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

Good morning, everyone, or afternoon, depending on where you are at. We're going to get started in just a minute here. We're letting people get logged in and join. Want to thank you for joining us today for our Cross Border Solutions - Trading with Canada and Mexico webinar. We really appreciate your interest in this topic and taking the time for us today to present to you. We'll get started in just another 30 seconds. My name is Ben Vahdat. I'm with Expeditors of Portland's office here in the Pacific Northwest. I'm a member of our Northwest sales and marketing operations team. And I just want to thank you all for joining us. All righty. I think we can go ahead and move over to next, I think, is Gary. So a few ground rules before we begin. Today's webinar should last approximately an hour. The presentation itself will be about 50 minutes. And then at the very end, we're going to have a 10-minute Q&A section for you. So you'll notice that the chat box is muted, or you can't type into the chat box, but you can put your questions in the Q&A box, which is at the bottom. So as the webinar goes on, as you have questions, feel free to write them down, or you can just type them into the chat box. And then during the Q&A section, we'll be going through the Q&A box to answer your questions. If we're unable to get to your question today -- we're going to try and get through as many as we can. But if we can't get to it, we'll make sure to follow up with you after the webinar to make sure that your questions are answered. Today's webinar is not going to be recorded. One of the most common questions we get is, can I get a copy of the presentation? And yes, you can get a copy of the presentation after the webinar. You're going to receive a brief survey from us. We really appreciate it if you could fill it out. It just helps us with holding our future webinars. Lets us know how we did. And we just really appreciate your feedback. Following completion of that brief survey, you will receive a copy of the presentation. All right. So with that being said, I'd like to introduce our speakers for today, Gary Ernest and Carolina Galindo. There are some QR codes. You can find them on LinkedIn, if you'd like. And I'll start with introducing Gary. So Gary has been in the transportation industry for over 30 years, with 25-plus years specializing in cross-border U.S. and Canada transportation. He's a U.S. citizen currently domiciled in Ann Arbor, Michigan, and is a U.S. Army veteran, having served active duty assignments in the U.S. and Europe and Germany, and finishing up as an officer in the Michigan National Guard. As a corporate Expeditors employee, Gary has responsibility for the entire cross-border product, which includes all modes of transportation, including, but not limited to, LTL, FTL, intermodal rail, e-commerce, international zone skipping and load specialized models, which require permits, temperature control, white glove and most importantly, customs and border compliance. As a Wayne State University graduate, Gary brings a vast experience of transportation, logistics and supply chain knowledge, including value-added and cost-reducing supply chain models and methodologies. Moving over to Carolina. Carolina started her career with Expeditors 14 years ago in her hometown of Monterrey, where she held positions in operations within ground transportation and air, account management, supervisor and operations management. In 2020, she was appointed Transcon Regional Manager for Mexico and U.S. Southern border and is now based in Laredo, where Carolina and her team are responsible for leading Transcon's strategy while supporting 10 districts in her region. This strategy includes business development, operational excellence and optimal financial results. So without further delay, I'll hand it over to Gary.

Thank you very much, Ben. So good morning, good afternoon, everyone. So glad you guys could join us. And just wanted to say that we're going to go over a bunch today. I might talk a little fast because we got a lot to cover, but I think it's important the items that we have included today. So the overview on the agenda is, obviously, we're going to go quick update on market and trade update as it relates to Canada for us. We're going to look at the viability from a U.S.-Canada trade and investment standpoint. We'll go through how a shipment life cycle goes from the U.S. through the Canada border process flow, through customs and then back out into final delivery. And then we're going to go over the CTPAT benefits. A lot of people don't know kind of what that does for them. So we'll touch on that. A big piece will be the NRI, or the nonresident importer program. So we're going to go over the benefits and how to do that. We'll look at CBSA and Canada trade initiatives. The hot ones are CARM and the CPTPP. I'll go through what those mean on the slides when we get there, logistic strategies and go over the hot zone skip program, which has really since COVID been one of the hottest buttons, so to speak, from a supply chain solution standpoint. We'll do a brief Canada tax program overview. We could spend days on that piece, but we'll go over the basics. And then lastly, we'll finish up with some tools for you guys to research the Canada market and growth strategy. And we're going to hit it right off the bat with a question. You're like, "Oh, darn, he hit us with that." So the question is, which country is the United States' largest export trade partner? That's where the jeopardy music usually comes in. Could be a trick question, maybe not. I love watching the graphs actively. It's cool. And they're are still coming in. It's like an educated audience from what I can see so far. What do you think team?

About a 81% participation. Maybe share those results, Edna.

Perfect. Cool. So the -- I didn't get any takers on Germany. I'm going to have to switch that one up later. You guys are right. It's not Germany. So it is Canada actually, but the China and -- I'm sorry, the -- how did Canada get in there. So -- never seen that one in there before. But those are -- all 3 are right, obviously domestic Canada, but -- so from a perspective of Canada being the #1 for the United States from a trade and export compliance standpoint, what we typically see is Mexico and China are right there. It's just though certain months during the year, we typically see maybe China go ahead. Mexico definitely jumps in front and stays there depending on what's going on around the world as well. So I would say, perfect. I think you guys hit it straight on that Mexico, China, of course, Canada, wasn't supposed to be in there, but that's a great one, too. Perfect. And then just kind of back up. So to reinforce how lucrative trading with Canada and Mexico is for us in the U.S., this slide shows the United States' largest export and import partners by state. These do change, like I said, so they flip and flop. But as a side note, if Canada or Mexico, you see is not listed as the #1 here, then that state, in most cases, still ranks highly at like #2 or 3 and sometimes 4. So, very lucrative. So as a market update, I'll hit the economy first. So the Canadian economy has proven itself time and time again to be extremely resilient to economic downturns. They're obviously feeling the pinch like we are in the U.S., but interestingly enough, the Canadians continue to purchase at an extremely high level. Canada has also, from a governmental perspective, signed many free trade agreements, which has made trade with Canada even more lucrative. We're going to talk about it later, but like the CPTPP, which is the -- it's kind of a tongue twister, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, say that fast 3 times, which, for example, provides duty-free treatments for many products from 10 countries in the Euro Pacific, like Vietnam, Malaysia, Singapore, et cetera. So we have excellent resources on these. So if you'd like additional information on any of these trade agreements, just reach out to us. We have webinars that go just on specific ones and information on specific ones as well, depending on what you're moving into the Canadian marketplace. So cross-border volumes in 2022 were up nearly 10% from 2021 volumes, which was a record $828 billion. So that has been looking good. We've seen a downturn in different modes for 2023. However, the trucking side, at least for Expeditors, is on par, maybe a little bit depressed just from a volume perspective, but we do see, I guess, more light at the tunnel as we get towards the third quarter of 2024 from what everything that we're reading and what we're researching as well. From a regulatory perspective, the CARM, which is a new CBSA program to provide online direct collection of duties and taxes for goods imported into Canada, that stands for the Canada Border Services Agency's Assessment and Revenue Management program. You got to give it to Canada with their acronyms, really good. With the introduction of the CARM client portal, this will be the key interface for importers, and it will enhance accuracy of trade data, improve compliance and collection of duties and taxes throughout. It's a mandatory program, by the way; everyone has to do this. No longer can you go through your broker to have them pay the duties and taxes. Importers will actually be able to review and pay their transaction balances through the CCP and have visibility to duty and tax information that you previously never had available to you before. Kind of a spoiler, it's only going to be data from the start point from when you start entering. So it won't go back historically to your previous stuff. The next version release has been delayed to May of 2024. And we'll go into this a little bit further in more detail on a later slide. So the ELD, or electronic log devices, for commercial drivers, that was a new implementation for Canada. We've had that in the U.S. for years. And they've been doing pretty well with it. It's in effect. It went in effect January 1, 2023. However, now the Canadian Trucking Alliance posted -- I saw that they've been advised by the Canadian Council of Motor Transport Administrators that the provinces should expect more enforcing of these ELDs with checks and things like that. So how could it affect you, you may ask? So ensuring you're using a vetted service provider or trucker and using caution with, I guess, what we call load boards. Just because they show you a certificate of insurance doesn't mean that they're a compliant carrier option in all cases. So be careful with that. On the trucking side of things, the diesel prices has been coming off some of the highest levels in history. However, headed back up as we all see, capacity is abundant. So that's a big change. FTL rates are stabilizing, with still pockets of viability dependent on the lanes. One thing to consider on this piece is the rates have been all over the board. Do you have a contract with all-in rates, meaning fuel included with your carrier? You might want to look at that a little harder. Sometimes you don't reap the benefits of when the price of fuel goes back down, et cetera. On the LTL, or less than the truckload side, many carriers are exiting the market. The latest was YRC as we all know, or Yellow, and analysts expect impacts of about 25% to 40% as consumers replace those lanes or continue to replace those lanes. Lastly, on the outlook side. The outlook for Canada for the remainder of '23 remains optimistic. However, expectations are lower than 2022 as we talked about previously. After dealing with the largest economic contraction since 1945, the economy is predicted to grow still, all but modestly, and that's only if a recession can be held off. E-commerce and what we call international zone skipping programs were one of the top supply chain programs in '22, and we're seeing even more heat for the program, like I said earlier, in '23. So more detail later on that piece as well. So Canada's Federal government has now raised interest rates as well, we're seeing that on our side also, to the highest level since the recession of 2008. The interesting thing is that hikes in interest rates haven't dramatically affected consumer spending or have they? So if you look at the graph, it's interesting to see -- let me just add that, from a standpoint of spending, it's actually going up. I know January is that latest date, but that continues to be on par for that growth as well. I don't know if it's just from an e-commerce standpoint that more people are doing that or less brick and mortar, but the spending is way up. That's a good thing for all of us who export into Canada. Diesel, again, pretty volatile. It's been on the decline, but it's, once again, back on the rise just to kind of give you that -- where you can see that graph that went way down and then headed back up. And then just a quick note from a standpoint. Some of you might not know, from an LTL perspective, with some of the carriers going out and prices going through the roof in many cases, just a slide on what we do at Expeditors. We actually run what we call our Ground Network Services, which is a closed-circuit LTL, meaning that we run -- we lessen our dependence on third-party LTL providers and service our customers to build or really enhance our existing international and domestic line haul structure. So you can see a lot of our offices there, and we go point-to-point. We run teams on this piece on the long-haul versions. So instead of the normal LTL hub and spoke, where you're going jogging across to get to each location with a touch point or the possibility of misroute the freight like in normal LTL environments, this goes direct to points via team drivers or 2 people in a truck. And that really lessens the misroutes, the handling, and increases -- or I should say, decreases the transit time. So lastly, on the economy. So Canada can help your company weather the storm during some of these economic downturns. So for example, we had a similar thing in 2008, 2009, some of you may remember. And what we found was, from that perspective that, again, the Canadians were purchasing at levels that were very similar to before the economy break. So -- and why was that? Back in 2008, for example -- earlier, back in like 2005 and '06, Canada rightsized their GDP, reduced the debt, did all those things to make them strong, and as a result, came out of it pretty well. They don't have quite that good of a start on things this time. They're very similar to us. But like I said, what we continue to see is purchasing power from Canada. So just a geography quick look. So we call it a population density map. You can see if any of you remember from schools that -- there from school, but the population tends to be near the borders, right? So that footprint is growing with the need for products and services ever increasing. So remember, Canada has some extremely remote areas, right? The geography is giant, and the people that live in those areas order stuff, so be prepared, like they will order it, and you'll be like, "Oh, my god, how am I getting that to where it needs to go?" So if you look at the region, like, for example, within Alberta and Saskatchewan, you see this piece right here, you can see that the sprawl to the north, and I usually make this a trick question, too, but the reason for that growth is oil. So Canada is blessed with what they call oil sands. It's oil in their sand in these regions, and they found a really good way during that recession of 2008 and 2009 to extract or refine it from the sand at a cost that's on par with how oil is normally pulled from the ground. So put them in a really good format. Of course, with all the jobs that it created, urban sprawl, people started moving there and guess what? They order stuff and need services, right? So good things there. Okay. So we'll look at the process flow from a shipment standpoint going -- before it hits the border, at the border and after the border. So prior to arriving at the U.S. or the Canadian border and up to 2 days in advance, the carrier has to submit what they call their ACI, which is an abbreviation for advanced commercial information. And then the customs broker files the PARS with custom -- customs, sorry. And then the carrier, the forwarder and/or the 3PL, depending on how you're moving it, submits their eManifest data, they also have to, which, remember, must match the ports of entry and other required items on the ACE manifest within the timeframes that are laid out in the eManifest rules. For example, won't go into this, but truck for that mode is 1 hour only prior to arrival. So you can imagine, sometimes you get into trouble, let's just use an example of Detroit, kind of near where I live. To get to the border is way under an hour. And if you do not have your information there 1 hour prior to that truck arriving, you'll be hit with an AMPS penalty. So those are just some of the things they'll be looking out for. So after it's matched with the broker submission, the carrier is all set. However, the CBP, or what we call the Customs Border Patrol, or CSA officer, depending whether it's a PARS, which stands for a Pre-Arrival Review System, which is used as exports from the U.S. into Canada and then the other one is PAPS, which is Pre-Arrival Processing System, that's Canada into the U.S. So they use PARS and PAPS. So the border officer will either release the truck at that primary point of crossing, or then refer the truck to secondary for further processing. So finally, and after the truck has cleared the border, a post-audit is completed. This is new since eManifest to ensure all the data elements, some of which we just talked about, and submissions were correct on the submissions or, again, AMPS penalties are then issued post-retroactively. The post-audits, as they call, are new process, added since the introduction of eManifest. So really important to make sure you're doing this compliantly or your carriers are doing it compliantly or understand the rules or be subject to fees and fines at a later date. So we said we'd talk about CTPAT. I know people hear about it a lot, but okay, Gary, how does it help me? So it's a really important program that actually has a lot of benefits tied to it. So that stands for the Customs Trade Partnership Against Terrorism. This came into play after 9/11, which is a worldwide security initiative. And becoming CTPAT, which isn't too difficult, allows really some very attractive benefits such as a reduced number of inspections and reduced border wait times at the border. We'll go into how on a couple of slides here. And then targeting "benefits", which the CBSA refers to as credits. I asked the CBSA if they could tell me what targeting benefits are experienced. They wouldn't tell me. But I see that people who are CTPAT or become CTPAT do indeed have less issues at the border. But one thing I'm always questioning in my mind is, is it because they went to become CTPAT and they're now more educated exporters into Canada? Could be any or all of the above on that. And then the FAST lane is another benefit. FAST stands for Free and Secure Trade. It's a special lane that FAST drivers are able to utilize across the border. So when the border gets really backed up, I've seen it terribly, I go there all the time. And you can -- it's not uncommon from a trucking perspective to be backed up for hours and hours. You might say, "Hey, it's just hours, Gary, what's the big deal?" Think about if you have a consolidation that you're moving or your shipments need to get to your 3PL and then go out for delivery. If you're delayed at the border, what would have went out for possibly delivery today is now not going out until tomorrow. So it can really impact you and the CTPAT benefits of FAST can really help you as well. The other big thing I hear a lot of questions about is becoming an NRI or a nonresident importer. So we field a ton of questions about it. So I'll -- let me do the best I can to explain it. So a nonresident importer, or NRI, as it simply said, is a business located outside of Canada that ships goods to customers in Canada and assumes the responsibilities for customs clearance and other imported requirements. So this allows the U.S. exporter to include all their shipping, customs, clearance, duties, taxes in the shipping and handling fees that are charged to the customer. You can even charge in Canadian dollars so in that way, the transaction to a Canadian appears -- or a Canadian consumer appears as a normal, I'll say, domestic purchase, right? Makes it really easy on them. That's what you want. The NRI is designed to take the burden of importing off that Canadian purchaser and allow the U.S. exporter to sell to Canada on a delivered price basis. So this then makes the ordering processing really transparent and stable to your Canadian customer. Puts you on par, so to speak, no pun intended, with somebody selling in Canada to a Canadian. So an important key to achieving market penetration expanding export sales to Canada is to minimize your Canadian customers' involvement and pain and that complexity, and you do this by making the transaction resemble a Canadian domestic transaction to that customer. So I'll also say that the best way to register for the NRI program is through a customs broker. Here, I would -- real plug, but I would say Expeditors by the way, because it's a really -- we know our stuff on this piece. We can get you through some of the complicated pieces of it. You can do it yourself. And it's really pretty reasonable. I think it's $800, $900 to become an NRI is what we charge, and we'll pull it all the way through for you. But like I said, you can do that on your own with a little research as well. So the reasons that customs brokers offer services is U.S. companies as they become exporters to Canada and obviously reap that benefit as well. So the right broker will ensure that the U.S. company is compliant as an exporter to Canada. They'll ensure that the U.S. company is taking advantage of the USMCA, the old NAFTA benefits, wherever possible. Help to develop the product's final price, including duty, taxes, transportation, brokerage fees, et cetera. Explain Canadian taxes, assist with simplifying the documentation required to cross the border and establish the nonresident importer account, including, if needed, obtaining the Canadian business number and completing the agreements for maintaining books and records outside of Canada. So key pieces. NRI is a great program. And then we will have a copy of this presentation for everyone. I think that was mentioned by Ben. But just as an FYI, I have a document that explains that piece of it that you'll have included with the presentation as well. So another huge initiative we talked about in the updates on the regulatory side is CARM. Again, that stands for the CBSA Assessment Revenue Management program, and it's a new initiative that promises to transform the collection of duties and taxes for goods imported into Canada. Again, it's mandatory. However, it was just recently delayed to May 13, 2024, and that's holding so far. We'll know more, I believe, in December, if that date is going to stick, but we think it will. So what were the reasons for the initial delay? So there are over 250,000 plus importers, but at the time, only 20,000 had registered due to the -- prior to the data, that initial postponement. However, that number is getting much larger and people are really going -- getting on board on that. So it involves -- requires registration and posting of a security bond, that's required, a $25,000-bond, which is required. So the benefits, duty and tax accrual opportunities, which basically allows you to pay your duties and taxes one time a month instead of for every transaction, that's huge. Reporting, it gives you the ability to pull that historic data we talked about earlier, includes actually an HTS classification tool. Again, I wouldn't depend on that piece, but it can help you get in the right target in the right area. It has a duties and taxes calculator. So some pretty cool stuff. And then client experience simulation. You can join and get a heads-up on things as well. So this slide just shows an example of the classifications duty and taxes calculator portal that I talked about. I placed a hyperlink at the bottom of the slide as well. And this is a screenshot of the actual classification page. So like I said, it actually walks you through the classification process. And really, just as a caveat, it's designed for the smaller importer. It will not hold up as a ruling with customs, just so you know. And this screen just shows the result of the practice classification I did for the example. It will provide information on duties and taxes, and can provide you with really good reference about the reference point data, I should say. So again, it's a little bit primitive, and it's only for guidance purposes, but I like it. So the CARM initiative, just want to finalize with it's mandatory for all importers. Nobody gets away with not doing this. That current deadline is May of 2024, like I said, however, it's taking up to 4 to 6 weeks for the bond. Remember, you have to have a bond. So don't procrastinate on this thing, get it going now. If you need any help, reach out to our teams. We have experts on this piece as well. I'm not one of them, but I know some. Another big initiative, Canada trade agreements that I think worthy of talking about is the CPTPP trade agreement with Canada. So that, for example, goods from Vietnam, for example, going direct to Canada, just as one example, would essentially become duty-free, providing they qualify for the agreement. So the goods must go through a procedure to see if they can make the RVC, or the regional value content and the shift in the tariff. And if you're interested in learning that, I mean, making shipments come in duty-free is a huge thing. And you can see it's between Canada and 10 other countries in the Asian Pacific, so Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. So if you are shipping from any of those places, let us know. We can help you get pointed in the right direction there. So as promised, I wanted to talk about some of that hot zone skipping format that's really a hot item for us and for customers. And with e-commerce that's on such a rise and continues to be the major platform, the program allows you to what we call zone skip, which is the first expensive international piece of the leg from shipment -- or of that shipment voyage, right? So for example, say you have 100 shipments going to 100 businesses or end consumers, residential units, throughout all of Canada. So in your normal shipping process with your courier, you'd ship all the courier as individual international small parcel shipments and all the larger orders as individual international LTL-type orders, for example. In our international zone skip model, those same 100 shipments would consolidate together. I don't mean physically tied together, but they go on -- or move in the same consolidation and they move across the border as 1 international shipment. And yes, the LTL and courier can ride in that consolidation together. And then once cleared in Canada, would ship as 100 domestic Canada shipments to their final destinations, and that's via LTL or courier. So another cost savings frequently enjoyed in this program is the ability to have a consolidated commercial invoice as well. So think of that same example, instead of 100 separate entries on that piece, even if they're low value or low price per entry, you would have 1 that would take the whole consolidation. So one caveat or one thing to remember is Canada does have a 999 lines per entry max rule. So if you go over that, you'd simply just add another consolidated invoice price, right? I have customers that have brought this program on. In this example, this customer is a probably mid- to large customer, and they saved over USD 40,000 a month, just in the commercial consolidation of the invoice. So this just shows and highlights the flexibility of the zone skip model, and it also highlights a consolidated return model program on it as well. So one of the biggest things about zone skipping is -- and the hardest things for our competition to do is the visibility, to keep that visibility intact from the time it leaves your dock, through the border, into our -- for example, in this case, into our facilities and then out to the courier and then every leg or scan of the courier to final delivery or LTL, every movement until it gets delivered to your customer, to the store, to the wholesaler, et cetera. So in this model, the piece works really well. It aligns with whatever shipping program you have today, whether it's SAP, like as an ERP, homegrown or something in between, and allows you to simply, when you place your Canada's order, it spits out a domestic Canada courier label. You put that on the parcel, set it aside for us to come pick it up, for example. And then the returns program, it works -- it's really simple. It's bundled onto this piece. So let's say you have an RMA process with your customer returns, you go through that approval process, the customer has a return. Either you or we can set up that return. It's really simple. It comes back to our Expeditors' facilities, and it comes back with your name. So XYZ company with our address, which also looks to the customer that you have a physical domicile presence in Canada, which is also cool. We'll then consolidate based on whatever the triggers are, whether it's weight, volume, time, and then we'll send that consolidated order either back to you or we can send it to wholesalers or other modes or destruction, complete that piece, depending on what your requirements need. So this just shows an example of analysis that we do for larger shippers just to determine which injection point. So if you remember the lines from the previous slide, going to the East or going to the West, we'll determine based on volume and service requirements of your customer. Do we move it all to the East? Do we move it all to the West? Do we move it to both, et cetera, and we look at all that piece. And then this slide shows as another summary reference. So you can see the features and benefits we just discussed, and then share with your teams if this is interesting to you for further consideration. And again, it shows the benefits we discussed on this. So at origin, at the border and through to delivery. So pre-labeled parcels, less handling through our closed network, for example, options for additional customs savings with the consolidated invoices, et cetera, and then probably most importantly, the end-to-end visibility. Okay. So getting close to the end here. So just a quick overview of the tax side of things. GST, goods and services tax, is like a VAT in Europe, like a value-added tax. It's 5% for all provinces. There are some exceptions for items like pharma and foods. You need to be GST registered, which is part of that NRI process, by the way, to be able to recoup any amounts levied. I think this is a hugely missed piece by many customers is that there is a GST drawback piece. So if you think about it, you have to do the 5%, no way around it. You have to pay the GST on your product going across. So let's say you send that to a store or a wholesaler. Well, guess what? They now charge the GST to the end consumer. Many times, you just lose that 5%. Nobody kind of thinks about it, but that's huge. With the GST drawback in that instance and many others, you're able to pull that back as well. Again, just a reference slide, just pictorial reference on what the GST and -- so the HST is a harmonized sales tax, the PST is a provincial or like our state tax and the GST is that goods and services tax. So this outlines the current, what each province charges and how they charge it, whether it's together as an HST or PST, et cetera. And just as a caveat, remember to validate this, this does change, so careful. And then just some examples. I'll probably not go through all this, but leave it to you just for the sake of time, but there is instances where you can recoup GST, and we mentioned some of them. This will give you some more, so I'm going to kind of blow through that. And then, lastly, this is the tools I promised at the end of the presentation. For intel information that will allow you to research other importers, for example, what's currently being brought in. So let's say, you don't import into -- or export into Canada now, and you're considering it, you can look up your commodities and things like that or services, and look what is being done now, where they're doing it. So look across the regions, et cetera. It's a really good intel tool and there's links to that piece as well. So I know I kind of flew through that piece at the end, but just wanted to make sure we had time for Carolina. And I'll give it over to you, Carolina.

Thank you, Gary. Sorry, having some technical difficulties to open up my Mac. Thank you. So yes, I'm going to start talking and explain about now the Southern border. So I'll provide a quick background on what the trade between U.S. and Mexico has been so far, the major trends that we are seeing out in the market, how the cross-border process flow is going on between the both countries, the uniqueness of the commercial transactions, because definitely, it's kind of a gray area always, and multiport and how Expeditors can respond to these market needs, and then just close out with the market update. So pretty similar on with what we have shared. So before jumping into the actual content, we're going to have our second poll for the webinar for you. If you guys can help me pull it up. Thank you. So the question is, in what ways is your company considering nearshoring as part of your supply chain strategy? So you're going to see several options for you to choose. If you're thinking about expanding production in Mexico; if you are increasing your sourcing suppliers from Mexico; if you're increasing the supplier base, for instance, Mexico from other countries; if actually nearshoring hasn't been part of your strategy overall; and finally, if you're continuously reviewing your options as you're moving forward, let's say, closing now 2023 and going into 2024. So let's give a minute just to have everyone participating and choosing the best option for them. Good seeing that participation percentage is still going up.

Okay. Looks like we've reached most of the participation. So we're going to go ahead and close this poll now.

Perfect. Thank you, Edna. So let's see the results. So definitely, most of you are still reviewing your sourcing options. Then, the following options that were chosen, #2 is increasing your sourcing from suppliers in Mexico and others, expanding their production into Mexico. Okay? Thank you, guys, for your participation. So I mean, we wanted to have this poll with you just to give a good introduction of how U.S. and Mexico have been moving forward along all these years. So you may have already heard about the USMCA. In the past, it was called the NAFTA. This is the trade agreement between the 3 countries in North America, and this has been one of the main reasons that everything in commercial transactions are being able to be growing precisely between these 3. So because of this agreement, their characteristics, specifically to Mexico where it's geographically located and other economic factors are pushing a lot of companies to actually move their supplier base to North America and then specific to Mexico. So right now, Mexico is in the #1 spot of investments that are taking place. Trade is increasing and is expected in the next, let's say, 2 to 5 years, just trying to reach those new levels of commercial transactions and even surpassing those bigger ones that we have sun -- we have seen, I'm sorry, in the, let's say, years previous to the pandemic. So this is a big part a result of the nearshoring. This is the most important trend that we're currently seeing in the market, and we'll continue to see these and just moving along the next, I'll say, again, from 2 to 4 years. So moving into the next slide, I do want to share with you some statistics, numbers on how trade has been between Mexico and the U.S. We're showing 2019 numbers just because it was actually before the pandemic, and this is the type of numbers that we want to have in mind, and those numbers that we want to like push limits towards to. So historically, Mexico used to be always like the [ second ] when it comes to trading with U.S. As of the first and second quarter of this year, actually, Mexico surpassed these other countries, and it has become the #1 trade partner. And it seems to be the same story in the following years. So when we talk specific about exports, we are referring of shipments going from Mexico to the U.S. So 75% of those exports from Mexico into the U.S., they go to the U.S.A., the United States. And when we talk about imports, we are referring those shipments coming into Mexico. And again, the #1 partner for Mexico in the imports is as well, the U.S. and then followed by China. So in terms of volume, we tend to see more shipments always going from Mexico into the U.S. rather than the other way around. We need to remember that this is a natural imbalance. And this imbalance can directly impact the capacity that we have for the trucking industry in the various markets across both countries. So the power of negotiation is heavily impacted when a shipper actually is able to have some inbound operations that precisely can balance out with the outbound. So it is important to remember that as we are moving forward into the next year, and as we are seeing this trucking cycle of supply-demand getting back to, let's say, to normal behavior, and all the disruptions that we have had in this year, nearshoring will still be happening. And again, inbound will be the key element of the game on the next year. So it is important for you to keep in mind that always having a balanced supply chain will lead to more efficient results in many areas. So continuing with the statistics, the regions in the U.S. and how they interact with Mexico. You can see that the Southern region by far, it has the first spot. We expect to keep growing with this specific region. Then we have the Midwest. These 2 regions are -- always tend to be the most important ones or the ones that have more volume just because of the industries that we have. Example, the automotive industry. We have a lot of OEMs and other tier suppliers in that industry that are located in these 2 regions. So that's why, naturally, the volume is bigger with these regions. Then we have the Western region, followed by the Northeast. So again, we know we have the automotive industry, but that's not the only industry. There are other industries that are going to play and are playing a big important role in trade. Another of those are, for example, manufacturing, electronics, telecommunications, energy, aerospace. So definitely, we're going to see a lot of those industries just having a boom on the following years. So now we can move to the next slide, please. So let's deep dive in the process that we have across the quarter, specific again to the Southern border. So we can all agree that it's very complex. We have a lot of players involved. As you can visually see in the image, there's shippers, obviously, the carrier that is moving the U.S. line call. Then we have brokers, the U.S. broker and the Mexico broker. We may have additional carriers doing the drayage, which is the carrier we typically have to actually cross the border. We have the carrier that also is moving the line home in Mexico and then, finally, a consignee or an importer [indiscernible]. So when it comes to having cross-border operations, [ serve ] definitely makes the path a lot easier for shippers. We need to stress out that each party needs to be really focused and have a clear understanding of the actions that they have in each step, right? How these are triggered, and how they can impact for the next steps to slow the process if they're not doing the right part that they are entitled to. So it really makes a difference to manage an effective communication and just having like a stream like visibility with all of your stakeholders or parties that are participating on your supply chain. So now that we have these parties identified, I wanted to call out -- in this next slide, I want to stress out that Mexico, how is it different to the U.S. when it comes to customs brokerage responsibilities? In Mexico, the broker is locked for the customs filing. So part of his responsibilities is to proving that all the products, they have the correct HTS codes, that the shipment is compliant with all the permits, that the labeling requirements are met in accordance to whatever those regulations could be, depending on product. So definitely, they have more responsibilities than we typically see in the U.S., for example. Brokers, also they are required to do these inspections to the cargo that are called previews. Probably you have heard about that term. This is mandatory when you are importing goods into Mexico. We might have a few exceptions, depending on several variables, but let's say more than 90% of the cargo definitely needs to have a preview when you are importing into Mexico. So there should always be the acting as importer of record. Foreign importers are not allowed. There are also mechanisms in place because duties need to be paid when you are doing the import process. So customer pays duties, and then you're able to actually have the shipments cleared through customs. Obviously, there are programs in place that can have different options when it comes to paying duties, but again, the standard or the general rule follows these -- the standard process, right? So now that we have this clear understanding of how a little bit different is the broker, I want to jump into the actual process. So if we can move to the next slide. We're going to start with the process of moving shipments from Mexico to the U.S. So we're going to call it the Northbound for the export type of operations that you might have. So we basically, pretty simple, start with the pickup. We move to the border. Brokers work on the paperwork, the Mexican broker and the U.S. broker, both. Once they have the paperwork ready, then we're able to cross the border, and we can do, I mean, any consolidations, deconsolidations, whatever your supply chain or program operation needs to, and then we go straight to final destination. So this process, again, from a general standpoint, several steps, many parties can be involved. And again, responsibilities, everyone needs to be really -- identify what they would need to be. So important to highlight requirements, commercial documents. These commercial documents now include the Carte Porte information. You might as well have heard already about the Carte Porte, something that became mandatory actually since 2022, last year. So these commercial documents are used by the brokers. So definitely a must are [indiscernible] at least, basically. The Carte Porte is for the carrier to actually be able to transit across Mexico. The carrier that's doing the drayage, they perform an eManifest. This is totally and completely transparent to you most of the times. And then again, we have the brokers that are working in the entry and in the pedimentos as it is applicable. So it is a much more simpler process, and definitely more straightforward when we are doing Northbound. Now on the other side, when we are moving Southbound, which is going from the U.S. into Mexico, again, type of similar scenario where we have a pickup. We're moving to the border. Any process can be done to the freight when it comes to consolidations, deconsolidations, so those type of needs. Then at this point, this is where the broker, they do need to do the preview, which I already explained what it's about. And once that preview is completed, then paperwork should be ready, we cross the border and follow and go to final destination. So still, commercial documents are key. This is what the broker needs to file for the pedimento. Again, we need to be compliant with Carta Porte information because we will need that to be able to transit within Mexican territory. So this is usually provided by the company, which is a Mexican entity. They usually are more in acquaintance to the commodity, the freight and they provide most of the supervision. It's not the rule, but it is -- that is what happens most of the times. The U.S. broker, they file for an EEI, typically, an example or a typical example is the ITN. This is just to give an anticipated visibility to the customs of what is going to be [indiscernible]. The main task is performed by the Mexican broker with a preview that we just mentioned and the clearance paperwork to actually enter into Mexico. So as we already have an idea of the process, I do want to mention in the following slide having a service integration definitely makes things easier if we eliminate trade-offs when we have a cross-border shipment. So divergent services in many instances can be combined with transportation, warehousing or distribution services. That is something that we do in the vast majority of our operations. Important benefits, value adds we promote. We have a strong operational and compliance knowledge, I'm sorry. All personnel, they have local experience. There's local representation both sides of the border. That is something really unique to our structure that no other service provider has. All of the offices and all of the branches and all of the ports, they use the same system, the same infrastructure. So you are able -- we are able to actually achieve seamless operations in any of the ports that you are having any cross-border operations. So we have the service integration, the adequate visibility. It is guaranteed. And again, it moves -- it makes having the supply chain move in a more efficient manner when we own from start to finish. So that is sometimes also a key element to make sure that your operations are moving smoothly when it comes from having trade with any vendors in Mexico with the U.S. or even Canada. So moving into the next slide, please. Many customers do make this question that how it's able for a U.S.-based company to act as a broker on the Southern border, and I'll briefly explain this to you. In Mexico, you need to have a license to act as a broker, right? So Expeditors and, let's say, a good amount of licensed brokers, we set up a corporation that is called AASCE. This is just to be compliant with the law and be able to perform and act as a broker in Mexico on behalf of Expeditors. So by no means our brokerage services are outsourced. All the brokerage services are fully operated by Expeditors, by our policies, by our system, by our personnel. So this is just like a quick explanation on how we're able to be a U.S.-based company, we'll still be able to act as a broker for your Southern border operations. So now besides knowing about these brokerage solutions, I do want to share the next slide. Many shippers are pushing us for [indiscernible] other than, I would say, the regular truck load. So I wanted to share a quick overview on the LTL services and precisely because of the nearshoring that we're seeing right now, right? So due to nearshoring, there are a lot of multiple vendors that you might have in Mexico. Many options you guys have been pushing us to enable to move your shipments across the border in a more efficient manner. So with the nationwide-dedicated network that we hold that also we share with the U.S. and Canada, which already Gary explained the part of Canada, for Mexico, the same thing. We're able to push cargo from Mexico across the U.S. all the way to Canada and the other way around, right? So world structure solution here entirely run by Expeditors. We have dedicated fleet. We connect with all the major hubs. There are scheduled departures and we're able to handle any pickups and [indiscernible] many of them in all of the local markets, I will say, in any of these countries. So it's dedicated. Claims and damages are practically eliminated, which is also a big positives that you might have when choosing to move these type of operations with us. So this could easily be suitable for any other up-the-service integrations, again, with brokerage, warehousing or distribution, and definitely something to keep in mind if you are thinking about expanding your business or having a good amount of vendor base in Mexico. And with these, I just want to jump to the last part of the webinar, which is actually the market update. Briefly, I just want to be specific on economy. Nearshoring, again, the biggest trend. This is having -- or having an impact in Mexico for -- specific to the manufacturing industry, just -- that is also having Mexico -- the Mexican peso be strengthening. And just being one of the fastest-growing economies as of now. So having the peso being appreciated against the U.S. dollar, definitely is having kind of impact in the trucking industry just because, now, let's say, the negotiations between the carriers and the shippers are taking place when you have cross-border shipments. Carriers are typically paid in U.S. dollars, but now their operating costs are in pesos. So when we have these type of operations, the carriers, typically, they start raising the rates because they need to make up for the big brands that right now, the exchange rate is cutting into these type of operations. So bear in mind that if you see any changes in your rates overall in the market, not specific to Expeditors, but to any other of your supply chains, this is mainly that would be causing that. In regards to regulation, the last couple of months have been pretty crazy, I would say, in the Southern border. We have the [indiscernible] El Paso being closed down, the bridge, because of the immigrant situation. It is now open, everything is running smoothly, but definitely, it had a big impact, let's say, for almost a month. There also was the possibility to have a strike in Mexico that fortunately all the negotiations came into place with authorities and everything was able to be stopped and actually the strike didn't come to effect. And -- however, the authorities do have announced that there will be some changes in the Carta Porte. So probably that is something that we're going to be sharing with you guys in the next months, changes on the Carta Porte. Specific to the trucking and how we foresee things, definitely, we're going to see volume to try to increase in the following year, 2024. Right now, the market in Mexico, when it comes to domestic market, is actually having a big moment. The demand is growing. When it comes to the U.S., the market is a little bit more stable. So definitely, we're going to see, as we are moving to the next year where these, too, probably have a change and have a little more balance out supply versus demand. The Southern border is -- right now, there are a lot of changes in regard to having the right infrastructure. Be prepared for what you are going to see with the nearshoring. So definitely, expansions in the [ current bridges ] in the Mexico side and the U.S. side are taking place. So definitely, everyone trying to be ready for what is coming. So I guess that's everything I have for now, and, Ben, I'll turn it back to you.

Thanks, Carolina, and thank you, Gary. Apologies, folks. I know we're at time, but we'd like to get to some of your questions. Carolina and Gary, if it's okay, if we maybe hang on for a few extra minutes here and get some questions answered?

Absolutely.

Some I'm going to go in order in which they were asked. The first one is for you, Gary. Please discuss why brokers are asking for a Certificate of Origin under USMCA versus a Declaration of Origin being on the commercial invoice? Are there any restrictions for declaring the origin on the commercial invoice?

So good question. So the USMCA actually requires Certificate of Origin, not an -- sorry, certification, clarification, of origin, not an actual certificate. And why the other brokers asked? I'm not sure. Maybe just old habits, I suppose, on that piece. And then if you need more info on that, just get with us, and we'll give you -- we can get one on one.

Okay. Great. Thanks, Gary. This is also for you, Gary. With the USMCA agreement, can we move cargo that is assembled in Canada? Or to use this agreement's advantages, it must be made in Canada instead?

Yes. Good question. So that actually requires a lot more detail. I won't just skip out of it that way. But generally speaking, simply assembling something in Canada of foreign parts will not qualify it on its own for the USMCA. However, there's a lot of moving parts to that, and we can take a little closer look with you if you'd like.

Okay. Great. The next one is, let's see here, I've signed up for the CARM client portal as a first-time setup since the beginning of August, and the status is still pending. How long does it usually take to get approval? I am the BAM for the account.

Call me. That's something odd there. So e-mail us or call me and we'll -- I'll get some -- a couple of CARM experts with you to help you through that.

Perfect. The next one is, can other countries outside of the U.S. be NRI in Canada?

And the short answer is yes. So you can.

Okay. So as stated that a U.S.-based business will take the responsibility for clearance of goods into Canada, making it a domestic shipment, is it the same in importing from Canada?

I think I understand the question. I think the answer is yes, but I would like to understand that a little further. So again, if that's the same person or a different person, just reach out to us. I'd be happy to help.

And this is the same person as the last one. Would the Canada vendor be responsible for the shipment into the U.S., making it a domestic for the U.S. importer?

Would the Canada vendor be responsible...

For the shipment into the U.S., making it a domestic...

Yes, kind of the opposite of -- I think that's what they're asking. So does it work similarly to the NRI going into Canada? Yes.

Okay. Let's see, racing through some through some here. Does the return feature of the zone skip program accommodate dangerous goods?

Absolutely.

Great. Does Canada have a repository of rulings, i.e., cross for the U.S.?

I don't know. I'll have to phone a friend on that one.

Great. We'll follow up with them. Let's see here. And these are for Carolina. So regarding the Carta Porte, are there different scenarios that determines which party is responsible for providing the CP? Is it always the shipper's responsibility? Can the carrier provide the CP?

Okay. The carrier cannot -- the shipper or the owner of the freight, it's their requirement, for the owner of the freight to provide the information around what will be in the Carta Porte. That actually is doing the electronic transmission to the authorities is the carrier. However, again, the transmission that they are doing is based on the information that we receive from the shipper or the consignee. It's not being determined which of the 2 parties is actually responsible. The operators, they just put it as whoever owns the freight or whoever has a more clear understanding of the composition of the freight. So we see various types of scenarios depending on the shippers and the consignees.

Okay. And I know you're answering one, I think, via text, Carolina. I'll just ask the last one and you can answer the other one via text. When we reexport ship from the U.S.A. some items which were manufactured in Mexico, can the Mexico import duty tax be rebated considering the Certificate of Origin is Mexico?

Yes. I think [indiscernible] further explanation for this one involving our compliance team to be sure that we share all the details. But there are definitely some programs in place that they do easier for shippers and consignees or importer of records to have certain facilities or even benefits when they do these type of reexports. So if you don't mind, we can complement this question -- the answer to the question with our compliance team, yes.

Okay. Perfect. Well, that's it for the questions that we had in the Q&A box, but we'll be sending out a survey as well. Again, we really appreciate if you could fill that out. You can leave your questions and comments, and we'll make sure to follow up with you. And then once you complete that survey, you will receive a copy of today's presentation. Gary, if you could just go to the next slide real quick. Before we leave you, just wanted to quickly let you know we've got our Horizon Brief, which is a great weekly newsletter that most of our clients love. It provides you with weekly updates, market updates, supply chain disruptions and a whole host of other great info. So this will be on the presentation you receive. You can scan that QR code to subscribe. And then also, we've got a whole host of different webinars and a variety of topics in different regions across the country. So on the right-hand side, those QR codes all link to our webinar schedule. You can scan that and see all the awesome different topics we have coming up. Other than that, I think we are done for today. Apologies, we went over a little bit, but I really appreciate everyone's interest. Thank you, Carolina and Gary, for this awesome presentation. And we hope you all have a wonderful rest of your day.

Thank you, everyone.

Thank you. Goodbye.

Thank you.