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

Hello, everyone. Thank you for joining us. We are right at the top of the hour, and I see our participant numbers continue to climb, but we are going to get started just to be respectful as possible of everybody's time today. Thank you. So someone said that they are hearing me echo. If you are hearing the echo, you are likely joined in 2 different places, so double check that. But thank you so much for letting me know. So I don't drive everyone crazy. So again, thank you so much for joining us today. My name is Samantha Hurst. You may have seen me on some of our other Americas Customs market update supporting a host. I get the pleasure today of joining you all in our Canada team or a webinar focused on Canada's new counter tariffs. So we want to talk today about preparing for the impact and how we can support you all in doing so and preparing your import supply chains. So we're going to get started here with just some housekeeping items, including if you're joining us late and here again echo of my voice. So sorry about that, but you need to double check that you're not joined in 2 places. That is why that's happening. Otherwise, you want to join your audio and make sure that you can hear us because we don't want you to miss anything as we go through today's session. We do encourage you as we go through the content today to make sure that you drop any questions you have into the Q&A box. And of course, understand that we have a variety of industries on today. Many of you are from all across the supply chain spectrum. And so I understand that, that means if you have a question hyper specific to your product or your particular industry. We just may not be able to cover that on today's webinar but we do want to get your questions answered. [Operator Instructions] So actually, Steve, if you don't mind going to the next slide, we'll show them so everyone can kind of see I guess we're skipping through there we go. Yes, we'll go on to the housekeeping slide. Perfect. We'll go back to the disclaimer. To just got out of order for me. So here, you'll see that if you want to get the slides, we do have a short feedback survey that we will typically send you -- it will come from myself about an hour or 2 hours after today's event wraps up. And once you complete that survey, you will actually see a thank you message that immediately pops up. And on that message, there will be a link that directs you straight to the recording and the presentation as well as a couple of other resources that we have for you there on that landing page. And then finally, if you would like to subscribe to see invite automatically for future events, we absolutely encourage you to scan the QR code that you see here on the page and we'll get you set up to get all of the invites that we send out because we do these webinars across the globe even, not just in the Americas and Canada. So we would love for you to join us on any event that you find useful for your business. So Steve, if you want to jump back to the disclaimer slide, apologies, that's on me for putting those in the wrong order there is what I'm used to. This is basically just to remind you all, from a disclaimer standpoint. It's just that we are not attorneys. None of our speakers that I am aware of, are legal attorneys and this is really just meant for your education. All the content we provide today is based on our understanding of how we have seen things that have been put out from the various administrations involved in the tariff situation and again, we can't provide any legal advice or any direct financial advice, but we will just provide you this education and then you use it as you see fit from there. So now we're going to speed ahead 2 slides to Steve part and he's going to introduce all of the speakers that we do have today that will provide the content.

Great. Thank you. Thank you so much, Samantha. And good afternoon, everyone, and we're glad to have you with us to discuss the latest developments with Canada's counter tariffs and what they mean for importers moving forward. I'm joined today by Cara Weese, our Customs Manager in our Windsor operations, Liz Murphy, Customs brokerage manager in our Calgary office, and David Mitchell, our custom solution manager here in Toronto. And together, they bring extensive expertise in customs compliance, brokerage operations and trade advisory services, providing valuable insight in today's discussion. All right. So agenda, well, with September 8 fast approaching, Canada is preparing to introduce new counter tariffs on a wide range of U.S. origin goods. And for many businesses and importers, it raises some important questions. Are we affected -- what will be the additional costs? And what can we do to reduce the impact? And today, we will answer those questions by breaking down what is changing, who may be affected, potential relief opportunities and the immediate actions businesses should consider before implementation. And our focus will be practical, helping you protect compliance, manage costs and make informed supply chain decisions, so that you can leave today better prepared for September 8. So with that, I will hand it over to Cara to walk through the next section. Cara, over to you.

Thank you, Steve. So as we all know, within days of the U.S. action, Canada announced a dollar-for-dollar countermeasure package. Canada's response targets approximately $27.6 billion of U.S. imports through new surtaxes and those taxes are ranging from 15% to 50% on more than 700 U.S. product lines. The measures are scheduled to take effect September 8, and they focus on many of the same industries impacted by the U.S. action. This transforms the issue really from a U.S. import challenge into a 2-way trade disruption affecting companies on both sides of the border. Today, I want to reiterate that importers should be reviewing product classifications, landed costs, supply chain exposure and available remission opportunities now rather than waiting until the goods arrive. The key takeaways here really are for any importer is that this is no longer simply a tariff discussion, but a supply chain strategy discussion. So companies need to understand where they are exposed, determine whether any relief programs may apply and then proactively model the financial impact before the costs begin flowing through their supply chain. Next slide, Steve. So as I stated on my previous slide, Canada's response was designed as a dollar-for-dollar measure, and the objective is to apply economic pressure. For importers, this means a significant number of U.S. origin products may face additional costs when entering Canada. The measures are scheduled to take effect, as I said, on September 8. giving businesses a limited window to assess exposure and evaluate mitigation strategies. Now unlike previous rounds of the retaliatory measures, this proposal introduces 3 different [ Surtax ] levels. So the tiered approach allows Canada to strategically target products based on policy priorities and economic impact, but for businesses, understanding which rate applies to which SKU will be essential because the financial impact could vary significantly. The delayed implementation date creates a small window for further discussions and potential negotiation, obviously, between Canada and the United States. While there remains an opportunity for change before September 8, businesses should not assume the measure will be withdrawn. And our recommendation is to be prepared based on the proposal published while monitoring developments closely as we will be. Here, the most important takeaway really is that the importers should use this period to understand their exposure and look at any remission opportunities were available. You'll hear that multiple times throughout the webinar. So this would mean having a very in-depth conversation with your broker to discuss and use of products coming in and understanding if there is a remission that can be used to eliminate the surtax payout. Steve, next slide, please. I thought it was important here, just to really show you an example of how the surtax is calculated out. As you can see, in the United States, there really was stacking or there is, sorry, a stacking rule where those products could be subject to multiple tariffs. And so simultaneously, they're stacked in Canada, that is not the case. So I just wanted to show a very quick example of how that is calculated out. So here, you can see if the value for duty of your product is $100,000, and it hits a 5% MFN duty rate, that would be the 5,000 for the $100,000. The surtax is also calculated on the value for duty. And if it was sitting at 50% would be the highest rate, that would be an additional 50,000. That is now all added together to make the $155,000 and then the GST is paid on top of that. So the total border charges for that file would really be 61,500 before any remission. And again, I say before any remissions because it is important when you look at this calculation, to have those conversations with us, talk about the end use of the product, take a look at the classification do all of this upfront work with us so that we can discuss and see if there's any way to eliminate these charges for you. Steve, next slide, and I will pass it to Liz.

Sorry, Liz. I think you're on mute yes.

I am so sorry. From an import compliance and customs perspective, the biggest impact is that importers will see significantly higher landed costs. The key impacts for importers or higher duty liability and import, importers of your affected U.S. products will pay additional surtaxes as Cara touched on 15, 25%, 50% and on top of normal duties and taxes. Many steel and aluminum products that were previously subject to 25% are increasing to 50%. Furniture and apparel are also among the highest affected categories. Number two, cash flow pressure. Importers must pay the surtax on accounting for goods with CBSA unless you have an eligible relief program apply. This increases our working capital requirements and may significantly affect importers with large inventories or frequent cross-border shipments. Increased origin verification requirements -- the surtaxes applied to goods determined to be a U.S. origin. Companies will need strong documentation supporting country of origin, manufacturing location, marketing eligibility and supply chain traceability expect your customs teams to spend more time validating origin declarations and supplier certifications supplier sourcing shifts. We're going to see a lot of this. We already are many Canadian importers will actively seek Canadian suppliers, Mexican suppliers, the European suppliers and Asian suppliers. This is especially likely in steel, aluminum, furniture, appliances, electronics, and agricultural equipment sectors where the tariff burden is substantial. With the pulp and paper sectors, keep in mind that, that could include your marketing materials, signage -- the fish was removed. This is good. And the last part of the factor digit classification scrutiny. So because the tariff rates differ by product, accurate HS classification becomes critical. Misclassification could result in additional assessments, penalties, retroactive duty collections. You want to make sure you can take advantage of any opportunities to reduce your risks that could be MPE opportunities, bonded warehouse strategies due to deferral considerations and potential CFA remissions and exemptions. Can I have the next slide, please. All right. Government support mitigation plans. Ottawa has a $7.5 billion tariff relief program. This will help with loans, worker support, project funding and it will help offset the economic damage. The $7.5 million is split up. There's $3.5 billion going to the rapid response. This supports extended EI benefits, flexibilities, waves, wait periods for tariff-affected workers. It can add 20 extra weeks to your EI for long-tenured workers including a new worker retention and retraining program. There's $2 billion going into Canada strong diversification fund. This supports shovel-ready projects at tariff level businesses, streamlined approvals and a focus on capital maintenance and adoption to disruptive trade. $1.5 billion is going to the regional tariff response initiative, the RTRI the agencies, this is to help small and medium businesses and enterprises, including liquidity, and it supports higher nonrepayable loan caps. $500 million going to additional liquidity stream. And this lowers the Business Development Bank of Canada's tariff-related program, revenue threshold to $1 million. These packages are designed to protect jobs strengthen the affected industries and secure supply chain -- supply chains during prolonged uncertainty. Thanks.

Okay. Thank you, Liz. We'll then pass it on to Dave Mitchell to address the very important point of remission orders and the potential relief that's available to importers today. Dave?

Yes. Thanks, Steve. So this is one of the biggest concerns for importers and by far, the largest number of questions that we received prior to the webinar and really saying that, the good news is that the Canadian government Finance Canada has signaled that the existing remission programs are expected to continue for these new counter tariffs. With that said, we're still waiting for the operational guidance, as Steve alluded to earlier. So we still need an order in council needs to be approved by General Counsel and we need the, of course, customs notice, which puts all of this into effect. So from that perspective, kind of walk through what the current remissions are. The government has extended some of the expiry dates for these remissions and you'll see that at the bottom of these slides. For instance, the one for public health, public safety and national security is extended through July 1, 2027. And so that's based on chip date. Again, it could be extended after that. But really, this is for products going into hospitals, health care organizations, emergency response, fire departments, police CSS, the Canadian armed forces those types of kind of health care, public safety and national security. It doesn't mean that those entities need to necessarily be importing them, but that those products need to be going directly into those and that is what is facilitating the trade. Okay. Please go ahead, Steve. The next current remission order that's open is, of course, the health care-specific relief. So again, things going into hospitals, medical labs, dental clinics can take advantage of this. And again, this was extended out. I will say the U.S. tariff that we'll get into in a minute that's going to hit a lot of these was not extended because Canada repealed the counter tariffs from kind of the last round. Finance candidate did say on a phone call that, that is expected to be revived. However, these are the ones that are currently in play. Please go ahead, Steve. The next one is probably the largest one that companies are using today. And that's really relief where manufacturing is happening in Canada, any kind of production reprocessing or processing of goods, things related to food and beverage packaging. And then from customs their definition is really from a processing standpoint around the assembly, any kind of a modification or adjustment. So again, this is currently open to be used, and we are hearing from the government that this would relate to the new tariffs scheduled for September 8. But again, it's really important to kind of take a look as Cara said, take a look at the exposure that you have across the classifications that are out there today. The Finance Canada website is a fantastic source of information for what tariffs they're going to be releasing and also what remissions will be in place at that time. But again, it won't be enacted until we get that customs notice. Please go ahead, Steve. So there's today, schedule-based product relief. And really, what that means is within each one of these counter-tariff measures, there's certain schedules that hit throughout the countermeasure itself. It gets into a lot of detail at a classification level where Schedule 1 might contain 50 certain classifications scheduled 2 contains a different list and this is where one of them Schedule IV has expired to date within the product relief, and that is related into some of the steel products automotive-related products and some specialized manufacturing components. So again, you have to be very detailed looking at this, make sure that your classifications are going to be eligible for the remission. But from that perspective, we're not going to know exactly which remissions will apply to these counter tariffs until we get further notification from customs itself. The schedule based as it states there does apply to steel products, aluminum, industrial inputs, packaging materials, aerospace and automotive and then some specialized manufacturing. So again, some of those are still in play if they're not within that schedule for today. Please go ahead, Steve. Then we've got the motor vehicle remission programs. And really, again, if you look at these and you took the information from Finance Canada and the government and their announcements over the past couple of weeks, we are trying to protect the industry and protect jobs. If you cannot source particular goods from anywhere except for the U.S. that really does help with the business case for remission, okay? I think I'll just repeat as well, and I know Cara touched on it. But these counter tariffs to the 338, the retaliation is only focused on goods that are country of origin from the U.S., not country of export U.S. So if the origin is not U.S.A., but the products are coming out of the U.S.A., these specific counter tariffs will not apply to those. It's only based on the U.S. origin. Please go ahead, Steve. Steel and aluminum, there are many remission codes and OICs particularly here because a lot of companies have worked through the revision process. we'll talk about that briefly in a second. But again, imports are playing relief through those designated OIC remission codes and those are expected to continue moving forward as well. And then specific remission request. So this is really where you have a specific issue with products that are importing that are being -- that are getting hit with surtax and it's causing harm to your company -- you don't have a means of sourcing that product from anywhere else. So it might be a specialized product. It might be something that is a single vendor. And so really from that perspective, building out a business case and submitting that into the Department of Finance Canada allows you -- they will review it in detail. They will challenge you on the actual remission itself. So -- but it will allow you to present the business case and possibly get permission. I will say that it started off really slow. So when this first came out the specific remission requests, it was taking months for an acknowledgment even from the Department of Finance. We have seen a little bit more speed over the past couple of months through that remission request. Companies can help you, consultants can help you walk through this and kind of come up with what that business case needs to be for the Department of Finance to be able to be eligible for some of these -- we've seen about 30 of these requests approved and 6 more are scheduled out finance was saying over the next couple of weeks. So they're starting to pick up a little bit more speed reviewing these and getting that process under. They have Man fit a little bit more than they had in the spring. And finally, just to kind of reiterate what Liz had been talking about, not really related to remission, but I think just the general notion that the Canadian government wants to support Canadian jobs, Canadian companies Canadian kind of workers build Canada. You heard all of that if you listen to any of the press releases that were happening over the past couple of weeks, really, from this perspective, they're trying to go above and beyond to make sure that business doesn't stop or get affected by these reciprocal tariffs. So please take a look at each one of these programs the BDC, as Liz has said, has reduced the eligibility threshold, export development in Canada is a great resource as well. Even though you may think, hey, I'm not exporting this product directly, really talk to that team. They are financed from the government, and they have a lot of programs in place again to help support Canadian companies. Thank you, Steve. I think it's back to you.

Yes. Thanks, Dave. That was great. So really from both a business and compliance perspective, importers should focus on the following areas. And right out of the gate and to reiterate what Cara had mentioned earlier, review your HS classifications and confirm the products are correctly classified against the new tariff list of classifications impacted. Number two, validate product origin and confirm origin here as customers -- customer eligibility does not provide an exemption for -- from the new surtaxes. Assess your import timing, review shipments. Review shipments around September 8, as goods in transit. Before implementation may be excluded from the surtaxes and most importantly, identify remission opportunities, determine whether goods qualify for existing remission programs or product special product-specific relief, as Dave alluded to earlier, and evaluate supply chain alternatives, assess sourcing, procurement, and explore alternative sourcing solutions. When we received the list on -- I believe it was August 26 from the Department of Finance. We were extremely proactive with our client base and as soon as this list was provided by the Department of Finance, we proactively delivered specific import -- specific impact reports to our customers. And using year-to-date import data, we calculated the potential surtax exposure for each importer. And in many cases, the numbers were staggering to say the least, and this reinforces the importance of taking action early. So as we wrap up today, our key takeaway is while the new counter tariffs create significant cost and compliance challenges, businesses that understand their exposure, leveraging available remission programs and proactively review sourcing and classification strategies will be best positioned really to minimize risk and maintain supply chain continuity. So I would like to thank everyone for their participation today. And then we will move it on to questions.

Steve, before we get into the questions, I just wanted to reiterate as well the end-use codes and remission codes. We definitely -- I just want to reiterate that like have those discussions, right, have a discussion with your broker or your consultant to really do a deep dive into those. Please know that CBSA can and will and has asked for backup documentation when it comes to some of those remissions. So we just want to make sure we have everything in order. And then for those remissions, it's so important to get that into the database and locked in so that we have that going forward, and we understand what we can use the end use codes for.

Yes, let me make sure you're specifically calling that out for your customs broker,

Yes. Yes. I can...

I'll read through these, Cara, I'll give you guys -- the experts to answer them as a -- let's go with the first 1 I'm seeing here if a payment was made to a U.S. supplier before September 8, but the goods will be shipped after September 8 would the surtax still apply even though the purchase was completed before that date. Cara, do you want to?

This yes, I can take this one. So this is really based on whether the goods are in transit to Canada. So the payment, I understand -- but if the goods are in transit, the measure comes into Forst 12:01 a.m. on September 8. So in transit as of that time, they will be hit with the surtax.

Possibly. Just in for the cost position cost it stands right now.

It may not apply, but as of time of release, they may.

Okay. So thank you -- what Steve, I'm going to give you this one, what considerations documentation or otherwise should be taken when shipping used equipment from the U.S. branch to a Canadian branch for service work and then returned back to the U.S. once the work is complete, time in Canada maybe about 30 days.

So was that temporary import Dave into Canada?

Sounds like you could use that. That's kind of why I threw it at you. So it is being temporarily imported. There is some work being done in Canada service work and then returned back to the United States. And I think what's important there is what is the origin, the original origin of that product itself as well.

Yes, I would absolutely confirm origin first out of the gate. There are many provisions, well, some provisions like temporary admission permits. There's chapter 99-98. And also with -- we need to confirm if USMCA customer would apply I would think that would be the easiest route, Cara, from an operational perspective.

We also need to know if it was coming in as a warranty repair or otherwise. So there's a lot of moving factors in that. Again, I just go back to having those discussions prior because there are so many moving pieces to that one as well.

Yes. And if not answering the question there, we'd be happy to take it off-line and take.

Yes. I mean a temporary entry, Steven E29B,if that's the way it came through. they would be hit with the charges only if the goods stayed into Canada. So Right. It would really depend on how moving forward.

Yes, for sure. Cara, you touched on tariff codes and kind of end user or what used to be called Amex codes, right?

Yes.

And so we have a question about specific eligibility, but I think maybe we can add to that a little bit broader as well. Can 9977, which is used for like surgical equipment and all that kind of a stuff be used for surgical equipment and surgical equipment parts bypassing using the remission orders that will expire. So can it be used kind of instead.

The weight -- so again, as far as I'm reading right now, as of today, no, the 9977 will not be able to remove the surtax. We'll need that end-use code which would possibly be an OIC. Again, it's very difficult to determine today because nothing has been published. So I do see who sent that question so I'll definitely reach out to her on the side, and we can walk through some of those products.

And I think it's just to kind of add to what you were saying there. From that standpoint, those tariff codes or ANX codes can be used to relieve duties and taxes, but it's really dependent, just kind of reiterate what Cara was saying, it's really dependent on what the end user is. So it's potentially yes, but you've really got to dig into what that provision is for the end use.

I agree.

All right. We filed for a remission for the last surtax that ended last September and still have not hurt back. I've heard their back up. So I'll take this one real quick. I think from that standpoint, if that remission ended and the remission was related to previous retaliatory tariffs that were in place with the United States that then got canceled out. That might have got skipped from finance. They might have been skipping those that didn't have surtax on over the past year. So I would suggest that 1 of 2 things, you have a consultant or a like company review what your submission was to finance Canada because they were saying on a couple of calls, they weren't getting enough detail in the remission requests that were happening. So if you haven't heard back, it might be because they didn't have enough detail, it could be that it is in a backlog. But I would make sure that it's bulletproof and have that resubmitted in Finance Canada because, again, they have more employees taking a look at the remission orders at this point in time, they've committed more resources to doing that. Steve, I'll give you this one. Has the CBSA mentioned when they'll be issuing the customs notice.

Yes. Right. Okay. Let me get that crystal ball out, Dave. No.

Yes, not at all. So we heard that it was going to be earlier this week. That it was going to be late last week. I'm hoping that it's not like what the U.S. did with their SMS messages, which came out about 15 minutes before they went live. Kind of also hoping it's a long weekend that it comes out maybe tonight. But hey, that is hope, and you can't base anything off of that. Is this a great opportunity for Canada to tackle its interprovincial trade barriers that moved on me, I'm sorry. Has this been discussed in Canadian is works? I think the answer has it been discussed, yes. I think if you listen to the Prime Minister over the past couple of weeks, he's talking about Build Canada, Canada supporting Canadian product. And I believe the trade barrier piece has kind of underlined that. He was working with the ministers. But again, that's just conjecture. Nothing has come out specifically from the government over the past few weeks, it should propel it though, hopefully. Steve, or Cara, either one of you guys want to get in on this, what is the process to file to get relief from surtaxes paid? We know that we're going to have a link that comes out that will give you a link to were to file -- do you guys want to take it, if you want me to?

Well, I know in speaking to some clients with regards to that inquiry specifically from the manufacturing sector, there could be a request for proof of manufacturing. Proof of end use. So you can take advantage of these programs, but you need to make sure that you are actually participating in these programs. Cara emphasized the end-use provisions. It's very important that you are actually taking advantage and within those specific provisions.

Yes. And I would encourage anyone who's looking to get relief from the surtaxes paid. I'm assuming it is because maybe remission wasn't used when it when you feel that it was qualified for that to contact neither our trade win division or a consultant to help you with that process and push that through. So again, CVSA is requesting proof on most of those, and that proof can be loaded to the current portal with the files.

Thank you. So Cara, let's just get back on this release versus in transit. So I've got a question here, how does the broker determine whether a truck shipment from the U.S. was in transit prior to September 8.

Well, the data direct shipment drives a lot. So normally, for the broker, we will look for a signed, and I want to reiterate I signed a bill of lading for truckies or documentation sign to state when it left and made its journey to Canada.

So the in transit is based on data protection and typically.

Correct.

Okay. Steve, just to kind of keep it going back and forth, and it, feel free to jump on as well. If my company is selling to an intermediary who is purchasing the goods for the Department of National Defense, DND, can I apply for the remission order, applicable for the special authorization code. So basically, can I use the remission, that first remission that we talked about, if you are selling to the Department of National Defense.