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

It is the top of the hour. So I'm going to go ahead and get started with the webinar. Welcome to the modernization of U.S. Customs Broker Regulations webinar. My name is Nicole. I'm going to be introducing our speakers today and moderating, and we're going to have about 45 minutes of presentation material and a little bit of time at the end for Q&A. Now this webinar is very full. So bear with us if we do not get to your question, we will try our best to answer everything today on the webinar. But if we cannot do that, we will be following up via e-mail after the webinar to answer your question directly. After the webinar, I will be sending out a feedback survey. And upon completion of that survey, you will receive a copy of the presentation. So no need to take screenshots or vigorous notes, we will be sending out the presentation material after the webinar. Now without further ado, I'm going to go ahead and introduce our speakers today. We have with us Madeleine Veigel, Director of Customs for the Americas; Stephanie Holloway, Regional Manager for Customs for the Americas; and Ted Henderson, Senior Adviser for Customs. So now I'm going to pass it off to our speakers, and then they're going to get started.

Thank you so much, Nicole, and hello, everyone. Welcome to our first Customs Compliance webinar of the season. This one -- we're kicking this one off with an overview and information on the newly revised custom broker regulations, 19 CFR 111, and we're really happy that you can join us today. Thank you so much for joining. And so myself and Ted and Stephanie, we are going to be covering the following 8 items here that you see on the agenda, giving you an overview of the main changes of 19 CFR 111, we'll talk about responsible Supervision and Control and what's changed there. The broker-client relationship, which are some changes that you as an importer definitely need to be aware of, customs business and what the changes are there. There are also some administrative changes, custom broker license exam and fee changes and some additional information and some resources that you can definitely go to after this webinar. And one quick point as well, and you will see this at the very end of the webinar, those of you who are interested in receiving CCS credit from the NCBFAA, you will be able to receive credit by having joined this webinar, and we'll give you the reference number at the very end of the webinar. So just a side note on that one. We will kick it off here, 19 CFR Part 111. These changes have been in the works for a very long time, everyone. As a matter of fact, I got involved with some of these changes about 7 years ago when I joined the Commercial Operations Advisory Committee, the COAC. And the COAC is a group of roughly 20 individuals from the trade who provide input to U.S. customs and border protection, DHS and treasury. And at that time, there was a working group set up specifically looking at the changes that needed to be made to 19 CFR Part 111, the broker regulations. And a lot of it stemmed from modernizing those regulations, coming into what we do today as a customs broker. So after many years, Customs has been working on changes to the regulations, and those were finally rolled out this last year in the fall and the regulations actually went into effect on the 19th of December 2022 is when they went into effect. Now granted, these regulations deal directly, of course, with customs brokers. So it mostly impacts us as customs brokers. However, there are some key areas that also affect you as the importer and the relationship between the broker and the importer. So those are really important for you to understand, which, of course, we'll be reviewing during this webinar. So anyway, we will kick it off, and I will actually hand the baton over to my colleague, Ted, and Ted will kick it off with an overview of the main changes.

Thank you. All right. Thank you kindly, Madeleine. So as Madeleine was saying, we put this webinar together because really, there's been a fair amount of conversation in the U.S. import community about the recent regulatory changes. Customs has been doing a fair amount of outreach out it. And we know some of you are licensed brokers and we're interested to see if this impacted you as a license broker as well. As Madeleine said, our focus is really towards how this -- what this means to you as an importer. But we are going to speak to certain changes that are specific to brokers. Some of them are just going to touch on, some of them we're really going to spend some time on. We think it's important for you to understand the changes in total and the potential impact of those changes to your business partner, your customs broker, and then ultimately, the impact to you as an importer. As a customs broker, we have a fiduciary responsibility to our importers. So we certainly -- we have that obligation to legally and ethically act on the best interest of our customers, of our import customers as a broker's fiduciary responsibility. But we're also licensed by the government to represent our customers in front of the government agencies. So consequently, when the government makes changes, that affect our action as a license broker, we are obligated to adapt to those changes, and that's part of what we're talking about today so that we really do act most effectively on your behalf as a fiduciary. So we've broken the main changes down into 8 bullets. And I'll touch on these bullets very quickly, and then we'll get into them more deeply as we get into the webinar. The first thing we're going to really speak to is responsible supervision and control. And I'm going to spend some time on that and how there are additional factors that Customs has added into the mix for what defines responsible supervision and control and some changes in the language. There are also some revised regulations related to powers of attorney. Madeleine mentioned this, there are some different obligations now related to our broker client relationship. So how your broker, whether it's expeditors or whoever interact with you, we have some different obligations there. There's long-standing policy that customs business is supposed to be conducted in the customs territory in the U.S. That's now officially codified in the regs, the new regulations. We've transitioned from this idea of district permits into a national permit and we'll speak to the relevance of what that means to you. There -- this is one of the minor points that we'll touch on. There's a new way that we have to report our employees through the ACE portal new cybersecurity and record requirements. So we'll talk about what it means if there's a breach and things along that line or a loss of records. And then finally, there's an increase in license application fees, some changes in the actual license process itself, which we'll talk about as well. So as Nicole said at the outset, we are going to provide a copy of this presentation to you. At the end of our presentation, those of you who have been with us before, we always provide a resources page. The same is true on this one. So you'll get a closing page on this presentation that has resources and links to those resources. CBP to their credit has made an effort to put out a fair amount of information on these changes. And there is a stand-alone fact sheet. So we go to the link that we give you at the end of the presentation for their web page. There's a stand-alone fact sheet on the key pages, and we'll get to that more specifically. All right. So let's go ahead and thank you, Stephanie, for jumping, moving me along. Let's keep me moving apparently. So let's start off with this core idea of responsible supervision control. And what I want to do is contrast it to the idea of reasonable care. So U.S. law identifies compliance responsibilities that are specific to importers. And then there's a separate group of laws that identify compliance responsibilities that are specific to customs brokers. And each party kind of has their own catch phrase, if you will, that's tied to it. For importers, those of you who are on the call were worked for importers of record or a function as an importer in some way. The Customs Modernization Act, which was in the original North America free trade agreement that was passed back in 1993, that shifted responsibility from customs to importers. And so as imported suddenly, we had a new concept that we had to be aware of, and that's the idea of reasonable care. Customs, as part of the changes in the law that took away, if you will, some of their responsibility and put it to importers, they want to make sure importers were doing the right thing. And so this idea that an importer would have to exercise reasonable care was introduced into the statute of 19 USC 1484. So I'm not -- we're not going to spend the webinar filling you with statutory citations or anything else like that. Really, our intent here is just to point out that our responsibilities as an importer, our responsibilities as a customs broker, they're not just arbitrarily set by U.S. Customs and Border Protection. They're established in the laws that are passed by Congress and signed by the President. And if you're really interested or bored, you can read those laws if you'd like. But just as a reminder, we use -- sometimes use regulation statute interchangeably. I just want to quickly point out how things work. Congress passes legislation, President signs it, that legislation becomes permanent law and moves into the code of laws of the U.S. -- united States of America, AKA U.S. Code USC. So things in the U.S. code are organized by subject matter, Title 19. So you'd hear us talk about 19 a lot. 19 is where all the customs duties sit in U.S. statutes. Once the laws are passed, then it's up to the appropriate federal Department Agency whoever, to create the regulations that implement those laws, and those regulations end up in the Code of Federal Regulations. So you're going to hear us speak about 19 CFR, mostly 19 CFR 111. That's the code of better regulations related to customs brokers. And then again, USC, 19 USC speaks to the law. So what CBP recently did is they modernized the customs broker regulations. The law did not change in and of itself. So the fundamental idea of our laws haven't changed neither of years. So all right, back to the topics, here we go. If you're an importer, your catch phase is reasonable care. We're not going to spend any more time on this. We're going to save this for another webinar, what that means. But basically, the law just says, as an importer of record, you're going to exercise reasonable care with all of those points that are on the right side of the screen. The idea of completing an accurate entry for CBP and the PGAs as appropriate. So ultimately, the agencies have all the necessary information that they can release their imported goods to you. So that's the idea of compliance responsibilities for importers, reasonable care. Now let's go to our catch phrase, which is responsible supervision and control. So our statutory requirement to exercise responsible supervision control is found, again, in the statute in 19 USC 1641. The law did not change as part of this rewrite. The regulations change, the 19 CFR 111 regulations, which changed some things related to responsible supervision and control. So in the old regulations, there was this idea of customs districts, customs broker districts. And consequently, if you were a broker and wanted to operate in that district, you had to have a permit and the district permit holder was that license broker who qualified to permit and also had the responsibility to meet responsible supervision and control for their individual area. So in our case, as expeditors with 42 options around the U.S. conducting U.S. customs brokerage business. Our -- each one of those offices that was in a customs district had to have a licensed broker managing our district permit and being responsible for supervision and control, all right? Now CBP, and we'll talk about this more later, has done away with this idea of customs districts, district permits, it's a dated concept. It's not really appropriate in the current environment. Customs had already gone to a model of a national permit where a customs broker could apply for a national permit, and that would give them the freedom to operate in any of the 350 ports around the U.S. Expeditors did that several years back, a number of other folks did. Some folks chose to retain their district permit concept and only operate in certain districts. Customs got rid of that district permit idea. Now everybody operates under a national permit, but it doesn't take away that responsibility to exercise responsible supervision and control the old permit holder idea. So customs has said -- they're not going to come out and say, okay, in our case, you've got 42 offices, so you've got to have 42 officer license brokers who are going to exercise responsible supervision and control. Customs is saying, it's not up to them, CBP, to establish the appropriate number of licensed brokers that a customs broker is supposed to employ because it's up to each broker to evaluate their business model, the complexity of their customers, their operational environment, the goods that they're managing, all of that to ensure they have the appropriate number of licensed brokers to ensure that responsible supervision and control is being exercised in that particular -- in their overall operations. So we'll dig into this a little bit more, but this is one of the changes that you'll see is that now there is no longer this obligation to have, as a minimum, a license for your corporation and a license in each district that you operate in. Basically, there's an obligation to have a license, if you will, for total brokerage operation. And after that, it's up to the individual broker to determine how many other license brokers they need in their organization. Well -- and again, we'll speak a little bit more on that. Another change that happened is there are factors that customs considers when they're trying to figure out if a broker is exercising responsible supervision and control. Previously, there were 10 factors. There are now 3 additional new factors that fit in the regulations, and we will go through all of those in a moment. But the other thing that customs changed is they rewrote the regulations and took out some wording and modified some wording that in the past, CBP, when they were evaluating if a broker was exercising responsible supervision and control, CBP was obligated to look at all of the factors of surrounding our [ SNC ]. They now have changed the wording that they're no longer obligated to look at all the factors before choosing to take enforcement action on a broker. So again, we'll talk about that a little bit more as it goes. So let's go ahead and dig into the factors that customs enumerates now under the new regulations. So 19 CFR, again, the code of federal regulations 111. Those are the broker rigs, the modernized rigs we're talking about, the updated regulations. In 111.28, we actually get into responsible supervision and control, where customs lays out the new 13 factors that they're going to consider and also kind of provide a general statement about responsible supervision control. And really, the fundamental idea is that Customs is using these factors to figure out if a customs broker is doing the right thing. If they're meeting their statutory obligation, they're meeting their obligation to their customers, to their import customers and they're meeting their obligation to the government more specifically. So these -- they speak about in 19 CFR 111.28 that we are obligated to exercise responsible supervision and control over the transaction of our customs business. And customs at their discretion may consider any one of these individually on their own as they go. So let's go through them real quickly, just to touch on what custom CBP believes is appropriate to demonstrate responsible supervision and control. One, the training that's provided to the employees. Are the employees just left on their own to figure things out. Are there mandatory training protocols for people? Are there certain things that have to be done for a broker to do certain types of entries? things along that line. The instructions and guidance that comes to the broker employees. So in a large organization of cars, we have a corporate customs team that does quite a bit of work around our internal policies and our standards and our expectation of operations and our communication of that to our individual offices and then throughout the entire network of our employees. The volume and type of our business. So if you're a very small broker for employees, handle a very narrow type of business, an oil pipeline imports, then Customs is not going to necessarily anticipate that you're going to be well versed on agricultural imports or whatever else. They're going to look at the type of business that a broker does. A company like ours who has a broad breadth of it, customs is going to expect us to understand all types of business that we're managing. Customs looks at the reject rate that as a factor to consider when they're evaluating how good a broker is, the access that brokers have to regulations. And the good old days, for those of you who remember brokerage offices and many of us still do this, we had the Giant HTS manual that sits on the desk, on the corner, it looks like in those giant auto parts binder folders, you've got your hard copy of the regulations, all that. By and large now, we all exist on electronic versions of this. But Customs want to know that everyone can do that. They've got -- they can get to -- any brokerage employee can get to any of those necessary documents as needed. The availability of sufficient number of individually licensed brokers. So this is kind of getting to that point of the idea of, okay, in the old days, you had to have a minimum of 1 broker -- license broker per district. But now we really want to talk about is 1 enough, should there be more than one? Should there be 10, should there be 5? And in our case, a large branch like [ LAX ] has a very large population of employees compare that to a smaller branch like our Tulsa office, much smaller group, what are those ratios and what do those need to be so that recognizing that not all employees of a customs broker are licensed brokers, many of them are not. So how are the license brokers managing the work of -- the full workforce. In cases where there is not a supervisor, a licensed broker that's actually on site, how does that get managed as point 7. The audits and reviews that are performed of the customs transactions. So the individual transactions themselves, the overall audits and reviews of offices, how is that considered and being done within a brokerage operation. The engagement of the license holder in our operations. How active is that person? Is that person just a figurehead, a corporate person sitting beside? Or are they actively engaged with CBP? Are they actively engaged with the people that are doing the work, that's kind of thing that CBP wants to understand are -- does that same person have a real interest in the operations again? Or are they just a figurehead? The new 3 points in yellow on the bottom. Originally, customs proposed 5 new points. They ultimately basically consolidated those 5 down to 3 of the original proposed ones. They've got it down to 3. And one of those is very critical, of course, the customs is the timeliness of processing entries and payment. So if the broker consistently late files or doesn't pay or whatever else like that, that's a very big red flag for them and could stand on its own. The communications between custom, CBP and the broker, how the broker responds. So if a port, a CBP officer reaches out to the broker, does the broker respond timely appropriately and so on. And then finally, again, it's this concern that -- and that the people who are the officers and the core members of the company, are they really involved in the broker's actions? And are they really involved in the brokerage business. So again, these are factors that customs view to understand whether or not a customs broker is meeting their responsibility to their customer and to the government in their role as a licensed broker and customs does use these actively to evaluate customs brokers. They have in the past under the 10. They certainly -- we anticipate they will with the new list of 13. All right. So that's the 13 factors. Let's go on to the next slide, please, Steph. I talked about this, and I want to talk about this because I think it will impact the importers. There was a change in the actual regulatory language. In the old days, pre-December, the gold days back in December, CBP, there was language in the regulations that said CBP will consider all 10 factors before taking enforcement action of any type, whether that's issuing a compliance letter or a penalty or whatever the case may be, CBP was obligated to consider all 10 factors. There was a broker who actually was penalized based off a single factor, that broker took customs to court. And the Court of International Trade found that CBP did indeed have an obligation to consider all 10 factors till it's right there in the regulation. So in that case, CBP found that they had taken inappropriate action on the broker because they hadn't considered all 10 factors. Well, CBP graciously decided to rewrite that language. And so the "will consider" now has been replaced by "may consider" in its discretion and to the extent that any are relevant. So basically, it's saying CBP is no longer obligated to consider all 13 factors before taking enforcement action on a broker, they may take action on a single -- based on a belief that a single factor is not being followed. So what I want you to understand is CBP is -- has a high expectation of customs brokers and the role that customs brokers play, again, we're licensed by the government. We're representing you in front of the government. We're making sure that duties are paid appropriately and timely. So I think you will see because of these changes, you will see customs brokers asking you more questions, clarifying certain things about individual transactions, making sure they're doing things appropriately and meeting a little bit higher standard, if you will, set forward by the government in the anxiety, quite frankly, and concerned that penalties follow if you don't. So we'll talk some more on that on our closing comments. But again, this will impact you, I think, in a subtle way and that you'll likely see some more questions and things like that from your broker in certain areas to make sure the broker can prove that they are meeting their obligation under responsible supervision control. Just as you're trying to do your job to meet reasonable care, all right? So again, we've talked about this. CBP has not stated there's an appropriate number of brokers. Quite frankly, speaking purely from an expeditive sense, we're not really concerned about meeting that requirement. We have over 600 licensed U.S. customs brokers in the company. We know we meet the requirement. We have our own standards. We will require a single individual to kind of be that district permit holder, although there isn't a formal one, we'll have that, that every branch will have a single person responsible for that. So we're going to keep that model. We've also started -- we're almost done formalizing our own responsible supervision control plan. The regulations require that any new broker who is coming into business now submit a responsible supervision control plan based to CBP. They don't require for all of us who've been brokers prior to December, but we also have taken really our existing operational, our compliance standards that, by and large, equate to a responsible supervision control plan, and we're rolling that out as our new plan as it goes. So that's also part of our own action items we're doing out of choice. So with that, I'll stop and pass the floor to Madeleine or the microphone rather, and I'll keep the floor underneath me. But Madeleine, the microphone is yours.

All right. Thank you, Ted. Okay. So -- here are a few other areas that Ted mentioned early on that are changes, of course, within 19 CFR 111 and that do affect more you as the importer. So these 3 are, I think, important to note. First of all, the power of attorney. So the big change here is that the power of attorney. We, as a broker, must receive the power of attorney directly from you, the importer. There were a lot of situations or cases where brokers were receiving powers of attorney from a freight forwarder. And the freight forwarder was asking the broker to do work on behalf of a particular or certain importer. And that can no longer take place. The power of attorney must be issued directly from the importer to the customs broker. So this is something to just go back and check internally, make sure that you have issued all of your powers of attorney directly to the customs broker, so do make sure and take inventory of that because that's really the big change here. Again, power of attorney must be issued directly to the customs broker and not via a freight forwarder. And the second piece here deals with advice to a client. So this has to do more with compliance, instruction or guidance that we, as a broker, are giving you, the importer. So this is not -- I guess let me start first. This is not when we are -- simple inquiries having to do with missing information. So in other words, when we're filing your entries, there are so many times when we are missing information. We may be missing an HTS number from your parts database or part hasn't been entered in the parts database. We may be missing information on the commercial invoice, a country of origin, let's say. We may be missing information in the data that you transmit to us. In those particular circumstances, we always turn around and go back and ask you as the importer for that information. So this is not dealing with those kinds of inquiries. This is really dealing if -- when we, as the broker see something which doesn't look compliant or doesn't look right to us. So in other words, an example might be, you are importing a particular product into the U.S., and we see that the product flags for antidumping. And you haven't given us a case number or anything, and we'll turn around and say, "Hey, based on the scope and based on the flags on this HTS number, it looks like Mr./Mrs. Importer that you may need to claim antidumping duties", and we communicate that back to you. And then you, as the importer review internally and say, "hey, actually, in looking at the scope, we do have to claim antidumping. And here's the case number," and you pass that back to us. In that particular case, we've given some advice or instruction or questions around a particular product. And we want to make sure that as a broker that we have that documented, either via an e-mail or documenting the fact that we've had a conversation with you about it. So that would be more in the realm or an example of advice to clients. Again, not just missing information, but where we feel that there may be -- there's additional scrutiny or review needed regarding your declaration to customs. And then the third category is really much more extreme. Lots of brokers spoke out about this when it was first -- when the regulations were first published last year. But this is where we would terminate our relationship with the client based on some very, very severe, I should say, compliance concerns. So under this part of the regulations, if we sever our relationship with you as a client because we feel that you be conducting a criminal act or trying to defraud the government, we, as the broker, would then be obligated to report that termination to customs, providing the importer name and the reason why. But again, these are extreme circumstances. So an example of this would be, if we go back to our antidumping example might be that we know that antidumping has to be claimed on this particular product. But the importer is telling us, no, we don't want to claim antidumping. We're going to classify this differently because we don't want to pay the additional duties. So you as the importer actually know that you're doing this incorrectly because you don't want to pay the additional duty. So again, these are kind of extreme circumstances. It's very rare thing. In all the years that I've been at Expeditors, which is now 25, there may have been one situation where an importer was purposely giving us different instructions that were very counter to being a compliant company. So this, again, is very extreme. But if it does occur, then we would be required to report this when we terminate the relationship with the client. So those 3 areas, again, important to note as an importer. And I think we can go on to the next slide, that would be great. So then in regards to customs business. So the customs business definition, which you find both under 19 USC 1641 A2 and also under 19 CFR 111.1 through the definitions. You have the full definition here of customs business. And of course, this is -- customs business is, of course, activities involved in all transactions with CBP, having to do with the entry admissibility of merchandise, its classification, its valuation, the payment of duties and taxes. It also includes the preparation and activities related to the preparation of the documents in the format and the electronic transmission of documents and parts of documents intended to be filed with CBP. So all of this, I won't read the whole thing, of course, you have it right here, but all of this is a definition of what is meant by customs business. And this has not -- this is in the regulations, it has not changed. However, the big change is that customs business must be conducted within the custom territory of the U.S. And what I mean by change here is this always was an existing policy. We always knew as a customs broker that Customs business has to be done within the customs territory of the U.S. However, it is now codified in the regulations. So there's a new section there, 19 CFR 111.3 that states that any customs business must actually be done in the cost rotor of the U.S. So it's actually part of the regulations now, and that really is the big change. So this is one thing as you're working with your customs broker, you can ask, hey, are you doing all your work within the customs territory in the U.S.? Of course, we are, but this is a question maybe to go back and ask because that's really the big change here. All right. And then around the realms of customs business, we wanted to highlight a ruling that came out because this is a very, very interesting ruling. This ruling from Custom's headquarters came out at the very end of September of last year. So it's a pretty recent ruling. And this ruling is -- has to do with the company that acts as the importer and the supplier of packaged consumer goods. And this company, their name is Hampton, and you'll be obviously getting a copy of the presentation. But when this company did -- would act as the supplier of the goods, then all of their customers would actually be the importers of record. And when that was the case, Hampton would actually provide the 8- to 10-digit number to their customer, the importer of record, with a disclaimer actually. They give the HTS number, but also they would add a disclaimer, basically stating that, "Hey, this HTS number is advisory only. You as the importer are ultimately responsible and you're responsible for the documents that get filed with customs." So they had the disclaimer on, that they provided the HTS number. And so within this ruling, the ruling actually found or customs actually found through this ruling that this was going way beyond corporate compliance activity. And remember, Ted touched on this in the beginning. And corporate compliance activity means performing or any activity performed by a business entity to ensure that documents for a related business entity or other entities are prepared and filed with CBP using reasonable care. So Hampton probably thought that they were using reasonable care by adding this disclaimer to the HTS number that they were providing to their customers/importers of record. But customs here found that this goes way beyond reasonable care that actually Hampton was in the whole realm of what's considered customs business, which we were just looking at. And the reason for that is that they were giving an 8- to 10-digit classification. So -- and it was a classification for an item that was going to be imported by that importer into the United States. So it was for a specific transaction, and it was a full digit classification. Because if it's a 6-digit classification and that we all see every day on ISF filings, that's not considered customs business. But because it was an 8-to 10-digit classification, it was considered customs business and that it was for a specific transaction. And of course, the icing on the cake is the fact that Hampton was not a licensed broker, right? And they had folks providing us classifications who are not licensed brokers. So this is a very interesting ruling. It's a very interesting case. It's something just to think about and ponder about and really think about, especially if you're providing classifications to perhaps other entities and just making sure that you have folks who have the proper background and knowledge who are driving those classifications. So just something to think about and look at and ponder internally. It's an interesting case. So I will now pass the baton to my colleague -- other colleagues, Stephanie.

Thank you, Madeleine. I'm sure everybody appreciates something to ponder in their spare time as we all have that right now. So I'm going to wrap this up with the last 4 items here. And these ones are relatively quick. Ted and Madeleine hit on a lot more of the heavy hitters, both with customs business and responsible supervision and control. So with that said, let's start on the left-hand side. So National permit, Ted already kind of mentioned this. Customs removed that idea of a district permit just because it didn't make sense for the modern business world, I guess, we can say. So any broker that's licensed in the U.S. can make entry into any port now. So if that was a justification that you may be had for using a particular broker that would no longer need to be the case. Additionally, [indiscernible] over point of contacts. So we really are seeing through a lot of these changes, customs want to be able to get hold of people. And we saw that with one of the added elements in the responsible supervision of control. And now they are -- they have 2 data field sets that we have to complete as a broker in the ACE portal, giving points of contact and information, both for operations and record keeping. And our operations contact needs to be available 24/7. So this is them really wanting to make sure that brokers are being responsive to their questions and concerns. Next one over is employee reporting. This one's nothing super new. We were already doing it, but it was more at a district level. So this is now being done through the ACE portal. There's been a little bit of buzz about this as brokers are trying to manage through this process and meet some deadlines that customs put out there. The portal is not being quite as responsive as some of us would have hoped. So I think the CSMS message just came out this week that this is being expanded or the deadline for getting all your employees uploaded is being pushed out to April 14. So you might see a little bit of buzz if you're following CSMS messages around this employee reporting requirement. So nothing new, just the new part being that they need to be in the portal. The last one on this slide here is cybersecurity and record requirements. So customs, obviously, acknowledging that the world that all of us live in now with cybersecurity attacks. So they are saying, if you are a broker and you are hit with a cybersecurity attack and your customers' information or importers information is compromised, you need to notify them within 72 hours with a list of any compromised importer of record numbers. okay? And then going a little bit along with customs business in that concept, customs are saying any original records have to be maintained within the customs territory. So if you don't know what that is, you can Google it, it's kind of interesting to see what's included in the territory of the United States. So they don't want this stuff stored in other parts of the world. They really want it in the territory of the -- in the customs territory of the U.S. So I'm going to go to the very last point here. As we know, many of you guys are licensed customs brokers or are maybe hoping to become one. As mentioned, Expeditors is very passionate about customs brokers. We have over 600 license customs brokers on staff. So this is a direct impact to us because we really promote this, and we really think it's a differentiator for us. So broker fees are increasing. Also the ability to submit payments electronically for broker fees is being accommodated. On the right-hand side, for the license exam, this was kind of crash tested, of course, during COVID, as everybody was making adjustments, but now Customs is codifying and saying we can electronically provide results back to folks who test, applicants can appeal electronically and then being able to do alternative exam sites such as remote proctoring, which became quite the norm, I guess, during COVID. So just really trying to make that allowance for the broker license exam when that's offered twice a year. On the far right, a couple of final words here on this as you are listening. So some of you might be self-filers. I'm guessing not a huge crowd here is. But if you are a self-filer and you were just doing your company, these changes actually don't apply to you. So this is really impacting customs brokers who are acting as customs brokers. That was not a profound statement, but I think you got what I was going for there. So if you're just a self-filer, making your entries, you are still allowed to do that, you are not under any other changes that we walked through here. Second point on here, as I said, many of you guys are licensed customs brokers. If you are not working for customs brokerage firm, nothing changes for you. Everything is status quo. A big thing, of course, is our responsibility for the triennial fees, all of that stays the same that reporting still stays the same. And just keep living your life, no changes there. So to wrap this up, we really wanted to be more explicit, just, hey, what do you do with all this information? Most of you guys are importers. You've listened to this, you're like, wow, lots of changes for a broker, but what do I take away as an importer. So on the left-hand side here, I'm actually going to have Ted walk us through this answer because early on, when customs really started pushing this, I naively just kept hearing them talk about permits and really thought it was just some basic administrative changes. And I think there's actually something bigger going on here, not in a conspirator way, but just something that we need to think about as part of -- being part of the trade community. So Ted, I'm going to hand it over to you real quick.

All right. Really, it's this first bullet point that we have up here is that CBP -- again, CBP license -- issues licenses to customs broker. And consequently, we're really the only party in the global supply chain, if you will, that has a true license tied to it. And consequently, CBP has a fair amount of authority that goes along with issuing that license to us and they extend that authority to us. CBP, if you look at some of the proposed regulations and the things that they've put out over the last several years, it's very clear that CBP looks at customs brokers as a potential force multiplier and an extension of CBP. CBP would like to make sure that customs brokers are doing in an extensive betting of their customers to make sure they're doing -- these customers are the right thing that they're not importing counterfeit goods and things along that line. So customs is really looking at the broker to be that force multiplier to act on behalf of customs. And quite frankly, it creates conflict and is something that the brokerage community talks about quite a bit, is that at the end of the day, we still are private sector companies. We are also, as I've pointed out before to you, we are -- you're fiduciary. We're obligated to act ethically and legally on your behalf to represent you appropriately. So there's somewhat of a conflict there for us being licensed by the government in one respect and then having a power of attorney, which creates this fiduciary relationship on our part. So I think this is the thing if you're -- again, as I spoke of earlier, the impact I think you're going to see your customs brokers being a little bit more active than they may have been in the past about following up and asking questions and checking on things and trying to confirm that a transaction individually is correct. Maybe spending more time upfront with you, reviewing your compliance processes and understanding what exactly -- exactly how -- what is your operation? And how does it work? And what -- how do you figure out if something is subject to dumping. So you're going to see this sort of thing. And I will tell you, again, as a longtime member of the brokerage community, I mean, I'm certainly aware of issues where CBP has issued compliance letters or penalties to brokers where the broker followed the explicit instruction of the customer of their importer and the importer certainly appeared to be meeting their reasonable care standard by providing information and in certain end systems, the broker may have even asked clarifying questions and all of this good stuff and yet CBP felt that the broker was not exercising responsible supervision and control. So this is what customs brokers have to ponder in this new environment is our obligation to the government certainly is very important. We're licensed and we -- from an Expeditors' perspective, we are actually going to do the right thing. But we want to make sure we're meeting our obligation to you as well. And I think all brokers in that boat is not an Expeditors thing. Everyone is trying to do the right thing, by and large. So you're just going to see, I think, more questions about this sort of thing, making sure we're all meeting our obligations. Highlight those 2 points. There are a number of questions in the chat box about this. First, Madeleine talked about the obligation to document advice on compliance matters. So if we do provide advice on a compliance matter, and then you come back and as an importer and tell your broker or expeditor in this case specifically. Look, here's what I found. Here's what I've done. Oh, thank you. I see this. I've corrected that now. That record is we're obligated to keep a record of that. And that's -- again, that's not Expeditors. We're all obligated as customs brokers. So that's part of the exchange of information back and forth, because we're not going to report -- no broker is obligated to report you to customs because of something like that. That's not the issue. The second thing, the final bullet that Madeleine talked about final bullet on this section on the left is if indeed a broker sees that a customer, an importer is actively engaged in fraudulent activity, that's the point where the broker is obligated to contact customs when they terminate the relationship. This is going to create legal issues. There is no question about this. This is a new requirement. And again, this puts the broker in kind of an untenable situation because when does a broker really know if an importer is committing fraud without visibly being pulled, hi, Mr. Broker, I'm committing fraud. Help me, please. I want to do this. If -- how does a broker really going to know that and when they make these subjective decisions and at what point do they tell customs. But again, if a broker terminates a relationship with a customer based on a genuine belief that there's fraudulent behavior going on they are going to have to tell customers. There is a provision on how that has to work now that customs wants to know that situation. So that's obviously, as Madeleine said and I've seen it once in my career, she's seen it once in her career. You can look at -- if you're looking at video, look at my gray hair. My career has been lengthy, but this is not a common situation for well-established brokers, all right? So back to you, Stephanie, for the second half of that.

Thank you, Ted. Yes, on the right-hand side, so what do you do with this information? So we think it would probably be good if we were in your shoes as an importer to have a conversation about what your broker is doing. I'm not sure. And as Madeleine mentioned, you were grandfathered in for many -- an actual formalized responsible supervision and control plan. Yet all of those requirements and factors have been around. So your broker should absolutely be able to speak to you how many licensed customs brokers do they have? What is the relationship between their corporate team? What is the compliance protocols? I mean you should feel good about what they're doing to meet all of those requirements. I would definitely be asking about where the entries are being done? That was a question that popped up in the box. If your broker is having entries prepared not in the U.S., that should be a red flag to you. This has now been codified in 19 CFR 111.3 that all customs business should be done in the United States or in the customs territory of the United States. So that is something that I would be looking at if I was in your shoes. And lastly, we've already talked about this a bit, but the POA, making sure that you have a direct POA with import -- with the broker that is doing your entries. And many of you guys, I'm guessing if you -- if that was going through a freight forwarder, have already been asked because these requirements and regulations went into place back in December. So there's a little bit of buzz in the trade about that back in December. So I'm getting many of you guys have already worked through that. So with that said, I'm going to turn it back over to Madeleine.

Oh my gosh. So sorry, I was typing an answer. I think it was -- I apologize, and I couldn't get off the mute and put myself back on video. So I apologize, everyone. But here, just to sort of finalize our webinar coming here to an end, we wanted to give you just a link to all the various resources where you can find a lot more information on the U.S. custom broker regulations. There -- the links are all here. You'll get a copy of the presentation. We have a link to the main U.S. Customs, CBP custom broker web page, a specific web page, I think Ted mentioned this on the broker modernization regulations, specifically on 19 CFR 111, the actual federal register final rule that came out on this last fall, the Code of Federal Regulations Title 19, link to that, Chapter 1, Part 11 and the ruling that I talked about earlier. So we have all of those links and you'll be able to find a lot more information about all of this via the links. So -- and here, for those of you who -- our CCS via the NCBFAA, here is the completion code that you need to get credit for spending this time with us, learning and talking to us about the 19 CFR 111 changes. So the completion code is right there. And some more upcoming webinars, everyone. Our next one will be U.S. import basics. And there's another webinar that will be coming up on the air market update.

Thank you, Madeleine. So that officially wraps up this portion. We have about 8 minutes as you can all tell by looking at the clock where we would love to take your questions. So we have a number of them already in the question-and-answer box that I will kind of roll through some of the themes that I'm seeing and hit Ted and Madeleine with the questions. This is where I just get to ask questions and not actually have to answer them, unless I really feel like talking, then you get both the question and me answering myself. So let's see here. I'm going to grab this guy first. So a lot of questions around electronic recordkeeping in terms of cloud-based servers. Is that -- Ted, do we know our Custom has been explicit about that?

So customs has spoken to the idea of understanding about cloud-based and, quite frankly, customs is going to cloud-based operations as well. So what I caution everybody, check with CBP on your specific instance and how you're set up and what you're doing and how you're managing that. I don't want to give a general -- a general answer. It appears that there's potential acceptability for cloud-based services, but you're going to need to go through the specifics with CBP on how you're doing. And there's also a secondary part is original record keeping versus backup of record keeping. CBP definitely does not care about backup records. So you can keep those offshore cloud, whatever. It's more of the original records that you want to get to? And Jeff, while you're finding another, there were several questions that I was looking through on this. Folks have been asking about the continuing education requirement...

That was what I was going to ask you. Gosh, you're stealing my thunder. Okay, don't worry.