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

Good morning. For those of you that jumped in a little bit early, this is my second appearance. For those of you not seeing me for the second time, my name is Brendan Carruthers, I will be your host for today's webinar, incoterms & supply chain strategy. Let's go ahead and get started. A few housekeeping items. First thing we need to do is acknowledge our disclaimer. For those of you who've been regular attendees of our webinars and in-person seminars, this will be very familiar to you. Just a reminder that we're not lawyers. We are experts in the field of global supply chain. Of course, we thank you for taking note of this disclaimer. Understand that today's webinar will be recorded and available to you and for your use after the event concludes. And we're going to send you a survey within 2 or 3 hours, probably after the conclusion of the event. When you complete your survey, you'll be directed to a landing page, which will have both this presentation and a recording of this webinar. Of course, our team will be talking and sharing images as we progress, I understand that your microphones are muted and your cameras will remain off. As we proceed, of course, you probably have questions. Feel free to let them flow, drop them into the Q&A box, which you can find by hovering over your Zoom toolbar at the bottom of the screen. It's not entirely intuitive for those of you that are more accustomed to Teams or Google Meet or some other platform. But maybe it's in the other, there's 3 dots, but it is there. Sometimes folks have a little bit of a challenge finding that. It is there, please put your questions there. We'll be able to get to most of them during the webinar, but if we don't, there will be time for Q&A at the end. And if we still don't have time, which is possible but rare, we will make sure to reach out to you directly within a couple of business days or so. Joining me in hosting duties today is my colleague, Pam Norwood of our Charlotte District. Agenda is a simple one. We're going to introduce our panelists, I'm going to tell you a little bit about them in a minute, and we'll talk about risk in the supply chain. We're going to take a deep dive on incoterms and the definition of each, talk a little bit about controlling costs. And then as I mentioned, we'll have a Q&A session. And now our presenters, and this is when I pick it up and read it, so I don't miss anything. So forgive my eyes going down. Chris Beckwith is Trade Compliance Manager for both Norfook and Raleigh Durham. He is based on our Norfolk, Virginia office and he graduated from Old Dominion University. He's a licensed customs broker. For those of you who hold that designation, you know that's not easy. He brings 17 years of industry experience to the webinar today. He's expertise in air and ocean export, domestic trucking and is an Expeditors thought leader in global trade compliance. On the personal side, Chris is the proud father of 3 boys and enjoy spending his free time on do-it-yourself projects at home. Marek Zbyszewski is an account manager for ECI, brokered insurance, almost 20 years with the organization now. He started with Expeditors in 2007. And in his role, he is responsible for placing and servicing a wide variety of cargo insurance programs at ECI, Expeditors wholly owned insurance subsidiary, right? His previous roles in his 20 years with the company include various positions of increasing responsibility and surety, customs and corporate development. Pam is going to get us started. So Pam, over to you.

Okay. Just launched the poll there, poll question, if everyone can put their input in there. Okay.

Looks like a good majority of you -- we have the wrong poll going. It's unfortunate we have them flipped or [indiscernible]. This is the poll that we have later in the presentation. I'm sorry, that's a technical issue, and that's my fault. So the one that we have up here, Chris, since I know you're going to get us started is how many unique Incoterms are there as of the Incoterms 2020 update. So the slide is incorrect. Most of our respondents said 10, and I'll turn it over to you to talk about that answer.

All right. Thanks, Brendan. Thanks, Pam. So just -- we're going to get to the full Incoterm layout in just a moment, we will answer the poll question you folks just saw. But the poll question that was on the screen was a question about what Incoterm year is going to be the next Incoterm year? And the answer is 2030. More on who makes that decision and how all that works later in our presentation, but I am going to kick us off by talking a little bit about risk. So what do I mean by risk? And what's the context for today? Today, we're talking about risk and where it exists in the supply chain and particularly how it affects buyers and sellers. I presume most of you are involved in either logistics or buying and selling for your organization. So we're very honed in on what's relevant to you folks in the real world. What exactly do I mean by risk? Well, I'm talking about things like this. This first shot here is in 2024 from Rochester, New York. This is actually an overpass. So what you don't see in this picture is another road going below this that this truck is dangling over. Fortunately, this year was only minor injuries reported. This next one here, allegedly, this is just luggage, not cargo, but this is the same style of container that the airline industry is used to shift temperature-controlled goods like perishables and pharmaceuticals or to consolidate small parcels. So these are common among the UPS, FedEx and DHLs of the world. This next one here, this is from 2013. This vessel is the MOL Comfort, which literally snapped in half and it's 2 ends sank into the Arabian Sea, along with the 4,000 shipping containers you see on this deck right now. Fortunately, all crew members managed to survive and were rescued, but this event did lead to significant changes in ship design. This next example was just back in September 2025. So not long ago, this is at the Port of Long Beach, so in the United States. 70 containers fell off of the vessel. The cause is still a mystery, still actively under investigation. We may never know the outcome, but it's believed to be a mechanical failure of the lashing system or possibly human error due to improper loading. This next big messy pile is Japan's port of Sendai. And this is after the 2011 earthquake and tsunami that triggered the Fukushima nuclear power plant disaster. This was the costliest natural catastrophe in the insurance industry's history. And this last one was just over a month ago. This here is an ultra large class of vessel. This vessel was the OOCL SUNFLOWER. And while crossing the Pacific, it was caught in a storm. And of the 16,000, 20-foot containers, this vessel could hold, 57 went overboard and were lost at the bottom of the Pacific. They didn't put a number though on how many containers remained on deck, but shifted out of their secured positions. So 57 is what was lost, not necessarily the number of containers that experienced damage. So as you can imagine, risk exists at virtually every stage of the supply chain. And we've illustrated on this next slide the typical cargo flow for a variety of shipping modes. Truck, air, ocean, you'll notice a lot of overlap. Would you go to the next slide, Brendan. Thank you, sir. So these are truck, air and ocean cargo flows, typical transportation life cycle overlap for all modes. You'll see a lot of truck, a lot of handling, a lot of touch points. In terms of handling, take, for example, airfreight, it's not uncommon to see 20 individual touch points throughout the life of that load. Now this is an Incoterms webinar. You were not mistaken. We're not here to talk about insurance, but these examples I provided today happen all the time. So consider ensuring your shipments or consider obtaining a marine cargo insurance policy because in our world, we have this Husky little thing called Carrier Limits of Liability. That means the carriers are not on the hook for the full replacement value of your cargo. Why? Well, by limiting the liability, we facilitate global trade and commerce because the freight rates that the carriers can provide are much lower than what they would be if they were on the hook for 100% of the cargo value. Now the catch or the most important thing to be mindful of when it comes to limits of liability is it is on the claimant to prove negligence and to make that claim timely. So without insurance, you are subject to just these limits of liability, which may not get the job done. And if you're not very attuned to how things work, you might find yourself left out in the cold. Now limits of liability are dictated by international treaties or domestic regulations. For trucking and warehousing, it varies by country, it varies by provider and things can range significantly. For ocean freight, at least going to and from the United States, the limits are dictated by COGSA that's short for The Carriage of Goods at Sea Act. This essentially amount to $500 per customary shipping unit and the ocean carriers typically consider 1 unit to be 1 container. So consider a fully loaded container that you typically see. Does This $500 cover the full container? Likely not. Further, there are a variety of defenses that the carriers can cite, which can exempt them from all liability. That would include Act of God, Act of War or saving life or property. So I think back to my example where 57 containers went overboard, if in that scenario, the captain decided it was necessary to jettison those 57 containers in order to preserve the rest of the cargo on board, the carrier would be exempt from the liability of those losses. And those extraordinary situations sometimes turn into complex resolutions such as general average. That's where the losses are essentially passed on to the cargo owners who did not suffer losses. So before the carrier will release the cargo, you would be obligated to sign a general average bond and guarantee stating that you will cover those losses once they are understood, and that process can take years to figure out. Another interesting concept in the ocean world would be force majeure that allows carriers to say something extraordinary and outside of our control has occurred, and we are within rights to not fulfill our contractual duty. We saw this most recently with Maersk when their vessels struck the Francis Scott Key Bridge in Baltimore, containers could no longer reach their booked destination and had to be offloaded in Baltimore. That's a force majeure situation. That also probably created a general average situation for all the cargo that was damaged during that incident. Lastly, we have airfreight. These limits are defined by international treaties, the Warsaw and Montreal conventions. Currently, liability for airfreight is set to 26 SDR per kilo, and SDR stands for special drawing rights. It's essentially a basket of currencies. And at current conversion rates today, it's about USD 37. So USD 37 per kilo, if you have a claim in the airfreight world, air freight tends to be higher value cargo, right? That can truly be a fraction of what your cargo value actually is, especially if you ship high-value goods like pharmaceuticals. So let's imagine you come into work, you open your e-mail and you see an image that looks like it belongs at the start of my presentation. Who's responsible? Whose problem is this? When things go bad, as they inevitably will how is risk and responsibility determined between the buyer and the seller. And you guessed it, because it's the name of our presentation. It's incoterms. And now is where I'm going to pass it over to Marek to educate us on the finer points of incoterms.

Chris. Hey, everybody. Thanks for having me. Great overview. And if you -- if that wets your whistle a little bit in terms of carrier liability, it goes way deeper than that. And Expeditors does host several webinars that just do focus on carrier liability and kind of insurance and that sort of thing. So stay tuned for more on that. But for this, I'll just go over the Incoterms and kind of the meat and potatoes of the presentation here. So just to start us off, the word Incoterm is actually just a combination of international commercial terms, which is important because they are internationally accepted as the standard for interpreting trade terms, internationally being the keyword there. They address the 3 main shipping topics of obligations, costs and risk between a buyer and a seller to a transaction. And they're usually expressed as a -- usually and always should be expressed as a 3-letter acronym with the [ named place ]. So for example, you have an Incoterm we see that as a common is FOB Shanghai. So that's pretty descriptive there. So as we start getting into what incoterms are here to accomplish, it's also important to understand what they don't do. So they are not law, and they are only potentially legally enforceable if they're written into a specific contract. So keep that in mind as we go over some of these incoterms. They're not all inclusive. There are many parts of an international transaction that Incoterms have nothing to do with such as naming carriers or specific regulatory requirements that's sort of thing. So they're not all encompassing, they are not the answer to everything. They do not address passage of title or revenue recognition nor do they describe payment terms. So that kind of stuff still needs to be understood in contracts and transactions. They're not the playbook for trade like I just mentioned, they're simply a basic structure and agreement between buyer and a seller for an international shipment. So it's basically just outlining who's responsible for what. They also don't expire a seller and a buyer can continue to use prior terms if that's what's preferred between them. Again, it just comes down to the 2 parties agreeing on what they want to use. So that's the communication is key there. Okay. Proper use of incoterms. As I mentioned earlier, incoterms is a 3-layer abbreviation paired with a named place. So sometimes you'll see the year of the incoterm listed as well, but that's much less common it's usually just the 3 letters and the place. And the place should be very specific. If it's not otherwise, things can be left up to interpretation and guessing. So you don't want that. It's best to just try to use a city or a specific place rather than a country. And you also want to use incoterm that matches the mode of transit. So there's 11 incoterms total, 7 that can be used interchangeably between ocean and air cargo. And then there's 4 that should only be used for ocean shipments. Keep that in mind, you might be tested on that later. But at the end of the day, as long as both parties are on the same page, it's usually okay if incoterms aren't used in perfect fashion, but the more precision used, usually the better that way it's clear and there's less doubt. Question #2 to see who is paying attention. Actually, we swapped these. So I guess we put them in the chat.

Round 2.

Put put your votes into the pop up there. All right.

So you got about 59% completed. Go ahead and share.

Nice, Overwhelmingly, we have 11, which is correct. Omnimobile, omnimodel and 4 ocean specific, right. So just kind of going into this further. These are the 7 incoterms that are omnimodel, like I mentioned, that's fun word that I discovered first time I went through some of the incoterms, can be used for either ocean or airfreight. We'll go into each one of these just a little bit further in depth later on. So I don't need to memorize them or figure them out for now. But also on the next slide, we have just the ocean transit only incoterms. So there's the 4 that are specific for Ocean. All right. kicking it off. So just as a precursor, we have [indiscernible] first, and we'll kind of go through them in a certain order. As we go through them, we'll try to illustrate the responsibilities of the seller and the buyer with these colorful bars. The red represents what the seller is responsible for. And the blue is what the buyer is responsible for. And then at the top of the screen, you have the kind of generic supply chain pathway that shipment may take some from factory to documentation, export clearance, trucking, ocean freight, that's sort of thing. So that's kind of what the slide is illustrating for those of you that haven't seen this type of illustration before. So under exports, we'll kick it off. Under export terms, the buyer is responsible for basically everything as you can see by the bars that includes export clearance, if it's applicable to the shipment. All the seller has to do is get the goods packaged and ready for loading at the named place, which is usually their facility or the factory. So you'll usually under [ Ex Works ] terms, you'll see an origin city or report wherever the seller's facility is located. So the next one, we actually have 2 slides on this, one -- it's FCA, it stands for free carrier. There was a clarification added to Incoterms 2020 explain how FCA can be used in 2 ways. So we'll just have 2 slides to explain how the differences on that one. The name place, though, is the important here because it will determine how far the sellers' responsibilities will go. So the first example we are looking at here is FCA at the seller's premises. So in this situation, the seller is responsible for hacking the goods, loading the collecting vehicles, so the truck ticking it up and the exports customs filing. The buyer is then responsible to arrange the vehicle to go collect the goods and the risk transfers to the buyer once the vehicle is loaded. So think of it basically as Ex Works 1.5 where the buyer says, I'll do my own trucking, but you handle the export formalities. Second, the other option, which is probably more common of FCA is where the named place is the port. So in this case, the seller is in charge of getting the shipment package and prepared and then moving it to the port and the export clearance. So all that initial origin stuff they're working on that on the -- the buyers behalf. So the buyer just basically assumes obligation once the goods are delivered to the nominated carrier, which is also the same place where the risk transfers. All right. So up until now, the carriage risk and costs have all transitioned at the same point up at the origin. For the next 2 terms that would cover CPT and CIP risk, actually transitions earlier than the responsibilities of the carriage and cost. So with CPT, the seller is responsible for packaging export customs and [ contracted ] carriage to the named place of destination. This means the buyer is responsible for unloading at named place at destination and import customs clearance. The key difference though is that the risk transfers when the goods have been delivered to the first carrier, which is usually overseas. And who is usually hired by the seller as well. So therefore, the buyer will be at the mercy of the limits of liability of the carrier, which they did not hire and we'll be responsible for purchasing insurance, if necessary, as we know from Chris' slides, anything can happen. CIP stands for carriage and insurance paid to. So it's just like CPT, but now the seller must purchase insurance in the name of the buyer. CIP is 1 of the 2 Incoterms that require the seller to contract insurance on behalf of the buyer. Although the buyer is still technically at risk from the origin port once the goods are on the main conveyance, seller must ensure it on their behalf. And this is key, all risk cargo class A coverage is required. So before the Incoterms updated in 2020, the minimum insurance needed to be purchased was cargo clause fee, which is a limited coverage. So not to get too deep into the distinguishing factors of cargo clause b and cargo clause C. The main thing you just need to remember, that's cargo Clause A, A stands for all risk. So everything is covered. And cargo Clause C is basically limited named perils more so if it falls off a ship or if a ship collides with another ship and that sort of thing. So much better coverage with all risk cargo Clause A there.

Marek, if I could step in and Brendan if you don't mind going back a slide. I just want to give a real world example using the C incoterms. To call back to our previous slide that featured the MOL Comfort. Remember, that was the ship that was split in half. So if you bought goods and they were in a container on that vessel and your sales agreement was subject to 1 of the C incoterms, that means you didn't select or hire the ocean carrier. But because risk transferred once the seller delivered goods to that first carrier, that means that container at the bottom of the Arabian sea is your problem as a buyer, not the sellers. So put some thought into your insurance needs, or buying under CIP incoterms so that insurance comes along with part of the package.

Great call out there, Brendan -- or Chris, sorry, great call out there. definitely something to keep in mind there when choosing incoterms. Okay. So next up, we have free alongside ship FAS. The key term there is alongside ship because FAS, it's not really intended for containerized cargo because the seller is only required to deliver the cargo to the side of the ship, usually it's containers loaded onboard. Containers are usually tendered to port terminal yard. So FAS is usually more so intended for break book or project cargo-type moves, if that's something that you're involved with. It's probably something that you're familiar with as well. As for free on board, under FOB terms, the seller is responsible for pre-carriage and loading the container on the vessel. So it goes up a little step further than FAS since everything, including the risk of loss transfers after vessel loaded. I would say that FOB is probably one of the most commonly incoterms for international ocean container moves. So yes, so I see it all the time in terms of -- it's very popular. It's very clean cut off from buyer and seller getting it on the ship. So I do a quick question. If the containers dropped during the loading and smashes on the deck of the vessel whose problem is that? What do you think, Chris?

The correct answer here, folks under FOB, this would be a seller's problem because the container didn't successfully make it on board. So think back to our Japan Port of Sendai example earlier, a big pile of containers. Imagine that's a stack of export containers, right? In that scenario, we did not successfully load on board thus risk never transferred. If we drop a container before we successfully loaded on board, even if it landed on the vessel, that doesn't count. It's all snatched up on the deck of the boat now. That would mean risk did not transfer and this is the seller's problem to resolve and staff.

Okay. CFR, CFR stands for cost of freight with CFR, the seller arranges and pays for the freight services to the name destination port place. However, the buyer is still at risk once the cargo is loaded on to the vessel. So just like with CIP and CPT that we discussed earlier, the cost and risk transfer at 2 different points there. So another key thing to look at when choosing an incoterm is to remember where that risk transfers. It's not always at the same time as the cost and carriage of the shipment. Next up, we've got CIF, which stands for cost, insurance and freight. CIF, just like CFR, it's just like CFR, but we add insurance into the mix of costs that the seller is responsible for. So even though the buyer is still technically at risk of the loss, the seller must provide marine insurance to the buyer for the ocean voyage. Unlike CIP, the minimum coverage required on this one is cargo Clause C, which is not the same as our risk as I explained a little earlier. So Cargo Clause C, again, limited form of coverage that only covers certain risks such as fires, explosions, vessel collisions, vessel sinking or general average, which Chris kind of got into earlier as well if there's an emergency on board and the ship has to be the -- the voyage has to be rescued, so very limited, still has some coverage, but just something to keep in mind if you do use the CIF incoterm is to make sure that you do have a little bit more broader coverage to cover any other issues that may happen. All right. DAP. DAP stands for Delivered At Place. With DAP, the risk transfers to the buyer at the named place, which is usually somewhere on the destination side on the other side of the ocean there. The seller is responsible for most of the move and the buyer is basically just responsible for all costs and risk from the name place. So with DAP, it carriage, cost, the risk they all line up again, nice and easy, much cleaner. But again, this is one of those terms that if we agreed upon the sellers more responsible for most of the heavy lift there. DPU. It's basically the same as DAP. But with DPU, the seller unload it. DPU stands for delivered at place unloaded. So this is the only term where the seller is responsible for final unloading of the goods. This is a new incoterm actually introduced in 2020 to replace DAT, which was delivered at terminal, which intended to confuse people. So they just updated it with DPU, the cost, risk and transfer -- the cost and risk transfer after unloading at the named place. All right. This is actually the last one we're going to talk about. The last incoterm. Last but not least, DDP. The seller is responsible for basically everything. They're responsible for contracting the carriage to the named place ready for unloading. So this is also where the risk transfers. The seller is responsible for import customs and duty fees. So that's a big key differentiator there as well. As many of you are probably aware, that's a pretty tricky subject. Customs can get complicated and duties can be variable to put it lightly. So this is the incoterm where pretty much the opposite of ex Works where Ex Works the buyer is responsible for nearly everything, the seller is responsible for nearly everything. Back to you, Brendan or Chris, on the screen.

Thanks, Marek. Thank you for the incoterms lesson. so we talked a little bit about managing risk throughout this webinar. But how can we apply all those 3-letter acronyms and this new knowledge of incoterms to help you control costs for your organization? Well, for starters, next slide, please, you can educate your purchasing team or your sales team to be cautious about agreeing to incoterms haphazardly. As we've demonstrated here today, the line between, you're on the hook for the cost or the seller or the buyers on the hook for the cost, it's the difference of 3 letters, right? If your team is completely oblivious to how the concept of incoterms works you may see something like a bonus or a commission check, go down faster because they accidentally agreed to free shipping, right? Nothing eats up your profits like unexpected costs, and that's what these 3 letters in a sales agreement amount to. Speaking of which, you've probably heard there's no such thing as free shipping. Well, it's very true that some sellers pad, their freight charges to not just cover the cost, but to cover their administrative costs or to go further and treat it as an additional revenue stream. So a change in incoterms and taking control of your supply chain could produce a greater savings than you expect. Now I know some people out there want an easy button. But for us, control freaks, Choice and carrier can increase your confidence in the process while minimizing anxiety. Control also typically means a higher degree of visibility. So that means better planning, better forecasting, fewer surprises, tighter supply chains tighter supply chains can mean less dwell time, less hold time in your inventory. Fewer surprises means less surprise unexpected demurrage or detention bills better visibility is never a bad thing, right? And lastly, while insurance is great, losses in general are disruptive and they create soft costs as you resolve those issues. Carrier choice, being able to be the one that selects a carrier based on their past performance or their claims ratio. These are things that you can bring to the table when you have that control. So to our sellers on the call, Ex Works, EXW that might sound like you're easy one. But in reality, what I find that people are most risk averse to, when they sell and they offer Ex Works. They don't want the export customs responsibilities. Perhaps they're not familiar with filing and export declaration or they just don't have the time to be bothered, right? Well, the reality is, in the United States, you cannot fully escape the obligation to understand how these things work without running risk of going afoul of the U.S. regulations. So since you have to understand these things anyways, you may want to consider taking a step further, so you can also increase your control and decrease your cost along the way. To our buyers, DDP might sound like an easy button. But managing a customs clearance overseas, where you may have no legal presence, can be extremely challenging. You can definitely feel like the cards or the deck are stacked against you. when you're trying to clear customs in China with third-party representation and you don't have anybody in the country that actually works for you or on your behalf, except for the party you paid a small sum to help you clear customs and use their name. But they can leave you high and dry, and you're very much at the mercy of foreign customers. If you buy on DDP, you're relying also on the seller to price in customs duties and taxes, which may mean another opportunity for markup, higher cost than actually exists. And that could be tough to effectively do no matter where you're at. But if you've been paying attention throughout 2025 into the United States, Imports became considerably more challenging when the Trump administration started to roll out all sorts of new tariffs. So our tariffs in the United States have gone way up. And if these overseas buyers are selling you on GDP, you're really taking on faith that they know what the heck they're doing and that they're building these costs inappropriately into the equation appropriately. So speaking of those tariffs and the Trump administration, you may be aware that at least IEEPA was struck down and parties are currently lining up for a duty refund from CBP. Well, if you purchased under DDP incoterms, chances are good, you were not the importer of record. And you are not the party who can claim the duty refund, the IEEPA refund, only the importer of record who was representing the seller can claim that refund. So in order to get your refund in order for that to not be a sunk cost, you have to go back to your supplier and demand of credit. And depending on the relationship, that may not be a practical reality. So that brings us to the end of our slide content here. But before we go, we do have a brief exercise for you all to play along within the chat. So I'm going to run through 3 short scenarios. And I'd love for you folks to chime in and tell us whether the problem that we lay out is going to be the responsibility of the buyer or the seller. So first up, buyer or seller. If a ship runs aground from China to L.A., the buyer and the seller agreed to Ex Works terms. So in this scenario, where the ship runs aground, who's responsible for any damage that occurs under Ex Works. Look at this bunch, great bunch here. Everybody gets the buyer. Ex Works is the easy [ button ] for the seller. It means the buyer has taken on all the responsibility. So this stranded boat is going to be the problem for the buyer. Second, up here, we have another buyer seller, a container dropped during loading, smashes on the deck of a vessel whose financial problem is this is going to be the seller or the buyer? I'm glad to see so many people were awake in the middle of the seminar, didn't drift off. That's right. This is the seller because the risk only formally transfers once the goods are successfully. Keyword, operative word there, successfully loaded onboard the vessel. And our third exercise buyer or seller, a unit load device, a ULD which is another word for airline carton or airline pallet was sucked into the jet engine on a shipment headed to London. The agreed terms were DDP. So who is responsible. Look at this bunch. We got a lot of great people participating today. That's right. This is the seller. DDP is the easy button for sellers -- sorry, yes, DDP is the easy button for buyers. So that means the seller took on all the responsibility, and they are responsible until it reaches the buyers' doors in this situation, the seller's problem. I see someone said, airline, yes. This is a problem for the airline as well, but I'm sure they're going to be just fine. So with our remaining time, we're going to open it up for some Q&A. We do have a Q&A box that's open. Please, if you have any questions, feel free to chime in at this time.

So Chris, if you don't mind, I'll go ahead and read them to you and Marek.

Sure.

The first one that came in -- let me see if I can find it here. It's a big scroll of these answers. Very good. It comes in from David. So his question is, we have customers that ship Ex Works where the customer is accountable for the carrier and the freight cost. But we owe the duty or tariffs, what incoterm would cover that scenario.

Interesting. So this would technically be kind of a modified incoterm. So if I -- Brian, if I had that correctly, they're buying under Ex Works. Is that right?

Correct.

They're buying under Ex Works and who's responsible for the duties?

Customer is accountable for the carrier and the freight cost, but we -- I'm assuming that's David, owe the duty and tariffs, what incoterm would cover that scenario?

That is interesting. So usually, you're on the hook for whoever is responsible for man carriage and the natural clearance is going to be responsible for duties and taxes. It sounds like the seller is paying for the duties and taxes, even though the buyer is paying for main carriage. Do I have that correct? I don't see the question itself. I'm a little thrown here, but...

in the chat. It's way, way up at the top.

Yes. Actually, my chat starts to time out because I got to keep clicking, sorry about that. But okay, Ex Works customers accountable for the carrier freight charges, we owe the duties and tariffs. So I'm assuming David is the customers that ships. So I assume David is the buyer customers that ship exports, customers accountable a carrier, okay? That's not traditional Ex Works, right? Because I'm -- under traditional...

David has given us some more insight. The seller is responsible for duty tariffs and David is the seller.

Interesting. Okay. So covering duties and tariffs, but not the actual transportation responsibilities. Very unusual. So not a typical incoterm. So it's kind of a modified incoterm. So you could say it's Ex Works duty paid, right? And it's important to note that incoterms are guidance. They can be legally binding, as Marek mentioned, when they're included in sales contracts. But the ICC, the international, I think it's International Chamber of Commerce writes the literal book on incoterms has made it clear that you can modify them within the scope of your agreement. So as long as you define who's responsible for what and both parties mutually agree, perfectly acceptable. So David, what you guys are doing is fine. I would just be certain to list it out as detailed so that there's no gray area over who exactly is responsible for what and from what it sounds like, it sounds like what you could call Ex Works duty paid, where the seller is taking responsibility for duties and taxes, perhaps, customs clearance. So not a perfect box that fits in, but something that the incoterms have taken into account over the years. Hope it helps.

Thank you. Chris, I got a couple more. This one coming in from Jemena. Please forgive me if I'm mispronouncing your name. CIF port of destination. Can you add insurance cargo clause A? Or should you change to a better incoterm? This is in the Q&A box, if you want to read it.

Yes. Marek, tihs is a little insurance related, if you wouldn't mind.

No, that's a great question. CIF, as we mentioned, is cargo clause C. So more limited in terms of what's covered under that. I always say it's better to have your own all risk policy that protects you in case something does happen. So you don't necessarily need to change the incoterm. I guess that would be option one. If you wanted to discuss updating that CIF incoterm to the other one that we talked about, that includes insurance, CIP, which picks up the coverage a little bit into all risk. So that's option one, updating it to CIP. But if you have shipments moving under CIF, yes, I would definitely recommend getting a policy [ all risk ] policy that includes ocean transit and what is kind of nice about that, if you're still shipping under CIF and something happens to the shipment, that insurance, if it's one of those cargo clause C perils like this ship sinks or collides with another ship or the general average thing. Your -- that peril will still be covered under that limited coverage. But if something else happens that is not covered under those cargo clause C like a fire or a theft or something like that water damage, used most cargo insurance, all risk policies have something called a difference in conditions clause, which if there is 2- or if there are 2 insurance policies at play covering the same portion of transit, your policy, the [indiscernible] policy will take the difference in conditions there, and we'll respond to that. So more than one way to address that. But yes, there's if you want updates to CIP to make it nice and clean and easy, it's all risk all the way up until your responsibility, that's probably the cleanest way to do it. But I always recommend having your own all-risk policy anyways just to take over, especially once the risk ends there, let's say, insurance ends on that, too. So it's good to be safe and sorry.

Thank you, Marek. We do have a few more questions. So let's keep rolling. This one comes in from Rebecca also in the Q&A question. There we go. Chris, take it away.

Sure. Rebecca asks how does export creating -- or how do export creating and incoterms align. Great question. If you're paying attention, you might have noticed we only briefly mentioned things like loading and unloading. Loading and unlearning actually are defined by incoterms. Creating and packaging are not. In fact, the only real mention you'll see is under Ex Works where it states the seller is only responsible for having the goods packed made available at the seller's premises. So the incoterms really don't control for a scenario where the cost of packaging is passed along in the transaction. I mean perhaps that could be included in your normal sales, right? It's not uncommon to see that included on a commercial invoice. But there's really no incoterm that dictates as a standard definition, which party is responsible for packaging because it's always assumed that the seller is responsible for packaging these -- in the way that these were written. Great question though.

Thank you, Chris. The next one is will this recording be shared? Yes, this recording is happening right now. Once we send out our survey, please take about 30 seconds and complete that survey. Once you do that, you'll be sent to a landing page that we'll have the slide deck itself, a recording of the presentation and some additional usual information for you to use. Next question under the Q&A comes in from Courtney. On DDP, who is responsible for ensuring import documentation accuracy and how does the buyer verify compliance. Again, this is in the Q&A box if Chris or Marek, do you want to...

I'll take a stab at this one.

It sounds like a compliance one right up Chris' alley. I'm sure you've seen this before.

Courtney, that's a tough one. That's a really tricky question. Forgive me for geeking out on you folks for a moment. In the United States, we have this thing called the Customs Modernization Act of 1993, the customs Mod Act, which basically states, ultimately, the importer of record is responsible for the accuracy of their customs entries, not their broker, not the seller, it's the importer. So the answer to your question depends on who is going to be listed as the importer of record. So under DDP, it is possible that the seller, perhaps, has U.S. representation and that, that party is going to be the importer of record. Perhaps they have a foreign importer of record number, and they're going to act as the foreign import of record here in the United States. Or perhaps their customs broker is the kind of broker that will act as the importer of record, which is kind of uncommon in our world because of what I just highlighted with the Customs mod Act. It doesn't make sense to take on that extra liability. So in all those scenarios, whoever is going to act as the import of record is ultimately responsible for the accuracy of what is presented to customs. So if you're buying under DDP incoterms and you find out that they're assigned a broker, contact your organization and says, "Hey, what's your EIN number." I need to clear customs and I'm going to do it in your name. That's when you need a pump that breaks and say, well, hold on a second. If you're clearing it in our name, how do I know that you guys are going to do this in a compliant fashion. I didn't realize that I was agreeing to act as importer of record, DDP means customs duties and taxes. So that would be a scenario where, perhaps, a more robust conversation needed to be had at the time of sales. In any scenario, right, you expect that all parties are going to contribute as needed to come to a consensus on accuracy. The broker can help classify, but they tend to know the least about the product itself. So it needs to be a combination of the manufacturer or the seller, the broker and the U.S. party at the end of the day, whoever is the importer of record is the party we should be addressing and saying, do you believe that these are the classifications that apply to this entry, right? Because the buck stops with the importer. So another pitfall of DDP you are beholden to how their chosen broker is going to conduct themselves. So if you're buying under DDP, it would make sense to have these conversations to make sure that you're not going to be exposed more than you anticipate. Worth pointing out in order for somebody to clear customs on your behalf, they had to have a power of attorney. So unless you're signing power of attorneys willy-nilly, you won't accidentally find yourself in this situation. Hope that helps, Courtney.

Thank you, Chris. Great answer. The next one comes in from Marianne Andreta. She says, for example, in CIF [indiscernible], the cost for unloading the containers from vessel to the yard at destination port not part of the DTHC, should be included with the ocean freight paid by the seller or shouldn't be collected from buyer. That doesn't translate well saying out loud. So Chris, can you see it in the Q&A box.

I can see it. So let's say, CIF, [indiscernible], I did not say that right. So don't quote me, folks, unloading containers from the vessel, the cost for unloading containers should be included in the ocean freight paid by seller. So if we were to consult back to our incoterms chart, you'll note that the CIF bars actually end at the point between main transport and onboard vessel point of discharge or unloaded at port of discharge. So technically, CIF does not include unloading at destination. Now it's possible that the seller works with a carrier that does include that cost in the ocean freight, and it will be customary at that destination point for the cost of freight to be inclusive of unloading, but that's just one other detail. One other fine little detail that you may want to bang out in beyond just acronym of the incoterm to ensure there's no confusion because it does depend on where you're operating in the world and what is customary there. But on paper, CIF would typically mean that the buyer is on the hook for the terminal charges at the unloading port. Hope that helps.

That's a good answer, nailed it. And just a lot of this stuff, like you said, comes back to the actual contract of carriage with the carrier. So incoterms are pretty general, in the sense of who's responsible for what, but some of the real specifics, you'll have to just verify that bill of lading and the contract of carriage just to see exactly how far that nominated carrier is taking it. Because usually, that will all be kind of included in the overall contract occurred for the goods moving overseas.

And we have 1 last question here I'd like to tackle from Heather which terms are available for domestic shipments. And it's almost like Heather is a plan for my purposes here. I love this question because what does the in in incoterm stand for? International. Incoterms are meant for international transactions. They're really not meant for domestic shipments. But with that said, well, boy, I see people use FOB, my warehouse domestic all the time. It's a domestic shipment. There's no ship. There's no boat, right? What are you putting it on board, right? It's a water-only term. You can't use that for trucking from Virginia to Kentucky. That makes zero sense. So we see it used improperly all the time. Incoterms do not apply to domestic shipments. But with that said, you can do what you want. As long as everybody understands their responsibilities, and that they're defined somewhere in writing in a sales contract or a sales agreement, whatever it may be. And everyone mutually agrees, all parties understand the responsibilities that could go off without a hitch 99 out of 100 times. But best practice is to use things as they were intended, do it properly, so that way, you don't create any gray areas or any ambiguity that could result in any unexpected risk. I hope that answers your question, Heather.

And just to add to that a little bit before we wrap up, there are a specific list of terms that are specific for domestic, they're called the UCC. And so probably have a whole another webinar about the UCC. But as Chris said, we see this all the time where incoterms, international ones are used on domestic shipments. And I see them like on the insurance side coming in, in terms of claims and that sort of thing, just to understand, it just comes down to understanding make sure that the seller and the buyer understand what the intent is. So I've seen it use both ways, but there is a specific list of codes for domestic shipping called the UCC, that would be better suited for that. And they're very similar to incoterms, but they're different for sure.

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