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

Okay. Good morning, everyone. It is 10:00 a.m. sharp. We're going to start the webinar. I will let the poll question up a little bit longer, so you guys can keep answering it. So I just wanted to say good morning again, and welcome to this Expeditors Webinar. We're very pleased to have you all here with us today. I'll introduce our panelists in a little bit, but I just wanted to share some housekeeping rules with you all. This session is not being recorded. Your microphones and cameras are off. So if you have any questions about the content, please use our Q&A box. You'll find it by the side of the chat box at the bottom of your screen. We have 2 people of our team, Irene and Zoltan monitoring the chat box and Tony and Alan will also get to them as we go along. Participation is highly encouraged, so please use the chat box and the Q&A box freely. If you have any technical difficulties or if you have questions that are not related to the content, please put them in the chat box and myself and the rest of the facilitation team will check in with you. Okay. Without further ado, I'd like to introduce our panelists for today's session, Alan and Tony McDermott. Both Alan and Tony have many, many years of customs knowledge and experience, and they have very long tenures with Expeditors. I'm sure you'll find them just as brilliant as I do. Alan and Tony, I think I have robbed too much of your time. So I'll let you start.

Good morning, everybody. Are we going to look at the results of the questions. I see it in front of me. So it looks like the majority of people only have like a 30% knowledge of CBAM, don't feel lonely, I think I'm in that area as well. There's one thing that I think I need to sort of from the beginning talk about, and that is the timing of this webinar. Usually, Expeditors likes to be upfront and very early with the informational sessions about new things that are happening in the customs and the trading environment. But in all honesty, CBAM has been rather confusing, if I can put it that way. And it's been very, very difficult to fully understand the intricate workings of CBAM. So I'm going to jump off into our presentation, and I just want to remind you to please ask questions in the question-and-answer box, we'll try our best to answer them as quickly as possible, and we may even hold some of those questions over until the end of the presentation. So the European Union have got this Green Deal set of policy initiatives. The purpose of the Green Deal was to create regulations and rules that will allow the total reduction of emissions in the EU by about 50% -- 55% by 2030, and the cornerstone of the Green Deal is the so-called Emissions Trading Scheme of the EU. The Emissions Trading Scheme come let's say started or it started -- being implemented in 2005, and it places an obligation on local manufacturers of carbon emitting products to be able to purchase carbon emission certificates or what we will call carbon trading certificates on the open market, for emissions that they create in the manufacturing process above a certain quota. Now that quota, as I understand it, reduces as the phases of the ETS got implemented, okay? But placing a burden on local manufacturers has always got a counter to it, okay? There's always -- if you're putting a cost or a burden on local manufacturing, it leads to a position where local manufacturing can be, for example, become noncompetitive. It places a higher cost on the products that are manufactured locally. There's also an investment slowdown, if I can put it that way, in those manufacturing processes. So CBAM was designed to counter the effects of placing a local tax, if I can call it that because essentially that's what CBAM is all about, it's a tax on emissions, okay, tax on imported emissions. So CBAM complements the current EU trading scheme, emissions trading scheme. What you do for local manufacturer in a trading world you need to do for imported goods, and this is where the balance comes. This is in line with WTO rules. This is in line with international trade and customs conventions like the Kyoto convention as well. So as soon as you're placing a tax or a burden on a local manufacturer, you can place that burden on imported goods as well, and that's what CBAM is all about. So the fact that you're moving manufacturing out of the EU for goods that are -- to countries that the emissions are not come let's say governed or controlled in the same manner as what the EU does leads to what is called carbon leakage, okay? So you're actually taking the process of creating those carbon emissions in another country and then importing them back into the EU as a final product or a roll product which is not really effective in the goal of being able to meet the policy initiatives of the Green Deal. So CBAM is only on a defined range of products, and we look at those -- that range of products that are imported from third countries in a moment. I think it's important to sort of understand that I believe, and I'm sure that the policy decisions are also in that direction that CBAM is not going to be limited to this defined range of products. We see a lot of debate that took place within the EU Commission and the EU Parliament around where the barriers around the CBAM needed to be placed? What was -- how is CBAM ring-fenced, okay? And it was decided to leave out certain high emission manufacturers like plastics, for example, out of the CBAM net for now. But as the ETS develops further, as the quotas decline, we can see a situation where CBAM is going to be implemented across a larger, broader perspective of different products. This is why I apologized in the beginning about being a little late with our information, okay, because CBAM transition period, the legislation was sort of published and made from say, applicable, I think, in around May last year and the transition period for CBAM began on the first of October 2023. Now we'll explain what the transition period is all about and what needs to be done during this transition period. But there is this 2.25 year period where we, as an industry, as local manufacturers and as importers need to get used to this new CBAM environment, okay? And that's basically why the transition period was put into place. The full implementation of CBAM starts on the first of January 2026. So while at this particular stage, there's not really a financial consequence and the CBAM tax or the tax on imported carbon emissions is not in place yet, there is a responsibility that is placed on importers to be able to report those responsibilities, and we'll spend some time going through that with you. Let's have a look at what these sectors are that are affected. Now within our client base, I think the sectors that affect import is the most, within our client base, essentially are the iron and steel sectors, and the aluminum sectors, while fertilizers do play a little part, it's not as prevalent as what iron and steel is. The range of products as well, if we look at the cement, for example, the range of products that are affected within the cement sector or the brick manufacturing sector, is very, very limited. Electricity and hydrogen are isolated products in their own right, and yes, you do need to file a customs declaration if you want to import electricity even if it's by wire, okay? That's an interesting fact. So let's look at the fertilizers, the iron and steel and the aluminum sectors in a little bit more detail, just to sort of understand the range of products that are affected here. So from a fertilizer perspective, and I won't spend time over here, it's primarily manufacturers of nitrogen, okay? And we know especially those of us that live in the Netherlands, there's a tremendous amount of political debate about the creation of nitrogen and the emissions that nitrogen causes. So nitrogen, phosphorus and potassium used in fertilizers, they are the prime target of CBAM under that particular sector. When we look at the iron and steel sector, this is where we get this broad range of products, which has a massive effect on an importer who doesn't really import rolls of stainless steel or massive amounts of pipes or pig iron, but rather semifinished products or finished products, and I think within our experience over the last bit -- in a month, it's the smaller import that really causes the problem. When you're importing bolts, nuts, screws, other articles of iron and steel, the range is almost inexhaustive, okay? The Tariff Reading 72 of the chapter, you've always got these headings, which end up with other articles of iron and steel. Now I mean, that could basically be anything that cannot be regarded as a particular article like a set of players or a tool, et cetera, that is being affected, and the same goes for aluminum, it's very, very broad in its approach, okay? When we look at what is exempt because there are some exemptions, but they are very, very limited. We have goods that originate in Switzerland, Norway, Iceland and Liechtenstein. These are the so-called old EEA countries, okay? But there are countries that have an emissions trading scheme as does the EU have or they are associated to the EU's emissions trading schemes. So there is already a carbon price being placed on manufacturers from those countries and they form the basis or form within the basis of the Green Deal. So goods that are manufactured in those countries or originating in those countries are exempt from CBAM, okay? Then we have the so-called de minimis exemption, which is quite a difficult exemption because it is based on value and not on weight for example. It is based on the de minimis rule that is taken up in the customs legislation, the UCC, which says that goods that have got a value of less than EUR 150 do not need to be declared or no duty and taxes need to be paid on them. If that is the amount of those goods in a particular shipment. Now CBAM works in a very similar way or actually in the same way. If you have CBAM goods in a shipment and the value of those CBAM goods in total within that shipment exceeds EUR 150 you need to report all the goods that are in the shipment. So you can have 500 grams of screws and a couple of pipes, and the total value of the screws and the pipes comes to EUR 151, you have to report both of them. Now the weight of the screws might be 3 grams or whatever. There's no de minimis at this stage based on weight, okay? When we're looking at this product, it's all based on value. The military use exemption is also quite difficult because the definition of military use is very broad, okay? If we look at the guidelines of CBAM, they specifically mentioned military use, okay, which when you look at it quickly, it could be anything as long as it's used in a military context. There's one little catch over here, however, and that is the definition of military use is as per the definition that is taken up in Article 149 of the UCC, which really, really says that the goods must be imported for or used by or whatever a military or a NATO Organization, which is quite difficult to do when you've got third parties that are involved to be able to show this exemption in a customs declaration, for example. Some countries within the EU have come up with Box 44 Codes as we call them in our language, customs language. These are not event codes, but indicative codes to be able to tell customs that this particular good qualifies for a particular treatment, okay? So in the Netherlands, for example, you can use a code and you can tell customs these goods are exempt from CBAM or these goods are not exempt from CBAM. This is not the use in all countries in Europe. In some instances, we've actually gone to customs and asked them, how do you differentiate between goods that are de minimis or not, and we don't get any really, really good reply from them. So it remains, I believe, that from a value perspective, they get their information from the customs declaration. So they can possibly look at the value of the goods in a total shipment, but I don't believe that the custom systems are built in such a way to allow that to happen. They can also look at the origin country because they've got that information in the declaration, so that would help them, but I'm a little bit at odds as to whether the information that is provided to customs or to the NCAs or the national competent agencies whether that's going to be in line with what actually should be exempt or shouldn't be exempt, but we'll wait and see how that turns out as we move into this transition phase. I think the next thing that we need to think about here is return goods, okay, during the transition phase return goods do not need to be reported. So if you exported goods and you're bringing the goods back and you do qualify for return goods, you don't need to report them within the transition period. After the transition period ends, in other words, as from the 1st of January 2026, you'll have a situation that your return goods will be imported using the customs procedure for return goods and if they are coming back, then you do need to report them, you will be able to offset any carbon price that is attached to those goods at that particular time, okay. Just a quick note about EU manufacturers. If we look at EU manufacturers, goods that are manufactured in EU, obviously, it's goods that are imported from third countries that originate in third countries that are subject to CBAM. So if you have metals or products that are originated in the EU, they are not currently subject to CBAM at all, okay, and we might have that situation at a later stage when we do sit with return goods that we might have to do something different to show in that. And just in terms of countries exemption, a question that I'll get quite regularly from our customers is the U.K. our goods coming from the U.K., not exempt from CBAM. No, they are not exempt from CBAM. Products originating in EU that are subject to CBAM need to be reported. Just looking at who must report. I think this was one of the more confusing factors that came out of the legislation because the CBAM regulation is the first bit of legislation that I'm certainly aware of, there might be others out there that has made the declarant as per the customs legislation, the person that needs to be the reporter, okay? So it's the person in whose name and customs declaration is submitted to customs for the importation of goods that needs to report for CBAM, okay? And just to make a distinguishing between I'm using the word reporting declarant and very often now because we're in the reporting phase, we're in the transition period, which is a pure reporting period, the reporting declarant will become the authorized declarant once the full implementation takes place, in other words, from the 1st of January 2026. Now when it comes to this declarant, let's spend a little bit of time here because the declarant is the person in whose name a customs declaration is submitted or the person who submits their customs declaration. So it is usually 90% of the time, I would say, this is the EU importer that has purchased goods from a third country that is filing a customs declaration either by himself or through a customs agent, okay? So an importer can appoint a customs representative to act on his behalf. Now generally, when we talk about how does that customs representative represent the -- his customer, his principal or the importer, it could be as a direct representative where he acts in the name of the EU established person on his behalf, okay? So a direct customs representative acts in the name of the importer, and he is just a filing agent in the name of the importer. If we sit with a situation where the importer and this is very possible, in the EU that an importer can be established in a third country, it could be a U.S. company, it could be a U.K. company, it could be a Swiss company, it could be a Chinese company, we experienced a lot of these types of constructions nowadays in our trading environment where companies that are established in a foreign country want to be the importer, the owner of the goods being imported into the EU to facilitate this process, they need to import -- sorry, they need to appoint an indirect customer representative. The indirect customs representative files customs declaration in his name. So he's the established person in the EU who's filing the customs declaration in his name to facilitate the import of those goods. Now when it comes to CBAM, the indirect customs representative who is filing a declaration for a non-established party can be or will be the reporting declarant. He has to be the reporting declarant, there's no alternative out there for him now. An importer who is established in the EU, and I'm sorry if this is confusing, but it does get a little bit hectic, okay? An importer who is established in the EU can also appoint an indirect customs representative. In other words, the customs representative files that import declaration in his name, but on behalf of the principal, the importer, who is EU established. Now we get this situation happening quite often where we would use a simplified procedure, for example, expedite a simplified procedure. It's an authorization that has been issued in our name. So when we file declarations against that simplified procedure, we need to file them as an indirect representative, okay? There's also instances in some of the EU countries where direct representation is taken to mean self-filing, only a person that self files their declaration can be regarded as being direct. There's a direct representation relationship. They've got a direct relationship with customs, one of those countries is the Czech Republic, for example, if you are filing a declaration in the Czech Republic and you are using a facility that is provided by the clearing agent, a customs deferment account or the simplified procedure, for example, you need to file as an indirect representative. The indirect representative in those cases has got a choice, okay? The indirect representative can ask the -- his principal, hey, you are EU established, you need to please file the CBAM report yourself, okay? He needs to, in writing inform his principal that he is not going to be filing the CBAM report on his behalf, he's going to be expecting them to file the CBAM report themself, and obviously, the indirect representative needs to keep that information on record to be able to show the NCA in the particular country that they're not responsible for the CBAM filing. Having said all of this, there's a lot of confusion around the customs representative and the indirect representative and the possibility of a come, let's say, a CBAM representative, an importer into the EU, an established person can also appoint somebody, a third party, whether it be an auditing company, or a consultant to file a CBAM report on his behalf, but he needs to do that in his name. So with the access and Tony is going to be speaking a lot about how this report actually takes place, how it's constructed, he needs to be able to file the report as an employee of the reporting declarant, okay? So he needs to have access to a system, access to possibly digital signatures, he has to be allocated the rights of an employee of the company to be able to make that filing on his behalf. I think that the big message with regards to, in the reporting declarant is that it is the person in whose name the declaration that is filed that is essentially going to be held responsible for doing this reporting, okay? That's the big message. The key message that I would like you to take on that particular subject. I see there's a lot of questions coming in regarding this, and we'll talk about this in a little bit more detail later. Just to finish up from my side, I wanted to sort of try and distinguish between the so-called transitional phase and the definitive phase and what is the difference between the 2. I've already mentioned that during the transitional phase, it appears statistical exercise. It's an exercise of getting industry, both importers and clearing agents or reporting declarants used to this reporting, being able to get to a position where you can get the information that is required to make a report, and Tony will get into some detail over there, et cetera. So there's no financial consequence during this transition period other than penalties that can be imposed if you don't file, okay? Or if you file an incorrect report, I personally don't see any NGA really, really acting hard on filers at this particular stage. The reporting declarant is the reporting declarant during the transition period. As I mentioned earlier, he becomes the authorized declarant after the full implementation. Now this is the crux, okay. As from the 1st of January 2026, only an authorized declarant will be allowed to import products that are subject to CBAM, okay? So you have to become an authorized declarant to be able to import these products, and a sanction against the come let's say the authorized declarant can be that they can lose the right to import products, okay? If you're completely ignoring or you're not reporting or you're not buying your certificates, et cetera, you can lose the right to import the product. So there is a very, very heavy consequence after the 1st of January 2026, if we do not comply in full with CBAM legislation. So the registration or the registry, which is an EU-based system, is available. It's now called the Transitional Registry, the CBAM Transitional Registry. They are still developing, changing it, and we've experienced some issues with it, which Tony will talk about. That will be changed into the so-called CBAM Registry, hopefully, by 2026, we're going to have a situation where all the difficulties around actually filing these reports are done, are taken away. The Quarterly Report turns into an Annual Report. The Annual Report obviously will determine the amount of emissions that have been made over the year, and that Annual Report will then also determine the price that you would need to pay or the purchase of the so-called ETS certificates, emission transition -- emission certificates to be able to cover your imports, okay? During this transition phase, we can use default emission values on products, which makes the reporting fairly simple. The current usage of defaults is only allowed up until the second quarter this year, but I have heard discussions that it will possibly be extended, but not termed a default emission, it would rather be termed an estimated embedded emission after June this year, in other words, going into the third and the fourth quarters 2024. From a personal perspective, I find it exceptionally difficult for small importers of goods that are importing a couple of bolts and nuts screws, hinges, et cetera, with their shipments that they are going to have to work towards finding -- getting emission details from manufacturers and installation. So I think that the -- come let's say the default or embedded or estimated emissions will continue, no financial consequence, okay. So those are the changes. Let's see, Tony, you're going to talk about where this information comes from and where it moves to. I'm going to leave it up to you, my friend.

Great. Thanks, Alan. So yes, as Alan mentioned, I think it's the transitional period for a reason, but still a lot of questions, areas to be worked out in relation to CBAM, for sure. I think the high level of view, if you like, is there and the intent is there, and the principle is there, I've been working on the questions in the Q&A session there, and a number of those questions are around those same topics that there is a degree of uncertainty in some ways, but I think there will be changes for sure, that's happening over the transitional period in order to improve the system, and we talk about some of those over the next few slides. Just to start off so, and I'm going to talk more about the practical aspects in terms of how you report and where you get the data from in relation to it. So this diagram shows us really the aim and intent and the overall thought process of how CBAM reporting should work. So if we look, for example, starting with point one, the import of goods. This is the normal import that we have today in terms of the shipment of goods. Of course, they move from non-EU countries, get declared into the EU, and they do that through a customs declaration and point too, the normal process that we have today. That customs declaration goes to the customs authorities, and then the information of that import from the customs authorities will go to the National Competent Authority, the NCA or the Competent Authority for Member States. So each EU country has a body, which is tasked with managing the CBAM reporting on behalf of that member state. In some cases, for example, that's an environmental agency. In some cases, I've seen it's a health agency. In some cases, it resides with the customs themselves, and in other scenarios, it's with, for example, environment protection, it can be with Ministry of Finance, I'd seen in some countries and so on. So they are the competent authority for the member state. So after the importer has brought the goods in, declared to customs the data, then subsequently at point 4 they will have to go and start gathering their data on embedded emissions, which we'll talk about a little bit more in a minute, but that's all of the CO2 emissions, the direct, the indirect and depending on your type of products, the precursor emissions that need to be reported into the Transitional Registry, so that's in point 4. And then in point 5, the go ahead, and of course, at the moment, quarterly, you make that report. So as we know, the first report was due for Q4 2023. So for October, November, December, and that report was due to be filed by the 31st of January. So it's the end of the month following the close of the quarter. So you go and make that report and you lodge that report in the Transitional Registry, and then the Competent Authority for that member state. So the member state is being defined by where your EORI is registered. So for example, if you're making that report in Ireland, you're using an Irish EORI, that's the Competent Authority that you will be quoting within the report. So where that EORI of the reporting declarant has been registered, that's the Competent Authority that they will be dealing with. You make that report, you file it in as indeed many of us have done by the 31st of January last month. And then customs at the same time in the background are basically reporting that data into the Competent Authority at the same time. So there is a correlation there. So in effect, what they're doing is balancing out, are looking for the declaration that was made when the goods were imported comparing that with what was reported at the end of the quarter, and then the competent authority will deal with that in terms of discrepancies. So if more goods were brought in that weren't reported, for example, or indeed, if no report was filed at all. And as Alan mentioned, penalties are possible. But again, the feeling at this point in time is that those penalties are going to be very minimal. Everybody recognizes there has been challenges around the actual website around some of the operation, for example, on this. There's been an awful lot of questions, a fair degree of confusion, I think, on both sides, I think that's fair to say. There's been a lot of questions where there's been some challenges in terms of getting those responses back from the commission or from the National Customs Authorities or indeed from the competent authorities in the member states as well. So highly unlikely that we'd see any penalties certainly throughout the transitional period, we feel. But at some point, of course, the provision is there for them once this all beds in to better. We just go on to the next slide, please, Alan. Just to talk about what needs to be reported. So as Alan has outlined, really, they're trying to capture the full extent of the carbon emissions that are associated with the goods. Those carbon emissions can come in 3 different formats if we think about them. So if I pick something, for example, light, let's take steel, there is the raw material that goes in to make the steel -- there -- and that raw material may have emissions associated with it in terms of its production. There is the process that is used to make this steel, i.e., whether it's electricity or its gas or whatever power source is used to make that steel, and that's what we refer to as the indirect emissions that are associated with that product. And then there's the direct emissions, which is what is actually in terms of the actual making of the steel. So there is carbon from the raw materials, there's carbon from the process that is used to make this steel, i.e., the electricity or the gas, et cetera, and then there's carbon in the actual making of the steel. So the power source for making it and then the actual making of the steel itself. So in terms of what needs to be reported, we're trying to capture all 3 sources of those emissions. So the key elements that we need to capture then are the total quantity of each type of goods that are being brought in. So if that's electricity, for example, it's expressed in megawatt hours, and its tons then for all of the other goods, such as fertilizer, the steel, the iron, et cetera. Of course, depending on how that steel -- and I'll just use steel, I'll stick with steel as an example for the process, but depending on how that steel is manufactured and who manufactured it and where it was manufactured, the manufacturing process can be quite different. So you could get steel, for example, from China, and manufacturer A could rate be using a gas furnace for making that steel, manufacturer B could be using electricity for making that steel. So of course, the carbon emissions associated with those 2 inputs, the indirect emissions that are associated with them will be -- will differ. So the point here being as the actual emissions will really depend on who manufactured that steel, not the country, even though the country is a factor. But when we look at the installations and so on that we talk about it in a minute, so your exact same steel coming from 2 different suppliers can have 2 different sets of emissions associated with them, even if it's the exact same product. The other area then just where you talked about the total embedded emissions, is expressed. So all of that is put together and then it's expressed those tons of CO2 per megawatt hour or per ton of each type of goods. And again, that can be linked to the actual manufacturer of those goods, so it can be different for the exact same type of goods. The total embedded indirect emissions, i.e., the electricity or the gas was produced, of what carbon was associated with that, and then the net carbon place due in the country of origin for the embedded emissions. So effectively, in some countries that you are importing from, there will be a carbon tax or there may be a carbon tax or there may be some sort of similar carbon process taken place, and that can be factored into process. So if this carbon has already been paid for or is already included as part of the process or the price, that's been -- that you're purchasing these goods are, that comes in as a factor into your CBAM reporting also because in effect, it will reduce if it's already been paid for, it will reduce, for example, the carbon that's associated with the import so that pans out. Then the information required for that carbon product has to be sourced from the operator of the installation. Again, going back to that point each installation may have different carbon emissions. Even though the finished product may be the exact same, how it was produced, may differ from one installation to another even within the same country. So an awful lot of information there to gather around that at a very, very detailed level. Looking at the overall CBAM report and just building on the diagram that I had on Slide 1, we have our customs import decoration where we talk about the authorized deterrent that Alan has referred to in terms of who has the reporting obligations, et cetera. We have the commodity code. So if it's a commodity code where it's a CBAM commodity code, they're the only ones that we're interested in. If it's non-CBAM related, then the HS does not appear on the EU list. Again, it doesn't matter. I think it's important at this stage because I did see some questions in relation to this. We understand, for example, that steel, iron is used in a lot of other products. Again, it's only the specific finished product that's being imported at this point in time. So you need to look at those lists of HS codes, and they are the ones that need to be reported. Those HS codes effectively refer to what you might consider to be the raw product, i.e., the fertilizer, the steel, the chemicals, et cetera. It's not computer components that happen to have a steel chassis number example. That's not included. It is those particular HS codes that have it so it's the nuts, the bolts, iron, steel, et cetera. That's at this point in time. At some stage, of course, that has potential to widen its scope. But just because products you're purchasing have some steel or iron or something else that maybe CBAM in them, it is not in of itself an indicator that it's going to have to be reported on the CBAM reporting. You need to look at the HS codes. Country of origin is a key factor because at the moment, we're using default values in the CBAM reporting, and those default values do vary by country of origin. So for example, I think Alan mentioned or somebody had a question there around CBAM reporting eligible for goods that are imported from the U.K. into the EU. Yes, indeed, it is. But equally, if you're using the default values, what you would see is that the default values for carbon emissions for goods are a country of origin in the U.K. is an awful lot lower and the default value for the exact same products, for example, coming from China. And again, that's just a reflection of the nature of the type of industries that exist, and how environmentally friendly those industries are or not considered to be. And then finally, the net weight. That's what you -- the other key elements that you need to get from the customs declaration. From the other piece of submission, essentially all of those 4 elements previously, you should already have, you're already doing declarations today. The middle element then is associated with the new data, if you like, so the installation, the operator, the manufacturer of the goods, how much carbon emissions are embedded in the product, the direct emissions, how much carbon emissions are indirect i.e., how much was used carbon emissions to the electricity that was used to make the product generate, so the indirect emissions and then embedded in precursors. So precursors are defined within the CBAM document. You can see, for example, for specific products, you will have the cursor. Cement being one, for example, has a precursor for a particular type of clay that is used. So those precursors are called out by product within the CBAM documents on the EU website. One quick word. I'll talk a little bit about precursors more in a minute, but you will see about precursors being optional, and the reason why precursors are referred to as optional is because in some scenarios, the carbon emissions of those precursors can actually be embedded in the actual product. So it's important to understand that you don't double account or that we don't mix these 2 items up together, if you like. So at the moment, the precursors are optional throughout the transitional phase, but they still need to be captured, but it is important to recognize that they can be already included in your emissions in your direct or you're indirect emissions that are there, so not to double account, for example, on those precursors. All of those calculated together will produce then a kilo or a ton of CO2 per product per the net weight. That's the way that the calculation works on the system, and you'd see per unit or net weight per kilo or whatever it is on the product, it'll give you CO2 emissions. Then moving to the actual reporting itself, which is done on the website on the Transitional Registry website. It's at your consolidation CO2 emissions, which is the total emissions associated with the product, direct, indirect and the precursors, and then you will have the cost of your carbon certs. So last time I checked, which was about 2 or 3 weeks ago, a carbon cert was around EUR 80 per ton on the open market. Of course, these certs change in value. They are a traded commodity. So no more than shares, for example, they go up and down in price, but they were around EUR 80 a ton the last time I checked on it. So calculating your full amount of emissions for the products that you brought in, you can then take off the emissions price that you have paid. So those issues where we talked about where some of those carbon emissions have already been taxed at source can be removed from it, and then we have what is in effect, our net carbon emissions and then we need to purchase certificates to the value of that. So in other words, if my net carbon emissions is EUR 800, I would need to purchase approximately 10 certificates of today's price and those certificates then need to be surrendered in order to balance out that carbon that you have captured in terms of your CBAM reporting. Just going to the next slide, please, Alan. Just walking through the steps, I think, yes, identify your imported CBAM goods is step 1. I did see a question there a few minutes ago, for example, around if you had a mix of CBAM goods and non-CBAM goods on the same declaration, it is only the CBAM goods that you report. So if you brought in some items that are CBAM, some non-CBAM, you only capture the HS codes for reporting purposes that are on it. So it's not the complete declaration. It's only those lines of the declaration referred to as the CBAM, HS codes. The suppliers and the operators. Again, as I called out, your CBAM emissions can be different by supplier for the same product for the same country, 2 different manufacturers of that you can have different emissions from each depending on the processes used. At the moment, that's not a key factor because everybody is using default values. The default values are at least at the moment, the plan is that the default values go away at the end of this year, in the Q3 reporting the default values will be gone, and maybe we'll come back to that in just a few slides time, we just talk a little bit more. We're going to have an open conversation on some of that. The other key one then is to request access to CBAM Transitional Registry. I would hope that most people have done this. The first report was due on the 31st of January, of course. Having said that, we understand there is going to be a good degree of leniency. There is going to be a transitional period. There are no financial implications at this point in time. It's very much around I suppose, testing the system, confirming that it works dealing with queries, questions, et cetera. That access to the CBAM registry that has gone through an EU portal, but the actual verification of access has gone through your National Customs Authority. So in other words, depending on the customs authority, many of them work different ways but you will have a digital certificate issued in the -- in your EORI name, you need to use that digital certificate issued by your customs and tax authority in order to access the EU central portal, the CBAM Transitional Registry side of it. Identify the information. I think we've talked sufficiently about that in terms of step 2 and then determine whether a carbon price is due in the country where the goods are produced. Again, this is back to the point about making sure that we don't double count if we have paid some element of a carbon tax in the country where the goods are reduced then that is accounting for some of the emissions. That's not to say you don't need to pay anything here. It's just saying that you can reduce what you need to pay here by recognizing that there has been a carbon tax in your country where the goods have been produced. Just moving on to the next slide, please, Alan go through step 4. Understanding the period at the moment, we are in a quarterly reporting period as set down by the EU. So what that means is that for, as I said, October, November, December, for Q4 2023, the report was supposed to be filed in. I know that period has now been extended until February, but it was due to be filed originally at the 31st of January due to some technical issues and some other challenges that there has been on the commission side, around the website, et cetera. It's been pushed down out to February. For the next periods during the transitional period, it is going to be on a quarterly period. Once we get up and running and live, the intention is, that it will move to a 1-year calendar period. So this shortened period initially are really around testing the system, ensuring that people can get used to it that they have sufficient experience of it, et cetera, rather than dealing around the full length of it. Step 5, the operator must provide information to the importer, okay? So multiple suppliers could result in multiple operators. This, for sure, is going to be a large challenge around CBAM. Of course, the operator, and you may not be the same as the supplier. So you may purchase your goods from Party X, who in turn bought from Party Y, who in turn bought from Party Z. And each of those could use different operators, different installations. And again, as we talked about the exact same product from the exact same country, depending on the manufacturing process can have different carbon emissions associated with it. And then step 6, compile the amount of data for the reporting period and ensure the report is submitted by the end of the first month after the calendar quarter end, okay? As I say, we are off to a little bit of a slow running with a few hiccups, there have been extensions in that. The next report nominally at this point in time is going to be due by the end of April this year. And again, will that get pushed out, most likely not, there may be an extension granted on it et cetera, if you go and look for the extension on it. But the whole aim at this point is really to get more smooth running, more experience, more frequent reporting, so we can identify issues, get people on the system, and understand where it's going. Okay. Alan, maybe you want to take some of these around. I don't know if you want to talk to the first 1 there, you are on mute, if you are talking.

Maybe I should remember that I'm on mute, before I speak again. I've got obviously such a flying start. I need to remember what I was saying. But we put a heading up there called Challenges because I think through both what Tony and I have discussed, I think it's been pretty evident that it has not been an easy road, okay, up until now. Expeditors has been able to make its filings on time, but it was not an easy task, okay? It took a tremendous amount of resources and effort to get to where we were, where we eventually got. And yes, we have got the opportunity to rectify filings. As you will have up until, I think it's July this year. You'll be able to -- if you've made a filing and you've maybe filed incorrectly or you haven't added any shipments in, you can amend that filing up until the end of the second quarter this year. And one of the biggest challenges that we, as an organization, had was the lack of clear understanding and good clarifying information. I remember being on a lovely holiday in South Africa sitting in a little town called Port Elizabeth, on a beautiful day, and I got this message, a question-and-answer notice has been published on the EU website, that was the 22nd of December. That was the first time that some of the answers to some of the questions that we have been asking had been answered, which gave us impetus to be able to start really, really working on, okay, how are we going to tackle this beast called CBAM, okay? So understanding or -- getting the information and understanding that information, Tony, I think was one thing that we did have to overcome before we can -- we could move forward. And also maybe one of the reasons why we didn't jump in and do a webinar right at the beginning because I would have been sitting with a mouthful of teeth to be quite frank.

Yes. It has. I mean, for sure. And I think there definitely is a feeling of Transitional Registry around it. There has been challenges around the website for sure. I've seen some of those challenges mentioned in some of the questions. We've had the same challenges ourselves. We developed a program in order to load the data automatically into the website. Some of the filings we've had to do are in excess of 8,000 lines, when we look at the CBAM reporting. Substantially, that's worked okay for us, but there's definitely a lot of challenges in terms of the instructions that were provided weren't always what you would see or experience. In some cases, we got totally unexplained errors. We had certain logic that we just had challenges with, that we couldn't understand around it. And we still have some of those challenges, to be fair, Alan. I mean we actually have a call later on this afternoon with some CBAM authority to walk through some of those challenges, around it, I think there is. The other big one that I would call out as well, I think, has been the subdivision of this, so we have the National Competent Authorities, which, in a lot of cases, our Environment Protection Agencies or their health agencies or Ministries of Finance, et cetera. They don't really have a very good from a technical perspective. I think they fully understand CBAM, or in terms of the website and in terms of the reporting challenges, they have not really had a very good handle on that. The customs authorities in each of the countries, again, have been fairly much in the same situation. And unfortunately, there's been very little way to interact directly with the EU side of things. So the only interaction is through those National Authorities or through your customs authorities to get questions or queries or answers in. There is a ticket facility within the website. So for anybody who does have problems who's managed to get a report in, who has challenges, you are able to raise a ticket through the help desk within the CBAM Transitional Registry. I did see it was very quiet for a good period, but I did see yesterday there a number of those tickets starting to get addressed and coming back. So it looks like they've gotten over the initial period and they're starting to turn their focus around answering some of the questions and the technical challenges on it.

That's exceptionally good news. I think that -- and I've seen in the question box, I haven't been able to follow all the questions, obviously, there's a tremendous amount of them. I don't think we're going to get to be able to answer all of them, but I think I can at this stage say we will answer them and we will make the answers available to you at a later stage if we don't get to all the questions. Questions around the representative. The CBAM representative, I think, have always been an issue, there's so many different parties that are involved over here. You've got the importer that is going to be the authorized declarant or can be the authorized declarant. You've got the customs agent. You've also got a CBAM representative. And the way that the language is used creates a lot of confusion, and even in our experience, okay, I mean, and we're very open about talking about our experiences, you have to make 100% sure as to how you're representing how the declaration is built and how you're representing your principle. And it's also, I think, extremely important from our principle, in other words, our customers to understand the role that the customs agency is playing vis-a-vis the role that they're wanting or expecting them to play from a CBAM perspective, okay? It is impossible for -- well, as far as I'm aware, it's impossible for a nonestablished EU entity to make a CBAM filing other than through the indirect customs representative that they've appointed to file their customs declarations for. The options seem to be more viable when it comes to the customs representative acting as the indirect representative or the direct representative for an EU established party. But taking the customs representative again out of the equation, Tony, and we look at the so-called CBAM representative, the way that the website is built and the way that the information is filed I think, creates a lot of confusion between a possible CBAM representative for fewer CBAM purposes who would be regarded as an employee of the declarant and the customer's agent, okay? So it gets very fuzzy. And I think it takes a lot to sort of work that out and people need to understand those roles. I'm hoping that, that will become a lot clearer as we move forward.

Yes. Indeed, I think -- obviously, I'm trying to get through some questions here at the same time as I recognize where you're expecting an answer from the other. I think yes, PDF, just the last one on this, I am conscious of the time, and I don't know Ray or anyone of you guys ,if we can leave this open a little bit longer, so we can just answer some of the questions as well. The access to CBAM report restricted to PDF, just at this last point here on the slide, when you do file a report, the only way you can get that report back down, unfortunately, is as a PDF, which makes it extremely difficult to analyze the data or do anything with it. Now it is a nice layout as in it looks good, the PDF, but from a data perspective, it is fairly next to useless, unfortunately, to be able to turn that PDF into something. If you want to put it into XL, for example, or you want to do some others, if you only have 5 or 6 lines, not an issue. If like you have a couple of thousand lines, then it's a problem because each page, I think it's 2 pages per line, if memory serves me correctly, is the way that the PDF has laid out. So for each item that you report in the Transitional Registry, you're going to get 2 pages of the PDF back out of it. So 100 lines report results in a 200 line PDF file or a 200-page PDF file, I should say. So it is a little bit messy, unfortunately, that way as well to deal with. Any other ones here, Alan, that we want to pick? Or was there any questions there in particular?

There was one question that I answered, did I said I'd answer live, but yes, it was a question. I'm going to read the question and we can just answer it live. How should I include in the report the situation in which, I'm the importer of the CBAM good, and my supplying the third country is a company, he appears in the customs declaration, but he is not the producer of the CBAM good, the producer of the good is another company, company B, and the question goes on in case how should I complete the report? Now I think that this is -- once again, please, this is a personal view, okay? I think that this is one of the shortcomings of the CBAM system is that it looks like they've looked at the supply chain has been very linear, okay? And you get a manufacturer of the product, it's a steel mill that is making the steel, and they're making stainless steel pipes or stainless steel foil or whatever aluminum foil, and you can get the information directly from them. I think there's the understanding of the concept of a full supply chain where you are purchasing goods from a supplier who's possibly purchasing them from a distributor who's possibly purchasing them from a manufacturer somewhere, who is purchasing steel to be able to manufacture the bolt or nut from a particular steel manufacturer or an installation, but it might not be the mill. As you go back in the supply chain to get the correct information to be able to determine what those embedded emissions are, gets more and more and more complex particularly, if you're importing small quantities of stuff, okay? And this is where I see the great difficulty for importers in the future is where you're importing a whole bunch of stuff, if I can call it that, that it qualifies for CBAM, you need to obtain these emissions, but you don't really know where to go. So indications are that there's an awareness that this -- it's going to be very, very difficult to get the actual embedded emissions in a particular small product or products that are imported in, not in come let's say, in smaller quantities. And I think that it will only be logic in my mind to be able to allow the use of the so-called default or come, let's say, estimated emissions moving forward with CBAM. It might be a little bit more expensive in the longer run because I'm sure that the EU will really, really like to push to get the actual emissions that are embedded in particular products. But I do think that there's going to be a range of products especially when we got other articles of steel, other articles of iron, other articles of aluminum that we need to deal with. So at this particular stage, you don't have to report the manufacturer. You don't have to report the operator of the mill. You don't have to get the emissions, the direct -- you just need to report emissions, okay, and you can use the default or the estimated ones. As we move forward, I think after these initial first 3 quarters, we'll definitely be able to come out with new information, hopefully, from the commission that clarifies where we go in the future with regards to every player in the supply chain because the administrative burden, I think, is just tremendous. So Tony, I think that there's such a lot of questions. Do we want to pick some of them up here? Or do we...

Yes. I think Alan otherwise will be, if we can. Yes.

What was the answer from Bruno with regards to timing?

It's okay, Alan. You can stay a couple of more minutes.

We can stay another couple of minutes.

So okay, let's -- I'll pick them off the list that I've got in front of me, Tony. Is the CBAM reporting similar to LCA reporting? Just from a process perspective, I know the focus for the report for each is different, okay? Now I'm lost. I don't know what the LCA reporting is. If somebody can just help me then to find out what -- Tony, you don't know, I don't think or do you?

Unless its life cycle assessments or something, Alan, I don't know anything.

We'll do some research on that one, and we'll get back to you.

Life Cycle Analysis, guys. Louise just answered that across here in the chat box.

Well, you were closer than me, Tony. Maybe you want to try and answer this question.

To be honest, I don't know what Life Cycle Analysis is, and I'm just faster googling than you, Alan. That's all. So I don't know, Louis, I mean, honestly, feel free to come back to us on that. I don't know what data you capture as part of LCA reporting. I think that would be the key one. I'm not in a position to comment on that, but for sure, send us an e-mail or take it up separately.

Yes. But thank you for the question, though, because it's got -- it's certainly got me thinking, okay? So I'll do some digging as well. Now that one EORI per country. Yes, I presume that the question is, if you can -- if you've got a single EORI that you're using over multiple countries, you need to file for those multiple countries in the one report that you're submitting in the country where your EORI was issued. So you could be like me, I'm based in the Netherlands. I could have my EORI issued in the Netherlands, but I could be importing goods into Portugal, China -- China, sorry, Italy, et cetera, other member states, I can gather all that information, and I can do a single report in the Netherlands, okay? Would it be possible to elaborate how other declarants organizing themselves from an ownership accountability perspective as the main input carbon emissions is not something which trade compliance professional normally would have? I love this question, okay, because -- and I'm going to be honest with you here as well. When I first looked at the CBAM legislation, I thought how the h**l can the commission sit with such story where they are getting the customs agent involved in being a reporter on something that has gotten nothing really to do with the movement of freight. And it took a while for me to sort of realize that, yes, it does, okay? And yes, it is not really a trade compliance issue, it is a Green Deal issue. It's company strives to be able to -- their own, come let's say, climate change emissions reduction policies, we see from talking to customers, that very little is done within the supply chain environment with regards to the calculation, the communication, et cetera, of embedded emissions for CBAM. This has led to specialists within the organization or even consultants to work out, okay? So from a trade perspective, we get pulled into it. From a customs perspective, we get pulled into it because of the definition of the declarant. And because, as I say, this is the first legislation that I'm aware of where that is outside the customs sphere generally, where the declarant is being pulled in to have certain responsibility. So I really like that question.

I think there's a few. I'm just going to skip down 1 or 2 questions Alan in the conscious of time. So just -- I've seen this question come up a few times. So this is for goods only being imported into the EU, okay? If you're importing goods into the U.K., this does not apply right? So the U.K. are working on a separate scheme, not joining the EU scheme, but they are working on a closely aligned separate scheme, which is expected to come into force in 2027. But that's just a target date at the moment. So only if you're bringing goods into the EU, this applies. The second question that I've seen arise there are a few times. Sorry, just one caveat on that. Just be conscious if you are a U.K. company, that if you're bringing -- if you are the importer of record, even if you're a U.K. company, but if you are acting as the importer of record for goods coming into the EU, you do have an obligation for reporting, okay? Just to be clear on that. So I don't want people walking away saying, well, I'm in the U.K., it's nothing to do with me. It doesn't apply to goods that are being imported into the U.K. or if you're a U.K. company, acting as the IOR in the EU for goods you're bringing into the EU, then it will apply to you. The other one, just that I want to deal with quickly here is country of origin of goods, for example, I've seen this come up a few times as well. So if you import goods from the U.K., but the goods have an EU origin, okay? They effectively are reimports, if you like. So they came out of the EU. They got imported into the U.K. and they're coming back into the EU now. There is a provision within the CBAM legislation for avoiding carbon emissions on that but it is the same as return goods release. So in other words, you need to have an order trail. I don't think it's been tested Jeff. I haven't seen too much around it. But I expect that it will be expanded upon as we move through the transitional period, and I suspect it will be very, very similar to return on goods relief, i.e., you need to show proof that these are the same goods that you sent out of the EU that are now coming back into the EU, et cetera, et cetera, in the same way that you would avoid the duty utilizing return goods relief. And if you import goods from the U.K., but the goods have a Chinese origin, it doesn't matter where the goods are exported from, i.e., they were exported from the U.K. coming into the EU, the fact of the matter is the country of origin, where they were manufactured that's important from a CBAM perspective. So I did get one person ask us a question about the COO refer to and apologies, we probably should have called that out, but it's a 3 letter abbreviation. It's country of origin. It's where the goods were manufactured, not where they're being shipped from or where they're being exported from, et cetera, it's where the goods were manufactured. Sorry, Alan just I think I caught 3 or 4 questions there.

I must be breezing through the questions trying to find one. If I Import into the Netherlands from China, but export, now the question is going, okay, there you go, but export out of the Netherlands to other countries within the EU, does CBAM declaration into the Netherlands from China cover all my exports out of the Netherlands. So this is a situation where if you are importing goods and you are using those CBAM goods, for example, in a manufacturing process, and then you are exporting them to another third country, you could qualify for a customs procedure called inward processing, okay? Now when you're using that customs procedure, you can import the product and you just report the emissions in that product, and then obviously, there will be no financial consequence even post come, let's say, transition period. The financial consequence will come when the goods leave the IPR process. In other words, where they are taken then into free circulation in the EU. You will need to -- after the transition period ends, you would need to purchase the necessary ETS to cover that. If you're exporting them, obviously, the EU CBAM won't apply to those goods. I do need to reiterate over yet that if you're importing goods and you're bringing them into free circulation, that is when you need to report, okay? Or if you are then exporting them and they're going to another country, as far as I'm aware, there's no credit available for goods that have been exported, okay, from a CBAM perspective. So if you had to purchase to ETS to cover imports that you've cleared to free circulation and that you then export it later, you can't get a credit, but -- as the CBAM environment evolved, the expectation is that the country of import will also implement a system similar to what the EU have done. The U.K. is really talking about it, and the U.S. is looking at it very seriously as well at the moment as climate policy decisions need to be taken. In those instances, the carbon price paid in the EU will be allowed to be deducted from the trading emission certificate that you need to purchase on import into those countries. But we are going far down the line now, okay? This is post 2030. I won't be around post 2030 when you start seeing the full implementation of CBAM. I hope I've answered that, okay.

I'm hearing that, I won't be around line for the last 10 years out of you, there's a couple of questions there just around who has taken responsibility for this within organizations. I think it's a good question. I think Alan touched on it earlier. Is it the HS as some person has asked there in terms of health and safety from an employee who may well be dealing with carbon, et cetera. Honestly, we haven't seen the best practice transpire yet. We've had questions from finance groups, and we've had questions from compliance groups, and we've had questions from customs groups. They are really the 3 elements that I've seen around it. It kind of goes back to the point that I was making earlier about we have seen the same challenges at a country level on the authority side, i.e., the Environment Protection Agency and customs being involved and then the EU commission being involved. It really hasn't been all that coordinated or aligned in terms of it, so I don't think there's a best practice yet. I think it will ultimately end up being on the customs table, being perfectly honest, because that ultimately is where the starting point is when that declaration is done. So customs know -- the customs grouping within your companies should know the scope. Another just call out is part level data is key in this okay? So you can have the exact same part number, but you may be getting that from 2 different suppliers that may even have 2 different country of origins, it could even have 2 different emission levels even within the same country of origin because of the manufacturing process cues, et cetera. So being able to get right down to the granular level of part level details around your declarations is key. It's not important now, particularly as a default value stage, but if when we move to the actual values, then it will become critical to understand at that level.

So Tony, we've been pushed -- you guys have got too much talkative customers and trade guys, I suppose, in the world, 2 people that are exceptionally passionate about what we do. So forgive us we're talking so much. I think I'd like to end by just saying that the presentation will be available in the presentation, there is a link to the EU CBAM website, on that website, you will be able to get access to guidelines, to regulations themselves, the legislation, the questions and answers. Also the schedules where the tariff ratings are listed for the various products that will be applicable. I thank you so much. We will continue to answer these questions. They will be made available together with the presentation. I'm going to hand over now to Bruno. Bruno, thank you very much for giving Tony and I opportunity to have this long talk.

Thank you guys so much. And also thanks to Irene and Zoltan for helping answer the questions in the Q&A box. Thanks, everyone, for attending. I just wanted to let you guys note that our next event is Green Logistics and Supply Chain webinar. It's coming up in April. So please stay tuned to our events page, so you can register for that when it's open. I have also dropped a few links in the chat box regarding our newsletters. So if you'd like to receive market updates and also keep informed of our next events, you can sign up for our newsletters, they're free and it's very, very quick to subscribe to. Yes, I guess, this is it. You will be receiving an e-mail with a survey. We would love for you all to fill it out. It's very important for us to have your feedback. That's it. Thank you, guys, so much for joining, and have a lovely rest of your day.

Thank you very much, guys.

Thank you.

Thank you, Tony. Thanks, Alan. Bye-bye.