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

Hello. Good afternoon and good morning to everyone joining. You are logging on now for our U.S. Customs Market Update presented to you by Expeditors. My name is Samantha Hurst, and I will be supporting in the background. I'm one of our regional marketing and bid managers. I can get my title straight there. Thank you for joining us today, and we appreciate all of your time as we are going to go through the latest in the U.S. customs market and what's changing there as things have been changing even as of this morning, and our team has been working hard to make those updates for you. So we will go over to just a few housekeeping items, and then I will pass it off to the team to get started. So today, we will have about 55 minutes of content. If you have joined our customs market updates in the past, you'll know that we really kind of go right up into the end as we have a lot of content to cover. But we do encourage you to drop your Q&A into the box on your screen, and that will allow our team to start answering those questions throughout. We do have a team on to support with doing that. Now we may encourage you to wait just a slide or 2. Some of those questions may be answered as we get a little further along into the presentation. So we appreciate your patience there. One of the questions we do always get is how do I receive the slides. So I just want to remind and tell for anyone that's not joined us before, we do typically have a short feedback survey that we will send you via e-mail. And that will come to you from myself within about an hour of today's event wrapping up. And at the end of that completion of the survey, it will just pop up a thank you message. And if you look right under that thank you message, there will be a link that will take you to a new landing page where you can get the recording and the passcode for the recording as well as the actual presentation and basic report of the Q&A and answers for those. And then finally, one last thing that people do often ask is how do you get information about future webinars. Now I'm going to drop a link. I know some people have had problems with the QR in the past. So this link will get you subscribed to any of our future events, and that will actually get you updates as well about global market updates. And you can pick the different regions that you would most like to get more information about. So now I will introduce our speakers and let them get started. Today, we have with us Madeleine Veigel, who's our Vice President of Customs for the Americas; Stephanie Holloway is our Regional Manager of Customs for the Americas; and Ted Henderson is our Senior Advisor for Customs. We're going to change things up today, I normally pass it off to Ted, but today, Stephanie is going to take it away. So Steph?

Thank you, Samantha. Okay. It is a big week in trade, and let's walk through what's happening. So obviously, our disclaimer here, none of the 3 of us are trade lawyers. We are just helping to provide information for you guys as importers to make the best decisions you can. So that is what we're going to attempt to do in the 1 hour we have. So our agenda, most recent U.S. trade actions. This is no joke. We have 6, 2 of which have already come on, 1 of which is coming on today, 1 of which is coming on tomorrow and then 2 towards the end of the month. So we're going to walk through these in date order, and help you guys understand what these are and how they might impact you. And then hopefully, you can roll that knowledge forward within your organizations to disseminate and get people either calm down or more upset than they already need to be. What's on the horizon? We'll talk about what else is open for tariffs. There's obviously a lot there. Madeleine is going to touch on what the current actions are in the court system. And then Ted will wrap it up talking about transshipments. So I know many of you guys have questions about transshipments. We are going to cover them towards the end and then also touch on some post-entry stuff and help people understand what's happening there. So I already see questions rolling in. Thank you for doing that. We have an awesome team supporting us in answering those as we go. So let's look at what's happening. This is just a nice overview, just a real concise August, major trade actions. August 1st, we'll touch on that. That's the fentanyl for Canada. Copper got put in today is an additional IEEPA on Brazil. Tomorrow is the globe, and that's going to be all the reciprocal tariffs being implemented. August 27th, this just came out today. Madeleine is going to touch on the additional IEEPA specifically for India. And then at the end of the month, all de minimis is going to be ended. So we'll walk through these to get us started. So August 1st. Obviously, this was last week, ages ago. But what happened there? So IEEPA fentanyl, this was actually one of the original trade remedies that Trump did under Trump 1 -- or Trump 2.0. So back in February, the IEEPA was published for fentanyl and it included Canada, Mexico and China. Canada and Mexico got punted to the beginning of March. And at that time, they were both implemented at 25% rate and ultimately ended up being just for non-USMCA qualified goods, okay? And the majority of freight coming out of both Canada and Mexico is USMCA qualified, but this is the stuff that's not. So for Canada, last week, it went from 25% to 35%. And it didn't impact the USMCA. Everything still at this point was still exempt, but it did just move that rate up 10% like how I say, just, just moved it a cool 10%. It kept the same Chapter 99 number that brokers use. So that part from an operational standpoint was a little bit easier. It did introduce this transshipped concept. And like I said, Ted is going to touch on that a little bit. But essentially, what we saw was Customs put out -- not sorry, the administration put out this verbiage. So it said goods determined by CBP to have been transshipped to evade Canadian tariffs are going to be reclassified under a different HTS number, and it's going to be given the duty rate of 40%. So we started to see how Customs was going to handle this transship language that had been floating around as the administration had been doing these trade deals. Mexico, President Sheinbaum once again pulled a rabbit out of the hat and got another 90-day extension. So that was supposed to go -- Mexico was supposed to go from 25% to 30%, and that is now on pause for another 90 days. And Mexico is confirming the same thing that the U.S. administration has said, okay? So more to come on that in 90 days. We also got another 232 case. So 232 cases are the legal basis, right? So these are cases where there's an investigation open with the Department of Commerce, and they have to find a threat to our national security. So the Trump administration back in, I think, February opened up this copper case, okay? The Department of Commerce has 270 days to complete the investigation. And we knew it was going to likely go a little bit quicker, and it did. We got the -- the investigation was finished up, and we got copper tariffs that started August 1st, and they came on as 50%, okay? So what the patterns that we saw with copper are very similar to what we've seen with steel and aluminum. So a lot of those ideas, you can roll forward to copper. If you are in the steel and aluminum business, you likely have some things in the copper as well. We also saw them call out this derivative product request. So this is a thing that we're going to see with Section 232 cases where they're going to open it up -- they open up a docket on regulations.gov. And by they, I mean the government, and will ask for other products to be added. So just because maybe a product that you imported didn't get included in that original list, that HTS list, it could be included in the future here. The copper, I always kind of like to see where are we getting copper from. So 42% is from Canada. And then you can see there's South Korea and Germany at 10% and 8%. They also highlighted that the U.S. is going to coordinate directly with the United Kingdom under that trade deal that they worked out to work out a rate on copper. So what did this ultimately end up looking like? So from a broker perspective, we ended up with 2 different classifications, one at the 50% and one at the free. And if you were at the free level, you were saying either my product doesn't apply to the scope or I just don't even have any copper, okay? What was a little bit interesting is all the copper HTS numbers that came out are set up as partial. So if you're not familiar with that, in the steel and aluminum world, we have these HTS numbers that are considered full value, meaning even if you just have a portion of steel or aluminum, you have to pay the full value, the full 50%. But for partials, you get to just pay a portion of your value to the 50% and then the rest gets picked up by a different trade remedy. So that was a little bit interesting, and they also changed some of the wording, and I'll show that visually in a couple of minutes, where if all your non-copper content needs to be covered by 2 different trade remedies, which is distinctly different than what steel and aluminum does. So that was a lot of words. We'll get to a visual in a little bit that might be a little bit easier to understand. So now we get to today, which is August 6th. August 6th, we have another IEEPA case for Brazil, okay? So this is really important to understand now that Brazil has 2 IEEPA cases. They have the reciprocal tariffs and they have this additional IEEPA case, okay? So if you see on the top here, and I try to always include the executive order links or the CSMS messages. So when you get this preso, you can look at the source documents or where we're pulling this from. So the U.S. is going to put 40% on certain imports from Brazil starting today. And then that will raise that total tariff to 50% because we still have the 10% universal rate in effect for Brazil effective through tomorrow. And then Brazil's rate even with the reciprocal is still 10% starting tomorrow. So they're going to be at a total of 50%, and it's the 40% plus the 10% okay? As I said, the legal basis of this was IEEPA. And it was said that this was put on because of threats from the Brazilian government to U.S. national security, foreign policy and economy. So these are going to stack together. We're going to have the IEEPA Brazil and the IEEPA reciprocal together. They did give importers a transit exemption, which was nice to see. So if your freight has loaded on the mother vessel prior to this morning at 12:01 a.m. and your goods get here by October 5th, you can be exempt from that additional 40%, okay? So we'll be working to identify those shipments and apply that exemption for you to save you that 40%. What was interesting with this IEEPA case from Brazil is that there's a lot of exemptions. And by a lot, I mean hundreds, I think it's like 240 HTS numbers that are exempted. And this list of exemptions is actually some of the top imports from -- or exports from Brazil to the U.S. So civil aircraft is a really big deal coming out of Brazil, and we saw an exemption for that. Same thing with orange juice, Brazil nuts, obviously, and some other items. Additionally, with this IEEPA, we saw exemptions for the Section 232 investigations that we usually see, so both the ones that are on and the ones that are in progress. And there are some example cases listed there. Also, it will include the standard exemptions like how now I get to just say that in quotes, like informational materials and humanitarian aid. And then the standard, if retaliatory tariffs are implemented, the tariff rate may increase. Here's a slide just on the transit exemption because we get a lot of questions about this. So of course, it needs to be on the mother vessel and in transit prior to the morning. Only ocean shipments are eligible. This is the same verbiage that Customs has used previously. And the key, of course, both from a broker and an importer perspective is to document, document, document. And I saw a question pop up, what is the best practice for how to manage these? It is very difficult. Sometimes we're taking screenshots from the carrier, but it is very difficult to figure out exactly if your freight is on the mother vessel, and there is no special easy button to figure out how to apply these well. It is a lot of work. So August 7th, that is tomorrow, tomorrow is going to be a really big day. So the Trump administration has been talking about reciprocal tariffs now since the beginning of April. So these are tariffs that are applied on many, many countries and the rates are changing. So every country, as you guys know, as importers, we're currently paying a 10% baseline tariff. Certain countries, I think it's 95, if I have my number right, 95 countries starting tomorrow will have an amount that pivots. So it's no longer going to be the 10%. It's going to be a new amount. Those 2 numbers don't stack. So the countries that are going to pivot to a new rate, that will be its own rate, you will no longer pay the universal. So these are tariffs that the Trump administration has been negotiating. And I just want to make sure that we emphasize, these are just trade deals. So these are not formal trade agreements. And even though countries have been assigned a number, I would say you have to hold that very loose and really not be reassured, just like we've seen fentanyl change, just like we've seen other rates come on steel and aluminum move, I think that's going to happen with other countries and these reciprocal rates. They are going to pivot. The Trump administration is going to use them as a negotiating technique or other -- they're going to use them for many different reasons and pivot the numbers, I think, both up and down, probably more up than down. So countries with trade deficits with the U.S. are going to see an increase anywhere from 15% to 41%. So that's their all-in number for reciprocal, like I said, you're not going to stack on top of the 10%. And then most countries that have a trade surplus are just going to stay at the 10%. And you can see a list there. So if we buy more from that country than they sell to us, then it's considered a trade surplus and they'll stay at 10%. There is an in-transit exemption, which will be really good. It's going to be same rules that could just described for the IEEPA Brazil. So you need to be on your final mode or what we would call the mother vessel by midnight tonight, and you need to arrive in the U.S. and be entered prior to October 5th, right? So I know these time frames seem a little bit wonky or not consistent. I also think that. So this -- we're just working with what the government has given us. So this is the time frame that you need to be here by. They also use the transshipment language similar to what we saw with the IEEPA fentanyl Canada. So if Customs has determined that your goods are being transshipped to evade applicable duties, they're going to be reclassified under a different Chapter 99 number and get a duty rate of 40%. China, Hong Kong and Macau are still on pause. They're going to stay at the 10% until August 12th. So if anybody is wondering about those countries, we will deal with them next week, pretty much a lifetime away. And then, of course, there's always this future. So countries may face higher tariffs until they finalize negotiations with the U.S. So let's look at some of these rates. So there's 95 countries. I broke the European Union out to all their individual countries. And you can see here what the rate is. And most of these are just going to be a flat rate. It's going to replace the 10% universal tariff and they're going to switch over to this rate. Now many of these countries have an asterisk. As you can see, 15% asterisk. Those are all EU countries. And it's because the EU has worked out a different type of deal. So let's look and see what the EU has done. Now I did not do this in the right order, okay, I'll come back. So the EU did something a little bit different. They worked out if a good has less than a 15% tariff rate. So in this example, this green snapshot, that HTS number has a 12.5% rate. If it's a 12.5% or anything under 15%, it's going to be an all-in rate of 15%, okay? And we're going to use a 99 number, which will essentially capture that full duty rate, okay? So you're not going to be paying that 12.5%. You're going to be paying the 15% and essentially your primary duty in effect will be 0%, okay? I know that feels really weird, but that might be the easiest way to think of it. So 15%, flat rate all in and then your primary duty rate, you'd be paying 0%. For a percentage that is above 15%, 15% or above, we're going to use a different 99 number and the reciprocal tariff is effectively going to be 0%. So it's the opposite, and you're just going to pay the rate that's in effect. So in this case, you would just pay the 37.5%. So for all of you that import from the EU and you're importing and using duty rates above 15% -- this is actually going to save you money. Right now, you'd be paying the 37.5% plus the universal tariff, so now that universal 10% tariff is going to go away. I know that is so confusing. So that's the only one so far that has kind of its own duty rate calculation. But now that the precedent has been set, I would absolutely believe that we will see this in the future for other countries. I'm going to flip back up real quick. This is the way that we got the announcements for the reciprocal. So just a couple of things to call out. They made a Chapter 99 for each reciprocal country. You can see here, this is for Indonesia. They have the 19% there, and then they referenced this transit exemption as part of the description of the 99 number. Also over here on the left, when you get this, if you want to see the source documentation for all the country rates, you can click on that chart or that link, and it will take you to all of those rates. Same transit exemption, like I said, you need to be on the vessel prior to midnight tonight. Only ocean shipments, needs to be the mother vessel. Let's all just document and do our best because we're seeing a lot of customs enforcement action on these transit exemptions. This transit exemption is a little bit weird, and I don't love this. But what they did was they didn't make a new 99 number. They said, just use this number, which is 9903.01.25 And for those of you that are very keen and know HTS numbers, that was the same number that we used to apply the universal 10%. So those of you who are auditing or looking at your brokers' work, it's going to be really hard to know if they applied it correctly and not just it was an oversight, right? So this one is going to be a little bit tricky for all of us just to stay on our toes and make sure that it was being applied correctly because it's not a different 99 number. It's the same number. It's that same universal 10%. Let's see here. Have we reached ultimate fund on tariffs? Not yet. So we updated this chart. Remember, this is just how to determine your duty rates. So this is not -- it's just showing stacking of duty rates and what can stack, not the order a duty -- not an order that has to be applied on your entry. So once again, all the top ones are staying the same, and they all stack on top of each other, right? Your base duty rate stacks with your antidumping, stacks with your 301, stacks with IEEPA fentanyl, China, Hong Kong. When you get to this bottom row, this is where you start at the left and move to the right, okay? So the first thing you would say is, am I paying money on autos and auto parts? And that's the key is that you actually have to pay money to be able to stop. If you're paying money on auto and auto parts, you can stop there. If not, you go to this next stack. We have steel, aluminum and copper. The copper HTS numbers, just so everybody knows, they're not overlapping right now with steel or aluminum. So any of those, they all can stack together. If you don't have those, then you move to the right. For IEEPA fentanyol, Canada and Mexico. If you don't have that, then you scooch over a little further and you get to the IEEPA reciprocal tariffs, which, as I've emphasized, can stack on these other IEEPA ones that are coming out. So we have Brazil and then Madeleine is going to touch on India that just came out this morning, okay? There's also some other little rules that you should read on the bottom left here, but essentially, for steel, aluminum and copper, if you're paying just a portion of your value, you have to pick up the rest of that value either with reciprocal or IEEPA fentanyl, but the rules are slightly different based on those. So hopefully, this visually kind of shows you how these are all playing out and how these trade actions are stacking on top of each other. So with that said, Madeleine, I'll hand it over to you, August 27th. As of this morning, we have a new trade action. So take it away.

My gosh. Thank you, Stephanie. Yes, it doesn't stop everybody. This is hot off the press. This morning, this came out. So as we saw, as some of you may have seen, as some of us may not have seen, but we're seeing now, the President has issued an executive order where he has added an additional 25% duty on imports from India starting the 27th of August. So that's raising the overall tariff on India to 50%. It was already at 25%, and he's adding an additional 25%. And this is being done again under IEEPA, The International Emergency Economic Powers Act. And mostly this is done, and we -- many of us have heard this now in the media, the President is very upset with India because he says, India, you are purchasing way too much oil from Russia. And so indirectly, you are supporting the Russian-Ukrainian war and -- anyway. And so the President as you have heard, is trying to stop that. And so he's upset with India in the fact that they're purchasing too much oil. And as a result, he's adding this additional 25%, so a total of 50%. There will be an in-transit exemption. So all of you heard Stephanie talk about the in-transit exemption. So that will be an effect also for the additional tariff on India. Goods have to be entered again prior to -- or goods have to be loaded on board the mother vessel before 12:01 a.m., the 27th of August and entered or arrive before 12:01 a.m. on the 17th of September. So then you would be exempt from those additional duties. There are lots of HTS numbers that are excluded. Items that are already under Section 232 investigations and some of the standard exemptions are also excluded. So anyway, we all have to like dig into this. The executive order just came out this morning. And of course, the President, as he has said for many of these tariffs, if the country retaliates, then the tariff rate may go even higher. So if India decides to retaliate, this could go even higher. So anyway, hot off the press, everyone take a look at that executive order. There is a link to it, but this will be happening at the end of this month, end of August. And we have some other things happening on the end of August. August 29th, we have the end of de minimis everybody. So low-value shipments, de minimis shipments, so remember, less than $800, those shipments where we would normally file a Section 321 or an entry type 86, duty-free shipments, that comes to an end on August 29th. So remember, this had already come to an end for any de minimis shipments from China and Hong Kong. But this will apply now to all countries, any country around the world, all countries. With the China-Hong Kong, remember, that was first announced in early February. And remember, this was in effect for a couple of days, but it was a mess from a supply chain standpoint. It really got messy. So then de minimis was reinstated and then the President came out with a proclamation or an executive order in April announcing that it would end for China, Hong Kong, and then that was implemented at the beginning of May. So end of August now, we will no longer have de minimis. And what's kind of interesting is that in the Big Beautiful Bill, this was also highlighted. However, in the Big Beautiful Bill, I think this was going to be done in July 2027. So obviously, the Trump administration is really fast forwarded on ending de minimis. So again, everything will need to be an informal, formal entry, in most cases, probably an informal entry, CBP could require a bond, they could require, it's not a requirement, but they may require a bond on the informal entry. And of course, in this case, it's like a standard declaration, you'll have an importer record, importers responsible for all the duties and fees, of course. And then there's some special rules for international mail. They put some standard fees in place, $80, $160, $200 depending on how much the reciprocal tariff is for that country. Those flat fees are only in place for 6 months, and then you would be paying the reciprocal rate for that country. But for the first 6 months, you have either the standard fee you can pay or the reciprocal rate. So that's how they have it set up. So anyway, we all need to get ready for the end of August for all of this to go into effect. Okay. And then what's on the horizon? So we still have much on the horizon, everybody, even with everything going on currently and this week. We have a lot of tariff investigations that are happening. So again, just briefly, Section 232 is administered by the Commerce Department, and the Commerce Department is looking for a national security issue or national security risk. That's the focus. Section 232 refers to the Trade Act of 1962. And as Stephanie mentioned, normally, those investigations take about 270 days, then the President normally has about 90 days to decide what to do and then it's executed within about 2 weeks. But as we have seen with the current Trump administration, many of these investigations are happening very quickly. They're more on a fast track. And then Section 301 is from the Trade Act of 1974. It's administered by the U.S. Trade Representative. And normally, those -- in those investigations, they're looking for any trade barriers, anything that's making it very difficult for a U.S. company to do business in a particular country. So of course, the famous investigation is the one on China that was done under the first Trump administration. Normally, those investigations can take anywhere from 6 months to 1 year. But again, I think, you know, the Trump administration is fast -- working very quickly on all of these. So we know that copper just got implemented on Friday, as Stephanie talked about. And then 2 that are -- we believe are close to finalizing the investigation is such is a -- 1 investigation on pharmaceuticals and pharmaceutical ingredients and another 1 on semiconductor and semiconductor manufacturing equipment. We've also heard the Trump administration talk about these recently in the last several weeks. So we believe something will come out fairly quickly on these 2 investigations. And then there are many that are in the works. These we probably don't -- will not see anything on until the fall or winter of this year, but we have timber and lumber. We have an investigation on heavy trucks and parts, critical minerals and commercial aircraft and jet engines. So we anticipate to see something on those before the end of the year. And then we have brand-new investigations, everybody that got announced just here within the last few weeks, one on polysilicon and one on unmanned aircraft systems, parts and components. And for those 2 investigations, I believe the comment period is still open or just about ready to close. And when we looked at those, I think there were only a couple of comments on polysilicon, but there's like 630,000 comments on unmanned aircraft systems, et cetera. So that will be interesting. So anyway, those are new. And then the one that, of course, just got announced along with the tariffs -- additional tariffs on Brazil is a Section 301 investigation on Brazil. And you'll see there, it's a little bit small print, but these are the areas that the USTR is going to be focused on in the investigation, right? Digital trade and electronic payment services, unfair preferential tariffs, anticorruption enforcement, intellectual property protection, ethanol and illegal deforestation, so those are the areas that they're going to be investigating and then, of course, drawing up a report once their investigation is completed, as is what happens with all these investigations. So as you can see, there's still a lot pending, coming out, a lot of foreseeable tariffs in certain sectors coming. So we have to keep our eyes on this, all of us do. All right. And then we have what's happening in the courts. So this is also very interesting and an important -- very important to follow. So there were 5 companies and 12 states that basically sued the government. And they said, "Hey, the President does not really -- should -- or does not have authority under IEEPA to implement all of these tariffs. This is something really that does not reside with the President, but resides with Congress". And in addition to that, when it comes to the International Emergency Economic Powers Act, declaring a national emergency on fentanyl and illegal immigration as what we saw with Canada, Mexico and Hong Kong -- China, Hong Kong, fentanyl and illegal immigration have nothing to do with tariffs. And then even when we look at the national emergency on the trade deficit, which is all the reciprocal tariffs, that we have trade deficits in place with so many countries, and we've had trade deficits in place for years and years and years and years and years. So the plaintiffs are saying, that's not really a national emergency. So anyway, those were in a nutshell, kind of the big arguments that they were making. And the Court of International Trade ruled on the 28th of May in favor of the plaintiffs. They said, we agree with you. This goes beyond what the President really has authority for. This is -- tariffs aren't part of fentanyl nor illegal immigration, and so they agreed with the plaintiffs. And of course, immediately after that ruling or final -- ruling came out from the Court of International Trade, the government immediately appealed, as you can imagine. And they appealed in the Federal Circuit Court of Appeals. And the Federal Circuit Court of Appeals said, okay, this is a very important case. We want to hear the arguments from the government and the plaintiffs. And so the tariffs will remain in place until we can hear those arguments. And they heard them on July 31st. It was a full court, and they heard all the arguments, and they were skeptical on what the government was arguing. And they seem to be -- based on their questions, seem to be leaning more towards what the Court of International Trade has decided. However, we don't know that for certain, of course. And there will be a decision coming out. So this is really important. Decision should come out sometime later this month or early September. So we should all be looking out for that. Though whatever -- however they decide, the Federal Circuit Court, of course, it will be appealed. So if they side with the Court of International Trade, you can imagine the Trump administration will immediately appeal this to the Supreme Court and vice versa. So we do think this will end up in the Supreme Court, this case. There have been other cases also brewing. There's one that's very similar to this Court of International Trade case, but it only involves 2 companies, plaintiffs, and that case will be heard on the 30th of September. That's in the DC Circuit. And I believe -- I even saw this morning that the plaintiffs there are hoping to get this in front of the Supreme Court actually even sooner. But we'll wait and see what happens. And then there's been a company that also came forward to the Court of International Trade and is challenging the de minimis exemption for low-value imports from China and Hong Kong. And so that was reviewed by the Court of International Trade on the 28th of July. And they said, this is redundant with the Court of International Trade ruling with their ruling on the 28th of May, mostly because I think it's under the umbrella of IEEPA because obviously, de minimis is very different from the tariffs that are being implemented. However, because it's under the IEEPA umbrella, they've said, "Hey, let's hold off, and let's wait to see how the Federal Circuit Court decides on this case". So anyway, it will be very interesting to follow to see what happens with the tariffs and IEEPA. A lot to follow and keep our eyes on. It's difficult to do all of this with so many changes every day. And I'm now going to hand over to my colleague, Ted. Ted, take it away with some other extremely important information.

Absolutely. Let's pile on with more things for people to keep track of. So as Stephanie has already highlighted, this question of transshipment keeps poking up. It really is becoming one of the more frequent questions lately is what is transshipment and really more specifically, what does the Trump administration mean when they talk about transshipment? We keep seeing these things on the reciprocal tariff deals with various countries, and it's highlighting that goods transshipped through those countries are going to be subject to an additional 40% tariff. So clearly, transshipment in some form is a concern to the administration. For those of us who've been in this business for a while and our trade compliance folks, transshipment has always been an area of concern for customs administrations. To be honest, it was when I was a customs officer many years ago, when my father was a customs officer and long before that. The traditional notion of transshipment is defined as goods that are shipped from country A to country B. And then those goods sit in country B for maybe a day, maybe a month, maybe longer. And no further processing is done to those goods. They're not improved in value, they're not made into a new and different article of commerce, they just remain in country B in their condition as imported. And then one day, those goods get exported into the United States and imported in the U.S. and the country of origin is claimed as country B, the place where they've been sitting, not the place that they originated, not country A, but country B. That is the traditional concept of transshipment. It is and always has been against the law. It's making a false statement on the country of origin of imported goods. And typically, this is done to avoid high duty rates, usually associated trying to avoid antidumping countervailing duty rates. And there is no transshipment duty that gets applied to those scenarios when Customs finds out someone's doing this. It's a penalty that gets applied, typically a civil penalty. And yes, you end up having to pay the correct duties as well and sometimes it becomes a criminal case. But the Trump administration is using the term transshipment really in a completely different context. And to be honest, it would be great. I wish they had grabbed another word or phrase to address their concerns and maybe we wouldn't even have this FAQ today. But the Trump administration is concerned about that inputs from country A, not finished goods, but inputs from country A are moving into country B and being claimed as from country B so that the reciprocal tariffs of that country would apply to them. It sounds kind of familiar to that traditional idea of transshipment. But in this case, the concern area for the Trump administration appears to be that inputs from country A that move into country B and then are made into a new and different article of commerce or maybe they're used to make a new article, that's the concern area. And quite frankly, that's perfectly legal. Many of you import goods from a supplier in a certain country, and that manufacturer supplier takes inputs from all -- a number of countries, a number of regions, they make an article for you and you buy that article, import it. That's acceptable and legal. There's nothing wrong with this. But it appears that the Trump administration is trying to be cautious that in the case of reciprocal tariffs, they're going to apply to goods that truly originate from that country. So we're going to be careful about inputs coming in from different places. So we do have one example where the administration has spoken a little bit about -- in some detail about this transshipment, and that's the U.S. Indonesia reciprocal tariff announcement. And it was stated at that point that the final agreement for U.S.-Indonesia is going to have some sort of rule of origin where goods which contain a certain percentage of nonmarket economy inputs may be classified as transshipment. The key phrase to kind of grab on to there is nonmarket economy. China appears to be the nonmarket economy that the Trump administration is concerned about. So again, the concern appears to be that inputs, components of finished goods will be shipped from China to another country, manufactured into a new good and those inputs would not be subject to China tariffs, reciprocal tariffs or any of the other tariffs. So my answer here on this frequently asked question really probably only answers the idea of what the Trump administration means by transshipment. It's a different idea than the traditional concept of transshipment for those of us who've been in this industry a while. But we really have a lot more questions that we need the administration to address. We really are not very clear of how this directive -- this goal of the administration to address transshipment will actually be implemented. So we know that a 40% tariff will be applied by Customs if they see transshipment activity. But we don't really know how that's going to happen other than the idea that there's a tariff number that we're going to use to get to that number. We don't know how these new rules of origin are -- if they'll be introduced and what that means. And does the idea of substantial transformation go away when it comes to reciprocal tariffs? And then ultimately, how is CBP really going to enforce the reciprocal tariff rules. If you're not aware of this, CBP has made a number of arrangements with third-party tech companies and now have access to really billions of global data points beyond the data that they traditionally maintain within their systems. So CBP does have a view and visibility to a lot more stuff that's going on around the globe. They see -- they can see how freight moves. So it is entirely possible that they should be able to do a fair amount of research and come to some conclusions about your goods, which you need to be thinking about this. So obviously, as we get more information from the administration and from CBP as to how this will actually go, we certainly will share that. But bottom line is the administration is clearly concerned about third country inputs moving into a certain country and then taking advantage, if you will, of the reciprocal tariff for a country and the third-party input -- third country inputs likely from China would not be subject to a China reciprocal tariff. So that's transshipment for what we know right now. Again, we know we're going to be talking about this in future webinars. So we'll provide more information as we get it as we move forward. On a somewhat related topic, let's talk a little bit about understanding the value chain of your goods and why that's becoming more important. For the last several years, we've really seen a trend in legislation and actions by U.S. government that have caused us and caused importers to dig into the value chain of their goods and understand the full bill of material for an individual good that they import. Historically, for -- again, those of us who have been around a while, we really have essentially only cared about the seller of the goods and where the finished goods originated the country of origin. If we imported textiles, then yes, we also had to know the manufacturing party. But it is becoming increasingly important over the last several years that importers really have a complete understanding of the full bill of material and all the discrete components of their finished goods. And it really started to surface during the forced labor enforcement actions by the government several years ago. With the Uyghur Forced Labor Prevention Act and then like I said, customs enforcement in this area, we had to start understanding if there was any connection in the value chain of our individual good with something like the Xinjiang Uyghur Autonomous Region in China. So it wasn't enough to say that my finished shirt was made in Vietnam and not connected to the region, you actually had to dig back to the cotton and figure out if the cotton somehow was connected to China and the Xinjiang Uyghur Autonomous Region. So that was one of the early areas where importers really had to start to dig in. The next thing is we started to see antidumping, countervailing duty cases that establish rules where inputs into a finished product could actually change the antidumping countervailing duty rate from the country of manufacture to the country of origin of those inputs. So another area where we had to dig in a little bit deeper. And then, of course, for those of us who've been taking advantage of free trade agreements, we've had to look at things like rules of origin, region value content, make sure we're meeting those thresholds. And now under the current Trump administration, we're seeing a couple of new reasons for us to dig in a little bit deeper as we go, the Section 232 steel, aluminum and now copper cases. We need to care about the full or partial content of our articles that are derivatives, for example. So that becomes an area where we need to understand the content percentage, the processing countries and all the other related content of a derivative article so that we can make a complete accurate customs declaration as we move on. And then finally, like I just talked about, this idea that reciprocal tariffs are going to have a provision where goods that meet this transshipment definition with third country inputs may be subject to an additional 40% tariff really is an area we're going to have to dig in. So bottom line, I know you guys are -- everyone is doing their best to manage active trade compliance programs in general. And typically, again, we've been thinking about the seller manufacturer, it really is time to really dig deeper and start taking a hard look at our bills of material and looking to see what documentation that we can pull together to substantiate any import declarations we make, that's classification, origin, value breakdowns, not just the finished good, but the critical components that may be impacted by a Section 232, a reciprocal tariff, something else along that line. So again, not to add more homework or anything to anybody, but just do keep in mind, as you're managing your trade compliance program, think about those components and how important it is to keep track of them depending on the situation. Next thing we want to touch on is a little bit and not -- we're not going to tear this slide apart. But for those of you who aren't actively involved in trade compliance activities, you may not realize that an individual customs entry has a life cycle. And the life cycle is a little less than a year typically, and then the entry liquidates. And the life cycle was put in place for the good of us in the trade. The idea is that the government has a set period of time that they get to review and act on an individual declaration, make decisions about it, whether it was done correctly, whether there should be an increase in duty or whatever the case may be. And when that time is up, the entry is closed by a legal liquidation. And then you as an importer have a sense of security, if you will, knowing that the books are closed, you shouldn't expect further action. The duties you paid are the final duty amount and you're good to go on that. You, by and large, don't have to worry about it. There are exceptions to this life cycle, but that's generally how it happens. Again, we're not going to tear apart this. The key thing we want to highlight is that there is a limited period after an entry liquidates where an importer can contest it. They can protest that liquidation. So monitoring the life cycle of an entry has always been important in the general course of business. But as Madeleine just talked about, we're watching these court cases related to the IEEPA tariff progress through the tariff or the court system rather. And we want to remind folks about the importance of this life cycle when it comes to monitoring the entries that you have that are subject to IEEPA based tariffs. We don't know how long the court actions will take. Like Madeleine says, we think it's reasonable things are going to progress to the Supreme Court. And that means time will pass. That 314-day cycle will likely pass for some of your entries before this case gets resolved in the Supreme Court. So that means you need to think about the idea of how you might get refunds. We don't know if the courts will mandate a refund process if they ultimately find that the IEEPA statute does not give the present authority to implement tariffs. So you need to be prepared to use the existing legal mechanisms, which, by and large, that's protest after liquidation. You can make corrections prior to liquidation, which is also good. But we need to be thinking about that liquidation date of our declarations, and we need to be watching those so that we can get refunds if indeed the courts find in favor of the importers. So again, we need to be watching our liquidation dates, extending liquidation as appropriate. We're going to talk about that more in upcoming webinars. But for now, really just the key thought as we'll show on the next slide, is somehow in your record-keeping system, flag your declarations where you have paid IEEPA based tariffs, whether those are based on the reciprocal fentanyl immigration, emergency actions, those are the ones we want to pay attention to. The court cases related only to IEEPA, so not Section 232 or 301. Again, we're going to talk about this more in our upcoming webinars and as this case moves on. All right. I get to wind it down and set opening today. So let's just keep an eye on some of the things we want to think about. Again, trade compliance fundamentals. Like I just talked about, not only about the finished goods, but let's dig a little bit deeper. Think about whatever strategies we can use. We've talked about them in the past. We -- our colleagues at Tradewin are also running webinars concurrently to talk about strategies to reduce duty, make sure, again, get into that value chain, auditing your customs declarations, more important than ever, it is becoming so incredibly difficult for your customs broker, whether that's us or anybody else to file declarations in this model. We are filing declarations that used to have a single HTS number and now have 10 HTS numbers. And we are all doing our best to do the right thing. But please remember your responsibility as an importer to record and audit those customs declarations. Keep an eye on your bond saturation levels. We know from our bond company partners that Customs is sending out more and more notices that companies do not have a correct bond on file because of the additional duties they're having to pay. So keep an eye on that. Closing out, just again, remember those IEEPA tariffs that you're paying right now and do know that, yes, we expect this to go to the Supreme Court. It's going to take some time. We also expect that the administration will use other mechanisms to implement similar tariffs if the court finds that IEEPA is not the proper tool. There are other things that are already in place. The administration is talking about that, that there are other tools they can use. So don't just think it all goes away if the Supreme Court or whoever ultimately finds in favor of importers. None of that hang in there, just as we saw this morning, we thought we had prepared our presentation late last night. And then this morning, we got to update our presentation to talk about India. This is going to continue to happen. We're going to see changes in the reciprocal tariffs as it goes. We know that. We hear the administration talking about continuing to negotiate. And so things are going to change. We have China out in front of us still, what, 6 days away. We'll see how that gets moved forward or if action gets taken there. We just -- we have to be able to respond and we have to be able to recover as well as possible, and that means us personally as well. So hang in there as you're working on that. Quick note. Today, at midnight Eastern, 11:59 p.m. Eastern Time, the last opportunity to offer any input on 232 investigations related to polysilicon or drones. It ends today, as Madeleine noted. Hundreds of thousands of comments have gone in about the drone investigation and only a handful have gone in on polysilicon. So if you're impacted by either of these investigations, make sure and take a look and get your comments in before end of day. So that's it for our content. As always, we have received accreditation for this material. So if you are a licensed customs broker, we can move to the next slide, and here is the relevant information you need or if you're a member of the -- part of the NCBFAA program on Certified Customs Specialist, we're continuing to make sure that you have more than enough continuing education credits to meet your requirements as a broker. Our next webinar will be the 20th of August, and we'll, of course, be continuing to talk about things that are going on there. But again, if you are in this group of folks who are either a licensed broker in the U.S. or in the CCS program, when Samantha sends you that information after this webinar to offer your comments and make sure and grab a copy of this presentation and keep this in your files so in the unlikely event of a water landing and you get audited by Customs to see that you did indeed complete all your training, you have proof of it. With that, we'll -- we've got 3 minutes. Samantha and my colleagues, anything that we want to talk about with the larger audience, things that we saw in the questions and chat today?

I'll just mention, Ted, real quick that I dropped the link for the next August 20th webinar in the chat, if anyone has not registered for that and would like to. And then I did enable our reactions to the end of the event just so all of our team online can be thanked a bit for the almost 100 questions they answered. So, sorry, Stephanie, not to interrupt you, but I just wanted to make those quick notes.

Yes. We're at 132, Samantha. We're not almost 100, we are blowing past 100.

Yes, I missed a few.

Absolutely. So just to reiterate, I mean, I think that we will likely -- somebody asked about Switzerland or other last-minute changes. I think there could be some that are coming today, that probably won't necessarily change how we're going to do the entry. We still already have the Chapter 99 number for tomorrow, but that rate could be impacted. So I would not be surprised if we get some last-minute negotiations today. I think that's all. Madeleine, anything you want to add?

I think we've covered everything in terms of what we know as of this very moment, unless something came in while we were talking, which has happened before. So let us know if anything came in while we were on this webinar. India luckily was earlier. So anyway, but just hang in there, everybody. We appreciate so much taking the time to join these and hang in there. We're all trying as best we can.

Wonderful. Well, thank you all for bringing all of this knowledge today. We appreciate all the time and effort that goes into these presentations being put together. Again, as Ted mentioned, watch for the survey e-mail that will come out to you in the next hour. We appreciate your feedback, as always, for any of these events. Any questions we did not get to, we will do our best to connect you with a product expert who get those answered for you. Thank you, everyone. Have a great day.

Thank you, all.

Thanks, everybody. Take care. Thank you.