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

Good morning, everyone. Welcome to Expeditors risk in the supply chain webinar. Thank you so much for joining us today. My name is Alexis. I am the district sales ops for the Miami Expeditors and I will be your host today. We're going to be diving into a variety of thought topics. Our speakers have done a great job preparing informative material for you today. Before we get started, let's go ahead and address few things to keep in mind throughout the presentation. So this webinar will be recorded. Please put any questions for our presenters in the Q&A box and Expeditors insurance representative will be monitoring and addressing questions throughout the presentation. Should any question require additional feedback from the presenters they will be addressed at the end of the presentation. For your privacy, all attendees video and audio function will be disabled through the entirety of the webinar. Following the webinar, you will receive an e-mail from myself for a quick survey. Upon completion, you will receive a link to download the PDF presentation alongside the recording of this webinar. All right. So please note that the webinar is now reporting. Again, please put all questions in the Q&A box. So today, we're going to have 2 amazing industry experts who to present to you today, John Liguori and Kerri Kwolek. John joined Expeditors in 1998, where he worked through logistics and operations. John transitioned into the role as the Regional Risk and Insurance Manager over 18 years ago. Kerri has over 35 years of experience in logistics, as the Director of Risk Management and Insurance for the Americas, she oversees all insurance functions and risk consulting services for the entire region. That being said, I'm going to go ahead and pass it over to John. Thank you.

Good morning. I hope everyone is doing well. So today's agenda, we're going to talk -- we're going to do an introduction to Expeditors and Expeditors Call Insurance Brokers, ECIB. We're going to give a little industry update on the insurance market. We're going to talk about how freight moves, will deep dive into Incoterms, do a little overview on that. A little bit of general average, not so much. We're going to talk about some concentration of value and risk. We're going to go into some carrier liability versus cargo insurance. And then, of course, we're going to end with assessing supply chain risk. I'm going to pass it over to Kerri now.

Yes. Thank you, John. So we just want to take a couple of minutes here to talk about why we are -- we feel that we are the experts in this field. A little bit of an elevator pitch, and we promised this is not going to be a sales pitch the entire hour, but just to understand who Expeditors is and who the ECIB is. So first of all, Expeditors, we have over 300 offices. We are non-asset-based logistics border -- logistics company. We were funded in '79. We have our head -- global headquarters in Seattle and regional headquarters in London, Dubai, Singapore and Shanghai. Some of the things that that we feel make us different, our people, our systems and our processes. So we're excited to be coming to you with this information and also want to introduce Expeditors Cargo Insurance Brokers, which [indiscernible]. It's a whole -- we are a wholly owned subsidiary of Expeditors. And we really specialize in cargo insurance, claims advocacy, TPA, which is like third-party administration of claims. And we do have brokerage and claims adjusters who sit on staff to help us manage this program. So no further ado, let's go ahead and start talking a little bit about the insurance industry. So over the past decade or so, we've really been faced with the hard market. Prior to that, it was soft and carriers -- the insurance carriers were looking for people to -- were looking for business to hold. So yes, as you're looking for more business and the market is soft, it means the rates went way down. Over the past decade, though, we've seen the rates really drive up. And the insurance carriers are really doing a really good job of focusing on certain areas and certain commodities where they've seen large losses. So some of the examples of this would be pharmaceuticals or computer equipment, especially fully loaded server racks. And then there are certain countries that are a challenge as well. We see a lot of problems in Mexico. You have the cartel in Mexico, which is -- they're very big and stealing commodities. But believe it or not, they even steal trucks just for the fuel themselves. We're seeing similar problems in the Latin American countries and the Middle East and USSR countries. So there are some restrictions when we're looking at insurance going into these locations. But more importantly, we're seeing rates and premiums continue to go up in these areas. Insurance is there to really cover accidental loss or damage and when we start to see things rise in these areas, it becomes less accidental and more predictable, and that's where the insurance companies are really relying on the actuarial services to be able to determine what might happen in the future. We're also seeing a lot of litigation. And I think everybody who watches the news has seen this. We're seeing nuclear verdicts out there where in nuclear verdict is traditionally something that's $10 million or more. It's being awarded by a jury and certain incidents of property damage or bodily injury, unfortunately, death. And as tough as this can be, we're seeing them have verdicts that are [ $100 million ], in the hundreds, we've even seen some in the billions of dollars. And while it said, the unfortunate thing is this all comes out of insurance and does raise rates. And so we have to keep a careful eye on this. We've seen some coverage changes. So obviously, everyone knows what's going on in Ukraine and what's going on in Israel and so there are a lot of insurance companies that are starting to take a look at what's going on in these areas and put some coverage conditions in place. So for example, you're not going to be able to get insurance in Ukraine or cargo insurance in the Baltic Sea. But what you can see is that the areas surrounding it, there's coverage is still there. So it's really important that you read your policy is to understand what's going on there. Now we've seen some really interesting things in this area. So the cyber exclusion for example, I'm going to read this because I think it's important to understand what it says. This endorsement excludes catastrophic loss or damage caused by a computer, computer software program, malicious code, computer virus, computer process, or any other electronic system as it means for inflicting harm. So what does that mean if inflicting harm? Basically, we're being told by the insurance companies that if it is a computer used [ in a theft ] then that would be considered that inflicting harm, which is really broad. So we've had a lot of conversations with the insurance companies out of there, like we use computers for everything. And they really have said, "Hey, it's going to be something that's really catastrophic and losses that insurers just really could not handle the payout." So for example, the hacker where he able to get into a power grid, shut down the entire Eastern Sea world and all perishable products across the East Coast to deteriorate, that would be something that would be considered catastrophic. However, if the computer is just to create a bill of lading to steal one shipment that is not what's considered catastrophic. Having said that, the language is still there. We have not seen any incidents or any claim. So we don't really know what the courts will decide, but that exclusion is in there. And then the other one that we like to talk about is the communicable disease exclusion. This came about because of COVID and the verbiage is very similar. It's excluding coverage for any loss, injury, damage, liability, et cetera, that's arising from the [ events ] suspects in transmission of the disease. So it's tough because remember, cargo insurance getting risk is really there for loss or damage to the cargo itself. So we're not really sure what that would look like. For example, if you're a FedEx driver delivering something to your house or your Amazon driver, they [ stanced ] on your box. It doesn't really cause any problem to the cargo itself. So it's challenging to understand what this would look like. And again, we haven't seen any court cases to let us know. So with that, John, I'm going to hand back over to you for our first quiz.

Great. Thank you. Okay. So the first quiz is going to be how many different parties touch your cargo during the transit. So you have 4 choices. So we'll give you about like maybe like 30 seconds to choose. Maybe less than 30 seconds.

It's a long time when I was talking.

So okay, so 42%, 41% for 5, 10 or more. Yes. That's -- I usually go with 10 or more, it all depends on the transit. So we're going to get into that and now we're going to go over how freight moves. So I would say 10 or more, but there are instances where it's a direct truck from one party to another party in less than 10. So we're going to get into how most international freight moves from origin to destination and vice versa. So there's a lot of parties that touch our cargo and not too sure a lot of people realize that. So when you have a shipment, we'll talk about an import from, let's just say, Italy, you have the factory who is manufacturing it, right? You have the trucks who is picking it up. So you have the factory that puts it onto the truck. You have the truck of that brings you to a consolidated -- they consolidated then gives it to a [ drayman ], who brings it to the airport or to the seaport, right? Then it goes on the plane, someone actually has to put it on the plane. So in that instance, you probably have 5, 6 people who are touching it because when it goes into the port, remember, it gets off the truck, sits in a warehouse. Then it actually goes from the warehouse, someone actually touches it again, puts it on the plane. And then that process happens all over again on the back end when it gets finally to the end user or the end [ continuity ]. And with that, there's risk everywhere, right? -- when someone touches your freight, there's a possibility of something happening, forklift hold, they missed the bottom of the skid, they put a forklift hold into a natural box, right? Well, it's on the vessel, there's a lot of water that can happen, a lot of rain. So we're going to get into some pictures on how freight actually gets loaded on to planes and loaded onto vessels. So right here, this brings you back to my export days in New York. For those of you who can't tell, that's where I'm from. I sit in the Miami office though. So this is ULD, unit load device. Some people call it a cookie sheet. It's usually 125 x 88, and then depending on the actual aircraft, it can go up to 64 or can go to even 88 or 92, I think. So what happens here is that you actually are putting freight onto this cookie sheet and you kind of do it like [ textures ], you're trying to make it all fit on this cookie sheet so it can actually go on the plane. So you have skids, right? And in the U.S., our boxes aren't always symmetrical, right? So they're all different sizes. So we have to actually figure out how does this fit onto this cookie sheet and you can see there's a piece of this plastic wrap on the bottom, right? Because at the end of the day, we're going to actually fold this in, and we're going to cover it from the elements outside. So this is interesting. This is black shrink wrap, right? Lot of people question, do I use black shrink rap? Do I use clear shrink wrap? What's going to stop a thief from stealing my freight. So in this case, if we go to the next slide, you'll actually see what some people do. They actually will go to the bottom of the skid, pick up the black shrinkwrap, steal something from the bottom of the skid, pull the black shrinkwrap down, it gets to the end user. They open up the skid, everything looks good and all of a sudden, the bottom something's missing. So it went through the whole voyage and no one noticed anything. So that's one of the things that could happen during transit. Then you have your clear shrink wrap, right, with some [ buzz ]. That's great, too, right? But also, they do the same thing with clear shrink wrap. What they'll do is they'll remove something from the middle of the pallet, steal -- cut the side of the box open and then actually put it back into the actual pallet where you can't really see what was stolen and at the end user, they figure out that something is missing, right? So these are things that these do. Sometimes, I think if they would put their brain to something else they'd be a lot better for society, right? Because they're pretty smart in the sense. So as you can see, there's different things that go on this ULD. You have crates, you have loose boxes. And it's the freight forwarder or the 3PLs job or the airlines job to make sure that everything fits on the skid, so it can actually get on to the aircraft. The one thing that I like is here at Expeditors, we actually use labels that have orange around them. That helped me when I was in [ Air Employer ], if I was ever looking for some missing cargo when I would go into the airline facility. I wouldn't have to look at everything. I would just look for that yellow -- I'm sorry, that orange label. It was very helpful to me. So you can see everything is going on this. When it's all said and done, they shrink wrap it, they pull the plastic around and they put the actual carbonate around it. And the reason why they do that is because there's elements, right? Because it doesn't just go from the warehouse to the plane. It actually sits on the tarmac. And everyone who lives in Florida, lives in Miami, you know the weather can change. 2 hours to load that plane or 4 hours to load the plane within that time, you can have rain, then you can have sun, and you can have more rain, right? So from this point, it then goes on a truck. So it now will go on a truck. It will get rolled on, rolled off the truck. And then from the truck, it will then get to the airport, right? So there's a lot of people who are touching your freight. So there's also different containers that can be used, right? The standard one is the LD7 then you have an LD3 which is -- you can use it as a refill container for pharmaceuticals, where you can put some drives in it. And you also have the middle one, which is a horsebox, right? They move a lot of horses on airplanes, so it's interesting. So here you are, you are at the airport, they put this -- they put your LDE7, they about the load it onto the plane. You can see in the background, it's clear skies, right? But at any minute, it could rain, it could snow, you never know. So it's important that it's wrapped pretty tight, pretty good because you need to make sure that if something does happen, you're going to avoid those water damages or any type of damages. It's very important to do that. So after it's on here, it can either get loaded on the side of the plane or if the freight is too long, it has to get nose loaded. And there's some planes, there's some cargo aircraft where the nose will actually open up when you load the freight onto the plane. And once it gets on the plane, it will actually get rolled into positions, right? And that's why it's important for the height of the actual pallet, right? Because you do have a lot of passenger aircrafts that actually carry cargo. And when it's on the passenger aircraft, they can only go 64 inches high. And you can see here the contour of the plane. So one side of the pallet of the ULD can actually be higher than the other side. So there's a lot of little things that go into moving freight that at the end of the day when you go to the store to buy something. You may not realize all the hands that actually touch the freight and all the things that actually happened to the cargo. Right? So then after this, what happens? What's the next thing that happens, it can go on an ocean craft, right? So, it's okay. So that's how it would travel on a plane, right? So here is the MOL comfort. This is actually an old picture from 2003. We put this on because this actually -- this containership actually sunk twice. So in 2003, it broke in half. There's a lot of reasons why it broke in half. It didn't have anything to do with fire or anything. It was actually, I think, something mechanical with the actual steel of the metal of the boat. So it did break in half. It did sink in June of 2013, the first part. The second part actually sank in July. So it took a few days or a week or so for the actual second part to sink. So how does freight move on ocean, right? You see all the ocean containers. There's different types of ocean containers, right? The one that we would typically see are or the dry containers, right? What do people do when they load their dry containers, right? Some good risk management tools are to actually look at the container, when you receive it, actually open it up, look at the floor, look at the roof. A lot of these containers have holes on the top because at the end of the day, the freight is actually sitting on top of each other, the container. So sometimes it will actually hit the top. So there's a lot of things that can happen while it's on the water, right? The voyage from Asia to the United States is 40 days, maybe 90 now, depending on which way it goes, right? So the weather can change. right? It's hot, then it's cold, it's hot again, so there's [ compensation ] that gets involved. So this is typically how the freight is loaded on to an ocean container, flow loaded or it's all on a pallet, right? Flow loaded because you want to maximize the spaces of the container, pallets because you want to make it easy to put it in and put it out, right? You can load container faster, you can unload to container faster. So maybe the space is not as important as the time at the end of the day, right? So here are a couple of seals. You have to close container, you have to put a seal on it, so you have your standard seal, which is basically in the middle bottom, and you have some security seals that people would put on to try to stop them. But seals are interesting. There's ways to get thieves find ways to get around opening up doors without taking the seal off. You all do have a chance of going YouTube and typing opening a ocean container door without removing the seal. You'll see some interesting videos. So I think with that, we're going to go to our next poll question. So here, you have 2 seals, right? A and B. Which seal do you think which tempered with. We'll give you maybe 15 seconds and shouldn't take you too long. Okay. It's almost down the middle, but more for A. The answer is B. Now I'll tell you why the answer is B. It's a little tricky. So if you look on, A, the actual bolts are round, and they have some rust on it, right? If you look on B, on the top, the bolt is not round. It's hexed bolt. So that bolt was actually removed. They were able to open the door by removing that bolt and not removing the seal. So the thieves are actually pretty -- like I said, again, they're pretty smart. A lot of them what they'll do is they'll actually take that bolt and actually dip in an acid to make it look like it's old, right? Like it's been on the ocean for years. So for those of you who chose B, congratulations. And with that -- there's -- again, it's risk everywhere, right? At the end of the day, there's a lot of people that touch our freight, origin and destination, the more people to touch your freight, the more chances of something happen. With that, I'm going to turn it over to Kerri to talk about Incoterms a little bit.

Thanks, John. So Incoterms are also there to help determine who would be at risk, the seller or the buyer. I think it's important to understand that Incoterms are decided by the seller and the buyer and to a freight porters such as Expeditors, it tells us a story. It tells us who to reach out to in case of loss or damage or at least we have additional costs that are being incurred. So what are Incoterms? They literally stand for international commercial terms, Incoterms. And they were first developed by the International Chamber of Commerce in 1936. They were revised again in '53, '67, '76, '80, '90, 2000, 2010, 2020. You don't have to be a mathematician to understand that there's only one more round before I retire and then somebody else is going to have to take on the Incoterms training. But really, they're there to help simplify and help clarify. There are 3-letter code between the seller and the buyer to determine who's paying for that leg of the transit, who is responsible for picking up the phone, calling the [ port ] or calling the trucking company and who's at risk? So who's left holding the bag should something go wrong. There are 11 Incoterms. I always laugh because I was calling on a customer -- an insurance customer of mine. She asked me to do some training in Incoterms and then she realized that she was paying insurance for every thing that they were moving in and out. So she asked me to work with her sales team to determine which Incoterms they were actually at risk more so they could lower their insurance costs. And the sales manager or VP of Sales came to me and we had 36 different Incoterms. What's the problem with that? There's only 11 Incoterms. So what they were doing with trying to take the Incoterms and make it easy for them to determine, well, what was the accounting piece of it, so they would taper with it there. The problem is we have to remember that it's really important to use only the 11 Incoterms. This decision is being made between a seller and a buyer. If you change the rules then somebody who comes along that that's just say the buyer agrees to, well, then they get promoted or they retire or they win lottery and just walk off the job one day. In any case, keeping it to the actual Incoterms themselves is super important. There are only 11 and everything you need to know about Incoterms is available on the ICC WBO, worldbusinessorganization.org and in the Incoterms book itself. I will tell you, the Incoterms book is now available on Amazon. They partnered with Amazon, it's a lot easier place to buy than going to ICC. So it's important to understand what Incoterms don't do as well. They don't talk about transfer of title. They do not talk about the recognition of revenue, even though this is interesting, in 2011, the GAAP rules changed, the generally accepted accounting practices, they changed principles. And they basically said that you should talk about recognition of revenue with Incoterms. The problem is the Incoterms says they do not -- the book says that they do. So it's important to address that otherwise in the contract. So Incoterms talk about cost risk and obligation, but they're not law. And so really, if you have something that you're not sure if the Incoterms covers, just write it elsewhere in the contract, make sure it's addressed. Incoterms are legally binding as per the contract. And again, all they're really there to focus on is cost risk and obligation. There were some changes in 2020. I will tell you that a lot of the changes really were around the book itself. There still are 11 rules and by the way, you can use a previous version of Incoterms if you wish, but you need to identify the version that you're using. So the proper way we use Incoterms is that 3-letter code, the name place and remember, you need to be somewhat specific with the name place because if a truck driver goes into your plant A on one side of the city, and you've only named the city itself, but you have another plant on the other side of the city, there's going to be a dry run. So making sure that you use Incoterms probably is to make sure that you're not incurring additional costs. So let's just say, the 3-letter code, the name place as specific as possible and then what version of Incoterms you're using. If you're [ Supermarine to DDU ] and you want to use Incoterms 2000, that's fine. Just list out that you're using Incoterms 2000. So the changes to the Incoterms here have been very minimal. In the D terms, we watched a [ DAT ] go away, and it's completely covered by DAP and then DPU was added. So determining who is unloading at the destination. And then the rest here really, again, is in the books or listed here. The [ care team ] insurance paid too means that it's going to be good insurance. And then the FCA bill [ rating ] be an onboard notation, that's really more for letters of credit in that area there. So if you want to dig into Incoterms, this is not an Incoterms class. So if you want to dig into it, feel free to reach out to any of your regional risk and insurance managers with Expeditors, we're happy to assist. So here's a listing of the all modes. So these 7 Incoterms are available for all modes of transportation, planes, trains and automobiles. And then you'll notice that they each began with an E and F, C or D, so that is determining where in the supply chain is, who is kind of left to right to the Es or Ds. Where that transfer of cost risk and obligation are going to take place between the seller and the buyer. [ Exports ] being the Incoterms where the buyer is absorbing more of the cost of risk and DVP where the seller is absorbing more cost of risk. But these are good for all modes of transportation. And then we have the ocean transit only. So these goods are really only intended for sea and inland waterway transport. Something interesting, too, that a lot of people don't know, FAS, FOB, CFR and CIF are not really intended to be used for goods and containers. As we're going to talk about containerization and the flow here in a minute, but it's important to remember that a lot of people still use FOB even though it's going to be in a container. A lot of people still use CIF even though it's going to be in a container. We're not recommending that you run out and change all your Incoterms and change your contracts, we're just making you aware of the fact that containers get loaded and then delivered to a rail head or a container guard. They don't give anywhere near the vessel. The people that are loading the vessel, I'd like to use this from a U.S. standpoint in Long Beach, for example, who is loading the containers in Long Beach, the longshoreman, who pays the longshoreman, the terminal, who pays the terminal, the steamship line, who pays the steamship line, well, either forwarder or a customer. So you can see you're vastly removed from actually being able to load that container on the vessel and that's why when it comes to goods and containers are really recommended that they use the 7 omni mobile terms instead. We're not going to change this overnight. Many, many people will use FOB and CIF in particular. But just be aware that, that is something is written into the book. And again, we're happy to have a conversation around this if you're interested. So I would want to talk a little bit about the evolution of insurance and the supply chain or risk management supply chain. What is the oldest form of insurance in the world? I think there are a lot of people that believe it was cargo insurance. So where did that begin? There is a -- Belgium is a major mercantile and trading center in the [ Naval ] Europe. So merchants from all over Europe used to congregate, engage and trade in the city and became a hub for exchange of goods and commodities. The proximity of [ Bruce ] to the North Sea really facilitated maritime trade and there were inherent risks that were there. There was piracy, ship wrecks and other [ pirates ] of the sea. So at the time, merchants and ship owners engaged in mutual agreements to share in the risk and the potential losses. So that's became the known written down part of it, but there was certainly risk prior to that. In 900 BC in [ roads ], Greece, general average concept was kind of brought about and that concept there is where everyone shares the loss. We have a separate slide on general average. And again, it will dig into it there. But even prior to that, talk about the Silk Road. Prior to that, we used to have merchants that were selling things in the Asia from the Middle East area, and so they used to travel through road. So they were in fear of loss or theft. So basically, what happened back then. It wasn't a formalized process. But the merchants gather together and talked about sharing and creating a pool so that if there was a loss, if they were attacked by bandits, for example, then if there were a loss, they would be able to sharing that loss. So the concept has been around for a very, very long time, formalized really in [ Medieval ] Europe. Then I want to talk a little bit about the creation of Lloyds of London. I think this is super interesting. I think everyone has heard of Lloyd's of London. That's where you can get a dancers legs insured? Or John, you got to say that you're from New York. I'm going to saying like this might be where [indiscernible] aren't gets insured. I happen to be from Detroit, and I'm super excited about football right now. But it was a place where a gentleman would gather and merchants would come in and kind of pitch their voyage. Hey, we're going to have a ship going here. I always think of it like rich dudes like hanging out with their newspapers, read their newspapers, having a cup of coffee, I think it was Edward Lloyd's coffee shop. And they would come in and they would say, "Hey, would anybody like to take a share of this voyage." And that meant that they were sharing the risks, but also they would share in the profits if it was a successful voyage. So that began Lloyd's of London, which is now a huge insurance syndicate in London itself. And then in 1937, the shipping industry changed dramatically when Malcolm McLean invented and patented the shipping container. And the idea behind this was really to add the shipping container to the chassis itself and being able to easily move from truck to boat to truck again. But it didn't do something for the insurance industry as well. It's less. John was pointing out the seals and what's happening, thieves as -- we create improvements in the industry, thieves get trickier and more creative as well. So in this particular case here, though, they created it -- it did lower insurance rates for cargo because it did reduce that and add more security. And then finally, we've seen like 2010-ish, we've seen things change with the Internet of Things. We're seeing real-time tracking and tracing of cargo. It started out with devices, they were about the size of your cell phone. They were a little bit more on the expensive side. And since that time, we've seen that may be reduced to smaller, less expensive but still rated GPS device tracking and some of them have been thrown away because returning -- getting the devices returned were a challenge, that reverse logistics was a real challenge. Lately, we're even exploring what's called smart labels, where the GPS devices are actually printed into the label itself. I envision at some point that all labels will be printed with this, and that's how you'll track and trace your freight going forward. I don't know if that will be within my career here, but certainly, it's something that's coming down the road. And the other thing about these GPS devices, we have a fully owned subsidiary cargo signal that is in this world here. So we've had conversations with the insurance company around cargo signal and how that's affecting the industry. And every insurance company that's come through our cargo signal area and has done its demo, they've said that they are willing to offer reduced pricing if you're using advanced technology to keep your stuff secure. So I promised a little conversation around general average -- where did it start? Again, this has been around since the Roman days, and it was -- but it was codified in 1877 and became part of the [indiscernible] that were written in 1890. So general average is an act where the only the owner of the ship can declare general average. And the idea behind it again is that everybody who has freedom or the vessel will share in the loss of the goods. So that means if you have a container on a vessel and something happens where they have to salvage the vessel or save the vessel, have it toed in, have it prepared. All these happen. Those costs that are associated with that will be shared across all people whose goods are intact. So if you lose a container, let's say, there's an explosion, you lose a container, you would not be -- besides of the -- would not have to share. However, if you have other freight on board, you would have to share in the sacrifice the expenditure in order to save the vessel. So it is the cargo. It is the vessel captain who has to declare it. And then there are such things that are called average adjusters. We're going to dig into that in a minute. I think it's important to really talk about the fact that there has to be [ apparel ]. So the seas have gotten [ robbed ]. There's been an explosion. There's a fire on the vessel. The vessel is broken down. And then there has to be a sacrifice, so there is a cost or a sacrifice to the cargo to the vessel itself. And then once that happens, it goes into general average. It's important to also understand what general average that -- when a general average is declared, there is a very specific general average adjuster who takes over at that point. It's very complicated and a lot of these will take up to 10 years. So you do have to post a bond and then they will go through the process of the general average. I would like to point out that cargo insurance, I don't know any cargo insurance that doesn't but cargo insurance could cover general average so that if there were a declaration in this case, your insurance company should take over. John, I think we're on to the third quiz here.

Yes, we're going right along. So put these in order from shortest to tallest, Space Needle, Salesforce Tower, OOCL Hong Kong and the Eiffel Tower. We'll give you 15, 30 seconds somewhere around that. The Salesforce Tower, I was told is in San Francisco. So 39% of people said the Space Needle, Eiffel Tower, Salesforce Tower, and OOCL. That would be the correct answer. Good job. Good job. The OOCL Hong Kong is taller than all that were on that screen. It's pretty crazy, isn't it? So we're going to get into a concentration of value now. So with that, we talked about the OOCL Hong Kong. This -- it made its voyage in 2017. And at the time, it was the largest container ship, right? They had over 21,000 TEUs. Since then, and I mentioned that since then, there's 51 ships that are larger. That is crazy. So they're making these ships bigger, wider, stacking more when we get into concentration of value, what does that mean? And what does that do? That just tells you that you're putting more of your fleet on one ship. And if something does happen, are you prepared for a loss? How would you go about that? Do you have stock? Are you able to get freight to you quick enough to sell it to your customers? So concentration of value is something I don't think a lot of people looked at and actually sit down and say, how many containers do I have on a vessel, like how many times does that vessel actually leave Shanghai? Am I going on one vessel a week? Am I splitting my containers over 3 vessels. So I think it's something that everyone should look at. And ultimately, when you look at your cargo insurance, so we'll get to get into that a little bit later. They give you limits per conveyance. So if you don't know what your limit per conveyance is, and you actually have a higher limit on that vessel. If something happens, they're only going to pay you the limit that you have on your cargo program. So you may want to take a look at that. So there's also other concentration of value, right? You have your warehouse values. During COVID, a lot of people actually brought in a lot of freight and had a lot of freight in their warehouse, but they were selling it fast. But then as time progressed, right, things slowed down a little bit. So now you have a lot of freight in your actual warehouse and freight sitting is freed at risk. We have a fire on the left. I believe that was in that was in Lebanon. So that was a port fire. Unfortunately, some people perished in that, but a lot of damaged cargo, right? And then you also have a fire for a warehouse. Those could be -- those can be very, very tough. You lose your freight, what's the game plan to get replacement to get to your customer, right? Because at the end of the day, you need the cargo to sell to your customer. So concentration of value is very important. So you have here, we're going to go over some examples of losses with concentration of value. I'm sure everyone has seen this. This was the Felicity ACE. It was burning at sea 2022, $400 million in losses. It was for cars roll-on and roll-off. I think there was a lot of Volkswagen cars, Mercedes Benz, just a lot of cars in general. This eventually sank. So it was a total loss. So the magnitude -- the magnitude there is pretty dramatic for someone who has the freight on that vessel, right? So we're going to go to the next slide. So this was the One Apus. This was in 2020. This was 1,800 containers that actually went overboard. It hit rough seas from Yantian to Long Beach. So it affected a lot of people here in the U.S. There was a lot of freight that was on this vessel that people had. And it was a -- at the end of the day, it was a disaster. If you had freight on that vessel, you didn't know if it was damaged, you didn't know if it fell overboard. And then when you found out that the freight was still there. It just took months and months and months to even get the freight. So again, it goes back to concentration of value. How many containers do you want to put on a vessel? And if something does happen, what's the backup plan to make sure that you have cargo available to sell to your customers.

Yes. And John, I'd like to point something else about this picture, too. You'll notice that the containers are like this way and this way. The way containerships are unloaded is you have a gantry crane that comes in, drops down, picks it up and take this onto shore. They're really fast about it. It's pretty fun to watch and you are seeing more of the world that's Tom Cruise in the very beginning as an gantry crane operator so it's kind of fun to watch that. In this case here, gantry crane doesn't necessarily work because they have to be able to get it so that they can position it, so -- as much of months like you were saying months to unload this really interesting.

Yes, so that we'll pass it over to you, Kerri.

Thank you Yes. So you might look at that and say, okay, well, too bad for the carrier. But the reality is, carriers are allowed to limit their reliability because they charge based on the weight, not based on the value of the product. So they limit the liability by mode. ARS-1, Ocean is one, truck is the other. And they also must be negligent. So there has to be proof that they actually did something wrong. If there is an [ Active God ] for example, there's bad weather. In a case like that, they're not going to be held liable. So in the international ocean world based on the carriage of goods by Sea Act, which was enacted in 1936, but really kind of grew from the [ Hague-Visby ] conference, which took place in 1924 in the Hague, Netherlands. And carriers in this case, are limited to $500 per customer shipping unit. What's a customer shipping unit. It's going to be the least number of pieces listed on the bill of lading. So one 20-foot container -- container with 10 skids, with 144 cartons is going to be $500 because of the 1 container. But let's just say that it was to just 10 skids that it would be $5,000. But again, in no means are they always going to be held liable. It's just the amount they might be held liable for. I'm guessing in most people's cases with 10 skids on there, $5,000 is probably not going to cover all of your goods that are in that container. So international airfreight started with the Warsaw convention in 1929. And back then, it was based on USD 20 per kilo. In the '90s, however, the U.S. currency was fluctuating quite dramatically, had a Montreal convention, it was determined that they were going to start using was called the special drawing rate per kilo [ SDR ]. And this is roughly about USD 30 per kilo at this point, but it's the average of 5 currencies: the U.S. dollar, the euro, the British pound sterling, the Japanese yen and the Chinese yen was added later on. We've stabilized it, so it's roughly about $3 per kilo. And then with trucking and warehousing here in the United States, the standard than the liability for freight forwarder is $0.50 per pound. However, truckload companies will vary. And so it's important to know what their liability is -- what their liability limits are. Some are like [Technical Difficulty] others are going to be lesser and more than that depending. It also varies by country. So it's just -- it's really important to understand when you're shipping with somebody, what their carrier liability is. But it's also the value and the type of the goods, they have no impact on the freight charges or on the carriers liability. So I'm going to use an example here. If you have 3 ocean shipments consisting of 20 pallets piece, we're going to talk about commodity, value per container, freight charge and then constant liability. So you have a 40-foot container filled with furniture, it's valued at roughly between $25,000 and $40,000 per container. The freight charge is $5,000 and then the liability would be [20 pallets ] times 10,000. Let's talk about a 40-foot container field with cell phones. Now we're talking about a value of $1.2 million. Freight charge doesn't change, liability doesn't change. It's still 20 pallets times $500. Now let's talk about a 40-foot refrigerated container filled with pharmaceuticals. Value now is $10 million to $50 million. Rate charge doesn't change. Liability doesn't change. It's still 20 pallets times $500 with a payout of 10,000. And then Konza also has this whole thing where it's called cargo carrier [ defenses ]. Some of these make sense, right? If it's an active guard, should the carrier be held liable for something that was beyond their control or not. So active guard, active nature, active work -- some of them are a little more subjective, so insufficiency in packaging or perhaps inherent defect quality or [ price ] of the goods. So some are a little more subjective, but in any case, they are not going to be held liable if they import from these carrier defenses. And if a carrier does that, too, and you feel like it's not correct, that's when you would look at lawsuit. But then the final one, I think, is kind of funny. It's any other cause horizon without the actual faltered on the carrier without the fall to neglect in the agents of the service of the carrier but the burden approved should be on the person claimed and the benefit of this exception to show that neither the actual fault or from via the carrier or the fault or neglect to the agent of the service carrier contributed to the loss of damage. So first, I know most of you are seeing their scratch your head going hot, that's exactly right. It's basically saying 1 through 16 doesn't apply we can go above 17. And that means the burden process from the carrier proving their innocence to the customer having to prove their guilt becomes a little bit more challenging. We don't really see this very often. I don't know that I see this very often, but let's just kind of funny that it is written into the laws.

Yes. So with that, we're going to touch on cargo insurance. So know that the carriers liability is limited, like how do you defend against that? That's where cargo insurance comes in, right? So what is cargo insurance? It's typically known as all risk, right? All risk cargo insurance. It's going to cover you against all risk or physical loss or damage from an external source during transit. You're going to have coverage like international, domestic, small pack, stock, so you can also cover inventory or inventory that's in process. So the standard valuation is CIF plus 10%, which is the invoice value, freight charges, any duties and taxes with an additional 10%. There's deductible options depending on how risky you are, right? And then there's the exclusions. We talked about the exclusions earlier, right, the cyber, the communical, nuclear, biochemical, delay in significant package and delay is an exclusion. But if your freight is damaged while is being delayed, then that is covered -- that would be covered. So why is insurance important during the supply chain? Because when a loss happens, what will insurance do? It will prevent some out-of-pocket expenses that will protect your business income, right? Because if you're selling something to a customer domestically, you're selling price, right? So it's going to protect that business income. It satisfies terms of sales and purchases. If you have Incoterms in your contract and you are at risk for it, right, it's going to protect that. It's going to satisfy it. And it resolves claims quickly. The big misconceptions that the insurance companies don't pay. I don't see that. I actually -- I don't recall filing an insurance claim and seeing it be denied. I'm sure it's happened. But it's very rare on my side. And the claims process is probably within like 21 to 30 days. When you look at the liability side, if you file a claim on the liability side where liability is limited, you could be up to 90 days before you even have an answer. I know when you received the answer back, it's not that it'd probably be the answer that you want and it's just going to be a very difficult conversation. So at the end of the day, liability is risky. So that's where cargo insurance comes into play. So you have 2 options for cargo insurance, right? You have transactional insurance, which is offered by the freight carriers at a market rate because you're looking at a onetime shipment. And then you have an annual policy, right? It's offered by insurance companies, through insurance brokers. So which one is better? Honestly, for me, as long as you're insuring your cargo, I think you're good. Because at the end of the day, that's where you're going to get -- if something does go wrong, that's where we did -- that's where the rope is going to hit the road, right? You're not going to have to -- you don't have to prove negligence for liability. You just have to prove damage. So with -- when we go back to liability, a little bit, you have to prove that the carrier was negligent. With cargo insurance, you just have to prove that there's damages. So we're going to touch on what transactional insurance is, right? Transactional insurance is a onetime shipment which we spoke about. It's quoted of the value of the commodity in the [ lean ] and it's quoted and added each time as the customer requested on a freight quote. So to give you an idea, $10,000 of insurance coverage could be about $45. So it's not that expensive. And when you look at an annual policy, it's a little bit different, right? So transactional insurance is basically getting a box, whatever in that box is what you get. So when you have an annual policy, it's all risk, warehouse to warehouse coverage for all modes of transport ensuring total protection of your supply chain from stock to finish. So you look at what are you at risk for and you pass that information on to the broker would then go to the insurance company. So it's seamless global coverage regardless of what freight provider you use. So you don't have to say -- request insurance on that shipment. And if the shipment already moved, you can't insure it. So your shipments will be insured regardless of the freight company that you use. The rates are determined by annual value, right? Max value per conveyance, commodity country and loss history. We talked about the commodities, right, cell phones, server racks. There's commodities that are going to be a little bit more risky. There's going to be a little bit higher premium for those. So it's also personalized. That's the good thing, right? Are you a risky person? Do you want to take on a higher deductible for a lower premium? Do you do a lot of goods security measures where you say to yourself, you know what, I pay extra for all of the security, I'm going to be a little bit more risky. I'm going to take on a higher deductible. So these are all things that the annual policy allows you to do, of course, with consulting the insurance broker that you use. But this is just a picture of an ocean container. It's -- I always look at those and -- just like, wow, that really happens. So one thing we get can I insure delays. So in a cargo policy, we talked about a little bit, a delay is an exclusion. Of course, if the freight is damaged or under delay, you will have coverage. But there are -- there is something that's out there, it's called trade disruption insurance. And if you're interested, again, you can e-mail us or send us a message. We can talk a little bit more about it. But under a cargo policy, delay is not covered.

So we're here to start to assess your supply chain risk. So almost cargo covers you door to door, warehouse to warehouse and it covers all modes of transportation. It's really like John said, it's written for you. So that's a good place to certainly start. Also, the seamless global coverage, again, you've got coverage, you don't have to ask for it. So you really want to take a look at your vendors. You want to understand kind of what's out there and understand the risk that's involved there. So in conclusion, we want to leave time for questions, so I can rush through that there. Many parties touch your freight, carriers are limited in their liability, concentration of value can be bad, where there are more ocean shipments on bigger ships. And then all risk coverage does provide you financial protection. All right. With that, I think we're going to open it up to some Q&A.