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

Good morning, everybody. Thanks so much for joining. If you were here for brushing up on the Basics Imports 101, you are in the right spot. We're just going to give everybody a couple of minutes to grab their water, grab their coffee. This morning still here might be afternoon, grab your lunch. Just give everybody a few seconds to jump on here and we'll get going. All right, Rachel, if you don't mind moving to that next slide. Just cover a couple of ground rules, while everybody is getting settled in. Thanks again, everybody, for joining. You're going to hear for a 50-minute webinar approximately, and we'll leave about 10 minutes at the end for everybody to ask questions. We're not going to be recording this webinar today, but we will be sending out a copy of the presentation once you complete just a quick 5-minute survey. Following the webinar, you'll receive an e-mail from myself about an hour after the webinar. Just 5 quick questions. If you don't mind answering those for us, just letting us know how it went. If there was anything we missed. Something you wanted us to cover that we didn't cover, or things you might be interested in the future. We'd love to hear from you. And then once you complete that survey, you'll get a copy of the presentation. Please submit any questions you have in the Q&A box. That way, Rachel and -- or Ben and I, we can jump in and answer those at the end of the webinar. And then also, the chat box, it will be disabled. So if you put everything in the Q&A box, that'd be great. So again, thank you, everybody, for joining us for the Imports 101 Basics webinar. I'm going to let you know about our speaker today. So Rachel LeVee is our Northwest regional compliance manager. She covers Denver, Portland, San Francisco and Seattle. So Rachel joined us back in 1997. She started off as a brokerage customer service rep, and then she moved on to the supervisor, and then she started managing the brokerage team. And then about -- for the past 6-plus years, Rachel has been leading our compliance team for the Northwest, and she's a license broker as well as she is IATA-FIATA certified. So you are all in experienced hands here. So with that, so let's get started. I'm going to turn it over to Rachel. Thanks.

Thanks, Crystal. So like Crystal said, this is our brushing up on the Basics series. Today's topic is Imports. And we're going to be talking about lots of the basic things to think about when processing an import transaction while moving goods from origin to destination in the United States. So we've got some objectives today. Hoping that we'll gain a clear understanding of the basic shipment life cycle. There's a lot of complexity that goes into shipments, but we'll be talking about the basics today. We'll talk about comparing and contrasting ocean versus air transportation services, why you would use one versus the other. We'll also talk about how to determine shipper and buyer cost obligations in an international transportation, also known as Incoterms. We will become familiar with standard import documentation. We will address imports' compliance obligations and responsibilities. We'll talk about risk, carrier liability and insurance, and then we'll provide an open forum at the end for questions and concerns and also give you information so that you can follow up after the seminar in case you have additional questions that you think of later. All right. So we've got a lot to cover today. We're going to start with the shipment life cycle, Unit 1. And we're going to start with, who's some of the standard partners are in a supply chain? So this is just a small list of who might be involved in a standard transaction. There likely will be a buyer and a seller, a company who is selling goods at origin and a company who is buying those goods at destination. There might be a consolidator involved. So a consolidator might be taking multiple shipments for one seller, consolidating them into a container or a standard shipping unit to ship together. A consolidator might also be working on buyer side to consolidate multiple shipments at origin for that buyer and then getting the goods to destination all at once. A forwarder might be involved. A forwarder is -- acts in the middle between the vessel operator and buyer and seller to move the goods. There likely will be an export customs broker involved. So when you are shipping goods from one country to another, there typically is a transaction that happens with customs at the origin, and there might be a party who is involved in helping with that transaction. There would also probably be a local trucking company who is contracted to move the goods from the seller's premises to the airport or to the port at origin. We then would have origin stevedores and/or air cargo handling agents. So one of the things that you'll find with international transportation is that it's been around for a really long time. And there are some crazy old words, maybe you've never heard of before, stevedores might be one of those. A stevedore is the person who is at the ocean terminal receiving the container, loading that container onto the vessel. And then at the airlines, you would have your cargo handle agents, who are doing the same things, receiving the cargo at the airline and loading it onto the plane. You then have the [indiscernible] in the airlines who are the ones who are actually open the vessels and are moving the goods from origin to destination. And then once you get to the other side of the destination, you have a lot of the same folks, the destination stevedores and air cargo handling agents who are receiving the goods at the terminals and making them available for pickup off the vessel, off the ship or the plane. In the United States, you're probably definitely going to need an import customs broker to help process the transaction through Customs. Customs would be involved as well in the United States as well as any partnering government agencies, like USDA, or DOT, or FDA, or [indiscernible] or one of many, many acronyms that I could probably [indiscernible] to you. There then would likely be a destination local trucking company who would be responsible for picking the goods up from the ocean terminal or the airline, perhaps delivering them locally or even delivering them far away. And then depending on your supply chain, perhaps you would have a warehouse or a distribution provider that was storing or doing pick and pack on your behalf. And then often case -- oftentimes, there is also a bank or a financier involved, somebody who is managing the payment of the goods between the buyer and the seller. So those are just some of the supply chain partners that could be involved in a transaction. There could be others, but this is a good list, at least to give you an idea of how many people could be involved in a transaction. So once we know all of the parties that could be involved, now we're going to talk about a standard shipment life cycle. And as with the parties, with your standard life cycle, again, it's standard because there are lots of different things that can happen, but these are the basics that you might see. So oftentimes, the shipment starts out with the negotiation of the price of a product. So a seller has something that they want to sell, a buyer has something that they want to buy, and they need to come to terms as to what the price of that product will be. Once that is done, then the seller would issue a pro forma invoice, which stipulates the terms of sale, the Incoterms, which I mentioned earlier. And we'll go into Incoterms in more depth in a bit. But when that pro forma is -- or sorry, when that pro forma invoice is created, the terms of sale are one of the key points that need to be agreed upon at that point. If everything looks good to the buyer, then the buyer would place the order. And then the product has to be made ready for exports. So in some cases, that might mean that the goods are already manufactured, and they just need to be put into a box and made ready for pick up. In other cases, it might be that now the seller has to actually make the goods, source the materials, find labor to make the goods, actually make them, package them, get them ready for export. Once the goods actually are ready, then a booking would be made with a carrier or the forwarder, depending whether or not a forwarder was involved or the person making the booking was going direct with the carrier. It could be an airline. It could be a steamship line. A trucker is dispatched to come and pick up the goods from the seller's premises and deliver them to the forwarder or the carrier. The seller should be preparing shipment documents. We'll talk a little bit more about what those documents might be. And then Customs will be notified of the export. Oftentimes, in those countries, an export declaration would have to be filed at that point. Then an empty might be positioned or freight delivered to the consolidator. So what that would mean is that an empty container might be made available to the seller to move the goods or perhaps the freight would be actually delivered to a consolidator where they were consolidating that cargo with other shipments, making them ready to ship. Cargo might be inspected. Customs or one of the other government agencies that is interested in that particular type of cargo might want to make sure that everything was order -- was in order ready for export. Right. So all of that happens. And then we're ready to export the goods. The good are export. And then for a period of time, the goods are going to be in transit. Maybe they go through multiple shipment hubs on their way to the final destination. It could be a couple of days in the year. It could be many weeks at sea. Then eventually, the cargo arrives at destination. It is entered and an import declaration is done. And hopefully, it clears the Customs. There might be other government agencies involved at that point as well on the U.S. side, depending on the type of cargo. Hopefully, then the freight is released by the carrier. A trucker destination would be dispatched. And magically, as if nothing happened or took any time at all, your cargo delivers to the buyer. Like I said, that's a typical shipment life cycle, assuming that nothing goes wrong, assuming that everything happens in the order that you expect it to. So this is a visual that I'd like to share in these seminars because, as you can see, there is a lot that has to happen in a typical shipment life cycle. There are a lot of different parties involved. There are lots of different points in the process for additional people to become involved, potentially for things to stop, things to get held up. The typical shipment life cycle is very circuitous. It could take a very long time. It could be very fast. There are lots of considerations that one needs to take into place when arranging a shipment to come in. All right. So now we know about the basics of the shipment life cycle. Now we're going to talk about freight and how you might choose what type of freight option you wanted to go with. And oftentimes, the two main criteria that people are looking at is, do I want speedy or do I want cheap? And when we're talking about cheap, in general, ocean freight is a cheaper option than airfreight. So when we're looking at whether or not to go with ocean freight, some of the key things to keep in mind are LCL and FCL. So LCL stands for less than container load. FCL stands for full container load. And so what that means is, are you going to buy a full container to move your goods? Do you have enough freight to take up an entire container? Or do you want your goods consolidated with other shippers? And do you want to simply pay for a certain amount of space in that container? So there are different reasons that you might go with one or the other, but be aware that those are both options. Another thing to consider with ocean freight is contracts. You're going to book directly with the carrier. You probably are going to have to sign a contract with that carrier, and the contract would be based on a particular commodity, a particular routing and a particular volume of shipments. So you might go to the carrier and say, "I want to ship 30 20-foot containers from Shanghai to Seattle in 2024. How much will you charge me?" And once you agree on pricing, you then would sign a contract with the carrier, and then you would be obligated to actually move that quantity of cargo in that agreed-upon time frame. So if you agreed on 25 containers, and you only shipped 20, the carrier could actually make you pay for the ocean freight on those 5 containers that you didn't move. If you agreed on 25 containers and you needed to ship 30, the carrier might not give you that same pricing for those additional 5 that you needed to move. Another thing to consider is transit time. With ocean cargo, your transit time is going to be probably much longer than airfreight, depending on where it's going from and arriving to, it could be weeks, months, depending on where it's coming from. And then another consideration is forwarder. So a forwarder, I think, I mentioned this earlier, would be involved in actually booking the freight on your behalf with the actual carrier that was moving the goods. In some cases, forwarders are able to provide additional services that the steamship lines don't provide. They also, in many cases, don't require that a contract to be signed. So you might work with the forwarder because you could use them on an annual basis or because the rates they provided to you were better than what the carrier provided. So then the question of why ship ocean? What are the advantages of oceans? Well, typically, it's cost savings. It's cheaper to ship ocean than it is in air. There's also a lot more space on an ocean vessel as well as many, many more vessels that are moving across the oceans. So if you have a large quantity of freight, it might make more sense to ship that quantity via ocean. Commodity value might be something that you want to take into consideration. If you have low-value goods that you do need to ship, cost is going to be that much more important. You don't want to pay more in transportation than the actual value of your goods. And then keeping in mind that there are extra lead times with ocean. Like I said, ocean freight takes a lot longer. And so you're going to have to keep that in mind when deciding whether or not that is a viable option for you. So what to look for with ocean carriers? Experience. You want to make sure that you're working with somebody who is able to handle your goods. Competitive pricing. You want to get the best rates. Schedules are a consideration. You might be looking at one carrier that has one vessel sailing from a particular order to the destination versus another carrier who has multiple options during a particular week. Volumes are a consideration, also carrier links. So many of the carriers have actually gone into agreement with each other. So when you're looking at schedules and competitive pricing, you may find that you have additional options with a carrier that has signed one of those agreements. And then EDI, electronic data interface. What sort of data is the carrier able to provide to you electronically, so that you can automate your shipping management systems? So that's ocean. The next option is air. And like I said, ocean is cheap. Air is usually chosen because it's speedy, right? You might get something on a plane from origin to destination in a mere matter of days versus many weeks on the ocean. So what are some reasons that you might -- or what are some things to take into consideration with airfreight that's different from ocean freight? First of all, with airfreight, you either pay by weight or by volume, whichever is greater. So the airlines have to pay very special attention to how much space they have in their planes as well as how heavy the space or how heavy the cargo is on the plane. So if you have gold bars, for instance, which are very heavy, but perhaps don't take a bunch of room, the airline is going to charge you by weight on those gold bars. If, on the other hand, you have pillows that take up a lot of space on the plane, but are actually very light, the airline is going to charge you based on the volume of your pillows. Transit time is something to take into consideration. Like I said earlier, it's much faster to ship things by air, but you will pay for that service. Another consideration is hazardous materials. If you're shipping hazardous cargo, there's some hazardous commodities that can't go on a plane. There also are hazardous commodities that are limited in the amount of that hazardous commodity that you can have on the plane. So if you have particular types of hazardous commodities, your only option could be ocean to move those goods. Some reasons to ship air. Do you have time-sensitive cargo? Do you have a new product that you're trying to get to market by a certain time? Are you trying to beat your competitors to market? In that case, it might make sense for you to put something on a plane because that's the only way for you to get it there in time. Also given the cost of your product, it could dictate your choice for air. If you have super high-value cargo, you might not want to have that on a vessel for weeks at a time. It might make more sense just to put it on the plane. And then one interesting thing with air is airfreight has lower minimums than ocean freight. So if you're going to ship something LCL in a container, the minimum for that might be $150. If you have a document pouch and you want to ship in air, the minimum for that might be $10 or $15. So it is actually possible that air could be cheaper than ocean, but only for a very small amounts. And then very similar with ocean freight, things to look for, you want good customer service. You want competitive pricing. Those carrier relationships can be important, and then also their technology options. And there available to -- their ability to give you tracking visibility, right? So that's ocean versus air. Speedy versus cheap. So once you've made that decision, now we're going to talk about who's responsible for what. So I mentioned a couple of times, we're going to talk about Incoterms. One thing to be aware of, if you're particularly interested in Incoterms, we also handle -- we also offer separate seminars for this. We're just going to go into this briefly for today, but we're going to start with a poll. So Crystal, do you want to ask a poll question?

I do. So here we go. So what is your main Incoterm used? Just gauge and see what everybody has.

And if you're totally unfamiliar with the terminology, just pick one. There are no wrong answers.

Yes. And like Rachel mentioned, we will be having an Incoterms class coming up, if you want to dive into those deeper. We were getting details on that for something in December. So look forward -- look for those details coming out soon. We're almost half. Okay. Everybody, a few more seconds to take, a couple. All right. Last few -- all right. Here we go.

All right. So it looks like we have a tie for most, FCA and Ex Works, also got some DAPs, FLBs. Great. This is exactly what I would expect to see. So thank you all for your participation. That is quite interesting. So now we're going to actually go in and talk about some of these things. So Incoterms is actually an acronym, stands for International Commercial Terms. There are currently 11 terms that have been published and copyrighted by the International Chamber of Commerce. They are published every 10 years. The most recent version was published in 2020. And there were very few changes made in 2020, but there were some really, really big changes made in 2010. And Incoterms are used to avoid misunderstanding of international trade terms. So I mentioned this earlier, international trade has been around for a really long time. They -- there are many languages involved in international trading, lots of different cultures and needs and aspects that go into international trade. And so what these terms attempt to do is simply avoid misunderstanding. And they define 3 key things and only 3 key things. They define transport obligations, meaning who is making choices about air versus ocean, who's making choices about routing, those sorts of things. They also define costs, who is responsible for paying for specific things. And they define risk, when risk transfers from the seller to the buyer. That is it. That is all Incoterms do. They attempt to avoid misunderstanding with those 3 key things. Because those are the only things that Incoterms do, there are many things that Incoterms do not do. They are not terms of payments. They don't determine when the buyer pays the seller for the goods. They are not a contract of sale. They're not a contract of carriage. They do not dictate how goods move from place to place with the carriers, and they do not act as title transfers. They simply define transport obligations, costs and risks, okay? So we're going to look at just 2 terms today to give you an idea of what all of that means. Like I said, like Crystal said, we do offer specific seminars on Incoterms. So if you have additional questions, I would definitely recommend one of those seminars. Incoterms are 3-letter acronyms and a named place. So in this first example, we have Ex Works terms, sellers, Hong Kong factory, and this is based on Incoterms 2020, the 2020 revision, okay? So in this example with Ex Works, we'll start with Ex Works terms, in regards to carriage, meaning who is making decisions for how goods move from origin to destination. The shipper, the seller is responsible for preparing the goods for pickup. That's it. The buyer takes over from there and is responsible for getting the goods from factory all the way to the final destination. The buyer makes all the decisions on how that's moved from the seller's premises to the final destination. As far as risk of loss or damage, risk transfers, once the buyer picks up the goods from the factory. So the seller is responsible if anything bad happens to the cargo up until the point the goods are picked up. Once the goods get picked up, all of that risk of loss or damage is for the accounted buyer. And then in terms of cost, the seller is responsible for all costs associated with the cargo up until the goods are picked up from their factories. At that point, the buyer takes over and the buyer is responsible for all transportation costs to get the goods from the factory to the final destination. Okay? So with Ex Works terms, shipper is responsible for almost nothing. Buyer is responsible for almost everything. That's the easiest way for me to remember what Ex Works terms are. On the flip side, we have DDP, which stands for deliver duty paid. And in this case, it's DDP buyers warehouse, Irvine, California, Incoterms 2020, okay? So in this case, carriage, the party responsible for making all of the decisions is the shipper all the way to destination. The seller takes care of absolutely everything. I like to think of DDP terms as kind of like waking up on Christmas morning after the Grinch dropped your Christmas tree through the -- or I guess no, it stands -- sorry -- delivers small presents, my goodness. Like my children will be unhappy with me if they heard me say that. The -- so Santa delivers all the presents on Christmas morning, and you wake up and they're all there. And isn't that fun, okay? So the seller is responsible for absolutely everything from door to the named place destination. The shipper is also responsible for all loss or damage, all the way until the freight is received by the buyer at destination, as is the cost. So the cost is taken care of by the shipper, all the way to getting goods to destination. So the question that I get most often with Incoterms is what is the right one? What is the best one? Which one should I choose? And there is no best one. There is no right one. The question is, what is the best for my scenario? So if I am a buyer and I have a transportation department that has people who are tasked with managing contracts with carriers, and I have a whole infrastructure within my company to manage transportation, it probably makes sense for me to go with Ex Works terms because I have people who are going to make all these decisions for me. If, on the other hand, I am brand new to importing, and I don't know yet really well what I'm doing, and I don't have a lot of resources at origin to make these decisions for me, how the heck am I going to find a trucker in Shanghai to pick up my goods to get them to the steamship line so that they get to Seattle for me? In that case, it might make more sense for my terms to be DDP. I want to let the shipper make all these decisions for me. Keep in mind that the thing with cost is, it's who is going to pay the cost to carriers, not necessarily who's going to absorb those charges. In DDP terms, the shipper is probably going to include the cost of transportation in the cost of goods. It's not that you don't have to pay those charges, it is simply who you pay those charges to. Are you going to pay them directly to the carriers? Or are you going to pay them to your seller? And perhaps some additional profit on to the seller for doing that additional work on demand, all right? So it really just depends on your supply chain and what makes the most sense for you. Right. So that's very basic on Incoterms. Again, if you have additional questions, I really, really recommend the additional offerings that we provide. Okay. So now we have a lovely picture, poll question, container was set into the engine of this shipment headed to London, agreed terms for DDP. Who do you think is responsible? Based on those terms, is the buyer responsible or the seller is responsible?

All right. I'm going to put that up there for everybody to put in their answer. They're coming in fast. They know the answer to this one. All right. A little over half. A couple more seconds here. All right. Let's see what we got.

Okay. We've got a few people who said buyer. Most people said seller. Those who said seller, you are correct. With DDP terms, the risk transfers from the seller to the buyer once goods arrive at destination. So in this case, if that was your cargo in that you will deal, you are the seller, you would be responsible for whatever damage happened to the goods as well as potentially bad plane engine. So things you don't want to have happen to you. All right. So that was Incoterms. We're going to go quickly through some documentation. First of all, with an import shipment, probably one of the most important documents is going to be your commercial invoice. Commercial invoice is going to show who is the buyer, who is the seller. There should be a complete and accurate description of the goods on the commercial invoice. It will show the unit price quantity of each item as well as the terms of sale, the Incoterms, as we mentioned before. Incoterms are important on a commercial invoice because it tells what is likely included in the cost of goods. And then in the United States, especially, we always need to know what the country of origin of the goods is. So that should be noted on the commercial invoice. These are the requirements per U.S. customs to make a complete commercial invoice. There then likely would be a packing list issued, and whereas the invoice has charge information on it, the packing list has quantity and weight information on it. There will be a bill of lading. And then certain other documents is required based on the commodity, what sort of special program you might be using. Maybe you need a certificate of origin, lots of other things that might be required for your particular transaction. Something else to keep in mind is that there is a requirement that solid wood packing material be properly treated. Wood can be treated either via heat or fumigation with metal bromine. There is a -- there used to be a title sanitary certificate that was required by USDA in the United States. That is no longer a requirement, instead all solid wood packaging material must be stamped with an appropriate IPPC mark. The picture on the right shows you what that looks like. This is required internationally. So probably something that your shippers are already aware of, but be aware that this is required for cargo coming in the United States. So then the last important piece of documentation we're going to talk about is the bill of lading. And the bill of lading is a contract. It's a contract between the owner of the goods and the carrier. In most cases, the shipper and the carrier. So the border, the airline, the steamship line, the trucking company, whatever type of carrier we're dealing with. And there are 2 basic types of bills of lading. There's an original, also known as the negotiable. And an original or negotiable bill of lading controls ownership of the cargo. You then -- the other option would be a waybill, either an airway bill or a seaway bill, and they are a contract of carriage only. A waybill does not control ownership. It's a really important point. So when we talk about the bill of lading, we want to talk about what do we use them for, when do we need them, and why does the carrier need them back. And I want to specify what I meant to say was we're talking about an original or a negotiable bill of lading at this point because they control the ownership. So what do you use an original bill of lading for? It's kind of like your claim ticket. So at origin, a seller contracts with a steamship line, the steamship line issues a bill of lading. The seller then turns over the goods to the carrier. The carrier now has a contract with the shipper to move those goods from origin to destination. And if you have an original, then that original says that the carrier is liable for the value of your products, if they release the goods before the seller gives them permission. So -- and if you think about it, the seller might have $100,000 worth of cargo in a container that they just give to the carrier and hope that they're going to get paid by the buyer when the goods arrive at destination. Perhaps there are payment terms involved. Maybe there are 60-day terms, or maybe the buyer has paid for half upfront, and they'll pay for the remainder when the goods arrive. The seller really places a lot of trust in the buyer when they put those goods on the vessels that they're going to get paid. And if they don't have a good enough relationship with the buyer, or if they feel that they need some additional assurance that they will be paid, then an original might be issued because it controls ownership. And it obligates the carrier to not release the goods until they receive permission from the seller to do so. So when do you need them? The exporter might want one because they're afraid that they're not going to get paid or because they want to have some additional assurance as to when payment will be received. In that case, the importer needs it when the goods arrive at destination and they want to get their goods. Okay? Because what will happen is that original will be held by the seller until they're ready to release it to the buyer, they'll send it to the buyer. The buyer will then return it to the carrier. Why does the carrier need them back? Because the carrier has to have that original back to them before they are released a liability to the seller for the value of those goods, right? So what do you use them for? They control ownership. When do you need them? When they're -- when the seller needs some additional assurance, they will receive payment once the goods are delivered. And the carrier needs it back because that is what releases them of liability from the contract to the shipper. All right. That was a lot. Now I'm moving on to Customs. CBP's mission and what do they do? Back before 9/11, Customs and Border Protection was under the Department of Treasury. Their primary role was in revenue generation for the U.S. government. A collected government -- or sorry, they collected revenue in the forms of duties and taxes. After 9/11, many, many things changed. The Department of Homeland Security was created, and Customs became an agency under the Department of Homeland Security. And they added a lot of things to their list of responsibilities. So Customs is now responsible for helping to prevent terrorism. They still collect quite a bit of revenue. They're responsible for border security, passenger screening at airports and train stations and shipping lines. They are involved in fraud and smuggling enforcement. They also protect international property rights. They work with the USDA to help with agriculture protection. They're involved in trade agreement enforcement, things like the USMCA or GSP, those sorts of protection programs. They also work with the Partner and Government Agencies, PGAs, and their enforcement. So agencies like FDA, DOT, [indiscernible]. And then they also facilitate lawful international travel and trade. Their mission is to prevent all of these things, while still allowing for a lawful international travel and trade to happen. That's Customs. Then what is a Customs broker? A Customs broker is someone who's licensed to transact Customs business on behalf of others. We -- and I say we, I am a licensed Customs broker. It's hard for me to say they. We are licensed, knowledgeable and experienced. So we are expected to be experts in Customs rules and regulations. And we are the employers' advocate with Customs. So we oftentimes will approach Customs on any importers we have, ask questions, answer questions, provide information to customers on behalf of importers. We assist with the proper declaration to U.S. Customs of imported goods. So we are processing entries on behalf of importers. We also deal with the other government agencies that are involved in an import transaction, and we support our importers compliance programs. We help ensure their compliance with their imported goods. And then what do we need in order to work with an importer? First and foremost, the regulations stipulate that we have to have a correctly executed power of attorney to act on your behalf. We also need a clear understanding of our importers, their products and their procedures, and we need to be able to communicate and provide information to back and forth with our importers. So those are the main things that we need from our importers. So we talked about Customs and their role. We've talked about Customs brokers as well. This is part where we talk about the importers' responsibility. So in '93 -- 1993, the Customs Modernization Act was -- went into place, and it really changed how things were done on the import side. And at that point, it was made clear that an importer is fully responsible for any factors in a Customs entry and must complete the entry using reasonable care. So as I said before, the Customs broker works on behalf of an importer. We declare information to Customs on the importer's behalf. Although we are providing that information to Customs as the broker, and we are responsible for providing accurate information, ultimately, it is the importer's responsibility to make sure that all elements in the Customs entry are accurate. And Customs made it very clear, neither Customs, nor your supplier, nor your Customs broker has this responsibility. It is the importer who is responsible to use reasonable care and ensure that the entries are accurate. So we all work together to make sure, but ultimately, it is the importers' responsibility. Great. Now we're going to move on to liability insurance and insurance, which is my favorite part of the presentation because I get to show you lots of crazy pictures. That is an actual picture of a vessel on fire. Definitely do not want that for your cargo. So first of all, we're going to talk about liability. Liability exists only when there is a contracted carriage in place when the loss or damage occurs, and all obligation under the contract of carriage have been met by the shipper of [indiscernible], right? So liability only exists when a lot of stuff happens. So to put that into perspective, if there is a contract of carriage in place at the time that the loss occurs, then the carrier may be financially responsible for whatever that contract says, emphasis on maybe, right? So most standard contracts of carriage note that the air liability per the Warsaw convention is $20 per kilo or the value of the goods, whichever is less. And then there's this complicated thing from the Montreal protocol and the 17 standard drawing rates per kilo about $26 per kilo. Again, $20 per kilo or $26 per kilo or the value of the goods, whichever is less, which really isn't that much if you think about it. With ocean liability, it's $500 per customary shipping unit. Customary shipping unit is not specifically defined. It could be a carton. It could be the whole ocean container. In some cases, it might even be a whole vessel. $500, not a whole lot. And then in addition to that, you have COGSA, which is the Carriage of Goods at Sea Act. And it has 17 defenses that limit the carrier's liability even to that $500 per customer shipping unit. And those 17 defenses cover pretty much everything you can imagine that might be the carrier level. So ocean liability is very, very limited. With truck liability, it varies by country and by trucker. Usually, it's $0.50 per pound or $50 per lot. And very similar with warehouseman liability, varies by the warehouse contract, and it's usually $0.50 per pound or $50 per lot. So if we want to look at an example, our shipment details are 2 pieces, 100 kilos total. Commercial value is $20,000. One piece is lost. So the question is, is the carrier financially responsible for the lost piece? If yes, why? And how much is the carrier responsible for? So if we are face to face, I'd ask you these questions and then trick you. And like I know that I haven't given you half of the information, you need to actually answer the question. But since we're on Zoom, I'm just going to skip to that part and give you the additional information, which is one piece weighs 99 kilos and is valued at $1. And the other piece weighs 1 kilo and the value is $19,900. So if you remember from our ocean -- or sorry, from our air liability example, it's $26 per kilo or the value of goods, whichever is less. So piece one is lost. You're going to -- the carrier is liable for $100. If piece 2 is lost, it's $26 per 1 kilo. So it's actually $26. So even though piece 2 is valued at $19,900, the carrier liability in that case is $26. So as you can see, carrier liability is likely not going to make a whole, if there is a loss or damage to your part. There are some more pretty pictures. This is a truck container, that clearly was very well destroyed. Total damage due to fire. So carrier would only be responsible for $0.50 per pound or $50, whichever is less. In this case, $50. Cargo in there was probably more than $50 worth. Here's another example of a very damaged container. You can see the inside. Not sure what those machines are, but probably some damage to them. So I mentioned the COGSA 17 defenses. When are the ocean carrier is not responsible? So carriers are not responsible -- sorry, carriers are not responsible for things that occur outside of their control, such as an act of nature, highjacking, consequential damage, so damages that occur as a result of whatever went wrong, acts of war or terrorism as well as 12 other things. This was deemed to be an act of God. All of those containers washed up on the shore. Total damage to all of those. Carrier wasn't liable for anything because it was an act of God. So if you had cargo in one of those containers and you did not have insurance, there would be no payment for the loss. So let's talk about insurance now. So what is insurance? Insurance is a risk transfer tool. It transfers loss from the importer to the insurance company. It's also a contract of indemnity. It releases the importer for responsibility for loss. And who can purchase it? Anybody who would suffer the financial loss. So anybody who's involved, who would suffer a loss if goods were damaged or lost can purchase insurance. What does insurance cover? Pretty much everything that you've wanted to. It covers your property in transit, so whatever the cargo is. What losses would be covered? All risks against direct physical loss or damage. There are some exclusions, but very few. Nothing in comparison to carrier liability exclusions. It is geographical in scope. So it does cover from door to door, in most cases. And it does have specific sections for international, domestic and stock locations well in transit. So there are many, many things [indiscernible] insurance that it covers. Why would you want to purchase insurance? As I said earlier, liability limits are quite minimal. And I think it's easy to get very frustrated with carriers as to why they limit their liability, but it actually helps to promote international trade. If the carriers were responsible for the value of all the cargo that is on those vessels or in those planes, there's no way that they would be able to stay in business, or there's no way that they would be able to offer a rate that anybody could pay for that transportation. So in a crazy way, the carriers limiting their liability actually helps them. Another reason to purchase insurance is general average. So in the case of a vessel loss, like the one that you see in this picture, if your cargo is not damaged, that does not mean that you get off with no penalty. In a case like this, it likely would be -- the general average would be -- would come into play with this particular vessel accident. And what that means is that everybody who has cargo on board that vessel, perhaps to post a bond and everyone shares in the loss of vessel and all the goods that are on it. So if you have insurance, it likely would include your general average bond. And all the time that it takes to get all of that resolved, because you have that general average bond included in insurance, you likely would get your freight well [indiscernible] that was taken care of. Insurance protects against uncertainty of a large loss. And if you have insurance, that suggests that you're willing to pay unknown small loss with a premium to transfer an unknown large loss. It's the same reason you buy car insurance. It's not because you think you're going to be in an accident tomorrow, it's because you think you might be in an accident tomorrow. So it makes more sense to pay $100 a month for your car insurance than to be obligated to have to buy yourself a brand new car or pay for somebody's medical bills if you get into an accident. And just a couple of more pictures because I like them. This is the Arnold Maersk. It came into Seattle on November 22, 2013. Eighteen containers went overboard, 63 were damaged. That rack leaning over, it kind of looks like it's meant to be in a strange way, but then you can see the containers on the bottom, not having a good day. This is what you don't want to happen when you open your truck and see how your goods were packaged on the long ride from the terminal to your destination. There's probably some pretty significant damage within those product boxes. And then this is one of my personal favorites. This is the [ MLL Comfort ], back from June 17, 2013. So there was a fire on board this vessel. It actually broke in half. Half of it sunk pretty much immediately. We thought they were able -- that they would be able to salvage the other half. So they send some tugs out to retrieve it. And while they were towing it back, the other half sunk. So it was a complete and total loss to all cargo as well as the vessel. Luckily, nobody was hurt with this vessel loss, but if you had any cargo on that vessel, you lost all of it to the bottom of the sea. That is the presentation. So do we have any questions, Crystal?

We have none in the Q&A box as of yet. I'll give everybody just a second to put in a question or two that they may have thought of. We did have a couple prior to the webinar.

Okay.

So I'll start with that just in case somebody wants to think of something to put in there. So it was asked, I would like my carriers to issue waybills for my shipments. How do I make that happen?

Sure. Okay. So this is talking about, do I want an original bill of lading that controls ownership, that has to be tendered a destination? Or do I want a waybill where I don't have to worry about that original bill of lading? And the simple answer to that is, if you're the importer, then when you are negotiating your price and your terms, you can tell your shipper that you would like them to request a waybill. And so when that booking is made, part of the booking request is that a waybill be issued. And assuming that the shipper is in agreement with that, then it's a simple effect.

Perfect. All right. I had another one. What would happen to my shipments if the government had a shutdown? Would Customs release still come through?

So if anybody was paying attention to the news over the previous weeks and this weekend, I was paying quite a bit of attention to, we almost went through a government shutdown, and that could be happening again in the next 45 days. And the answer to that question is that the government will keep those services open that they deem to be essential, and facilitating trade is deemed to be essential. However, not all of the government employees who are tasked with the entire import process are deemed to be essential. So do entries continue to get released? Entries go through electronically. Most entries are released electronically. That process will continue. But if goods need to be examined by a human, if documents need to be reviewed, that probably will be on hold until the government comes back in. So there shouldn't be too significant of a delay on cargo, but there could be a delay of your cargo potentially.

Perfect. Okay. We had a couple put into the box. So are Incoterms listed on any shipment documentation? Or is this an agreement between the buyer and the seller that the carrier does not need to be involved in?

Carrier doesn't need to be involved in the Incoterms, but your Incoterms should be noted on the commercial invoice. And one of the reasons that it's really important that Incoterms be included on the commercial invoice is it gives your customs broker information about how -- gives your customs broker information about what costs are included in the value of the goods on the commercial invoice because we use that information to determine correct duties and taxes, and the value of your goods impacts how those duties and taxes are determined.