because neither of us are as connected with the others business as we are, it can lead to a lot of frustration in the shipment. And really, Incoterms are there to help clarify who is responsible, what's going on, who's paying for what? And if something goes wrong, like the risk part who's responsible for that if something goes wrong? Is it am I on the hope for that? Or is the other party going to be hoping for that? So the most recent revision we have of Incoterms is 2020. Right now, the ICC is on a 10-year revision cycle, which means that every decade, the ICC gets together with their drafting group and their directors and they start making changes to the current set and they'll ask questions like what's going on in global trade right now? Do we need to make changes to the set to account for technological advances, or changes in the way trade moves. What's going on in the ocean world, what's going on in the air world? Do we need to make amendments to help clarify certain terms or even remove terms altogether? And they do this about once every 10 years. So if you're concerned about is this going to change again tomorrow, I wouldn't be that worried about it. There's a slight chance they could issue some amendments in the meantime, but really every set they do is on a 10-year revision cycle. If my memory is correct, I think they've been on a 10-year revision cycle since 1980, but I could be incorrect on that. But since then, they've been on a 10-year revision cycle. One of the things that I appreciate about the current version, and I told you this is the beginning, as they've done some work to help make it a little bit more consumable for people who aren't lawyers, some of their previous versions that have gone through are very technical in nature. But this version is a little bit better at that. So -- and again, we can get this one directly from the ICC. And I got mine from Amazon, which may not surprise any of you, if you have a problem with Amazon like I do. I got mine at Amazon. And I do -- it does hurt my feelings because I'm kind of cheap that this is 192 of the most boring pages you'll ever read and this will still cost you $60. So I think they've used the college textbook model for pricing these things, even though -- that's a little bit much in my opinion. But anyway, get a copy, you'll be glad you did. Okay. Some things to keep in mind as we continue talking about Incoterms. One of the things to keep in mind is that Incoterm rules are limited in scope, and they are not all inclusive. When I first started delivering the seminar, I'm based out of our Atlanta office, even though I work for corporate in Seattle, I delivered this to a customer we have that supplies things for the airline industry. So [indiscernible] Jackson is here. This customer was one that the little forks and knives you get when we have to eat on a plane like this, that's what they did. And so I was delivering this and a person stops me and says, "whoa! whoa! whoa!" what you're talking about is not Incoterms. I said, okay. I want to ask a leading question here because I think these are Incoterms, that's what the thing says. He says, he said, "I got a vendor that keeps on me, telling me I'm using the wrong Incoterms that it's not letters. It's a 10-digit number. It's got 2 dots in the middle and it comes in a book to stick. Okay. I think I know what you're talking about. You're talking about the classification codes that the U.S. government has issued which categorize everything known and unknown in creation. They have assigned a number to it, and it does actually come in to book that thick if you've actually seen a physical copy, it's all digital now, but those physical companies were enormous, and that's what they are. So that's what that your vendor is talking about. Incoterms are a little bit simplified, right? We don't have to have a rule that describes every known shipping scenario that could possibly happen. I mean if the ICC had to do that, yes, I guess it would come in to book that thick. It will be enormous. Sure, be longer than 3 letters. So they're limited in scope. They're not all inclusive. So what am I supposed to do if I know what I want to do in the shipment, my vendor knows what they want to do in the shipment. And neither of those things matches what you have on your chart. What am I supposed to do? Am I out of luck? Do I not participate with Incoterm rules? No, the idea is that you find the closest Incoterm to your scenario, and then define in your sales documents or your transaction documents, whatever those documents are, what the differences are. So when it's not clear, sellers and buyers should state who is responsible in their sales contract. So if I'm doing business and I'm selling and Samantha is buying and neither of us can come to -- neither of us find an Incoterm that matches what we want to do. The idea is for us to find the 1 that most closely looks like our scenario, and then in the contractual documents, whatever those are, to list out. Lyle will be responsible for X, Y and Z, Samantha will be responsible for A, B and C and whatever those things are. So that's how Incoterms can exist and not be all inclusive and be as limited in scope as they are. Buyers and sellers should also be as specific as possible when naming locations. So part of using an Incoterm rule, and we'll discuss it as we get into those a little bit further, is naming locations where certain transfers are going to take place. You need to actually say where in the world is this going to happen? And you should be as specific as possible when doing that. And I'll explain that a little bit more. I'm really going to table this point and go into that in a little bit more depth before I get there. A couple of more slides, and then I'll pause for some questions to see if we have any bubbling up in the chat. So here's the Incoterms 2020. We've told you kind of what they are, and let's talk about what they're not. Incoterm rules are not terms of payment. They do not speak about when or how long it takes to get paid. So it's not Ex Works, 60-day terms, we'll mail you a check or DAP 25-day terms or where's the money. It doesn't speak about any of those things. So how do you get those things ironed out? Well, you talk about it. You say these are the terms I want in my transaction. You have that documented in your documents, and that becomes part of the agreement between the buyer and the seller. Incoterms doesn't say anything about it. Also, Incoterms are not a contract of sale. That's your sales contract. So Incoterms is not going to describe all of the terms of your agreement with those buyers. Those should be listed out prior to the transaction taking place. It's also not a contract of carriage. So the contract of carriage really is something that is worked out with those transportation providers as far as how it's going to move, what is going to happen during the movement, Incoterms doesn't say anything about that. In fact, the first 7 terms that we have are rules for multimodal or any mode or a combination of modes. So some of those terms could not possibly do that, and it doesn't. The last 1 is it doesn't define title transfer. Now this one, if we were all in a room together, I might get some of those hey wait a second, what's meaning. It means if we're using a particular term, Incoterm does not say when your ownership stops and their ownership begins. There's nothing about the Incoterm rules that says that. Now how do you do that? Well, I think you can have some interaction with your other parties of the transaction to say, we're going to recognize ownership at this point or something like that. And sometimes I get questions about. Well, we use Incoterms as a method of revenue recognition, like when it leaves my dock then I can recognize it as transacted on the books, and that's what we do. Well, I think that's fine if your accounting procedures support that, but you're not going to find anything in the Incoterms rules language that's going to say, okay, you can now recognize revenue on this sale or this movement because it crossed the ship's rail or something like that. Incoterms doesn't say anything about those. So what the ICC does say is if you are looking to use Incoterms as a method of recognizing revenue or a signal to recognize revenue, then you need to make sure that whatever accounting principles and procedures are applicable for your country that those are supported and recognized as something that can be used for that. If that's the case then okay. But don't look to Incoterm rules to talk about when your ownership begins or when I can recognize revenue. One other final thing that's actually not listed on the slide, is this. Incoterms are not law. If you use the incorrect Incoterm, the Incoterms police is not going to slide in and take you off the Incoterms jail or give you a fine. In fact, in our business and forwarding, we see incorrect Incoterm used quite a bit. You want to give me an ocean term when you've actually -- what you're asking for is an air move, that's incorrect. We can generally figure out what it is you're trying to do, but the usage of those terms is not necessarily governed by a law. ICC is a private organization, and they encourage the use of Incoterms to help clarify shipments, but you're not going to be in legal trouble if you don't. Now if you do use incorrect Incoterms, that can cause you a misinterpretation of what's going on in the shipment, it can cause you to not correctly assess risk. It can cause you to just be missing or kind of a sleep at the wheel on certain things, maybe you thought the other party was going to do it, and your Incoterm you picked actually means you're going to do it. And then it doesn't get done and something gets delayed, and that's a problem. That's what we can -- that's what you can expect with incorrect Incoterms usage. So just to understand those things, about Incoterms as we kind of go on. Last thing, and then we'll take some questions is, well, what does Incoterms define? 3 things, 3 things Incoterms define, transportation obligations, costs and risk. These are the only 3 things, the major categories that the Incoterms rules falls under. Transportation obligation. So who arranges the movement, who's going to talk to the ocean carrier, who's going to talk to the air carrier, who's going to talk to the rail, who's going to make sure the truck is there on both ends? Who works that out? Second thing is cost. Who pays for all that stuff happening, who pays for the duties, the insurance, if that's part of who pays for the transportation, the carrier fees, the handling, who's responsible for it. And the third one is risk. When something goes wrong, who's liable for that. Now in my experience, customers usually have a really good understanding of both 1 and 2, the transportation obligations and also the costs. They really got -- they have shipments I got 2 containers a month that leave my facility and go to this vendor. They pay me, we ship it, everything works like clockwork, great. Usually, where there's a deficiency is at number 3 risk, because you can have those things go on all the time. But what happens when something happens and the product is ruined on the tarmac before it gets loaded into the plane or the ship breaks in half and my cargo is now at the bottom of the Atlantic. Stuff happens. Those things happen. Who is responsible for it then. My understanding and working with customers that have had hundreds of conversations with our customers where this has been the case is really, we work on this Incoterm and it's always -- it's usually FOB. It's FOB everything, right? Just stick FOB on it, and it will move and that's fine, or this is a more common scenario, somebody stuck FOB into SAP like 20 years ago, and that's just kind of what prints on our docks. And so nobody wants to ask about it or change it because if you ask about it, you're the 1 that owns it. We all know that. So everybody kind of stays quiet, and we all cross our fingers and hope that the shipment just goes as it should, and it doesn't cause us any issue. But without fail, something is going to happen and then that's when everybody wants to come out and look at the docs and the contracts and say, "Well, what did we agree to -- and then we kind of -- it becomes an uncomfortable conversation. I want you to know what's on your docs and what it means and if it makes sense for your organization. I want you to have those conversations now willingly before you're kind of forced to have it and the uncomfortable meetings happen because a shipment didn't make it. That's really what I want out of this as you can be conversational on those, you can understand what you're looking at when that happens. So I'm going to push pause and check in again with Samantha and take a quick drink of water and see if we've got any questions.

Thanks, Lyle. So we do have 1 question from Nick. And I think this is interesting because I feel like I had seen a lot of different ways, Incoterms were somewhat incorrectly used. But try this one. Have you seen a shipper use 2 sets of Incoterms for the shipment. For example, origin, they used Ex Works to FOB and destination U.S. FOB to DAP. You like to get your explanation on what we think they mean or how they are thinking this is going to work?

I have seen that. And people have asked about that from time to time. Hey, can we use multiple? I really like this Incoterm from my side, but they don't like that Incoterm, so they want to use a different thing. That's not the way Incoterm rules are intended to be used. The intent is per the ICC that you have 1 term for a transaction. And that transaction covers end to end, all the way, starting to finish whatever the start and the finish is that Incoterm should cover. So when you have multiples, I think that people are trying to solve issues that exist within the shipment that really could be solved with 1 term had they just worked with each other to figure out what was the right term. I think what -- when you see that, it's really -- we like this term, we understand this. So that's what we're going to say and that's what goes on our docs. And then the other side says, "Well, no, we don't like that. We like this and you end up with 2 Incoterms where really, if you just talked and tried to work it out and agreed on 1 Incoterm, it probably would have resulted in a more streamlined situation for that shipment. But the intent is for 1 term for 1 transaction. Now you can have like 1 term that it's like we always use DDP and that's it. And that's okay, too. You can agree and say we're only going to use this one, and then that's how you do your business. That's fine, too. But it's for 1 transaction is for the entirety of that shipment. Thanks for the question, Nick. Anything more Samantha or just one?

Looks be it so far.

Okey-dokey. Well, keep coming, if you have any additional questions, we'll be happy to answer it for you. And also, if you need to step away and get coffee because you're like, I can't take this anymore. Please do that as well because I want you to understand what's going on there. So let's talk about the division of Incoterms. So if you got your chart handy, and I'm sorry, Zoom is going to blank me out. There's a top half and a bottom half. So it's divided and split into 2 sections. The first section is rules for multimode or any mode, multimodal. So those rules can be used whether you're only doing 1 mode or you have a combination where you've got a bunch of different ones going on. The last 4 are what we call rules for inland waterway transport only or sea inland waterway transport only. Those are terms that are dedicated to water moves, ocean moves, barge, feeder vessel, main vessel, those kinds of moves. I'll tell you why as we get into it, why those divisions are made. So the first 1 we're going to look at is the rules for multi-modal. And I am looking at our time. I see we've got a little less than 45 minutes left I'm going to try to get through each of these 11 terms and send you on your way, so we don't keep you beyond our time today. So the first group of terms, let's just take a minute and show you how to read this. You've got the Incoterm rule itself, which is Ex Works, free carriage, carrier paid to, carriage and insurance, et cetera, which is represented by a 3-letter abbreviation. And that's the thing that we generally see on documents, after the abbreviation, you're going to see a parenthesis with something in the middle. Ex Works has named place of delivery or name place of destination. Now a little while ago, I said that we needed to be as specific as possible when naming locations. Well, you name the location in the parentheses. And this is effectively saying -- the transfer happens at this point or that point or whatever that is. So you might commonly see, and I'm not saying this is correct, I'm just saying you'll commonly see it. Ex Works Atlanta. I'll say that because I'm here. Ex Works Atlanta. Well, that's great. Atlanta is a big place, though, lots of space, many roads, everything is Peachtree, is it the first Peachtree of the next one, I don't know, lots of traffic, what's the place? Atlanta is a big place. So get specific when you're naming location. I've also seen users say Ex Works sellers facility. That's much better, because now I know the seller's facility is where that transfer is taking place. What I -- what happens if I don't -- if I'm not specific, and I just say Atlanta? Well, if there's a risk event and the cargo is somewhere in the city, I might mean that my risk needs to transfer when the cargo leaves my dock. But because I'm in Atlanta and the cargo burned up on 285 and that's still in Atlanta, now there's ambiguity for the risk scenario of -- well, my one store responsible because it was in Atlanta, did I mean leaving Atlanta, like the city limits? Did I mean my dock. So I encourage people just like the ICC does, to be specific. So if I'm using Ex Works I might say Ex Works, 300 Tradeport drive Atlanta, Georgia 30354, Dock door #7 because that's exactly where I expect the transfer to take place. And if you are specific like that? Excellent. That's a great way to help clarify the shipment to help add increased visibility to what's going on to it. If you are in the habit of [Technical Difficulty] general city names, I would explore using some other terms that would help narrow that down. Some people have asked, "Well, hey, what if I don't know yet. When I do the deal when we agree on the Incoterm, which facility it's going to leave from. Maybe there's 4 production facilities in a city, and I don't know which 1 is going to have it yet. Then you could use Ex Works seller premises or seller facility as a means to do that. And then once you have clarification later on, making amendment to the documents and kind of cover yourself with that. So another thing I want to help also clarify is that word delivery. So we've got 2 words here, delivery and destination. Well, I want to sort of define what those mean for you because as I think Incoterms weren't difficult enough to understand now the ICC is sort of playing with definitions of words that you and I commonly know. So what do you think of when you think of the word delivery. I think of because I'm just a simple guy, I think of my package has been delivered. My overpriced book from Amazon -- it's on my porch. It has been delivered. The baby has been delivered. It's in my arms. The pizza has been delivered. It is now mine. That's not what delivery means in this scenario. Really what delivery means here is a carrier has taken possession of that cargo. So for Ex Works and FCA, really what we're talking about is a carrier takes it and has it at that point. Not that it has been delivered to the final consignee or the final facility, but that a carrier has taken possession because I was looking at the charts, and I thought, delivery, how can you say delivery, but everything is on the seller side. That's because delivery doesn't mean what you think it means for ICC. Now destination, that's what we're talking about when we have pointed towards a final resting place for that cargo. Where is that going to terminate? Where is it going to be destined for? Maybe that's a facility, maybe that's an end customer, maybe it's a user that's going to be having that. So understand that delivery does not necessarily mean what you think it means, in this category. It means a carrier has taken possession and has it. Any questions in the chat, Samantha? This is -- that one I always stop quickly after that one because that's a lot going on there.

So we do have a question related to CPT or CIP. Do you want to hold that or go ahead?

Let's hold it. And once I get there, I'll stop again, that actually means the decent place to stop. Thank you. Okay. Let's just dive right in. Now we're going to actually talk about the terms themselves. So as we talk about the terms, we're going to describe the term. We're going to show you the chart how to read it. We're going to talk about what happens on the buyer side, what happens on the seller side and explain for carriage risk and cost what's going on there? Because if you notice on your chart, these little bars, these little horizontal bars, each one of them says carriage risk and cost. So we'll go through that as we do that. So Ex Works, Ex Works is the simplest to kind of understand from a seller perspective. It is the least amount of obligation on the seller, meaning -- as a seller, if I pick Ex Works, literally all I have to do as a seller is have it packaged and ready for loading. That's it. The buyer under Ex Works is responsible for all the transportation including loading and export customs and the risk transfers at that named place of delivery. Remember what we said about delivery, delivery means that a carrier is taking possession. So where was that place? Is it my dock because all I'm responsible for is having it packaged and ready to load. So it's probably my dock. But maybe the name, place of delivery something a little slightly different. Now I send some things in here that may cause you a little bit of pause. The buyer is the one that's responsible for all the transportation, export customs, including the loading. If you're in the U.S., which I believe all of you are, I've never seen a facility in the U.S. where somebody's insurance would allow for a third-party vendor to come into your warehouse and start driving a forklift and loading a truck just not the case. You're not going to do that. We get that. We understand that is responsible. ICC understands that, too. So where it doesn't make sense culturally when that take place, the ICC has said, if that's not a custom in your country, then the seller can be responsible for the loading, but the buyer can be responsible for the risk and the cost of loading, if there is any. So if you're using -- selling on EX Works and you're doing the loading under the ICC rule itself, the buyer is the 1 that's supposed to be responsible for the cost and the risk of the loading. Now I'd go one further and say, I don't think that's how it works here in the U.S. I would say sellers that are selling on Ex Works. They sell at Ex Works with the cost of the goods, and they load it, they are probably not going to charge back to loading on to a buyer. It's just customary that we do that here, though they could under the term, the proper term itself. So that's normally how that works under Ex Works. Something to keep in mind that I think is important. And I always told this to our new hires that we would bring in and people -- I still tell this today, the people that I work with don't ever assume that your understanding of how things work locally, where you are is the same as it works anywhere else because it's very different. And this is a good example. We had at one point a example of a seller who was new. Sorry, it was a buyer who was new importer of goods going to be in retail. They were very excited because they arranged to buy on Ex Works from Asia and -- they just said, great, we've arranged it. We've got all our transportation is there. It's Ex Works. I'm excited. The day comes for the goods to be picked up. The truck shows up they roll that dock door up, and all you can see is just a sea of boxes stack there ready to go. Nothing's palletized because Asia does a heck of a lot of floor loading to try to maximize every ounce of space in those containers they can. And they just -- the facility, they just kind of walk away like you just ask and you've got a truck driver saying and they're saying, what am I supposed to do with this? All because you had someone an importer just assume, hey, we load it here, so I can send a truck, and they'll load me. That's not the way it happens because Ex Works doesn't say they don't have to. So load your truck. That creates an issue because now you're going to miss your port cart because the trucker has to go hire a crew to load it, you've got increased costs, you've got delays, you're going to miss your port cart, you're probably going to miss your vessel. A whole chain of events happens afterwards because I made an assumption because I know how it works here must be the way it works everywhere. And it's just not the case. So use that as an example of if there's a question in the supply chain or in the transaction that I have a doubt about, bring it up, talk to somebody, say, "Hey, I know this works here. Can you tell me is this customary there? Are we using the proper interpretation of Incoterms? Or are you expecting me to load this or I can load it or you can load it whatever that is, make sure you have the ability to work that out. Okay. So this is Ex Works, and I'm going to move on now to FCA, free, free carrier. Under Free Carrier, FCA, you have now increased the seller's responsibility and the shipment by a little bit. So one of the things -- I'll go back -- I want to -- I forgot something I need to mention on Ex Works. But I don't want to get too far before I forget. Notice also that the buyer is the one that's responsible for export customs. Well, are you comfortable with the buyer handling that? Because I know how it works in the U.S. with U.S. customs, if I transfer the responsibility of U.S. customs over to a different party, and that other party makes a mistake or falsifies information and Uncle Sam finds out about it, then Uncle Sam is going to come to me because I'm the U.S. party and not try to chase someone overseas who is arranging that transportation and didn't do the due diligence. So I understand if you are transferring export compliance functions over to a different party that you have safe and trust in that party that they're going to do the right things with it. So that's a very important part of Ex Works that I forgot the throw in as we're going through. But before I went to FDA, I wanted to expand that. If that's a concern, and you want to avoid it, FCA is a good option for you, because now the seller is responsible for packaging, loading, free carriage and also export customs. So I can hear my dad's voice in my head, if you want it done right, do it yourself. So make sure that you have an understanding from a risk perspective, are we prepared to hand that over to someone else or should we just do it in-house or nominate a provider to help us with that. So under FCA, free carrier, a buyer is responsible for unloading and all the transport from the seller's point of delivery. So we've got to name a point of delivery. So where is that point? You could actually do FCA sellers' premises, and it would be very functionally a lot like Ex Works, except you're the one who's doing the export customs, that's acceptable. It could be that you'll notice on your chart -- my famous backwards or [ circle ] my hands which ones to look at, which -- how far that bar goes, maybe it's down all the way to the port. Maybe that's where it's going to take place or a transfer facility prior to it, maybe it's the rail yard that that's going to take place. Maybe that's the place of delivery. Whatever that point is for your shipment name that point as part of your transaction and work to that as you're arranging it. So the risk in this scenario for FCA is transfers when it's considered delivered, but not unloaded because if you remember, the buyer is responsible for the unloading. So at that point, when it goes to get unloaded, the risk transfers and the buyer begins their responsibility at that point, and they have it for the rest of the time. So you can see as we're starting to talk about both these terms, how a seller and a buyer interact in an international transaction to understand what am I responsible for? What are they responsible for? And how do we make that work for that deal. I'm going to go into carriage paid to and CIP, and then I'll stop before we get into the D terms to work through some of those questions. So CPT, carriage paid to. So when we talk about CPT and what we call the C terms, you're going to notice in your transaction that there's a break in the risk and the cost and the transportation, those transfer at different spots, but the risk transfers early. So we're going to talk about why that is. Under CPT, carriage paid to, the seller is responsible for all the transportation to a named destination, including export customs. And the buyer is then responsible for unloading at that destination. But the risk transfers early at the first carrier. So why would ICC put together a term where the risk transfers differently from the other 2, and I think a scenario that I explained from time to time that helps kind of show why that might be beneficial is if you're doing business, you've got a small mom and pop that's doing business with a larger organization. Well, which 1 of those 2 parties is going to get probably preferential rates and treatment with the carriers. It's going to be the 1 that has the most volume. So you're probably thinking the larger one is going to get that -- that preferential rates of treatment probably great sailing schedule, they're going to load me every time, this type of stuff. Well, this would allow a transaction where a larger party in that transaction can help control the shipment longer. But as a means of, I'll scratch your back as long as you scratch mine dumps the risk a little earlier. So if I'm going to be responsible for using my contracts in my preferential treatment, I want you to take the risk a little bit earlier. And that is a way that Incoterms can help provide some flexibility within transactions to act as a way to do that. So that's why we see risk transferring a little bit early in the first carrier. But you'll notice in CPT that we kind of cross a lot here. Ex Works and FCA where we're pretty close to the seller, but we've made kind of a big leap into CPT and gotten it across the pond, so to speak, with that. So let's talk a little bit about carriage and insurance paid to. This is also going to be a place where we're going to talk about 1 of the changes between 2010 and 2020. So carriage and insurance paid to same functional scenario as CPT name transfers, risk transfers early transportation and cost transfer later at that point of destination. The only difference is this is 1 of the 2 Incoterms where insurance is a requirement for the term. Now what I tell people is insurance can be added and probably should be added to every term that we have out there. To some degree, whether organization is large enough to self-insure up into a certain risk level, that's fine, but have a policy in place that can kind of cover some of those other things. So I encourage Incoterms, regardless of Incoterms, we used to have insurance part. This one, it must be. And I'll tell you, I'll read a little bit out of this. I'm not going to read much because I would put you sleep. Also, if you have small children like I do, and you're looking for a way to bring the house down to a manageable level, hey, kids, let's learn about Incoterms, does it every time. It's like ambient for children without any side effects. So you can do that if you want. That's just for me to give it free of charge. Insurance in this case, shall cover at minimum the price provided in the contract. 110% of the cost of those goods. So 100% of the cost of goods plus 10% of the half of it all. It's got to be in the currency of the sales contract. So the insurance policy has to be in the currency of the sales contract, 110% of the goods. Also, the seller is the one that is responsible for procuring that insurance. If the buyer is not comfortable with that level of insurance or the type, anything after that once the functional requirements of that insurance requirement have been met, the buyer has been responsible for adding any additional. So if you think, hey, seller bought this amount of insurance because it was part of CIP. But I'm not comfortable with that. I want more. It's on the buyer's responsibility to buy that. So let's talk about the change to the insurance that is a change from 2010 to 2020. And this is where we get into a little bit of some insurance information that I'm not necessarily an expert in and would encourage you to speak to a provider about is there are levels of insurance, right? Just like you and I have car insurance, probably, there's levels of car insurance. You can get just enough to keep you legal or you can have a policy that is quite extensive and covers a lot of different things. Cargo insurance is similar to that. They have different levels in cargo insurance, different clauses as part of that. So part of the clauses that we have in 2010, it was minimum clause fee for the level of coverage. So it was the middle-of-the-road policy. Not too little, not too much, just covers the middle. That's the least amount of insurance that you should buy as part of the CIP. They change that to go up to Level A, which is a requirement now for this -- using this Incoterm. So you have to get at least minimum level A coverage. And what that means is Level A is the most extensive level of coverage you can have. So they went from middle-of-the-road coverage to most coverage for shipments. And the reason why, as I understand it, is because this is a multimodal term, you get a lot of usage on the air side with that. So a lot of sellers that air tends to use -- you see a lot of high-value goods, perishables, things that are risk would be at risk more and you want more insurance with that. So the way to help bridge that, they went from C to A to help offer a little bit more coverage on some of those air shipments. And if you had an ocean shipment that you see CIP, it will be fine, too. They have more coverage for that. But that's why -- and that's the first major change that we want to talk to you about as far as the change from 2010 to 2020 was the insurance level coverage on CIP itself. So I'm going to pause right here and check back in with Samantha. I know we have a question on CPT and CIP, right?

Yes, we did. Let me pull that up. I actually got a couple. So the first one -- is there a way toward CPT or CIP, where the buyer pays for freight and expects the seller to continue to be responsible for risk and title transfer until receipt of their dock. If not, is there another Incoterm that implies.

Read it again.

Sure. No worries. Is there a way to word CPT or CIP or the buyer pays for freight, but the seller is expected to continue to be responsible for risk or title transfer until receipt at the buyer's dock. If not as another Incoterm apply?