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

Here to get logged in and all set, grab a cup of coffee, grab your lunch. If you're here for brushing up on the basics for Export Compliance, you're in the right spot. While everybody is doing that, I'm going to throw up just a quick poll, a fun poll to get us started. You have a second to answer that while you're getting settled and then we'll get started.

There's such strong opinions on it. I mean that's no, no. Yes, it is. We're going to rumble.

All right. Do you mind pushing to the next slide, Barb. And I'll kind of get started going over some of the ground, ground -- not the ground rules, but some of the information is let everybody fill in their poll. So again, if you are here for our export compliance, you're in the right spot. Thanks so much for joining us today. My name is Crystal Woods. I am the regional sales ops for the Northwest region, excuse me. I'm based here in Seattle. So our webinar is going to be about 50 minutes this morning, and then we'll leave 10 minutes at the end for Q&A. So please feel free to throw any questions you have that you think of for Barb throughout the webinar, throw them in the Q&A box and we'll get to those at the end. And then if for some reason, we go over time because there are so many great questions or so much information, then we will make sure to reach out to you afterwards to get those questions answered. So we're going to record the webinar today so that we can have that available for you guys to refer back to. One of the questions that we get all the time is, will I be able to get the reference materials when we get done or a copy of the presentation. So yes. So once we get done with the webinar, a quick survey will go out to you, and once you fill that out, you'll be linked to a landing page that has all those details for you. We'll have a copy of the presentation, the recording as well as a couple of reference materials. So with that, I am going to introduce our speaker today. Actually, I'm going to end this poll real quick just so we can see where we landed. I'll share all the Information with everybody. We have a nice split there. Christmas movies are not some people's things to watch them year round. That was like half and half. And then Die Hard does, does or does not count. Let's see. Does Die Hard count? I guess I should have put yes or no. I could have seen what everybody's opinion was.

I'm going to say, yes.

All right. So I would love to introduce our speaker today. So we have Barb Madden.

Hello.

She is our export compliance specialist, trade compliance and account manager, and she's based here in Seattle. Barb has been with us for 27 years, and she has held various roles within our branch. She's been on the ocean import team, the ocean export team, air export. She's been an account manager and most recently, now she's our export compliance specialist since about 2012, and now she's been part of the compliance team since 2019. So we are in very experienced hands here. So with that, I'm going to turn it over to Barb.

Great. Thanks so much, Crystal. And thanks, everyone, for taking time out of your busy days to join us today. We'll just go through this. I'll try my hardest to not just read the slides, you all can read. But our main objectives here are to understand why the government does control our exports, recognize the export of compliance responsibilities, being familiar with filling out a shipper's letter of instruction, which is extremely helpful for our operations teams in setting up your shipments and understanding the export data elements that are required by the USPPI, the U.S. exporter. And then understanding the purpose of transmitting the EEI and the penalties that are set forth for late filings or improper EEIs. First, we want to know what do we consider an export. So anything that we send or transport goods out of the United States is considered an export and any item sent from the United States to a foreign destination. And yes, Canada is a foreign destination and as is Mexico. So I know we get questions sometimes if we have to transmit to Mexico. Yes, Canada does have an exemption, which we can go -- we'll follow up on that further down the slides. And even if you have a product that is leaving temporary, if it's not for sale, if it's a gift, or going to a wholly owned U.S. subsidiary in a foreign country, maybe it is trade show items, something that is being returned to the manufacturer for repair, those are still considered an export. A foreign origin item exported, transmitted or transshipped through the U.S. or returned from the U.S. to its foreign country of origin are all subject to export controls. Why does the government control exports? Various reasons, mostly for national security interests, control for domestic short supply. We saw that during COVID with PPEs. We were trying not to export those unless the U.S. had ample supply to fulfill our needs here in the U.S. So controlling that domestic short supply and enforcing any U.S. foreign policies. Purpose of export control laws, mostly to restrict exports of goods and technologies that can contribute to a military potential of adversaries and prevent proliferation of weapons of mass destruction, nuclear, biological and chemical, prevent terrorism and comply with U.S. trade agreements and trade sanctions against other nations, which we will also cover in the following slides. Who regulates these exports. These are only a few, most notably the Department of Commerce, which includes the BIS, Bureau of Industry & Security, the EAR, which is the Export Administration Regulations, U.S. Census Bureau and the Foreign Trade Regulations, U.S. Department of State, Director of Defense and International Traffic in Arms and Military, arm of the U.S. and the U.S. Treasury, Office of Foreign Asset Controls and the Foreign Assets and Transactions Controls. So this is looking on the money side of things. The Department of Justice. So you've got alcohol, tobacco, firearms and the DEA, Drug Enforcement Agency. And then finally, the Nuclear Regulatory Commission. We don't see a lot of that here in the Northwest. There may be some offices that do handle some nuclear items. We don't see too many of that here, however. And then I think Crystal has one more poll question for you guys.

We do. Let me get that launched for you. Sorry about that.

No worries.

Of course, I'm having difficulties, one second. There we go.

All right. And we're just always curious as to see what industry our learners are in and where you guys all fall?

All right. Let's see what we've got here. Here you go.

All right. Automotive, aerospace, yes, there is a little petroleum and natural gas as a mineral, all right. Perfect.

Electronics is our largest.

That doesn't surprise me.

All right.

Thank you so much. All right. So with export compliance, you're going to want to know what's the where and the who. What are you exporting? In other words, you know your products better than anybody else. And you, as the USPPI, the exporter are responsible for providing the classification for that product. There is a schedule B, the export commodity control number and the commodity control list. Those are items that may be dual-use items and the link there will show you where to find that information. We will also have some references at the end of the presentation. You also want to make sure you know where your goods are going. Embargoed countries, such as Cuba, Iran, Syria and North Korea, even though you may be shipping to one country, it may be a "gateway" to an ultimate consignee. So it's up to the U.S. principal party in interest to know ultimately where your goods are going to be going and the same link, who is your customer? For example, if you're selling to a bakery, but they're purchasing high-performance computers that doesn't really make sense and there may be a little bit more digging on the USPPI side as to why does a bakery want to purchase high-performance computers. So doing your due diligence and as your forwarder, we also look at this and see who is it going to? Does the product make sense for the customer, too. So we may ask questions as we're processing your shipments. And what will your customers be doing with their products? We will ask, are they an end-use customer? Are they a reseller? Are they a wholesaler? Are they a direct consumer, that will help us understand what the product is being used for as well. And is your customer on the denied, restricted or prescribed parties list. In other words, we do background screening of all of our exporters, the companies, any banks, vessels, aircrafts to make sure that we're not dealing with denied parties. And if we do get some kind of a hit on something we always will go back to you and ask you to provide some additional information, if it looks like a party that is involved in the transaction may be part of the denied parties list. It's also very helpful and great if your consignee also has a way to vet your customers on your side as well. And we are a second set of eyes for you. The mandatory elements in order to transmit on the -- from the 15 CFR 30.6, these are all the indicators that we're going to ask for that may be applicable to your shipments. The shippers letter of instruction, which is coming up is a great document that helps our operations folks go through and get all of the needed information in order to properly fill out the export declaration on your behalf. Even though we do have powers of attorney for most of our customers, and the shippers letter of instruction is not necessarily required with those that we have Power of Attorney with. It is extremely helpful in gathering all the needed details in one spot. A lot of the information can be provided on a commercial invoice or a packing list or another document. The SLI is just really concise and complete for us. So we like to ask that everybody fills these out, not necessary every time, but it is extremely helpful. This is an example of Expeditors' letter of instruction. It's one of the most useful documents that we can have, and it gives you in each of these parties, it tells a U.S. principal party and interest your tax ID number, who your ultimate consignee is, the consignee type, where is it a direct to consumer? Is it a resell, a manufacturer, wholesale? We ask that information, too. If there's other conditions if this is, in fact, going to maybe a third-party warehouse or distribution warehouse, they're handling the freight and then it's going to your ultimate consignee. That's information that we need to provide on our filing as well. This will tell us, are you -- are the parties related? Is it a [ rated ] transaction, which I'll go through in a few slides. Is it hazardous materials, and then Box 5 is the licensing determination. NLR is no license required or does your product fall under one of the other license requirements going to -- maybe it's a dual-use commodity or it's an export control commodity that the U.S. government wants to see who it's going to and how it's going to be used. That information is in this area. And then the commodity information down here is, is it foreign or domestic? What is the commodity description? We like to ask for the commercial commodity description. Some Schedule B descriptions are very vague and customs has come out asking for updates on descriptions of goods. So we've started asking what the commodity -- what the commercial commodity description is. This is a place for your Schedule B number. If there is an ECCN or U.S. military category, also the place where you would put EAR99, if none of those apply. The quantity of units measure the gross weight and then the export values. This is the big like the meat and potatoes of what we enter in our system to transmit. So this is all the information that we will need. As you can see, it's nice and concise. It's perfect. And as the U.S. principal party in interest, this is from the FTR. These are the responsibilities of each party in standard and routed transaction, which I'm going to go through in the next slide. So this just tells who's responsible for choosing the forwarder, providing authorization, filing the EEI, providing the required data elements. This one sometimes comes into question if it's a routed transaction. The USPPI will sometimes think they don't need to provide the EEI data elements. It is required, again, it is your product, and you have the most knowledge about this product and the licensing requirements. So that is the responsible of the USPPI to let us know what that information is. So we will ask even in routed transactions. Same with making licensing determinations. Again, you know your product better and obtaining the license and then a record keeping. And we keep the U.S. CIB -- or I'm sorry, the BIS asset we keep records for 5 years on your export transactions. So in an export transaction, we have a standard export transaction where the consignee places an order with the U.S. exporter. The U.S. exporter will then assign their authorized agent to provide transportation and fill out the EEI and transmit on their behalf, and then the goods are shipped to the foreign principal party in interest or your consignee. That's the standard, pretty straightforward. On a routed transaction, the customer in the foreign country provides -- places the order with the USPPI, but they also select the forwarding agents, and they will direct their U.S. exporter to provide the required data elements and the product to their agents in the U.S. to ship the goods. The destination consignee will normally contact their authorized agent as well as the USPPI to make sure that they're talking to each other. They get their goods. They get their documents. They get all the information that they need to provide transmission to of the EEI and then the ships -- the goods are shipped to the foreign principal party. Hopefully, that all makes sense to everyone. When is an EEI required, when are we required to transmit? We are required to transmit the data elements from the U.S. to any foreign countries from Puerto Rico to foreign countries and from the U.S. Virgin Islands to foreign countries or exporting to Puerto Rico or the U.S. Virgin Islands. So if you're in the U.S., and we're doing a transaction from the U.S. to Puerto Rico or the U.S. Virgin Islands, the U.S. government wants to see what we're sending to those U.S. territories. So even though they are U.S. territories, we still transmit the information on your behalf. And an EEI must be filed if the value is more than USD 2,500 or if the commodity or a destination is controlled by one of those licenses that we discussed in the previous slides. Whether the value is $2, if it's a controlled commodity and has an export commodity control number that requires transmission, then we do transmit. And when is an EEI not required? Well, Ginger is going to go on a trip with her parents. She's a pet. We are not required to transmit information on Ginger. So you're good to take your pets with you to a foreign country as long as they accept that. They are not required from the U.S. to Canada. That's the assumption that I had talked about previously, Not required from the U.S. Virgin Islands to the U.S. or between the U.S. Virgin Islands and Puerto Rico. U.S. Puerto Rico or Virgin Islands to other U.S. territories, American Simola, Baker Islands, Northern Mariana Islands, Guam, et cetera, those are other U.S. territories that we are not required to transmit on behalf. Also, if you have shipments traveling in bond through the U.S., maybe it's coming into the U.S., but moving into Mexico or Canada, we are not going to transmit that move as it is an inbound item, it's not hitting the commerce of the U.S. Diplomatic pouches, human remains, co-matter or internal company materials, again, Ginger's free to go and any value that is less than $2,500. And these exemptions and exclusions are annotated on the transportation document. So on your airway bill, if we're going to Canada, it will show on your airway bill or your ocean bill that no EEI is required per 30.36 in this case going to Canada. The use of low-value EEI exemptions. There's a lot of information on this screen. It is a little confusing and I use this slide quite a bit with our operations folks. All commodities for a Schedule B that are under $2,500 can be applied and all commodities for Schedule Bs that are either domestic or foreign. For example, this is the same Schedule B number. Domestic is $1,500. It's low value. Domestic is foreign and it's low value. So both of those are low value. Even though the Schedule B number is the same, one is domestic and one is foreign and that's the differentiator. So you'll have one line for this in your EEI and you'll have one line for this in your EEI. The U.S. Census Bureau wants to see what types of goods are being exported if they're U.S. domestic goods or if they're foreign goods that are being exported. This is why that part of it is so important. Again, you have the same Schedule B number. You have domestic items that are $3,000, more than $2,500, so it's reported. But your foreign amount is only $1,500. So that line item is a low-value exemption. And then a little bit more complicated or could be confusing. Again, all the same Schedule B number domestic, and you have ECCN, an export commodity classification number, 5A992, but no license required, $1,500, that's low value. Again, same Schedule B number and same Schedule B number, but you have -- they're both foreign items, foreign -- items of foreign origin that are being exported. You have different ECCNs, which is fine, no license required. This one happens to have an encryption, it's computer goods or software that is encrypted, which is a licensed exemption. Together, they're both foreign. They're $3,000, so you would report each individual line. So this is one line item because the ECCNs are different. Even though they're both foreign, they're different here, the values are $3,000, so you would report both lines. Clear as mud, I understand that. We do a lot of talking about this in our operations classes that we give to. So it's just -- it's a little bit more -- a little bit out of the normal, but you're looking at your domestic versus foreign lines is the differentiator there. Hopefully, that all makes sense. And then over here is -- these items in this list cannot be applied. Low value cannot be implied for these particular items. It's a 600 series of export commodity control numbers, items that require a license, obviously, all these require license, DEA export permit, another Nuclear Regulatory Commission and anything on a commerce control list that are going to China, Russia or Venezuela. So if the item going to China, Russia, or Venezuela has an EAR99 designation, the export can be used under that exemption. Any other ECCN that's listed, even no matter what the value, must be transmitted. There may be questions on that. Hopefully, that all makes sense. Confidentiality of the EEI filing, it is only the USPPI or their agent that has access to this record. We are prohibited to share this information with any foreign government or entity or other party that request it. So even in a routed transaction, the foreign party or the ultimate -- the consignee that has asked us to transmit, it is still the USPPI's information. And as the forwarder, we are not allowed to give that information out. If the USPPI chooses to share it with their customer, that's up to them, but we are not able to provide that information at all. It's between us and the USPPI. And the information contained is confidential and is solely for the official purposes of the Secretary of Commerce. So that's information that is not provided to any other party. The filing requirements and here's where some of the penalties come into play. Ocean shipments, we are required to transmit 24 hours prior to COB at the U.S. port of unlading. For air, it's 2 hours prior to the airline departing. Rail is 2 hours prior to the time the truck arrives at the U.S. border. So that has to do with going between U.S. and Canada and possibly U.S. and Mexico. So 2 hours prior to the train arriving at the border, that's hard for us to navigate what time it's actually going to arrive. So we transmit these as soon as we have documents in as early as possible. And then the truck is 1 hour prior to arrival at the U.S. border. Again, delays happen. We don't know exactly when that's going to -- that truck is going to cross the border. So as soon as we have documents and we're able to transmit the EEI, we do it as quickly as possible. The penalties for late filing are $1,100 for each day of delinquency, but not more than $10,000 per violation and a penalty of not more than $10,000 may be imposed for filing false, misleading or other information that may further any illegal activity. Basically, if we're provided erroneous information from the USPPI on purpose and the U.S. government can prove that it was done on purpose to hide what they were exporting that, that is the penalty for false or misleading information. If it's an accident, oops, we have the wrong schedule B, and we had to retransmit after, that's possible to have a penalty for that for $1,100 per day. And that per day is after the COB. So if it's COBs on day 1 and it was incorrect. Every day after that is $1,100 until the EEI is corrected and retransmitted. The general penalty is under the export administration. Civil is $500,000, criminal is $1 million and up to 10 years imprisonment. Under the federal trade, civil is up to $10,000, criminal is up to $10,000, our imprisonment for not more than 5 years or both. And under ITAR, civil is $500,000 for individuals, forfeiture or seizure of goods, deportment from licensing or government contracting and criminal is up to $1 million or up to 10 years imprisonment. So they take these very seriously. We don't want to have any kind of penalties for any of this. I definitely don't want to lose the ability to export or provide any of that information for you guys. So we are your eyes and ears. We are double-checks for you. We look at the documents that you provide us. We look at the SLI. We look at all the information that's provided and if we do have questions, we're always going to ask, we have your best interest and heart. We also have ours. We don't want you guys to lose the ability to export, and we definitely don't want to lose the ability to export as that's what we're here to do, and that's our job. So we take the compliance very seriously on your behalf and on ours. So hopefully, if you're questioned by your forwarders or your authorized agents is just to make sure that we're doing the very best that we can for you and for us. And that's pretty much all I have. Quick, quick, quick. These are the references that will be sent out. Hopefully, we've got some questions, and I will answer them. If I can't get the answer to you right now, we'll write it down, and then I will send out an information, and we will follow up with you with the answer as I can see fit.

Thanks so much. So a lot of information, yes.

It is.

Yes. Yes. And just as another reminder, the slides and the reference material will be sent out. It will take about an hour after the webinar, so we can get the recording scheduled and the survey will be sent out and once you fill out that the details, the team will send -- it will send you an automatic link so that you can download the materials. So we'll give everybody a second to put any Q&A in the box.

There was one prior, and I know you chatted about it, but I just want to voice it out again and then that way, if somebody missed it. it's recordkeeping. What is the -- sorry, I lost my record retention, sorry.

5 years.

Terms for expert documents. Perfect.

Yes. If you want to keep your AES records and we send a copy of the AES transmission with the documents, the invoice, the commercial invoice to backup the AES transmission. We send those out to the USPPI. So we also have them on file. If a USPPI doesn't have a copy of the EEI transmission, we are able to provide that for you. And we keep them indefinitely, but 5 years is -- customs can go back 5 years and ask questions about any export 5 years back, and they require that we have that information on hand.

So we did get a question in the Q&A. So I heard that export to Canada from the U.S. does not require an EEI. Is this correct?

That is correct. There is an exemption 30.36. The only caveat to that is if the product that we're exporting requires a license, if it requires a Department of State, Department of Commerce, if it's ITAR, those items do require transmission and the export license. Otherwise, if you're sending some shoes up to Canada, we can use the Canadian exemption and we don't have to transmit.

I did see there was a mention about acronyms. I believe that we have a reference material for a glossary of terms. So I'm going to make a note of that to see if we can add that to the materials because that might be helpful.

Yes, this industry is all acronyms. That's all we do. We can talk sentences in acronyms.

Yes. Okay. So there is another one that pops in. Is there any reason not to file a low-value commodity if it's with a high-value commodity?

No. We actually have a few exporters here in Seattle that we transmit every line item regardless of value. It's -- we can, if an exporter asks us to transmit no matter what the value is, we will transmit. Otherwise, we go with the low-value exemption or at the -- if you want us to file to Canada, and it's not required, we can still transmit and file to Canada, even though it's not required. There's nothing wrong with it. That gives U.S. customs and the U.S. Census Bureau visibility to those shipments. If we're not transmitting, obviously, they don't have the visibility of the transmission on that, but there's nothing wrong with transmitting even if there is an exemption.

All right. All right. Just in case somebody thinks of something else, we'll just give everybody a minute to put in any other questions they have in the Q&A. If you don't mind going to the next screen, I'll just cover the next one, sorry.

Got you.

I'll just cover the last couple of things in case maybe -- oh, one pops in. What if any documentation is required to ship the U.S. to PR or VI.

To Puerto Rico or Virgin Islands. On the export side, we'll need -- we like to have the SLI filled out. But as far as documents go generally, it's a commercial invoice and a packing list. If your customer requires additional documents like a certificate of origin or a certificate of conformity or something in that nature that can be provided. But for us to process the shipment and transmit the EEI, we need the EEI data elements either on your commercial invoice, by e-mail on an SLI and then the commercial invoice and sometimes the packing list, not required, but generally, those 2 go hand-in-hand.

Great. I believe this question, it says a list of documents we need to keep. So for record attention, possibly. Is there a list?

I don't know if there is an actual list, but let me write this down real, a list of docs to keep. My thought and rule of thumb on that is if you have your shipping packet, which is the air, ocean bill of lading, commercial invoice, packing list, any other documents that may have been provided, certificate of origin or conformity or any other such document and the AES transmission, the EEI document that we provide, I would just keep those as a shipment packet and keep those documents. Customs when they ask for backup, and we -- they ask us all the time for backup. They generally ask for commercial invoice, a packing list and the airway bills sometimes or the ocean bill sometimes. And we generally will provide them with whatever the exporter has provided us as far as the EEI data elements. If there is an SLI, we'll provide the information to custom showing this is what we were provided by the shipper. Here's the documents. I would assume it would be the same thing if customs was to ask the exporter directly. Can you provide the documents? They will generally tell you what documents they want to see. Usually, it's the commercial documents, maybe a air-ocean bill or a truck bill of some sort. But I can see if I could find a list if there's actual list somewhere for you for sure.

Things on our to-do list now. Glossary of terms. When filing AES, do you file the gross or the net weight?

It depends. So in our system, we have a section for the gross weight of the goods that are being exported. But the Schedule B number will specify the reportable quantity and it will -- there's a list, a certain Schedule B number will want the number of items. Some scheduled B numbers require the weight of just the item. So if your Schedule B requires the weight in kilos, that suggests the product, not the packaging. So it's a reportable quantity that is required. It could be -- if you're shipping the shoes, well, that's shipping shoes, it's double pairs. So they'll ask the pairs or the double pairs, have a different reportable quantity and metals and aluminum, sometimes they need the millimeters or the length or the thickness of the goods. But as far as weight goes on a Schedule B reportable quantity, it's the weight of the product itself in kilos.

That was the new one. I hadn't heard that one before.

Yes.

Okay. So just in case any more pop in, I will leave the Q&A open. But yes, everybody will get a copy of the presentation. There'll just be a short survey. Just a couple of quick questions. And once you fill that out, you'll be directed to the landing page, so you can download the materials. And we'll have the recording, the reference materials. Barb and I have the 2 that we will try and respond to as well. And then webinar schedules. We have stuff coming up in 2025. Actually, Barb, can you flip back to the next one, sorry? So stay tuned. Those are coming up. They're getting scheduled. We do have one on the 12th, that's hosted by Onyx, which is a wholly owned subsidiary. They're a consulting part of Expeditors. And they're going to do the 2025 global outlook. And there are some of the items that they'll be touching on as companies prepare for 2025. And then there's a couple of links to some of the other regions. If you're interested to see what some of the other regions are presenting on. Also, the best way to keep in touch with events that are going on, marketing updates is to subscribe to the Horizon Brief. And the QR code is there as well as the next page, that'll have some reference materials on it. If you subscribe to that, you'll be linked to a newsletter a couple of times a month. We'll have some information of all the stuff that's going on in the market, in the industry and events going on in Expeditors as well. Okay. No more questions. So with that, thanks so much, everybody, for joining us. Thanks, Barb, for filling us and all these great details. And with that, we will give everybody back 20 minutes of their day. Thanks so much.

Yes. Get back to work people.

Have a great day, everybody.

Thank you. Bye.

Bye.