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

Just a minute here. We really appreciate you joining us today for our Incoterms Beyond the Basics: Your Questions Answered. We'll get started in just a minute or two, so let folks get logged in and ready to go. But my name is Ben Vahdat. I'm with Expeditors Northwest team. I'm a member of our sales and marketing operations team, and I'm located here out of the Portland Oregon office. We really appreciate your interest today in the webinar. We got a lot of fun content to cover and some great questions submitted by you all with real-world examples. So we're excited to dive in and I'll learn some more from our experts here. Probably give it like maybe another 20, 30 seconds as people get logged in and we'll get started for those joining. My name is Ben. I'm with Expeditors here in Portland. Thanks again for joining us. All right. I think probably another 10 seconds, and we'll be ready to go. Okay. Kerri, if we want to go to the next slide. All right. So just a few ground rules before we start today's webinar. Today's webinar should last approximately 45 minutes, and then we're going to have a Q&A section at the end that should be approximately 10 minutes. So our goal is to keep this at or under an hour. Today's webinar will be recorded [Operator Instructions] We're going to do our best today to get through all of your questions. However, if we are not able to get to your question, we'll make sure to follow up with you after the webinar and provide any answers needed. Following the webinar, you're going to get a brief survey from us. We really appreciate it if you could fill that out and give us your feedback. Just helps us learn about how we did and how we can improve and what types of webinars we'd like to host in the future. Along with that survey, once you complete that, you'll receive a copy of today's presentation. So, that's the most common question we get from folks is, can I get a copy of the presentation? And Yes, once you fill out that survey, you'll be provided a copy of the presentation to download. That being said, I'm happy to introduce our speakers for today, Kerri Kwolek and Erin Doan. Kerri, if you want to go to the next slide. There we go. There is there are great faces. So let me introduce the Kerri. So Kerri has been in the logistics industry for 39 years, and has worked an operations agent, customer service representative, department manager, district sales executive, regional risk manager and has recently been promoted to the role of Director, Risk Management and Insurance for the Americas. She has her license and property and casualty in the state of Michigan and has our associates and risk management from the institutes. She belongs to the risk management and insurance -- sorry, Risk and Insurance Management Society and she frequently give seminars on all things related to supply chain risk. Moving over to Erin. Erin is the regional risk and insurance manager overseeing the Midwest Expeditors. She graduated from California State University, Domingos Hills with a Bachelor in History with a Minor in Political Science. Erin joined the Expeditors team in August 2022, shortly after moving to the Chicago suburbs from Ann Arbor, Michigan. She holds state licensing for property and casualty lines and successfully completed the Expeditors Risk Management and Insurance course earlier this year. So without further delay, I'm going to -- let's get started, and I'll turn this over to Kerri and Erin.

Thank you, Ben. And Erin, I'm going to turn it over to you to start out with.

Okay. Perfect. Thank you, Kerri. All right. So we're going to kick it off here with a quick poll question. You should see that on your screen there. Since the inception of Incoterms in 1936, how many revisions have been made? And you've got 4 options there, 4, 6, 8 or a favor of both layers to infinity and beyond. Go ahead and take a moment to answer that question, and then we'll go over the answer. Okay. So if you answered 8, that is correct, and we're going to go ahead and look at those breakdown of years in the next few slides here. But before that, I do want to give a quick overview of Expeditors as a company. I know that there may be quite a few of you that are familiar with Expeditors as a whole. But there are still some people who may not be as familiar with Expeditors. So we just want to kind of set the tone for that there. So for everyone who is on the call, Expeditors has been around in the logistics industry for going on 45 years now. We started in Seattle and that is where our global headquarters is located. We have about 350 office locations spread out amongst about 100 countries. And we, in addition to the global headquarters being based in Seattle, we also have regional headquarters based in London, Dubai, Singapore and Shanghai. We have a very strong culture when it comes to customer service, and our business model of being non-asset-based means that we have a wide carrier footprint that allows us to serve our customers in multiple ways based on what is required for our customers' businesses. To be able to set the tone for our expertise in this particular arena for myself and Kerri, we have a wholly owned subsidiary of Expeditors called Expeditors Cargo Insurance Brokers that was created in about 1996, and we specialize here in cargo insurance broker, brokering as well as claims management piece. We're licensed in the U.S., Mexico and in Amsterdam. We have offices in all three of those locations. And our team experiences about 27,000 cargo claims per year. That is what they -- what their workload typically looks like. Now that is to say those 27,000 claims are not filed against Expeditors specifically, but we do handle claims from multiple types of carriers throughout the year that we manage. Because of our name and the amount of time that we've been in the industry, we do hold relationships not only with a bunch of the major freight carriers, but the insurance carriers as well. So that was just a quick elevator pitch that we present just to kind of give you an idea of where our expertise lies. So moving on, you should see on your screen now a shipment flow diagram. This is a very high-level overview, simplified version of a typical supply chain structure. So what we have here is typically a shipment is made available by the seller. And then that is set up with pre-carriage, either truck or rail to be taken to the forwarder or the consolidator, where that will in turn be loaded and either consolidated or taken to the port to be placed on board carrier, whether that would be plan again, truck, rail or ship in this particular instance. Once it reaches the port destination, it will be picked up by a handling agent. Usually via truck, you don't necessarily see that in the diagram there between carrier and handling agent, but that is kind of where that connection comes from. And then it will either be moved on to the next mode of transportation or deconsolidated at the forwarders location to then move on to its final destination. So we understand that most of your supply chain may not look like this, and it can be difficult with this being a flat document for it to mirror exactly what the supply chain looks like for you or other people that you might be working with, but this just kind of sets the tone for what we're going to be utilizing as we dive into a deeper version of Incoterms and answering some of the questions that came through for this presentation. All right. Perfect. So the next poll question here. If you are not the decision maker for your organization on Incoterms, how often do you end up with conflicting information? You've got 5 options there, less than 25% of the time, about 50% of the time, up to 75% of the time, all of the time in all capital letters, and then the last option is this falls on my shoulders. So it's always correct, which I'm sure would be Kerri's answer. Let's just take a few more minutes here. Okay. Less than 25% of the time was the top answer there 46%. Okay. Fantastic. So this is one of the reasons why we typically like to host the Incoterms trainings at least once a year, sometimes a couple more times depending on what we have available and what kind of costs we have come through specifically for our customers. We not only do webinars for the Incoterms presentations, but we will do on-site presentations for our customers, specifically some larger customers that may have multiple offices just so that everyone can kind of get on the same page. So just to do a quick overview of Incoterms for anyone that may not have been available to join our webinar earlier this year in March for the 101 class that we did. Incoterms stands for International Commercial Terms. They were first developed in 1936 as we discussed earlier in the presentation here, and we have had 8 revisions since the initial inception of these Incoterms. Within the last 40 years since 1980, they started working off of a 10-year cadence. You'll see there in 1980, 1990, 2000, 2010, 2020 and, so at this point, we expect to see the next revision come out in the next 6 or 7 years for 2030. And the purpose of Incoterms is to provide a set of international rules that help people determine the obligations, costs and risk associated with foreign trade. So these are not necessarily laws that are in place. They're not standing rules. People have a little bit of a different interpretation of Incoterms, which, again, is why we typically hold these trainings for our customers so that everyone understands this not so easy to understand process. But it essentially puts everybody on the same page and does give a little bit of a level playing ground when it comes to negotiating foreign trade between companies. The Incoterms 2020 is published in a book. So I'll see, here we go with the background, it's a little hard. So it is called Incoterms 2020. It is published by the International Chamber of Commerce. It is available on Amazon as well as some other book sellers that may be available. And it essentially gives us an overview of how Incoterms should work and what the recommendation is based on the way that the International Chamber of Commerce has put that together. So with that being said, we're going to look quickly at a diagram of Incoterms and how they're broken down. They are broken down into two sections. One is the Omnimodal terms, which you'll see here on your screen first. And these terms are the terms that can be used for any type of transportation. So that will be truck, train, ship, plane, these are the Incoterms that are typically associated with those types and Kerri a little bit later into the presentation is going to do a deeper dive into the differences between some of these terms and how it relates to some of the questions that we received as well. But you will see on the chart there that there is a breakdown on where cost obligation and risk will start and end, both for buyers and sellers. On the next page here, you will see the breakdown for the ocean only terms. So here, we have FAS, FOB, CFR and CIF. This is recommended for specifically, Ocean Only Shipments. So you'll see in the book, there are different ways to describe how Incoterms should be used. And what I'll do here is I'm going to read an excerpt from the section of free on board. So that's the second one from the top that you'll see on your screen there. And in Section 2 of this section of the book, it states mode of transport. This rule is to be used only for sea or inland waterway transport where the parties intend to deliver the goods by placing the goods on board of the vessel. Thus, the FOB rule is not appropriate where goods are handed over to the carrier before they are on board the vessel. For example, where goods are handed over to a carrier at a container terminal. Where this is the case, parties should consider using FCA rule rather than the FOB rule. So we read this to you just to kind of, again, reiterate why this shows as the Inland Waterway only. Now what we're trying to do here is not, say that you might be doing it wrong and that you need to immediately go out to all of your sellers and buyers and renegotiate your contracts and update your terms and what have you. What we're doing here is we are just trying to shed some light on how Incoterms are recommended to be used and how that can affect the operations that you have in place. So if you've had FOB in place and it's been working for you as a process for years and years and years and you leave this training and you're thinking maybe FOB is not being used correctly. By all means, if it's working for you and your seller or your buyer continue to do it that way. We just want to bring some awareness to our customers on Incoterms, considering how complicated of a subject it can be. So with that said, I will go ahead and pass this over to Kerri. She's going to go ahead and go through the questions that we received from our customers ahead of this presentation. The charts that you saw on this slide and the previous slide will be made available with the presentation as mentioned by Ben at the beginning. So you will have access to this once the presentation has concluded. All right Kerri, it's all yours.

Excellent. Thank you, Erin. Yes. So I also want to address that, we're already getting questions in the chat box. So I'm really excited to see that because this is what this webinar is for. I think what we'll do is we'll go through the ones that we received prior first, and then we will come back and answer the ones that are in the chatbox. So Team, Ben, Sara, Julia, if you guys can help us present those at the end because I will forget. So help us at the end, that would be great.

Absolutely.

Okay. So let's go ahead and get started. One of the questions, the submission #1 that we've received it, one of the differences between the 5 top Incoterms and what are their pros and cons. What's fun about this is that everybody's version is different. Like, my top 5 Incoterms were not necessarily the same that this person put in there. So I add a little bit of information, but if we can go ahead and just kind of break down what each of these Incoterms were the 5 that were submitted than my recommendations. But another part of this question was what are the pros and cons and which one would we recommend. So I think it's really important to point out that we wouldn't really recommend anyone because it depends on what your organization and your seller or your buyer, what you're looking to accomplish. So, we can tell you some of the pitfalls to particular Incoterms. I do have a favorite, so you know what's cooking for Christmas. But having said that, it doesn't matter what I think because on the forwarder side or even on the risk management side, it tells us a story. It's not like we are the ones that are saying, "Hey, you should use this one, you should use this one". So we'll go ahead and jump into these few. We're going to jump into 5 of them first, and then we'll go from there. So first of all, Ex Works. Ex Works is humbly, in my opinion, in my not so humble opinion, one of the most commonly misused Incoterms out there. And I think part of that is when you take a look -- Erin said earlier something about in the last 40 years, and I was like 40 years, Wait, I was just graduating from high school and she's right, it's almost 40 years. But the world was very different then. Here in United States in particular, it was like if you wanted to buy from us come and get it for me, and I'll make it available to you in my warehouse, but I'm not doing much more than that. And so, under the Ex Works terms, the specific Ex Works, the buyer is responsible for packaging the freight export-ready. I mean everyone's going to package it to make sure it gets there safely. But remember, there's a difference of putting it on a truck and getting it to, let's just say, Phoenix versus getting it over to the Philippines. So we have to remember that there's a little bit more touch points. There's the loading, the cranes loading up onto the ship and dropping it out of the ship. It just has more touch points, more chance of damage or loss. So under Ex Works, the buyer is responsible for packaging the freight export ready. The buyer is responsible for loading the truck. So let's break that down for a minute. Can you imagine that if you sold Ex Works to somebody that you would allow, I don't know, we'll say Julia to come over and just a hop on your high low, in your warehouse and go grab the freight from where it is located. Julia is a very safe driver. I want to assure you. But in reality, you're never going to let somebody else jump by. There's OSHA regulations. So it's one of those things that's kind of inherent. Yes, the buyer is responsible, but, if you want a long-term customer, you're going to end up loading the cargo on the truck anyway. And then the third thing is that the buyer is responsible for export clearance. So one thing we need to remember when it comes to Incoterms and export regulations is you would think that they would feather quite nicely together. But of course, they don't. In reality, some of the export regulations don't match up exactly with what the Incoterms is saying. So sometimes you have to figure out the right, the exact way to make it work. So for example, you have the export administration regulations here in the United States, and the AAR says that anything that were the main carriers is being paid for by the buyer, any of those cases right there, that means that the, it's a route shipment transaction and all that documentation and stuff should come from the buyer. Under the Incoterms, however, it says that the buyer, under Ex Works, the buyer is responsible for the export clearance. But under the other, the FCA term, it's the seller. So they don't, again, they kind of match up against each other. We have to think through that sometimes when we're talking about Ex Works clearance and the Incoterms itself. So in exports cases, I believe that most people are going to package it export ready because it's very similar to packaging for domestic use. I think in most cases, the seller is going to load the truck because they want to keep a customer long term. We don't want to just one time move with the customer. And then I also think that the buyer -- that the seller because of these export laws, want to protect themselves and really should probably adhere to the 2 -- the Ex Works successfully work in that particular area. And we're going to talk about FCA hearing a little bit, but I'm going to go ahead and stick with the question that we received from the audience. And I guess as you have said this in the beginning, thank you. Thank you for submitting your questions. This was a lot of fun to work through and understanding what your questions would be. So the second angle term that was asked about was DDP. So I'm not like way to start out with my 2 least favorite incoterms. But DDP is kind of scary. So under DDP terms, the seller is responsible for everything as opposed to Ex Works where the buyer is responsible for everything. So the buyer takes over very early in the supply chain. If you think about that shipment model that we use under Ex Works the buyer picks up very early from left to right, whereas with DDP or DD Pay, the seller is actually taking out the risk cost and obligation most of the way through the supply chain and until it gets clear customs and delivered to the buyer. So these are really 2 upside ends of the spectrum. And so -- but I think there are concerns with DDP, especially when you're selling DDP. There are several countries where you cannot be a foreign importer of record. Into the United States, you can be, but into like Mexico, Latin America, Middle East, they don't allow for it. So I think it's important to understand that DDP is not always an available option. The second thing to remember is that if it is an available option, you're taking out all the rules, logs and regulations in a destination country. So I think if I had to ask somebody on the team here and I won't pick on you this time, so I like doing this in person, so I can pick on people. But in most cases, like to ask somebody, hey, what is the -- what are the duties and laws and regulations for pencils going into Madagascar? All of us on this call would just shrug our shoulders and go "I don't know." Now as experts do we have a resource, Sure, we do. We would go to our office or agent over in Madagascar and ask them. But when you're agreeing to these terms, we have to remember that we don't necessarily know all the in snaps the law. So DDP can be very dangerous. On the import side, it's a little bit less dangerous because you're basically waiting for somebody to bring the product to you cleared customs. And basically, they're just delivering to you almost like a domestic move. So you're not even the importer of record. We are going to get into that a little bit later, that was one of the other questions. But just to understand that it's a little bit less dangerous on the import side, but on the export side, you're taking out a lot of risk, fines, penalties in foreign countries. So the next single term submission was FOB free on board. Under FOB, the seller is responsible for the cost of risk and the obligation of getting it vessels safely onboard the vessel. So the difference between this and Ex Works, for example, Ex Works is happening from the seller's facility. Whereas with FOB, the seller is also responsible for taking that inland road, getting it to the port and getting it put on the vessel, very safely on the vessel. So going back to what Erin read, one of the reasons that the ocean only terms don't work well anymore than the world that we live in is because the seller and the buyer are so far removed from actually loading the vessel. I mean, even ourselves as forwarders and logistics and logisticians, we're not allowed anywhere near the port unless we get special permission. We have to get prior approval, there are background checks. There are all kinds of security reasons why we're no longer doing that. Plus, as Erin read. When you load it into the container, you're not going to take it to the -- next to the ship, like or put it onboard the vessel, you're going to take it to a container yard. So I think FOB is very common. And I'm going to -- again, I'm going to touch on this again later in the presentation as with another question that somebody came up with. But I think FOB became very common, especially here in the United States, but we'll talk through kind of what that looks like on another slide. And then we have CIF. And I would agree that CIF is a very commonly used term. CIF stance for cost and insurance and freight. So basically, the seller is responsible for the cost and the application of getting it to a named port at destination. Remember, CIF is also an ocean only term. So they're responsible for the cost and obligation of getting it to the destination port, but the risk transfers what slowed down the vested origin. So that means that the buyer is at risk, utilizing CI terms, so CIP or CIF means that the buyer by very nature of the Incoterms, the buyer is asking the seller to purchase insurance on their behalf. So does they have to be great insurance? With CIF, it's just minimum cover. So it's, in my opinion, again, in my not so humble opinion, it's always best to view your personal risk and place coverage with that. So I'm not saying you shouldn't use CIF. I'm saying, think through to what that means. So for example, if you're the buyer and you're importing CIF, you're asking a seller to purchase insurance on your behalf, if you have a claim, it's your risk. So now you're going to have to file a claim with an insurance company, potentially an insurance company that is in a foreign country and perhaps, English isn't their first language. In all fairness, typical American, all I do is speak English. I don't have any other languages, so shame on me. But there is that language barrier that can become a thing. So there is CIF and then we have free alongside ship. So under FAS, the seller is responsible to the cost and the risk and the obligation of not getting a vessel on board the vessel like FOB, but actually just getting it to the origin port and getting it nestled safely next to the vessel. So FOB, CIF and FAS are all ocean only terms. And I have heard that the Incoterms subcommittee is really trying to move away from them. Incoterms 2000, it used to be that you ran through the Incoterms, Ex Works, FCA, FAS, FOB, CPT, CIP, CFR, CIF. So the ocean terms were kind of melded into the book. After Incoterms 2000, they move them to the ocean in terms being in the back of the book due to the fact that like we were talking about, they're really not recommended anymore, which is why I decided to, I know I said 5 but I'm going to add an FCA too. FCA, for those of you that again, wondering what to get me for Christmas, I think FCA is the most versatile Incoterms out there, especially when you're talking about where the buyer is going to pay for the main cargo. So, and the reason for this is you can use FCA sellers facility, which is like Ex Works only the buyer is now not responsible for the three things we talked about, but the seller is now responsible for packaging the freight export ready, loading the cargo at origin, and also the export clearance piece, which protects the seller, because they're responsible and most export regulations, they're going to be responsible and there could be fines or penalties involved. But the other nice thing about FCA is that it can be really any name place at origin. So if you're going to say, FCA a Chicago airport or FCA Long Beach port for exports or let's trim around an import, maybe it's FOB Hong Kong Airport. I said FOB. Look, I'm already doing it to myself. FCA Hong Kong Airport or FCA Shenzhen port, for example. Just remember, and especially Erin referenced those documents that we're going to send out, they're flat documents. So the problem with that is, is that you have to think through the nameplate sometimes because under FCA on a flat document, where do we put that transfer of cost risk and application. So, as an industry, we pick a spot and now you have a flat document. But think through where that name place is and how it could affect the cost. Are you paying for the transit inland? Or is it just simply transferring at your door? Okay. We're going to move on to the next question. Hope we'll leave some time for some other questions here. So somebody asked, I would love to learn a little bit more about FCA versus Ex Works especially when the FCA name places the seller or supplier store. So I touched on this a lot in the previous part. I'm very passionate about this because I feel like we could really move away from Ex Works, think it's opening up the seller and the buyer for gray areas, inconsistencies, such as the loading of the truck, but I really like to focus on the export clearance. We have to remember that, like, for example, the EAR, the Export Administration Regulations, they offer up a fine per occurrence. So if you aren't completely clear between the seller and the buyer, where that transfer is to take place and you have an incident, then there could be a penalty involved with the customs parents piece. I think it's pretty clear. I'd like to joke about the fact that when you're loading the truck at the seller's facility, let's say, the sellers like, "Okay, I'll load the truck." And you thank your customer, "hey, thanks for the $100,000 shipment. Thanks for the money in advance because we don't know each other very well. I'm going to go ahead and load the truck." But the guy in the warehouse doesn't want to load the truck, and he takes an online Incoterms classes and he comes back and says, "I don't have to do it". Well, of course, somebody is going to make them do it, right, because we want long-term customers. But let's just say he's annoyed because the salesperson let over his head and went to the boss. And he accidently-ish hits the pull with the cartons and a total loss. Highly unlikely, I know. But let's just say that happen technically per the Incoterms. The buyer has to file that with their insurance company. So the seller's phone call would be like, "Hey, Mr. Customer, thanks for your first order, $100,000 order. We had a little incident. So I would need you to file that with your insurance company and then send me another $100,000." okay? No. I know I'm being ridiculous. And again, I wish we were in person because I hope that gets a couple of chuckles at you. But that is what the Incoterms says. So I believe that FCA is the new Ex Works, kind of like 40 is the new 30, et cetera. I do believe that it really is a much more versatile term, and it clearly depicts by naming the name place properly that clearly depicts what we're looking for. So again, going to this model, Ex Works is really where it transfers from the seller and the buyer right over the manufacturing facility, whereas FCA can be here, here or even here. Let's move on to the next question. DDP for imports. So this is a really great question. I tried to address this in all the Incoterms webinars that we have, they're all great questions, by the way. So with DDP, is the seller or the buyer the importer of record. How is the best way to audit this when we typically don't see the 7501 Entry Summary on documents for these shipments? And is the entry summary, the only document that should be checked for the IOR. IOR stands for Importer of Record, again, so I'm going to go ahead and show a copy of an Incoterms and 7501. So this is a declaration for imports. This is where you pay your duties and whatnot. So we went ahead and pull the copy of this. And you can see that the Importer Of Record name is here. We have widened that out for obvious reasons. But this is an actual entry summary, and this is where you would find it. I want to show this because under DDP for imports, in this particular document here, the importer of record is the buyer. This was not a DDP shipment. But if it were a DDP shipment, then the sellers -- the seller would be put in this would be the importer of record. In the United States, we allow for foreign importer of records. The customs allows for it. There's some kind of rules around it. I'm not a compliance person. So keep that in mind, like this is usually, if you have a cluster around that, I would pass you off to one of our compliance specialists. But under the DDP Incoterms, the foreign Importer of Record is that Importer of Record. Now the person who is receiving the cargo and who has paid an overseas entity for the cargo would be what's called the Ultimate [indiscernible]. And the Ultimate [indiscernible] is does have some responsibilities with U.S. Customs in this case, such as recordkeeping responsibilities. You do have to keep records and you have to keep them for 7 years, I believe, you have to keep it in an exact format. So there, we do have an informed compliance on record keeping. If anybody would like a copy of that, just reach out to your Expeditors representative account sponsor, and we'll be happy to get that over to you. But really, that's an import like all you're doing is like basically Mr. Customer get it here to me by December 15 or I'm going to blow up your phone. Like the import doesn't have a lot of options if it doesn't arrive, but it's still pretty little risk. So I think that this would be the main document that you would go to, to look for it. And I'm just going to back up a little bit and make sure I address all this question here. So 7501 entry summary is where you would find that. But just remember that you only have to really audit it if you're importing DDP because you're not the Importer of Record. You would just have to keep the records in a certain format in case customs was unable to get a hold of the foreign Importer of Record and needed to come to you for questions. That's your only responsibility here in the United States. Now I also think it's really important to point out that this could be different per country. So you're going to want to understand if you're doing DDP to another country what those rules look like. Hopefully, I addressed all of that. This is an interesting question, so Insurable Interest. The question came, and this came from a risk manager, and so I kind of understand that. But are there situations where insurable interest starts before the Incoterms location? And how do the Incoterms address that? So the Incoterms, were really designed to help a seller and a buyer understand cost, risk and obligation and where those three items transfer from the seller to the buyer. By the way, cost of obligation are the same. If you're paying for that leg of the transit, then you're obliged to pick up the phone and call the trucker. But there are times when the insurable interest. So I'm going to move over into the insurance world here for a minute. And -- If you have a cargo insurance policy, the way they're written typically written, everything can be adjusted for fee, but they're typically written that they're only going to pay it out when the insured has an insurable interest. So for example, if you're the buyer and you're purchasing insurance on DDP, there you have a cargo policy, let's say, an annual policy, but it's a DDP move, your seller is at risk, so they have the insurable interest. So your cargo policy wouldn't necessarily cover that. However, if you are moving something FCA sellers facility in origin, you do have the insurable interest. So that's how the Incoterms tie in there is the risk piece of it. However, to this point, there are certain reasons why the insurable interest starts at a different point. You might have something, you might have a cargo policy that has, that covers stock throughput, so in that case, you would have to take a look at how the policy is written to understand where that insurable interest takes place, whether it's at the manufacturing facility whether it's in transit or whether it's at the store where it's going to be sold. So like stock throughput program might be something that would cover you throughout the entire supply chain, but your insurable interest might change. Another example would be contractually you may agree to an Incoterms. But then in the contract, you stipulate somewhere else that the insurable interest is going to transfer at a different place. So I think it's important to understand that, that, it's, the insurance companies still look at it one way and the Incoterms might say something different if there's a contract. Most of the time, most of the time, the insurable interest is going to equate to the risk portion of that Incoterms. So FOB, for example, the seller, the transfer of cost risk navigation, happen once it's on board the vessel at origin port. That's where the buyers insurable interest begins. Okay keep going here. So do Incoterms determine who pays for the freight? I'm going to start with this again. So here's the Incoterms chart, I'm using the omnimodel just to show you. So yes, typically, the Incoterm is going to address the freight charges, not even typically. It always does unless you address it elsewhere in the contract, A contract is always going to supersede the Incoterms if there is any discrepancy, if there's dual stuff. But I'm going to show you here like we're Ex Works you'll show that the cost ends here. So the seller is only responsible for getting it -- getting it ready to move, put a pretty pink bubble on it, and now it's the buyer who's going to pay for all the freight charges. Once they are going to send the truck into your facility and they're going to take it on to its final destination. I like the depiction of this because you'll know is, I always say that Incoterms are like breathing left to right. So you start with the exports, which wherever the buyer has more of the cost risk and obligation in this case, we're talking more about costs. Under FCA, again, depending on where that transfer takes place in the origin supply to the origin piece of the supply chain. That's where the cost now is going to determine from that point forward it's the buyer. But you'll notice the cost kind of does the cyber thing where, as we go through the Es the Fs and Cs and the Ds, now the buyer is paying for less and the seller is paying for more. So they do definitely identify freight charges. I'm going to stop real quick here though and kind of jump to another subject. When I was looking for visuals here, I came across this and it reminds me of this. There is something called the Uniform Commercial Code and it's the UCC, the Uniform Commercial Code. And it's a gap log. If we have lawyers on the phone, I am not a lawyer, so I'm just going to give you my best guess or my very simplified explanation of what the UCC is. It's basically a gap log. And it is written at the federal level, and it's adopted with variations at each of the state levels. And in the UCC -- the UCC is there to help courts in the United States to determine if there is a gap in the contract. So if, for example, you don't have it written in there that you should follow the Incoterms, then the UCC tells them where to transfer that freight cost. So the UCC has its own set of trade terms. And they have FOB, which means freight on board. In the Incoterms world it's freight on board, in the UCC term, it's -- I'm sorry, in the UCC term its freight on board, in the Incoterms world, that's free on board. And they don't mean the same thing. And I thought this was a really good visual of what the UCC term means. So you might see things like FOB's shipping point, FOB Origin, we see FOB destination. Sometimes we see FOB prepaid or FOB Collect, they kind of mean the same thing as the origin destination. But you'll notice that the buyer pays for the shipping they are both [indiscernible] terms. The buyer pays for the shipping under FOB Origin or FOB Shipping point, whereas under FOB destination, the seller pays the shipping. So if you see something that looks like that, just know that you're not dealing with an Incoterms, you're actually looking at a UCC term. All right. Moving on. So title transfer, how can we tell an ownership transfers? I think many people on this call, maybe not everybody, many people on this call have gone through the selling a car and having to transfer that title and going down to, I'm in Michigan. So we call the Secretary States, the DOV or whatever, it's called in other states DMV, Department Motor Vehicles. But we've all run through this. The Incoterms in the books, specifically decline to talk about title transfer. Title transfer needs to be addressed somewhere else in the contract. And when I talk about this, that means that we used to talk about, well, under FCA, let's just say it's FOC Chicago Airport than the ownership transfers from the seller to buyer. That's not true. It only talks about cost risk and obligations. And there are certain risks that you run, so risk in an Incoterms world is about the cargo itself, but there are certain risks that you run just by moving cargo. So let's just say that you have a truck that's on the road. It has your freight on board. And there's an accident, the freight bounces off the truck and causes property damage. So now we're not talking about risk to the cargo itself, which is addressed in Incoterms. But now we're actually talking about property damage, badly injury, something like that. The party that has the property that needs to be repaired is likely going to sue. And if they do that, then they're going to sue the owners of the goods. And quite frankly, in the environment we live in the United States these days, we're probably going to sue the freight forwarder, anybody who's involved in the trucking company matter. But at the end of the day, you have to address that risk elsewhere in your contract. And I'm going to jump on this just a little bit and talk, also talk about recognition of revenue. Everybody knows that Sarbanes–-Oxley and Generally Accepted Accounting Practices, these rules and kind of regulations came out of some unhealthy practices around recognizing revenue. That caused some kind of chaos like WorldCom, Enron. Those are really good examples of what happened. So these rules within regulations were put in place and recognition of revenue is also something that is not addressed in the Incoterms. So if you, in many accounting departments like to tie these to, especially the recognition of revenue to the Incoterms. So the Incoterms book says, "Hey, it's not addressed." But you can include in your contract and say something to the effect of title transfer and recognition of revenue, happened at point of risk. So you can address it in the contract, but it needs to be addressed separately because the Incoterms book itself does not address it. And then just real quick on tri-party shipment. This was our submission #7. I have a shipment from China. It's going to Germany, but I'm paying in the U.S. So what would the Incoterms be. So the company here would be you here in the U.S. and you're buying from a vendor in Germany. And let's just say your regular Incoterms, if you were to, if they were to send you the goods would be FCA. That means that you're going to go into Germany, you're going to pick it up, and you're going to bring it here to the United States. Now let's just say that your customer then you have your agreement with your customer. So it's going from the United States to Germany. And let's just say here that you've agreed to pay all the charges to get it to their door, but they're going to pay for duties and taxes. So it's going to be [ DAP, ] for example. And you're smart enough to know that, "hey, I don't want to bring the goods from China to the U.S., then turn around and ship in to Germany", unless you have to make some changes to them. So you're going to have your vendors send it directly to your customer. But you have to really spell out for them what it is that you're looking for because the vendor thinks that you're coming to get it from them and the customer thinks that you're going to send it to them. So you have to tell the vendor take the goods to Terminal A in Bremerhaven -- oops in Shenzhen. And then you would take care of like doing the shipping documents. You might also tell your vendor, please, please, please don't send my invoice, my commercial invoice with the goods because as sensibly, you're going to be marking the goods up to go to the customer. So Incoterms don't work well under drop shipments or Tri-party shipments. You really have to just tell the vendors specifically what you're looking for in that area right there. So I think that, that is done with the submissions that we've done so far. If we want to address, I'll come back to Oscar, we're going to meet Oscar a little bit later. But if we want to go to some questions, let's go ahead and address those.

Okay. Great. Thanks, Kerri. I'll just throw out there. We have a lot of questions that people submitted. So, that's just great. Thank you, everyone, for your interest. We likely are not going to get to all of them, but we're going to try to get through as many as we can. And if we can't get to your question, we will follow-up with you. So we'll start with the first one. If an Incoterms includes or if the customer includes an Incoterms on their PO and our company does not include an incoterm on the SO or order acknowledgment, does the PO incoterm apply? And is it legally binding?

So, when you have a purchase order that's usually written by the buyer, by the buyer at the buying company, now you have a sales order that's written by the seller. Both are contractual documents and both would hold up in the court of law. So if it's in the purchase order and it's not in the sales order, then yes, it would supersede. Now we also have to remember that, we're talking about court ruling, and they typically will go to the contract and read just exactly like I just did, but you're also growing the risk of a court reading in a different way. But in my opinion, in that case right there, it would definitely be hold up in court.

Okay. Great. If all our commercial invoices stay Ex Works, we are the seller, but our responsibilities are more related to CPT. Is it necessary to change our commercial invoices? Or can we still use Ex Works for commercial invoices? A buyer agreed to use Ex Works for commercial invoices?

Yes. So remember, commercial invoice is just proof of sale. It's not a contractual document. So if the CIF was or CFR, CPT, I don't remember what it was, but if that Incoterms were built into the contractual document, the sales order, the purchase order that's always going to supersede the commercial invoice, which is not a contractual document.

Okay. Great. This one is, how does PP&A differ from an Incoterm?

Say that one again?

How does PP&A differ from an Incoterm? Not sure.

I've never heard PP&A. So we might have to -- maybe we can take that as a task to go back, yes, follow up with that customer directly and maybe we'll learn a little something too.

Yes, who knows. Can you please explain the difference between FOB and UCC FOB? I know you touched on the UCC a little bit in the webinar.

Yes. Yes. That might have been addressed there. There are two different Incoterms. Unfortunately -- here I go. I'm going off on a tangent. There is a butterfly, the Monarch butterfly everyone knows that the Monarch butterfly is beautiful. But then there's also like a little. Another butterfly that is morphed over time to look like the Monarch butterfly. And so instead of one rows of dots, it has two or vice versa. I bring this up because the species of the butterfly that's not species, but the type of butterfly that has kind of worked over to look more like the Monarch butterfly, has done this. This is how evolution happens. Because Monarch buterfly don't taste good to birds. So like, so they have worked over there and they kind of like avoid that it's kind of like the FOBs, right? They look the same, they just don't taste the same. One means one thing, and then the other one means the other. So under FOB, the Incoterms, it's ocean only, sellers responsible for the cost risk and obligations of getting it nestled safely onboard the vessel. Under FOB though, it doesn't tell you FOB origin needs the buyer paying for it, FOB destination means that some sellers paying for it. So they look the same, but they're not the same at all. So you have to look for which one you're using, I know we talked, we covered this in the one-on-one class, but you should use, to use an Incoterms probably, you should have the Incoterms itself that name, place and then you shed the version of Incoterms that you're using. So you might see FOB, [indiscernible] in Port Incoterms 2020. Whereas with the UCC term, you're going to see FOB prepaid, FOB Collect, FOB Origin, FOB Destination, So you're just going to have to ask with team which one you're using based on the brokerage around it.

Okay. Great. In order to export, I need to list an Incoterms on our shipping documents. However, our agreement with our customer does not exactly fit the construct of any of the Incoterms. Any recommendations on how to manage this?

Yes. I think this, I like the full question about how often do you receive conflicting information because this is what I get all the time, especially when I give the Incoterms for a specific customer, I think it's super fun to have sales, purchasing, legal, like and then the poor logistics people, the supply chain people in the middle who have to determine what was agreed upon without, with just looking at simple Incoterm, especially when there's two Incoterms used, one will be on one, one will be on another. So at the end of the day, the contract is what tells that story. So if it's written into the contract, that's what's going to supersede.

Okay. When shipping to Mexico, I deliver the goods to Laredo. Another truck takes it across the border, another delivers. I don't know if they are following up with that. It doesn't appear to be a question.

No, I can answer it, though, because this happens all the time. So if you're responsible for, the same thing happens when you're talking about Latin America, you get to Miami. A lot of Latin American freight goes through Miami, especially air freight. When you're looking at that a litmus test when it comes to Incoterms is who's paying for the main carriage. So if your Incoterms begins with an E or an F, the main carriage is typically paid for by the buyer. Under CMD, that main carriage is being paid for by the seller. And the problem with Mexico or even Canada, truth to be told, is the fact that the main carriage is now a truck. So it's trucking from, I don't know, Detroit to Laredo, Laredo to Nova Laredo and then trucking from Laredo to Aguascalientes, for example. In that particular case, because the main carriage would really be considered that border crossing in that case, then if you're responsible to get it to Laredo, it would be FCA Laredo. There are reasons why people choose to do different things. And I'm always happy to debate that. I'd love to debate Incoterms over wine, which is why I'm no longer invited to the Christmas parties, I'd like to point out. But no, at the end of the day, if you'd like to have a conversation around that we'd love to just give with your account sponsor, and we'd be happy to do that.

Next question. Can you go into a little more detail about the relationship of routed transactions and certain Incoterms?

Yes. So I think that the biggest issue is the FAS, FOB and FCA. So -- and all they can talk about in the United States. I'm born and raised in the United States, born and raised in Detroit. And so I understand the EAR a little bit better. But under the, those three F terms, the main carriage is being paid for -- by the buyer. So that means that the seller is going to be responsible for -- Gosh, I'm sorry, Ben, I just gapped. Can you read that question again?

Yes. Let me pull it up here. No problem. Let's see.

It came to me. You're off the hook, Ben. So we're talking about the U.S. rules around it. So under those three F terms, the buyer is responsible for the movement, but the seller is responsible for the export clearance. But in the EAR, it says that any of those terms are a routed shipment transaction. And that means that the buyer has certain responsibilities. So the biggest thing to understand is who is going to file the documents with customs and whoever files those documents is going to be the exporter of record the person who receives the money, so if you're buying from somebody overseas -- I'm sorry, if you're selling to somebody overseas and you're receiving the payment from the buyer, you will always be the U.S. principal party of interest. So, and there are certain rules that you have as a U.S. PPI. So you're going to want to make sure that you're following those rules. And if you're allowing the importer to file the documents on your behalf, then you're taking out a risk. Did they file it? Because remember, the freight forwarder, especially if they file a form, they're going to send the documents to their customers, who's paying them, which is going to be the entity overseas. So you're going to want to get a copy of the documents, for example, make sure it was filed and make sure it was filed properly. If it's not, the U.S. PPI can be find $5,000 per incident. So I'm going to actually pause on that one and say if you have more questions on that because it's a little bit of a deeper conversation, which would be probably better with compliance and within Incoterms, a compliance person with an Incoterms knowledge.

Got you. And it sounds like PP&A is prepaid from what I'm seeing in the messages.

Okay. All right. So Prepay and Add. Okay, that makes -- I did know what that meant. I just have never seen it used as an acronym. So Prepay and Add, typically, you're going to see Prepay and Add when it comes to CIP or CIF or CFR or CPT, and that really means that the seller, you're going to take all the freight charges and any insurance charges and you're going to complete the invoice. So you'll have the cost of goods, then you'll have the freight charges where you're basically telling the seller, the seller is basically like adding all the charges in. What it means is that the seller is paying for the goods. So it's going to be a C or D term. Even though they're adding the charges to the invoice, the seller is still going to take care of arranging of freight, paying for the freight, they're billing you at the end document using the commercial invoice, but it's still going to be a C or D term. So the Prepay and Add a just means like between you and the seller who's going to actually pay for it, the seller -- and when people do this, it might be that the seller has better buy rates, it could be that they have an insurance policy that covers the entire thing. So they're just, just going to ask them to add it up.

Go ahead. Sorry, were you still were answering?

Yes, I ramble, it's all good. No, what I was going to say is we have about 3 minutes left here. So we have a lot of questions that probably didn't get answered. So why don't we take one more and then I'm going to introduce you to [indiscernible].

Okay. Perfect. We'll do the last one here. What is the difference between a routed and nonrouted shipment? And what is door-to-door and other terminology meaning?

Yes. So routed and in a what?

And a nonrouted shipment.

Okay. Those are very much export administration regulations and the Incoterms don't address them at all. So with a routed shipment transaction is, again, where the buyer -- is any E or F term. And a nonrouted would be a C or the D term, and that means that the seller is going to be responsible for moving in. So those are very dedicated to that. Now what was the last part of the question?

And door-to-door terminology, what that means?

Yes. So, we have pretty much put that into our SLI these days because it is confusing. Door-to-door means that one party or another is like, or usually door-to-door means that the seller is going to pay for the goods to go from their facility to the buyer's facility. What it doesn't -- the door-to-door does not address. So it would be DAP, for example, or could be DDP. What it doesn't address is who is paying for that customs clearance? So under DDP terms, under the DDP terms, the seller is going to be responsible for being the importer of record at the destination country. So under DAP terms, the buyer is taking on that obligation and risk. So when you use door-to-door, it doesn't tell you whether it's CIP or DDP. And I think that's something that needs to be clarified. And to that end, yes, we're going to end it there. But to that end, remember, Incoterms are an easy, clear way for the seller and the buyer to agree to the rules of the road, so to speak. And I'm going to introduce you to Oscar. Oscar is one of my cats. I'm a crazy cat lady, and he didn't come home one night. He's an indoor-outdoor cat, and he always -- he's my little one that always comes in at night. And so I called for him. And you can see the little holes next to the fence here, he went after a mole, and he didn't realize that his head was too big. He was able to push it through, but he wasn't able to pull back. So I called for him, he meowed at me and we went out and we got Oscar out of there. Don't be like Oscar. You need to know what you're going into prior to the conversation. Now what your Incoterms mean. If you're not sure, if there's a green area, have the conversation with your customer or your, with the buyer's, customer for the vendor. And before we end this, Oscar is just fine. We were able to go and cut them out of the fence, and he was a little bit annoyed. You can see to look at his face over here, but he was a sleep in my bed this morning when I came at the office. So in case anybody's worried. But my point is, don't be like Oscar, know what you're getting into.

Oscar is very cute.

Thank you. I'll tell him that when I go home tonight.

Well, thank you, everyone, for all of the amazing questions you submitted. Apologies, we weren't able to get to all of them. But for those of you who asked questions that we couldn't get to today, we'll make sure to follow up with you and get any information needed over to you. Kerri, if you want to go to the next slide real quick. I know it's hard to move away from Oscar.

I'm just looking at my lovely cat.

All right. We can go past there. So Kerri and Erin, this is both of their information. I think those QR codes linked to your LinkedIn, is that correct?

That is correct. Yes. So if you also want to get a hold of either one of us about Incoterms, cargo insurance, you can reach out to your sponsor, and they will be happy to support.

Sure. And you're going to get a copy of the presentation today following completion of a brief survey. So this will be on there, you can scan the QR codes and find them. At Expeditors, we host tons of webinars next, or actually this month, man, times flying. We have next week U.S. Customs FDA import compliance webinar. And then, on the right-hand side there, this will be included in the copy of the presentation received that are linked to all the different regions and webinar events that we host. So we host webinars on all sorts of different topics, and we'd love to see you joining those. Yes, please. And then one really popular option that a lot of customers of ours enjoy to stay updated in halting supply chain is our Horizon Brief Newsletter. It's a weekly newsletter that goes out, talks about supply chain disruptions, industries news and events, new products and the QR code there, you can scan that to go to our registration page. It also gives, you also receive upcoming webinar events similar to today's webinar. So feel free to subscribe to that. And with that said, I think that's about everything. So I just want to thank everybody today for taking the time to join us. We really appreciate it. And again, if we couldn't get to your question, we'll make sure to follow up. and we hope you have a fantastic day. Thanks, everyone.

Thank you.

Thank you.