Expeditors International of Washington Aktie

Good afternoon, everyone, for once. I think as we're all getting together, it is actually afternoon for everyone on those calls. So welcome to U.S. Customs Market Update presented by Expeditors. This is our October edition. I joke with friends and family that I can probably repeat most of this in my sleep by now. But what is not repetitive is obviously the content we're going to present because every time we join on one of these monthly calls, we have new content, new changes to present to you from the U.S. customs market.

And so we will get right into it after a little bit of housekeeping, just go over some of these rules real quick in case one of you or some of you on here are new to these webinars. And if so, welcome. I hope you get a lot of value out of joining us today. If you are hearing my voice echo, maybe hearing me twice, I'm so sorry, please make sure that you are not joined in multiple places. If you hear that echo, that is likely what is going on.

If you have another question about today's content or in general about any technical issues, you can drop your questions in the Q&A box or if you have a technical issue, you are welcome to e-mail me directly through your confirmation e-mail that you got from me, Samantha Hurst. And to introduce myself, I'm one of our regional managers for marketing and bids for the Americas region. And I'll just be supporting in the background here today. So one of the things that everyone always ask is how do we receive the slides. So we absolutely will get the content from today's webinar to you. We just encourage you to fill out a quick feedback survey that you'll receive via e-mail from myself within about an hour or 2 of today's webinar wrapping up.

And at the very end of that survey, just pay close attention because it won't take you to a new page. It will just give you a thank you message. And then at the very end, there's a link that will take you to all materials. And that will include the recording, the Q&A, questions-and-answer pairing and then also the presentation slides.

So without further ado, let's get into it. I'll introduce our speakers and then -- oh, quick disclaimer. Just remember that today's information is for educational purposes. We are not lawyers by any means. We are just here to give information about what we see happening in the customs market and give you some idea of how it might impact your business. Again, this is not meant for legal decisions to be made based off of this content.

Now I'll introduce our speakers. We have a smaller group today. We've got a couple of people traveling as this team often is very busy people, but we appreciate Madeleine Veigel, our Vice President of Customs for the Americas, is on with us today; and Stephanie Holloway, our Senior Director of Customs. So they will pop on. Stephanie, I believe you are taking it away.

I am. Thank you, Samantha, so much. Samantha is going to die that I'm going to say this. But I feel like we're all in this webinar family together. And I got to meet Samantha for the first time. And she said, you're going to see how short I am. And I was like, you can't honestly be that short because she gives off -- you guys can chime in on this. She gives off such tall people vibe. And she is 5 feet tall, everybody. And the whole time, my brain just couldn't reconcile it. So Samantha, now everybody, all 1,200 of us now know how tall you are.

So, 5 feet tall on a good day.

If anyone else was wondering, there you go. So now some insider baseball to Expeditors. Hey, look at that, Samantha, there's another 5-foot tall person in the crowd, so I love this. Now everybody is going to be guessing at how tall Madeleine and I are. Madeleine is taller than me, just so everybody knows. So let's jump in here. We are alternating back and forth. So I'm going to be doing tariff and trade section. I'll hand it off to Madeleine, who is taller than me, to talk about what's happening in the court system. I'm going to talk about what's on the horizon, and then Madeleine will wrap up with enforcement. So we have a nice full agenda as we always have. Customs and the Trump administration always provide. So we never have to worry that we'll have enough.

So with that said, I think our last webinar was September 22, if I'm remembering correctly. And at that point, the Section 338 import ban had not yet started. So as we all know, Section 338 was one of, I would say, the first time the Trump administration had used this legal basis to put tariffs on, and it was for Canada. You use Section 338 when there's discrimination against U.S. commerce. And the Trump administration said Canada was discriminating against 3 industries: dairy, autos and alcohol. So the tariffs were proposed. There was a 50% tariff that took effect back in August. So when we met, that tariff was already on, okay?

The scope got changed not that much longer, a few weeks longer. A few weeks went by, and the scope got changed around mid-September. And essentially, what it did was it said there is going to be an import ban. They adjusted some of the HTS numbers because a big part of Section 338 that you have to understand is the HTS that the U.S. is targeting from Canada do not correlate directly to the discrimination in the products that is happening. Some of them do. But it's not just like, hey, I don't import dairy, I don't import autos. I don't import alcohol. Therefore, this won't impact me. That's actually not how this works.

So they made some adjustments to the HTS list and then we were all wondering, hey, is this import ban going to happen? Because the other thing about this kind of, I'll say, ping-pong match for lack of a better word, between the U.S. and Canada is that each is giving each other kind of a long leeway, right? So the U.S. will announce something, but it's not just, hey, this is happening tomorrow. There's usually a few weeks. And I personally -- this is Stephanie Holloway's opinion. I think it's because they want each other to come to the table. They really want to have an agreement here. But at this point, we don't have one and the import ban did start on September 29, okay?

So just because I am a little bit of a trade nerd and I like data, I wanted to look at our own data set. So this is just Expeditors' entries to see, hey, what played out right? So I think most of us know there's obviously going to be certain industries that are going to be more prevalent to be imported from Canada down to the U.S. So over here on the far left column, and I've used this before, this is how U.S. CBP groups you as an importer. It's called the CEE, Center of Expertise and Excellence or your industry. So what I did was I said, hey, as we've gone through each of these iterations working our way towards the import ban, what happened? Okay? So this is where it's obviously fun if you play with data, but it's real fun with AI because I was trying to kind of level set it and say, hey, we definitely do more auto than agriculture and prepared products, aka alcohol, but let's equalize those so that we can look at it as a cross-section.

So everything has been equalized to this pre 338 level to 100. And then what you can see there is at the 50%, what happened at the expanded scope mark, what happened and then with the import ban, what's happened. And what you can see really is the automotive, consumer products, machinery, a little bit up, a little bit down, not too many swings. But of course, at least for what Expeditors import, it's really the -- it's buried within the agriculture and prepared products. That's where the alcohol is that we import that's been hit very hard. So you can see there that there definitely was a significant pickup before the import ban. So you can see that these importers truly believed or were at least hedging their bets that this import ban may happen. And therefore, they got a lot more products in, almost double, and then now it has decreased, of course. So there's still food products in there that can be imported, which is why that's not at 0 or even a lower number.

So that was fun, right? Just a little bit of nerd talk for you. So, another thing that I want to touch on is we have 338 happening right now. There's a lot of, I would say, almost trade noise happening, but it's almost hyper specific, okay? So it's like, hey, if you don't import from Canada, 338 isn't really that impactful to you. But if you do, and especially if you do alcohol or something that's on the import ban, it's really impactful. And that's how I feel like these -- like almost everything I'm going to talk about in this category is right now is it's just kind of noise unless it hits you, then it really hits. So I'm going to talk about them a little bit in a broader sense as well because through all of this, looking for the themes is the really important part, okay? So this is a good theme one to look at. So on -- when did this come out? A couple of weeks ago? I'm going to go -- yes, sometime in the last couple of weeks.

There was a release, per se, done that helped to define U.S. content for a very specific situation under Section 232 metals, if you're taking this Annex I-C mobile industrial equipment and machinery, if you're taking that exemption, there was a reference to U.S. content, but it was never defined. So this came out back in June 8, I think, is when you could start using it or at least that's what the slide seems to convey. And if you had used it, you were kind of in this gray area. You kind of had to make up your own definition for U.S. content. So this isn't super unique. This is a space that many of us keep finding ourselves where you talk to one trade lawyer, they're interpreting it one way. You talk to a consultant, they might think another thing, you're reading it, maybe your broker, somebody thinks something else. We all kind of have our own thing that we're trying to work through, and we're not often given extra clarification.

But when it does come, we have to adjust, right? That feels kind of obvious, but it just feels like another thing that you have to do and keep track of. But unfortunately, that's what we're in. So this is a great example of that in terms of if you were an importer and we had such few ones. So I know this is not super impactful to folks. If you use this, now all of a sudden, you need to have a mechanism to relook at the definition that came out. And then we got to figure out, hey, does this involve doing PSCs? Do I need to go back? Customs hasn't issued a CSMS message on it yet. What do I do with this information, okay? So this is more of a looking at it as that theme.

So when you're in those gray spaces and you're making those choices, how do you keep track of that? And then how do you make sure that you're circling back when there's more data being provided. Going along a little bit on the same theme as the import ban, we are looking at an interesting time with Section 232 polysilicon. So we have a looming Section 232 case on polysilicon that will be coming in, in December. This Section 232 case was actually announced in August. This is definitely the largest runway that we have had between when a case was announced and when it is being implemented. The second longest was probably pharma. So this is unique.

But what we also are seeing now is that I have to look at this -- I'm like how long ago was this? About a month ago, Commerce put out an anti-stockpiling rule, okay? So this is also very unique. We have not seen this before for other 232. So in your head, if you have a pending 232 medical equipment, this might be something that is introduced for your products as well. So just something to kind of think about. So it's still on track. They didn't move the date. So it's still December 4 is when this is going to get implemented. But now commerce is watching to see, hey, how much do you normally import? And are you still within those bounds? And if you need to import more, you need to talk to commerce directly so that you can get that approved, okay? Or if they don't approve it, it's going to need to go into a bonded warehouse until December 4, and which at that point, you can import it under the Section 232 duty structure.

So very interesting, very unique. We have not seen this before. Once again, right, it's a very sticky packy things, very impactful to some, very small enough, not so impactful to all, but how do we look through and find the themes of what we all need to be looking for.

The last thing I'll touch on in this section before I turn it over to Madeleine is the Russian sanctions law. So this is the Lindsey Graham bill that was passed back in September. And we talked about this on the last market update. And it was an interesting thing to talk about because this is a whole another unique way that tariffs can be administered, okay? So it allows tariffs to go on Russian origin goods and the top 5 buyers of Russian crude and natural gas or the top 5 facilitators of Russian oil sanctions invasion (sic) [ evasion ]. Evasion, sorry. So even if you are just buying products that have nothing to do with Russia, if the country of origin is one of the countries that ends up on this list, you could be highly impacted, okay?

So the secondary tariffs on this could end up being quite far reaching, let's say, okay? Also, these tariffs are set to stack. Now of course, I don't know exactly how they'll be implemented, but I think you should really assume that, that is something that would -- that could actually happen. Now on September -- on October 16, so just recently, an executive order came out, there's a link to it here, that essentially sets the rate amount, so you can see there 500, 100, I mean, crazy times that we're living in. But that same executive order also waived all of those duties and most of sanction provisions for now, okay?

So I want to reiterate, no new Russia-related tariffs are in effect. There's still others that are on the books. Those didn't go away, okay? But there are no new tariffs from this lot, okay? So what's really important, though, is that this law is completely queued up, okay? It is ready to go. They have the executive order out. They have everything ready to go. So this thing could turn on a dime. I don't know if it will. There was a report, it wasn't written down, and I can't remember who said it. So I probably should say out loud on a webinar, but they essentially said that they are going to reassess this in mid-December. So take that with a grain of salt, but this is a very important thing to keep an eye on. And they did not list the countries, they didn't list the top buyers or facilitators.

And that's where I think a lot of people, if you're trying to read the tea leaves there's a lot of latitude in how those things will be defined, okay? So we will see what happens.

On that note, Madeleine, I'll turn it back over to you to talk about the court system. Also very lively these days.

Yes, very lively. Lots of updates. And I am a little taller than you, Stephanie. Not a lot, but a little. Okay, everybody. Yes, there is a lot of news in this section. But first, we'll just kind of -- we'll just start with some stats on CAPE. So you'll see here that originally, the government or the administration when CAPE first rolled out, they said, "Hey, there are about $166 billion worth of IEEPA duties that have been paid by importers. And that covered about 53 million entries and around 330,000 importers. And as of October 2, the government has processed the administration, CBPs processed $136.6 billion of that amount in CAPE. So not that it's made it maybe all the way through CAPE or it has and has been fully certified as a refund. But 136.6 billion has been accounted for through CAPE. Of that amount, $126 billion has been actually refunded or at least sent to the treasury set up for a refund.

So that leaves about $30 billion that's still on the table, everybody still on the table in terms of refunds. So we can say pretty large portion has been accounted for by CBP, so that is good. One other thing I would say though about this, which is kind of interesting, and it's something, obviously, we talked a lot about when CAPE first rolled out, was making sure you have an ACH account setup, so you can receive the refund from CBP. And I'm still -- we run weekly reports on this, and there's still importers, lots of importers that don't actually have their ACH setup. So maybe just another little blurb on that, just make sure you've got your ACH refund or ACH account set up so you can receive the refund because there are still importers out there that don't.

So anyway, that's where we're at in terms of current stats with CAPE. So quite a bit has been processed. But really kind of the big news or headline -- most recent headline news is the fact that we have -- we are now in CAPE version Phase 3.

So we can flip to the next slide, Stephanie. So CAPE Phase 3 is finally live, and that went live on October 6. So as of October 6 -- well, actually, as of October 7, after the first day that it was live, there are about a little over 1 million entries that were uploaded into CAPE and that covered about $500 million in claimed refunds that had been accepted.

So there are a few caveats though for CAPE Phase 3. First of all, it's -- so it's not open everybody, right? You have to have filed a lawsuit in the Court of International Trade in order to be able to file in CAPE Phase 3. The second caveat is that you must have given your IOR number to CBP by July 30. So if you had filed a lawsuit in the Court of International Trade and you have submitted your IOR number to CBP, then you can start filing for a refund in CAPE as of October 6. And of course, that also means that your entries are past that 80-day final liquidation cycle. And we'll go through the liquidation cycle again here in a moment just to remind everybody.

But the other big news that came up just this morning, and some of you may have seen that already, is that CBP, they had said on October 6 when they rolled this out that anyone else that other folks that have filed a lawsuit in the Court of International Trade, but maybe not until August or at a later time or last month, they will be sending out instructions on a rolling basis when those importers can also file in CAPE. And just this morning, there was a notification that if you file the lawsuit in the Court of International Trade and you provided your IOR number to CBP as of July 31, up through August 13, and you can now also file for a refund in CAPE. So that's brand new, hot off the press. So they are -- CBP is sending out those instructions on a rolling basis.

So again, if you filed late August or filed in September, you will get instructions as to when you can actually put your entries to CAPE for a refund, okay? So anyway, so that is probably the hot news in terms of CAPE Phase 3. It's alive and working. But again, got to have file lawsuit, got to have submitted your IOR number to and your entries have to be in the right liquidation, post liquidation cycle.

So anyway, -- so I think we can go up to the next slide in. So this is just -- and we've shared this slide before everybody. This is just the life cycle of a customs entry. It's just kind of a reminder. When the entry is filed, then when the entry summary is due by tenth day and then duties are due by tenth day unless you're on periodic monthly statement. And then we go through this long liquidation cycle. Normally, entries liquidate about 314 day-ish or-ish after the entry date or after the date of entry, and then customs can still make adjustments from that 314 day up to -- from 314 days plus 90. And remember, custom said that 314 up to the 80th day. That's the previous phase of CAPE. But once you got beyond the 80th day, right, then it gets into Phase 3 and the Phase 3 is what just got rolled out.

And it's usually after that time to that CBP rarely makes any other modifications. So you have to be 80 days plus in order to take part in this Phase 3. So hopefully, that made sense. You'll get copies of this if you need to go back and look at the life cycle of an entry.

Okay. So other big news on the IEEPA refund front, -- so the CIT, so the Court of International Trade and that famous Judge Eaton, and he's kind of famous now because he needs to -- been the judge involved with all these IEEPA refunds. He certified a class based off of a lawsuit that Freestyle World Incorporated filed against the U.S. So what does that mean? So a class is really a group of importers or a group of companies that are basically making the same legal claim, right? And that's what we have here is we have a whole bunch of companies or importers saying, "Hey, I want my money back. My IEEPA duties back because the Supreme Court deemed that those duties were established illegally to the administration. So I'm [ demanding ] my money back. So this is why Judge Eaton said, I can create a class here because it's a bunch of companies that are all making the same legal claim, okay? So that's what he did.

And that also means, again, it covers all importers -- this class now covers all importers that filed between February that had paid IEEPA duties between February 1, 2025 and 19th of February of 2026. The only importers that it excludes are those that filed a lawsuit in the Court of International Trade. So only if you file the lawsuit in the international -- Court of International Trade and you're not part of this, but if you didn't, then you're automatically part of this class right? And you can't really opt in or opt out. It's just you're part of it. okay?

And there were roughly 4,000 -- just kind of a side note, there were roughly 4,000 companies that did file lawsuits in the Court of International Trade. But, now we have this class, right, that was determined by Judge Eaton. But that does not mean you're getting an automatic refund. We all wish that, that would now mean, okay, give me -- give us our money back. No, it doesn't mean that yet. So the court has to enter or has to declare a class-wide injunction, and that would allow CBP to process all of these entries. And they have not done that yet because, of course, they have to allow time also for the opposing party, the government to appeal. And we all know that the government will appeal this -- will appeal this case.

So for right now, there's going to be a discussion between all the parties and a schedule is going to be proposed as of the 22nd of October, which probably will define what the next steps. So that will come out the 22nd of October. But this process, everybody, this is going to take a while as you can well imagine. Because the government is going to appeal. This does not mean you're going to get your money back quickly. This could still take a year, 2 years, who knows, but it's going to take some time. It's not going to be immediate. So I think this is probably a good thing, especially -- well, especially for the smaller importers that haven't really done anything with CAPE yet that have been confused by CAPE don't know how to quite how to even submit their entries through CAPE, then being part of a class may be a way for them to eventually still get their IEEPA duties back.

So really, this becomes a discussion kind of internally because you're all probably -- or many of you may be asking yourself, God, what should I do? Should I file a lawsuit in the Court of International Trade? Or should I just -- since I haven't, I'm part of this class action suit now, should I just kind of wait and see how that plays out?

So if we go to the next slide, Stephanie, you really have to kind of take inventory internally. First of all, look at how much -- how many entries do I have that are past that 80-day final liquidation cycle, right? How much money am I still, in a sense, owed or how much money should I still be getting back in terms of IEEPA duties? And then if it's a lot of money, that may be a consideration to go to file a lawsuit in the Court of International Trade because you may get your money back quicker going that route.

If it's not a lot of money, and maybe you could say, hey, I'm not going to go through the trouble in the expense of filing a lawsuit. I'm going to sit back and see how this class action suit plays out. I can wait. It may take a while, but that's okay. But these are discussions that you really have to have internally with your -- okay. This is what I'm going to say again. I'm not a lawyer. You definitely want to talk to inside internal counsel or talk to a trade attorney and figure out what makes sense. Should I file the Court of International Trade lawsuit? Or should I just watch and play this out? Another thing to consider is with a lawsuit in the Court of International Trade, you have 2 years, 2 years from the date the duties were deposited.

So for -- in many cases, some of those entries, it may be getting close to the time where if you need to file a lawsuit, you have to do it fairly soon. So again, that's another consideration, the timing, right? So you really have to look at -- where am I with my liquidation? How much money am I still due that the government hasn't paid me back on IEEPA duties? And then is it a lot, a huge amount? Is it a small amount? Is it worth it for me to make the investment in the Court of International Trade and maybe get a quicker refund? Or should I just wait and see how this class action suit now plays out? And it may take a year, it may take 2 years before I ultimately get my money. But these are discussions you should have with the lawyer and have with the folks inside your company to figure out what is my best strategy. Okay?

Definitely not something -- definitely a lot to consider. And you definitely want to be talking to an attorney on what is your best path of action on this. Anyway, a lot to consider and think about.

And then there is other tariff litigation everybody. So this is something to watch as well. So remember, in July, the Section 301 forced labor tariffs went into effect. Remember, this is managed by the U.S. Trade Representatives office or the USTR, they did a big investigation. It covered 60 economies. And they said, hey, in all those countries, we feel, the U.S. government feels those countries have not done enough to prevent certain items or items that are getting imported into those countries, they're not doing enough to ensure that those manufactured goods or those goods, whatever they may be, were not manufactured with forced labor. So they haven't done enough on the forced labor front. They're allowing goods to come into their countries that may have been manufactured with forced labor.

And that puts U.S. on an unlevel playing field because we're also importing similar items into those countries, we're not at the same level playing field because we're probably having to -- or those goods will have to be sold for a higher price. So anyway, at a very, very high level, that's what the U.S. government was saying. It's like, hey, other countries are not doing enough on forced labor. So it covers 60 economies. And there have been some companies that said, hey, I don't think this is right. I don't think the U.S. government, I don't think USTR did a thorough enough investigation. I'm really questioning how much they really looked into some of what these other countries are doing. So there have been lawsuits that have been filed against the U.S. government.

And on the 30th of September, the Court of International Trade, they heard the argument from the USTR. And then they issued additional questions, both to the USTR and to the plaintiffs in this case, the companies that sued. And the questions, there's a list of about 6 or so questions. One of them to give you a flavor of that, of what it looked like or what it sounded like is that they asked the government, they said the USTR -- hey USTR, what statutory provision did you rely on to deem that the other countries have done not enough or have done unreasonable amount or have done an unreasonable amount to curb force labor. What statutory provision did you rely on. So they've asked that among some other questions to ask the USTR to respond to.

For the plaintiffs for some of the companies that suit, they said, "Hey, you did not import from all those 60 economies. So do you have the right leg or a solid leg to stand on in bringing this lawsuit forward? So anyway, those -- the plaintiffs and the government had to get back to the Court of International Trade with their responses last Friday. So you may have seen there have been some publications on what USTR provided as a response and what the plaintiffs provided as a response. So now we just have to wait and see everybody what the Court of International Trade is going to do on those 301 forced labor tariffs.

And we have to watch this closely because this could play out as of potentially another refund opportunity, but we'll see. This one is going to be a little bit more if than maybe the IEEPA refund case was. Then we also have the lawsuits that were filed under Section 122. So remember, that went into effect in February. It was really used to replace the IEEPA duties, right? And it was done under the whole premise of a balance of payment deficit. So there have been some companies that suit the government and said, hey, U.S. administration, there really isn't a balance of payment deficit with many countries. So we think you did this illegally.

So in May, the Court of International Trade said, hey, we actually agree with the importers that brought forward the suit. There was a spice company, a toy company and also the state of Washington. And there were some other states, I believe. But basically, for the state of Washington, the spice company and the toy company, the Court of International Trade said, we agree with you. We don't think there's a balance of trade deficit, but actually, -- so we agree that those tariffs were implemented illegally, but only for you.

So in other words, this is different than IEEPA. Before with IEEPA, they said really should apply to all importers for Section 122 is just those 3 importers. However, as you can imagine, as soon as that came out in May, May 7, the government immediately appealed. So now we're just waiting, right? It's -- the appeal was filed and we just have to wait and see ultimately what the courts decide. This could also go all the way to the Supreme Court. This may also end up in a refund situation, we don't know. This is also kind of a difficult case, but we should all be watching these cases because it does mean or could mean there are other future refund opportunities, we don't know.

So anyway, keep your eyes open for what happens next, both in the Section 301 forced labor case and Section 122 case.

So anyway, Stephanie, I think you have to tell us what is on the horizon. Oh my god.

I don't know. But I know there's more. So many good lawsuit questions, Madeleine. And I'm doing this. You can over head over there and I check all of those out. But I think what most of you are seeing on the lawsuit that's becoming super strategic from a business decision is whether or not you want to file in the Court of International Trade. So that's really the part that you need to think about, a, how much money is in that bucket. If it's $100, that's probably not worth your time. However, there's a lot of money there. That's probably what starts opening up the door to your company to say, hey, do we want to go file in CIT. With the overarching back stock of this 2-year mark. So you have 2 years, typically, once again, as Madeleine keeps saying, not lawyers, you have 2 years from the date of injury to file in the court system typically, that means you are coming up against this deadline. That's going to be February 2027 or March 2027, depending on when you started paying IEEPA duty.

So those are the key things you need to know. Before you go crazy, make sure you know how much money is in that bucket and then that can start the conversation and that's where I think the best place to start with.

Okay. So, no more lawyer talk, no more court talk. Let's talk about what's coming. So somebody said, "what's a lot of money." That's up to you. I don't know. It depends on how much you want to pay a lawyer. Okay. So U.S., China, so I think actually, last week, when we -- or last week, feels like week. Last month when we were talking, that's when President from China within the U.S., and we were trying to -- we were all speculating if there was going to be conversation around trade. And there was a bit. So this is what came out of our conversation with China. So let's level set.

So first of all, we all know that the original tariff back from 2018 for Section 301 are still on. And they have actually -- there's a 4-year renewal process that now will have gone through -- this is our second time. I don't know, I'm probably messing up on my math here. But List 2 and 3 just got reaffirmed, okay? So that's important. So those Section 301 China tariffs are still -- those are on, those are rolling USTR just reconfirm that.

However, there's a link here to this U.S.-China Board of Trade Agreement. And you'll start to see Board of Trade as an acronym is the big B, little O, big T, BOT. No, I don't know. BOT, however you want to say -- all of a sudden, I felt like I kept seeing all the stuff that was BOT, BOT. And I was like, what is BOT, what did I miss? Board of Trade, okay? So essentially, what they're looking at, and if you click on this link, you can see both the China list and the U.S. list. So China and U.S. have said, we are mutually going to look at -- I wish I could remember. It's like some dollar amount. So dollar amounts into China, dollar amount into the U.S., and we are going to say that these items that we're going to identify. I believe, if the way I'm reading it, we will see, we'll drop down to MFN pricing, okay?

And I also believe that the list that have been identified are not on the section 301 list, okay? So all speculation, we will see how all this plays out. But the important part is that, that list of 77 categories, some of it is HTS based. Some of it is kind of a description base. So if you remember, and we're around in the industry for the good old days of 2019, 2020, we were doing a lot of Section 301 exclusions, which same kind of concept where it would like some were HTS, some were description. That's what this kind of feels like again to me. So we will have to see. They're going to open this up for a comment period. I have not seen that posted yet. If I am wrong, please put it in the chat if you know that this maybe go posted in the last hour, let us know because there's going to be a lot of people that are obviously very interested in commenting on this.

And it's a lot of items I think I heard Jamie Greer, he gave like a list of products and included fireworks. So there's things that the U.S. does not want to manufacture. So apparently, we don't want to manufacture fireworks, we want to get them from China. So fireworks are definitely on the list. So there'll be opportunities for people to comment. It's a lot of that type of not just explosive manufacturing also kind of toys and things like that, that may be the U.S. isn't so interested in developing manufacturing expertise within the U.S., okay?

So more to come. This one -- this slide is so busy. But what this is looking at is low-value shipments. So we know that there has been some pretty big evolution since President Trump took office in terms of the administration's approach to low-value shipments, okay? So this is another phase that is being looked at. There was a proposed rule that just came out 2 weeks ago. It is over 100 pages of good time reading. I'm bringing it on my phone and I was like at the airport and I'm reading, reading and like, "Oh my gosh, how much can somebody say about informal entries," a lot, over 100 pages worth. But what they're essentially looking for and comments are going to be available, they're due December 7 is they're really looking at when and how informal entries can be used.

Now, right now, informal entries are the only kind of low-value shipment option that's out there. I want to make sure everybody on this call understands an informal entry from a preparation perspective for a broker is the exact same amount of work as a formal entry. They are one and the same, okay? There's some different bonding requirements. They liquidate immediately, but the actual preparatory like work the same, okay? So that was one of the things I was reading this. I don't think the government understands informal entries, and they are the same amount of work. So I want to make sure everybody here knows that.

With this proposed one of the big things you have to understand is informal entries will not be able to be used if the freight has already arrived to the U.S., okay? So there's that. Also informal entries have a different fee structure for MPF merchant processing fee. I was trying to remember off the top of my head, all the benefits of Informal. The list is not huge. Every informal entry needs a bond. So that's I would say for expeditors if you're on this call, you have a bond, right? There's not many customers that are just running an informal schema here. Schema, that's not the word to use, informal scheme and don't have a bond. So that one, not such a big deal, maybe for all of you.

More data per shipment, so added final delivery to party if it differs from the company. And then they can also require formal entries in bulk, okay? So you can kind of think this might be a little bit more attributed maybe to the couriers. But I know many of you are actually wanting your couriers, the traditional folks maybe that have done low-value shipments you're running your actual brokers to do them, okay? So there's also kind of a big industry shift that's happening within this space, okay?

Now the good news, that's been a gray box. That's exciting. Section 232, 301 goods valued between $250 and $2,500 could use informals again, okay? So what do we do with this? I do think it is worth looking up, I have the link in here for the proposed rule. It is worth looking at thinking about, hey, what are you actually using informal entries for? Do you rely on that flow? I mean, maybe a little bit. This is also where like mail shipments, not a letters I probably looked at my desk for a letter. I have one right here. Not a letter per se, but the small boxes, right, maybe an R&D box or things like that. Which ones of those are rolling through this?

And then considering commenting, is this going to be a world ending change, likely no. But great stuff in here that's not great. And maybe there's also stuff from an importer perspective that I'm not thinking of. The key takeaway, of course, is that de minimis is gone. That is not a thing that in the U.S. anymore. Just in case you thought it might come back, it's actually in the Big Beautiful Bill, if you remember that, to really be killed July 1, 2027. So that is actually a congressional order, I shouldn't say order. It's on the books from a law perspective that, that will be over July 1 as well.

So informal does not mean less work. It is the same amount of work from a broker and really thinking about those low-value flows and how this will impact you. But I think many of you, this has already impacted you. And many of you are already looking at alternatives for those low-value shipments.

And the last thing I'll say is about overcapacity. So hopefully, you know the day that IEEPA, so February 20, 2026. The Day IEEPA got overturned and the Supreme Court said, you cannot use IEEPA to put tariffs on. The President announced 2 Section 301 cases he was opening, one on for labor and one on overcapacity. Forced labor, we know is here. We're all living it, right, where those duties are being paid actively. The other one is this 301 overcapacity one. And Jamieson Greer had commented on it a couple of times, and it's coming soon. I don't know if it's coming soon or not most of the time when the administration says something is coming soon, it does. So I try to believe them in terms of what they say.

However, there was an interesting development 2 weeks ago. Maybe you don't know this. But in Milwaukee, the week of October 7, the G20 trade ministers met, okay? And they came to this agreement, and I'm only highlighting it because, of course, it involves overcapacity that we have this kind of looming Section 301 open on that's just out there. It's gone through the comment period. It's just kind of chilling, waiting for USTR to take action.

So on the overcapacity front, A number of countries signed, some of them did not kind of the media headline was about 75% of the G20 membership endorsed it, and they endorsed it on 5 sectors. So cars, especially EVs, batteries, chemicals, semiconductors and solar panels. So if you've been paying attention to tariffs, those are the hottest of hot commodity to talk about. But what these countries agreed to do was to start sharing data, okay, comparing notes on the impact of production in those sectors and to try to work together from a mitigation perspective, okay?

So do I think that, that Section 301 will not come to be? No, I'm not saying that. I'm just saying that I think it's very interesting that we have a Section 301 case out there on overcapacity. There is conversation obviously among the G20 about overcapacity, and this will be an interesting thing to keep an eye on, okay?

So we will see what happens. It also kind of means to just shifting sourcing or maybe strategies like that, that we have traditionally looked at to reduce tariffs. I think many of us now have seen that those are not super effective, but especially in new sectors, we might be getting the same treatment across the board. So interesting time to be alive.

So with that, Madeleine, all shifted back to you to finish this out on enforcement.

Right. Thank you, Stephanie. All right, everybody. I think we all know, obviously, about the big executive order came out on June 3, and strengthening customs enforcement. Hopefully, you've all read it. Only about 7 pages, we've recommended highly that everyone read it. Anyway, that came out on June 3. And just as a quick summary, remember it had several big, big changes that are within that executive order. Again, I think it's the biggest change since the Mod Act and since NAFTA but it talks about importing becoming a privilege, right, not a right. Importers have to be in good standing. We're still waiting on more definition on that. Export documents may be required CBP wants to look or seek proof earlier in the supply chain, the penalty exposure will increase. So there's a lot of really important big things that the administration talks about in this executive order.

So, one thing that was a little surprising but good is that the administration put out the beginning of September and advanced notice of proposed rulemaking, which came out in a federal register notice. And it is very good that this came out because it gives all of us an opportunity to give our feedback. There are 64 questions in the advanced notice of proposed rulemaking. It's asking for -- or the administration is asking for input on this foreign export documentation identifying the parties in your supply chain. They talk about MIDs, they talk about the global business identifier. They talk about disclosing more supply chain parties. They ask questions about that. They ask questions about tracing, traceability and tracing technology, the filing time lines, CTPAT enhancements, the implementation of a lot of these section. So there are a lot of questions, very focused on importer of records, importers of record also on brokers, but this is our chance everybody to give our input on some of these really big ticket items that are all very worried about.

So we can go to the next slide, Stephanie. So we just wanted to give a quick blurb here for -- please, we think it's super important that everyone make comments. Now of course, many of you are saying, "Hey, I don't want to put my name out there to Customs and make a comment on this." And that is totally fine. There are lots of folks in that category. But then you can make comments and make your opinion now through an association. There are tons of associations out there. I think almost all the associations are going to go back with comments. So you have an opportunity to voice your concerns to the associations and get your voice heard and your voice included in those comments.

But it's really important that we provide the government with feedback because, again, they're putting out some big ticket items that we're all very worried about. So to make a good comment, first of all, well, one of the big things is make sure or if you can, you support your comment or your feedback with data or at least be able to quantify the cost and the time with data. So if we take like the export documentation example, we're all worried about that. Do we have to obtain the actual export declaration from the country of export and all the documents that were affiliated with it, how am I going to get my hands on that? How much time is that going to take the cost involved? Where am I going to store it? How am I going to be able to provide it to customs? Is this going to be done on a transactional basis, which would be really difficult.

So being able to quantify the cost and time of something like that is very, very helpful and makes for a very good comments. So concrete examples are super important. And then there are 64 questions. You do not need to respond to all 64 questions. It will be crazy. It's much better to focus on just those questions that are super important or that would really affect you and your supply chain.

So anyway, so don't feel like you have to answer everything, just focus on a couple that are really important. And again, if you don't want to answer directly and send your comments directly to customs, you can do it through an association. But it's super important, everybody that we do provide comments because this is the way the government will hear at least what the trade is thinking about some of the things they're proposing in that executive order. And as we all know, there are some [ doozies ] in there.

So anyway. Then the other thing on the enforcement front, everybody, we've talked about this, this is really just a recap. Remember, the Form-5106 is really the importer identity form. And customs wants to make sure that all that information is up to date. And so it's really, really important that you make sure that the information that is in the ACE portal that was submitted as part of a 5106 is up to date. You see here, it includes your legal name and importer number, your mailing and physical address, phone us, e-mail addresses you can imagine as you have turnover, as you have people change around in your organization that this can get out of date very quickly. So it's super important to be up to date because if it's not as of September 18, and this is one formal, sort of, instruction or direction that customs has provided the trade based off of the executive order as of September 18, they will start voiding importer numbers. If the information from the 5106 is inaccurate or incomplete, okay?

So -- and if they avoid that number, that means you cannot use that number for entry purposes. So it could maybe prevent you from entering goods into the U.S. So again, super important to make sure that this information is up to date. And I think on the next slide, Stephanie, we have -- and we'll give you a link to this. We have a quick guide that we've put together that will show you where in the ACE portal, you can see exactly what information is on file. So you'll get a link to this.

And then the last thing, just to make sure that you're aware that it's out there, the Department of Justice, you all know they have a Trade Fraud Task Force. And in the beginning of October, the Assistant Attorney General put out a directive to all of the Trade Fraud Task Force in terms of enforcement and what they're doing. And they have -- they have 4 priorities using this document and it's short. It's only 5 pages. But the fourth priority Out of the 4, the fourth priority is tariff evasion, import fraud and forced labor. So super important. That is a super important priority for the Task Force and for the DOJ. So just make sure that you're aware it's out there. This, again, makes it really important that everybody goes back to the basics and make sure that your classification, your country of origin, your value, all of that is correct that you have a story to tell on those 3 big areas. It's really going back to the basics. So this is just a reminder that, again, this document is out there.

There's more -- again, more in the news, so to speak, about trade fraud and trade -- tariff evasion and that it's super important that we've all looked at our -- go back to the basics and really look at that internally. So anyway gosh, we're getting towards the end. So I guess a quick recap on how to engage and prepare Stephanie. In a few minutes, I guess.

Thank you, Madeleine. Yes. We've given many of these points throughout the slide deck, as well. But just really putting them in kind of these buckets. Once again, the tariff and trade remedy stuff right now is hyper specific. So some of you are like, "I wish my life was boring," and others of you, "Your life is a little boring right now, and you can take a breather," and just look at the themes and the trends that we're seeing and just take a breath because that's what we all need.

Otherwise, as Madeleine said, I think one of the biggest things, this keeps kind of spiking and going back down, but it's really paying attention to the court system to know how much money you have in that finally liquidated bucket for IEEPA and what you can do about it. If that number is big enough and big enough to you means different things, right? For some of you, that's $5,000. To some of you, that's $5 million. I don't know. It's all over the board. It's up to your company. But you also have to have the conversation filling in the Court of International Trade is suing the government and there is many customers I've talked to that are like my company is not comfortable with that. So that's a decision you're making. If that's true, and that's what you want to do for now, then this class group might be a good option for you. I don't know. We'll see how this all sorts out. Nobody knows. So we are all in this together.

Enforcement, as Madeleine said, making sure your 5106, we will repost this job aid as part of the links where you can download the presentation. And really, the biggest thing right now is the supply chain comments for December 1. Many people asked, hey, which organization do I comment with? If you are industry specific, most of these organizations, you pay a membership fee. So one place to start is, if you have a government affairs person ask them, are we part of any memberships? Is there an industry group that you work with? Maybe not. I don't know. For Expeditors, we're part of a couple of different ones. There's one called AAEI, which is American Association of Exporters and Importers. Congrats, that's all of you. They are doing a huge thing and lots of working groups to collect that. So that's a very broad group that you can research. You can choose to join it. If you join, tell them I sent you, just kidding. But that's AAEI.

So do some research, talk to your government affairs folks and see if they have recommendations or just do some Googling but lots of people are looking at this.

And then the last thing, of course, is plan. We have some maybe big duty rates in our future, maybe to duty drops. If you happen to have one of those 77 commodities for China, there's a lot there, okay. It's hard to model. It's hard to plan for this, but really being aware about what could hit us, especially in 2027 is really important.

So with that said, we do not have the NCBFAA code quite yet. We're hoping we get it by end of the day, and we will include that, of course, on the slide deck. So Samantha, I have punted a few things to you, also somebody told me the QR code doesn't work. So you have many things to do. I'm going to eat my lunch. But you're in East Coast. So you've got plenty of time to fix my mess.

But thank you so much everybody for joining us. We always love having you. Samantha, anything else?

No, just look forward to survey that will be coming out in about an hour, and we will get information out to you guys the materials as soon as possible. Thank you, guys, for joining.

Thank you, everybody. See you later.

Goodbye.

All right. Hello, everyone. My name is Sal, Sales Operations at Expeditors, and I'd like to formally welcome you to today's webinar on unlocking growth in Canada through Smarter Distribution. Before we get into it, I just want to cover a few items. [Operator Instructions] Later today, you will be e-mailed a link to a survey. And upon completion of it, the presentation and supplemental information will be provided and available for download. Just on screen here, we do have a QR code. Feel free to scan that now or later on, and you can subscribe to receive webinar invites direct to your inbox.

All right, so for today's presentation, we have Mehmet, who is the Distribution Manager in Toronto; we have Billy, who is the Distribution Manager in Calgary; Dario, the Distribution Manager in Vancouver; and then Steve Bunda, who is our Customs Business Development Manager across Canada. So now -- so in terms of the agenda, we're going to be looking at distribution trends and market outlook. We'll look at in-house and 3PL distribution models, the differences between them and then expanding and growing into Canada, what that looks like from a distribution standpoint.

So I'll hand it over to Mehmet now to walk us through a market update.

Thank you very much, Sal. Thank you very much for your time, everyone. Good morning, good afternoon. So we wanted to provide some updates from the market where we stand as things are changing rapidly in our market. So we're going to look at the 4 core pillars of warehousing in Canada, including industrial space, labor, forklifts and racking. The first one is about the warehouse space and the industrial space in Canada. We do have a different availability rate across the country. It's averaging about 5.2% as we speak, according to the results of end of Q3.

Certain parts of Canada, such as Vancouver and Toronto have been the most expensive warehousing space in the entire North America market since 2021. And fluctuation we had seen in the market over the past years has begun to stabilize. So Canadian industrial market fundamentals strengthened significantly in Q3 2026, and it's giving a signal from a shift from stabilization towards tightening conditions with all the -- what we are -- trends that we are seeing -- we're going to see in the upcoming slides.

With that said, the national availability declined, representing the largest quarterly decrease in 5 years as well as demand accelerated sharply. So there are multiple reasons driving those factors. Again, the demand in space is by changing the models by importers bypassing U.S. and coming directly to Canada and holding inventory on hand, which never did in the past or increasing their inventory levels.

The other reason is for -- from a construction perspective, we did have a lot of projects, were approved during COVID in 2020 and '21 as well as what happened, those new projects were delivered to the market, created additional space while the demand were significantly decreased during that time. However, now that was stabilizing for the past 1.5 years, 2 years. And right now, we are seeing the decrease in the availability and tightening during -- in the market conditions. We are seeing Toronto in the GTA market being below 5% and the Mississauga, where we are -- is actually below 4%.

So that's a signal that we are seeing in the upcoming. However, considering all that, we are still seeing the rent per square foot still dropping a little bit compared to where it used to be prior to the previous quarters, but that's also expected to stabilize in the upcoming quarters, and then we will see where it goes from here. But that's where we stand from an industrial space perspective in Canada today.

And when we look at the other pillars of the market, we're looking at, from a labor market perspective. So while we continue to experience some challenges -- sorry, Sal, if you can just skip to the next one, please. Thank you. So from a labor market perspective, we are seeing an unemployment overall national level at 6.4%.

So with that said, while we continue to experience some challenges with labor turnover driven by the latest immigration policy changes that we've been hearing and seeing on the news, overall market conditions continue to be flat and steady over the last few years. With that said, the recruiting conditions are still -- the skills are still available in the market.

The peak seasons are now -- because of the nature of the peak season, instead of having -- like just a little shorter or a more squeezed Black Friday as well as Cyber Week or a boxing day, this is more spreaded over multiple weeks and even over to a month now. So that also distributes those peak volumes amongst multiple weeks. And from comparing those peak volumes to 2021 and '22, there's a significant reduction in those volumes.

And then that allows the labor market to be more stable and resources are more accessible from that perspective. With the wage pressure, that changes by the market. Ontario has been getting back-to-back increases. We just got one in Ontario as of October 1, where we have in Alberta, haven't seen any increase for some time.

So the local market, the minimum wage changes vary by province. And when we talk about the forklift market, that's also got stabilized and have access to materials and different types of machines obviously differ by the time line. When you look at the standard machines, most common ones, obviously, those are more accessible and available in the market.

When you look at more specific machines such as order pickers and maybe turret drives, that could be a little bit more exclusive as well as longer lead times to secure them and bring them on board something to consider when you're looking at opening your own operations and working in a 3PL environment. With that said, that also related to some of the battery options that they have like against standard batteries versus lithium-ion batteries that are becoming more common, and that's also taking a little longer time to -- compared to the different type of machines that are out there.

And with that said, the last but not least, it's the racking portion of the market update. Racking used to be much longer lead times in the market and then it started to shrink and then shorter time lines. However, we also started to see some extension during sourcing these pallet types. It also depends on -- sorry, the racking types. It also depends on what type of racking equipment you're looking to implement within your environment.

So these are the 4 pillars that we just wanted to give a very brief update from a market update perspective. So if you look at the trends, what we are seeing in the Canadian consumer market fulfillment, we're definitely seeing the historical place where it used to be a lot of the Canadian freight used to come to U.S. warehousing, imported in the U.S.

Most of the companies would have either their large 3PL providers, either single or multi-facility model across the country or their in-house operations, and then they would fulfill all their e-com as well as LTL orders for the Canadian market out of their U.S. facilities and then just cross them over the border to Canada.

However, in the past 18 months, I would say, since the tariffs have started to implement it because of the certain commodities as well as the timing and the customs complexities, we start to see a significant increase of a lot of the importers bypassing U.S. and coming directly into Canada. And with that said, that was another demand coming from the major retailers and the consumer market that who looked at -- looking at the origin shipping out of U.S. versus Canadian and there was some challenges and some demand from there, and it also made a significant cost difference between 2 models.

So that's what we are seeing as the hottest topic in our market today that drives our model today, and we'll see where it goes from here. But how does that drive in multiple different occasions, and we're just going to take a look at a little deeper on this model. So if you look at the other models, if you can just go to the next slide, please, Sal.

So the top commodities, obviously, all these additional tariffs, especially at the very high percentage of related to steel and aluminum -- automotive and that's including all the aftermarket OEMs and all the high SKU profiles and just in time. And a lot of the 3PLs who are not used to handling automotives just in time 24/7 operations would be something new and something challenging or more creative ways to adjust or add some, I would say, flexibility to your operations and your models and your services that you provide.

However, automotive is definitely seeing a significant impact, and we are seeing the key origins as Korea, Japan and China when it's related to this. And the second commodity that we're seeing is a lot of the industrial machineries, not only the finished goods, but as well as the spare parts and accessories related to these machineries. And the challenges with these machineries are, most of them are oversized, overweight that cannot just be stored in any regular bulk or racking positions.

In addition to that, it may require some additional skills to handle them in and out, and there may be some monthly requirements of maintenance and inspections. So these are the things that we need to consider when we're looking at these commodities. And most of these machinery commodities do come with a very high SKU profile inventory model. That's where it requires to come up with a lot more locations and bin locations to be more creative and source additional racking in terms of the beams as well as the screens.

So this is another commodity that we are seeing a significant increase in terms of demand importing -- being imported directly into Canada. As well as we are all aware that AI is on the rise. We are not really seeing the volumes that we are seeing in the U.S., but it slowly started to increase in our Canadian market, but there it comes with its own challenges in terms of high security, in terms of the warehousing facilities as well as the transportation. And then these are almost every single unit or pallet does require RFID tracking.

When we talk about commodities, again, health care is also on the rise. So we are looking at -- we're seeing a lot of different systems. Those are robotics that are used for different type of surgeries and tasks and at the hospitals in our market. And those are also including some of the laser therapy. And all these robotic systems and machines also require constant fulfillment of instruments and spare parts to be used at every single treatment.

So this is also on the rise, and it requires different type of inventory management, different type of white-glove services arrangements because most of these clinics or hospitals do not have standard doctors or delivery methods. So we will have to become more cautious of the requirements of these commodities and the associated scopes and business requirements. And the consumer goods continues to increase.

It's a common portion of our market that a lot of consumer goods used to be imported directly into Canada, and it also continues to increase from a demand of import directly here. As we mentioned, China, Korea and Japan, and there are others such as Vietnam and a few others, but these are the top origins that we do see direct imports from those countries into Canada directly regardless if it's East or West. So some of the origins are like that.

And when we talk about programs, this is something also that we all know that returns, RMAs and reverse logistics is part of our supply chain, and we have to have that in place. So what we're also seeing is -- trending is a lot of these returns being shipped back to U.S. and -- for either -- multiple purposes, recycling, disposals and refurbishment.

We've been seeing over the last 12 months to keep them, store them, consolidate them within Canada and find solutions and vendors to handle all those final handling such as recycling, disposals or refurbishments within Canada instead of just transferring back to U.S. goes back to the same reasons of tariffs.

And again, when we look at all these different commodities becoming more primary and more popular, we definitely need to consider the high-value good facilities driving the demand with high security, temperature and humidity monitoring and controlling. These are the new requirements of facilities that must be in place when the customers are looking for. In addition to that, when we look at the new build, we see most of the -- over 65% of the facilities that are being built are 200,000 square feet plus.

That's driven by the cost, especially if you look into some of the automation, a lot of the demand and customers are looking for multi-client facilities to co-share the resources in terms of labor, equipment, racking and overall operating expenses. Also that we are seeing new highest limits of insurance with all the increased high-value products that we are storing in our warehouses. And something else that we are also seeing in terms of the demand, and -- the RFPs and requirements from our customers is in-house versus 3PL model.

Because of the uncertainty in the market, it is very hard to scale how much space you will need in the next 5 to 10 years, especially when it comes to renewing your lease, or opening your own business or expanding your own facility anywhere in the country because of the uncertainty and the lack of flexibility in terms of space and racking, there are many customers and companies out there looking for switch to over 3PL. And we will talk about that in more detail in the upcoming slides for these -- comparing these 2 models.

Another thing is that with Canada, the size of the country and from a geography perspective, they are very large. Considering the weather constraints and limitations throughout the year, also a lot of customers and companies are looking at single versus two-DC model locating between East and West. So these are the top trends that we just wanted to highlight based on what we are seeing over the past 12-plus months. And we will definitely dive into it from a more specific perspective of these topics.

Back to you, Sal.

All right. Thank you. It's a great -- really a great segue from that into my comments here on key trends. And some of the key trends that we're seeing in the distribution space today are being driven by the recent trade tensions between Canada and the United States. The demand for warehouse space in Canada has increased following the September 8 implementation of the Canadian counter tariffs or surtaxes on U.S. goods.

And really ahead of that date, importers increased shipment volumes to take advantage of the goods in transit surtax exemption. And this led to higher inventory levels in Canada and a greater demand for overflow warehouse space. And with the counter tariffs, as mentioned, reaching up to 50% on certain products, importers may also be considering holding inventory in Canada and moving fulfillment operations here.

And to support these changes, importers can explore Canada's FTZ, free trade zone, type programs known here in Canada as CBSA's, Canada Border Services Agency, duty deferral programs. And these include customs bonded warehouses, which allow importers to defer duty and tax payments and release goods as needed, paying the applicable duties and taxes at that time. Importers should also evaluate alternative sourcing countries as the Canadian government is streamlining the process for preferential trade agreements.

And a perfect example is the latest trade agreement with Canada and Indonesia, which is scheduled to come into force by the end of this year. And as Mehmet mentioned earlier, we are starting to see fulfillment moving north of the border here. We are also working with importers, U.S.-based nonresident importers, to move the Canadian inventory through a U.S. free trade zone. And by doing this under Customs -- U.S. CBP Customs Control, claiming the Canadian preferential tariff program.

And as an example, savings of 18% on landed cost for clothing and footwear from countries entitled to a specific Canadian trade agreement. And these tariff changes are promoting importers to review where they store goods and how they serve their customers here in Canada. And as industry, as inventory levels rise, so does the need for warehouse space. Over to Billy, I believe, next, Sal?

Yes. Thank you. So, although there can be a misconception that distribution and warehousing is just simply storing and delivering freight, in Canada specifically, it's more about overcoming geography. Although nearly 75% of the population resides in the metro cities across the country, solutions require servicing almost 10 million square kilometers.

Where this can become a challenge as vacancy rates are approximately 5.2% nationally, as Mehmet mentioned, but in some provinces, they're facing even less than 4% vacancy when 100,000 square feet or more is required. In 2025, majority of the industrial absorption activity was specifically located in Toronto and Calgary. So next slide, please.

Establishing a multi-node Canadian distribution network requires significant capital investment in facilities, equipment, technology and inventory positioning before the first customer order is even processed. A 3PL will offer infrastructure, labor force, equipment and systems in place already. Rather than spending the capital on facilities and warehouse operations, companies can invest these funds into growing revenue and market share.

Another consideration is flexibility. Many organizations do not know exactly what their Canadian demand profile will look like in the next 3 to 5 years. The dedicated facility creates fixed costs regardless of whether the warehouse is used up to 50% or 100%. A 3PL allows organizations to align cost more closely and actual activity. Labor is another major factor. Recruiting, training, managing safety programs and retaining warehouse associates requires a significant management attention.

By leveraging the 3PL, companies can gain access to an experienced workforce and proven operational processes. Warehouse employment has increased approximately 66% over the past decade, demonstrating the continued pressure on labor recruitment and retention. And finally, speed matters. If business conditions change and the company wants to -- wants inventory closer to customers in Western Canada, Ontario or Quebec, a 3PL can offer -- or can often implement a solution in weeks rather than months or years to establish a new, in-house operation.

The question for most companies is no longer whether they need warehousing in Canada, where transportation and warehousing sector contributes to almost $90 billion in GDP and persistent logistics labor shortage. The real question is how to achieve national coverage while preserving capital and maintaining service levels. For many organizations, leveraging a 3PL is the fastest and most flexible path to that objective. I pass it on to Dario.

Hello, everyone. The core idea that I want to share with you is really simple. Growing in this country is no longer about building heavy and expensive infrastructure. It's about deploying smarter data-driven distribution. As Billy mentioned and also Mehmet, if we look at the size of this market, Canada's overall space and logistics market is really big. It's valued today about USD 117 billion, and it's constantly expanding.

Year-over-year, we are seeing a growth of this market about 4.5% and is projected to hit between $140 billion and $150 billion by 2030. This rapid expansion signals a high volume resilient expanding commercial network with plenty of room for new players. First, we need to understand how Canada works. Billy mentioned and also Mehmet that this country is really big. It's a massive country with extreme winter weather.

But yet all the demographic reality dictates that the population is highly concentrated just in the southern border. Almost 86% of the entire Canadian population is just sitting between the border with the United States. Billy mentioned that we have massive distances. Traditional supply chain struggles really bad with fixed cost. The companies winning the Canadian market today are those that use technology as a daily tool. Successful expansion relies on dynamic, tech-driven networks that optimize routes in real time, allowing businesses to turn immense geographical distances into a sharp competitive advantage.

Currently, the strategic shift that we are seeing in this country is that the true growth has moved away from asset ownership towards agility. Sustainable scaling in Canada is achieved by prioritizing data intelligence, speed to market and network flexibility; and it's no longer a race to see who owns the most warehouses, it's a race of who moves with the greatest precision. Next slide, please.

Now that we understand the scale, thank you, Mehmet and Billy to give the summary of that. We need to understand the macro-market scale of the logistics network is very complex. But there's a second factor that we need to take into consideration -- to consider. This is basically who is the target of our business.

To successfully position any brand in Canada, we mean we must crack unique psychology of the Canadian consumer. First, we need to discover any ideas that they impose any value. Here in Canada, the Canadian shopper is pragmatic and analytical. They are heavily research-driven, always comparing prices online and relying almost all the time on loyalty programs to maximize their budget. Aggressive or manipulative sales tactics simply do not work here. Trust and transparency are mandatory for any business that we want to trust consumer trust.

Now recent data showed that, that significant 60% -- 67% of Canadians are actively planning to cut back on discretionary spending. Households are shifting their priorities towards financial responsibility. And if your business expands into Canada today, your value proposition must align with this fundamental need of everyday savings. Smart shoppers have turned towards share or multifamily bulk purchasing. This explains why volume formats like the Costco model resonates so deeply in this country.

Shifting your [indiscernible] towards volume and value formats directly satisfy the consumer needs for unit pricing savings. What markets -- what makes this commercial piece brilliant is that it's perfectly synergized with the large retail distribution in Canada because the major retailers like Costco, Walmart, Loblaw always are looking for efficiency. By offering bulk packages, you maximize your truckload density that ultimately gets a per unit shipping cost being cheaper. And at the end, that's what the consumer wants here, always pays -- paying the best price possible.

If you can go to the next slide, please, Sal. When we align our product strategy with the Canadian consumer, the next big question is, how do we physically deliver bulk formats across a massive country without destroying margins. The traditional expansion playbook in any other part of the world usually tells you go and build or lease a private local warehouse. Here in Canada, this approach is a massive financial risk. The industrial real estate market is exceptionally expensive.

As Mehmet mentioned before, we have seen a huge increase in this market in the past few years with the same outcome, it will make everything more expensive. So having your own warehouse here is maybe -- sometimes it's just not the best option because you have to factor in heavy upfront capital, high rental rates, severe winter maintenance costs and inflexible multi-year lease commitments.

Because of these barriers, this is a powerful and macroeconomic shift happening right now. The Canadian third-party logistics, as Billy mentioned, the 3PLs, is a submarket that's grown into a $20.7 billion submarket today, and this seems to be in a constant expansion. Modern business are abandoning the idea of private warehousing. Instead, they are migrating toward asset-light and shared distribution models, allowing them to pay only for the exact space and logistics service they use. We call it here pay for what you use.

In this fact, we can say this is no longer a trend, it's the global standard. Current data shows that 86% of international and overseas companies that enter the Canadian market, they are doing that by outsourcing a portion or the entire network to a 3PL rather than buying warehouses or trucks. Next slide, please, Sal.

In summary, first, we must prioritize adaptability of our assets. As we have seen, true growth and positioning in Canada, it is no longer about owning heavy physical infrastructure. The modern benchmark for success is about being flexible, smart and avoiding financial risks. Second, we must achieve value-driven alignment. Successfully positioning a business chain is impossible without respecting the reality of the buyer. It requires aligning your commercial offering such as volume formats with a market that actively prioritize efficiency, pragmatic spending and clear economic value.

And finally, we must embrace the shared ecosystem. Leading international organizations do not try to build everything from scratch, take advantage of the local partners to grow together. One thing that I really like about this special market is that consumer is really empathic with their business and who they buy from.

One key that every company must have is, we don't have market empathy with the consumer, probably it's not going to be a success business. Every company that we have seen here that make a really [indiscernible] is because they align with the consumers and the buyers and they grow together. Finally, I would like to say that this market empathy doesn't happen in other countries. I really believe that in this country, the consumer is really something that we -- if we honor the consumer, if we honor our buyers, it will be a successful business for everyone. I think it's getting back to you, Sal.

Thank you. Thank you very much for that. Thank you, everyone. So I'll just open it up to Q&A. Just a quick reminder that the Q&A box that should be on the bottom of your screen. If you have any questions, submit it now. We do have some in here now, so I'll just read them off and if any of the distribution managers just want to come up. So the first question is, how should companies think differently about Canada compared with the U.S. when building a distribution strategy?

Great question, and then I guess I'll take that one here. I'll just turn my video on for this question. It's a great question. I think there are multiple factors that need to be considered looking at your origin and your commodity as well as your customer market. So are you dealing with B2B, your major retailers and e-com market?

There are definitely some things that we need to look at, at a project perspective to ensure that all the right network planning is in place before you make any -- either you continue to stay in U.S. and serve Canadian market or if you would like to expand into Canadian market, definitely different dynamics here. So that does require some research and planning, but we're happy to support in more details, and we can definitely collaborate on that offline.

Amazing.

Something I can say about the same. That -- something that we have seen here in the last years is what we call the Amazon Prime effect. Now consumers are not looking for 1-week delivery, 2 weeks delivery. They want the product now and they want the product on the cheaper price possible. As you have seen, Canada has a long border. And usually, all of the population is between those 7,000-plus kilometers.

So sometimes sending something from the East Coast all the way back to the West Coast can take time. So more important than the price of the product itself is how we make that smart move happen at the lower cost. When we can have that result, we can get into any area of the Canadian territory in the short time possible. So I will say, taking advantages of the local network, local players and usually get this -- to your consumer as soon as possible is one key of success.

Amazing.

Yes. And just real quick to kind of bring both points together is, we can offer network solutions where we can take all of your data and we can throw it in and we can find the best solution for you and ultimately just give it fastest to market because as both of them alluded to, we are in Canada, we're facing geography, is more so than necessarily where you're going to put your freight is how are you going to get it to your customers in the most timely manner to get that 1- to 2-day delivery that everyone expects.

Perfect. And then just one last question here. So if you were advising a company that believes it has significant untapped potential in Canada, what would be the first 3 things you would look at to determine where that growth could come from?

I'll jump in here, Sal. One of the components I would definitely look at with Canada is, your landed cost. We've got tariffs. Now we've got surtaxes. There's transportation costs. There's customs compliance requirements, inventory carrying costs. Companies need to understand is their existing supply chain going to be able to manage this process? Or is it going to be creating more of a problem?

I deal with it regularly with U.S.-based companies taking a look at the Canadian marketplace to see if they can take advantage of it. So there are steps we definitely need to go through before just thinking, "Hey, there's a product that's needed in Canada and it's an untapped market." Homework needs to be done definitely before they start venturing north of the border to say the least.

Amazing. Thank you. And then this one just came in. So what delivery options does Expeditors offer across the country?

So we are offering multiple different modes from a final-mile delivery perspective, including both prepaid and collect them for final-mile deliveries in small parcel, LTL and FTL, anything that's coming from West to East or versus East to West and also offering rail depending on the transit time and the urgency of these orders, but we do have a full program that we are extending our services, including the final-mile delivery, especially when you're working with the major retailers that -- the compliance and the routing guides of all the retailers, and we are leveraging our national carrier agreements, and we're basically extending our offer to our customers.

Yes. And also, it will depend how the customer needs their product to be placed at some point in X location. We have access to the entire Canadian logistics network, including, as Mehmet mentioned, from small parcel to full truckloads, including rail access. We can do domestic air shipment. So we have access to the entire network of the Canadian logistics market. So it depends more on the customer and what solution they need. We can work together in a plan to make that happen, and then we can implement that with our teams to make sure that every shipment is aligned with the customer's expectation.

All right. So I think that's all the questions that we have for today. So just before we wrap up, I just want to say thank you to our speakers today, and thank you to everyone who had joined in to listen to our presentation. So as mentioned before, you will receive an e-mail with a survey to complete. And once you do that, a link with all the materials will be available for download. So yes, that is really all we have for today. So thank you all for joining, and enjoy the rest of your day.

Thank you, everyone, for joining.

Thank you, everyone.

Okay. So good morning, everyone. It is 10:00, and we will start the webinar. Thank you for taking time out of your day today to join our Incoterms Level Up webinar. We're very excited for this one since we took your questions and scenarios and built the content around that for today's presentation. My name is Sarah Maas, and I am the Midwest Regional Sales and Operations and Marketing Contact based in Minneapolis, and I will be your host for today. Before we begin, please review our short webinar disclaimer.

If you have joined any of our previous webinars before, I'm sure you're familiar with this. We want you to make note that all the information that will be presented today is accurate as of this moment. I did want to cover a couple of housekeeping items before we get started. Today's webinar will be around an hour in length. There'll be about 45 minutes of information presented, with 10 to 15 minutes at the end for additional Q&A. All attendees will be on mute, and we ask that if you do have a question, please type it into the Q&A window only, because we have disabled the chat.

We will address as many questions at the end of the webinar as possible. But if we don't get to your question, we will follow up to make sure that it's answered. Today's webinar will be recorded, and you will receive a pop-up notification alerting you that the recording has started in just a moment. After the webinar concludes, you will receive an email, which includes a short survey that we would like you to fill out for feedback.

After you complete the survey, there will be a landing page link that will take you to the presentation materials and the recording from today. I will start the recording. Okay. I'd like to introduce our speakers for today. Jamie Childress is our Regional Risk and Insurance Manager for the North Central and is based in Cleveland. Dave Engel is our Regional Risk and Insurance Manager for the Midwest. Over the summer, he moved from Minneapolis to St. Louis, and he is now based in our St. Louis office. One last reminder, all questions should go into the Q&A window.

And with that, I'll turn it over to Jamie and Dave.

Thanks, Sarah. Looking forward to going through these questions today with everybody that we received. But prior to digging into that level up, we're going to do a little bit of knowledge just on Expeditors at a glance. We'll talk about ECIB, Expeditors Cargo Insurance Brokers, briefly. Expeditors, for those of you not familiar, we were founded in 1979, and we are headquartered in Bellevue, Washington. Our global headquarters is Bellevue. We have regional headquarters, London, Dubai, Singapore and Shanghai.

We have more than 335 locations in 100 countries, supported by more than 20,000 employees worldwide. We have a global presence, local market expertise, and the ability to connect services across regions. We're also traded on the New York Stock Exchange under EXPD. For Expeditors Cargo Insurance Brokers, under Expeditors, we have a wholly-owned subsidiary called ECIB, Expeditors Cargo Insurance Brokers, a specialty insurance broker. We are a niche broker only operating in that marine cargo space.

We do not work with any other lines of insurance, such as workers' comp, property and casualty. We are only operating in that marine cargo space. What we leverage there is our relationships with the carriers. With our parent company being Expeditors, we leverage that relationship with our suppliers when working with that marine cargo insurance. We have our first poll question. If an Incoterm puts risk on your organization and you need to understand the insurance coverage in place, who do you turn to? I will give you a couple of minutes to provide your answers. Risk management, accounting/finance, purchasing, logistics, or I would have to figure out who to ask.

Okay. Where did everybody come in? Okay. Okay, pretty good spread. Risk management, logistics look like to be the top contenders, which totally falls in line. Accounting/finance coming in third there. Okay. Very good. It is definitely something to understand who to go to if something happens, right? You want to understand how that insurance coverage works or is it in place or who to go to. Definitely good. Okay. We will get started. We are leveling up this time. We always have done the Incoterms 101, kind of introducing Incoterms, breaking them down.

Now we wanted to reach out to the field, to our clients and say, "Okay, what questions are keeping you up at night?" Or, "How can we make sure that our supply chain is in the right here?" One of the questions that we received, with the Enforce and Protect Act, will there be a change to any Incoterms, especially foreign IORs, in parentheses DDP? We have dug in and using our resources, working to help answer that question, right? With the Enforce and Protect Act, there will not be a change, right? EAPA governs CBP investigations into AD/CVD evasion, not related to those Incoterms.

So DDP would remain a valid contractual choice. What could change is the risk exposure, right? A foreign importer of record carries the duty, the AD/CVD and penalty liability, and has limited recourse against the non-resident. Practical step, we kind of laid it out here. You would want to review those DDP terms using a foreign IOR, confirm that they have the bond sufficiency, and consider DAP with a U.S. IOR. It is definitely important to review those DDP terms when using a foreign IOR, to make sure that you understand the exposure that is out there.

Okay. But we do not foresee any changes at this time to Incoterms as a result of the Enforce and Protect Act. Okay. Next question, and this is one that we get all the time. It is definitely very, very common. So when and why should we use Ex Works, EXW, and FCA, Free Carrier, and what is the better term to use? Okay. My opinion, I would prefer to use FCA over Ex Works, and we will get into that explanation. Again, for Ex Works, it is the seller's minimum obligation. They just have to have the goods ready to be loaded into a container.

The actual loading of the goods, export clearance, and all transport risk is going to be on the buyer. It is up to them to have all the export documentation ready and load the goods at the seller's facility. FCA is going to deliver those goods export cleared, so the seller will have already taken care of that. They will have taken care of the loading and the export clearance and the transport risk when using FCA. That will already be handled on the seller side. FCA is going to deliver those goods export cleared to the carrier at the seller's premises or another named place, depending on how you have that named place listed with the Incoterm.

It could be FCA seller's premises, or it could be FCA to the port. That is going to be handled, that previous to that named place, is going to be handled by the seller. FCA is the better term for international moves. The seller can file the EEI, the loading responsibility is clear, and that proof of delivery supports letters of credit. Again, just a couple items there to share why we prefer FCA is better versus Ex Works. Okay.

All right. The next question we have, who is responsible under FCA term of any storage costs arising from random inspections, taking care at the port if vessel cutoff is missed? Is it the vendor or the consignee? Okay, so under FCA, risk and cost transfer the moment goods are handed to the buyer's nominated carrier. Okay? If an inspection occurs that pushes you past that cutoff, and the demurrage and storage that could follow sit with the consignee, not the vendor. That is going to fall to the buyer, not the seller.

Okay. The seller still pays any export country inspection, but if it is after that named place, the turnover spot, yes, the storage inspection costs that have to happen after that would be on the consignee, so the buyer. Okay. Again, to point number three, a way to control it in the PO, you can define that named place, the cutoff expectation and who absorbs the storage caused by vendor documentation? The Incoterms will definitely help guide that, but it will boil down to what is stated in the contract, in the PO, the SO.

Okay. Our next question, I will take on the next few here. We have, how are Incoterms applied when the shipment ownership, also known as the title of the merchandise, changes during transit? There was some context given here that it was agreed terms during the first leg are FOB Rotterdam. During transit, the goods are resold by the consignee to a third party under Incoterm DAP. We have a pretty specific example that was given here, and we will build on that. The question ultimately is how are the Incoterms applied when the title changes mid-transit?

First thing we can consider here is that sale goes with the contract. Contract is the terms of the sale. Each sale is a separate contract with its own term. For example, FOB Rotterdam governs the seller to the consignee, and then the DAP Incoterms rule governs the consignee to the third party. They are running in parallel. To get into that in a little more detail, because there is separate contracts of sale here, Incoterms, if we go back to our 101 course, kind of some of the basics, Incoterms do not dictate the transfer of the title. The contract is what dictates that.

What we are looking at is, since the Incoterms do allocate the risk and the cost, but they do not control the title, the mid-transit resale does not alter the original FOB terms. Risk is passed when the cargo is loaded on board with an FOB Incoterm. The middle party becomes the DAP seller while remaining the FOB buyer. The key here is if you are going to bring in a third party into the mix in any of this, the documents have to be aligned. The bill of lading needs to reflect that. The insurance needs to be confirmed by any parties that are requiring it or that are buying it.

Also the destination needs to be named precisely. In a situation like this, while we are not trade attorneys, and we are offering you a 201 opinion of this, I would say when you have something like this where there is a title transfer while the shipment is in transit, you want to make sure that everything is very precise and clearly defined and labeled. That brings us to our next poll question. The question is, when your company is responsible for risk of loss under the Incoterm, how is cargo typically insured?

Thinking again here, just to reiterate that question, we will give you another couple of minutes like Jamie did. When your company is responsible for risk of loss, how is the cargo typically insured? The choices here are through your own cargo insurance program, coverage is purchased shipment by shipment, we rely on coverage that is arranged by another party, it varies depending on the shipment, or I am not sure. All right, so our results are here. Thank you to the 183 of you that submitted your vote. When your company is responsible for risk of loss under the Incoterm, how is it typically insured?

It looks like over half are using a cargo insurance program. With some others in the group here purchasing it on a shipment-by-shipment basis. Then it looked like another large response group there was that it varies depending on the shipment. We see that a lot. Sometimes it is a value thing. Sometimes it is a, this machine is custom-made and the other one is not, or whatever the case may be. Maybe this sale matters a lot more to our company than another sale does.

We do see that. Great. Thanks, everyone. All right. We will roll into our next question, which is, where does the seller's risk begin when using CPT Incoterms, and who is responsible if damage occurs? Okay, so when we are looking at CPT Incoterms, we will examine this a little bit closer and kind of break it down slower, because in most of our Incoterms 101 courses, we do break that down in terms of cost, carriage, and risk. We will start by talking about the risk.

Under CPT Incoterms, seller risk ends when the goods are handed to the first carrier it contracts with, though the seller still pays carriage to the named destination. In this case, just looking at number one a little more closely, if the seller chooses the freight carrier and the goods are trucked to the port, the cargo is handed over to the ocean carrier, then something happens on the ocean conveyance, maybe some water damage or something like that, the Incoterms rule of CPT has dictated that the risk has already transferred over to the buyer.

For CPT, even though the carriage and the cost is arranged by the seller, the risk transfers once it is handed over to the original carrier. Damage any point after the handover to the ocean carrier is the buyer's risk. Okay? If it is before that, at the seller's facility or maybe some pre-carriage to the port that is controlled by the seller, then it is the seller's risk. But other than that, once it is handed over, the risk begins for the buyer. Okay? Looking at our third bullet point there, CPT has no insurance obligation attached to it.

In order to protect the goods, the buyer should insure their goods or use CIP or have some other mechanism of financial protection for any losses or damages that would occur to those goods in transit. Both places should definitely be named precisely. Okay? If you just go, could you just toggle back one real quick? I just one other comment to add here. There is no requirement here for the goods to be insured, so the buyer could be at risk when we are talking about CPT.

It just points out the need for the buyer to have some sort of financial protection, whether that be cargo insurance or another financial mechanism to cover any losses. Just wanted to add that in. Thank you. All right, our next question, which is, how can different Incoterms change dutiable costs? For example, adds for freight, insurance, etc. What we have here is four points on it. We tried to keep these to three, but we do have four things to go over on this slide here. It is kind of a customs-related question, so I am probably going to approach this at a little bit of a surface level for some of the people in the group here.

Ultimately, I would say good research on how this is handled in whichever country you are importing into is going to be a key consideration here. Basically, in the United States, freight and insurance are not dutiable in terms of a transaction value. The Incoterm's rule decided on is what decides what sits inside the invoice price. That can drive the additions and deductions needed to reach the correct customs value. In the United States, the value is appraised on an FOB or an FCA basis, means deduct the freight and insurance under CIF, CIP, DAP, or DDP. Most other countries use an appraisal using CIF, so you can add in dutiable costs such as freight and insurance when calculating the value in those countries.

Again, we say, do the research on the countries that you are importing into. Let us say that you have goods coming in to the United States, and you have an imported landed cost of $125,000, but $25,000 of that is duties and freight. In the U.S., the goods would be valued at $100,000 for customs valuation. But let's say, switch it up, and you have an FOB shipment that's being imported into a country where CIF valuation is used.

You may actually be able to add in the freight and the insurance to get to that value. Just encourage you to do your research on that. The fourth point on here is DP invoices include duty, brokerage, and delivery. You can back those out. Make sure you state the Incoterms rule, break out the freight and the insurance separately.

Thanks, Dave. All right. I will take it over from here. Another question that came in, once a contract sets an Incoterm such as DDP, can it vary shipment by shipment? Again, this is a common question we get, but we'll dig into it here. To answer the question, yes, it can vary, but only by mutual agreement. Again, going back to that contract, that contract Incoterm is the default, not a permanent lock on that Incoterm. A given shipment can move on a different term as long as both parties agree, and it's documented on the PO, SO, booking or invoice.

What you cannot do is unilaterally flipping DDP to FOB or CIP moves duty liability, importer of record status, insurance increased costs. It's going to move all of that from one party to the other, and usually not without the other side realizing that. Those changes are difficult and should not be done. But there is a best practice that we would suggest, and that's build a change clause into the contract, and confirm those deviations in writing before the booking. Show the actual term on the commercial invoice. But again, yes, it can vary, a contract Incoterm. That can be changed, but it has to be mutually agreed between the buyer and the seller and listed in the contract. That is something that can vary. Okay?

Right. Another question. FOB prepaid collect in the UCC, right? When should we use FOB prepaid versus FOB collect, and how do the UCC definition of FOB differ? This, again, is a question that we receive quite often. FOB prepaid collect, we hear that all the time from a domestic standpoint. But it's not the same as the FOB that we see on the Incoterm side, the International Commercial Terms. That's separate. These are separate systems. Prepaid versus collect is a freight payment term, not an Incoterm. When the seller controls the routing, that's going to be your prepaid.

And when the buyer has its own carrier rates and selects their carrier, that's going to be collect. Says who pays for the freight, not where risk transfers. Okay? Under Incoterms 2020, FOB is sea inland waterway only. We definitely dig into this on the Incoterms 101. More so, what does that ocean only mean? Under Incoterms 2020, the FOB is ocean only. That means that the goods need to be loaded on board the vessel.

Think of when you're loading bulk grain or roll on, roll off. It's not moving through a trucker who's taking it to the port, who's then loading and unloading directly on board the vessel. We also highly recommend using FCA for container multi-modal moves, which is what we see in the industry as well today. When you're having the goods ready at your facility, a trucker is picking them up, when you have multiple touchpoints leading up to that freight being on board the vessel, FCA is going to be preferred over FOB because the FOB is when you are loading the freight directly onto the vessel. Okay?

Onto point three, the UCC adds an FOB place of destination option. It keeps the risk with the seller until delivery. Never mix the systems. UCC is separate from the Incoterms. These Incoterms are for international use, where the UCC is on the domestic side. State the rule, CIP plus the payment term. This is one that's been coming up a lot lately with that FOB on the domestic side and the international side. Any other questions outside of that, we'd be happy to help with.

Okay. Thank you, Jamie and Dave, for going over some of those questions that were submitted by the attendees. That did go a little bit faster than we had initially planned for, so maybe that gives us a little bit more time to open it up for Q&A. We do have quite a few questions in the Q&A window. For those of you attending, please don't be shy in putting your questions into the Q&A chat, and we can get started on answering some of them.

I saw one question that I can handle, if that's all right. I saw in the Q&A section, Ping had asked, "What if the buyers are chronically delayed completing their export clearance? Is CIP better than FCA?" Our answer to that, I guess I would say that if you think there would be losses that may be incurred that would be covered by cargo insurance, you may consider CIP as a better option, because if there's delays due to your supplier, your seller, completing their export declaration, that might be advantageous. I'll type that in. I had it typed in, but I'll submit that, too.

Thanks, Dave. All right. One of the questions that was submitted are, could you describe the potential savings that could be possible by shifting from Ex Works to CIP?

I'm looking for that question. Potential cost savings switch. Can you read that again?

Yes. What are potential savings by shifting from Ex Works to CIP?

Savings for the buyer? Let's see. Hold on one second. I can take this one. Might need to take that one offline because we can break it down by seller and buyer and what those different cost savings would be. We definitely will reach out following the webinar.

Thanks, Jamie. All right. Our next question is, if there's a random inspection at origin, is the shipper responsible under FCA terms?

Yes. From -- when the FCA prior to that named location, if there is an export-related inspection, that would fall on the seller.

When using FCA for the named place portion, can you designate a foreign import port? For example, FCA Port of Brazil when shipping from the U.S.

Sure. Let me -- using FCA, the named place portion, can you designate a foreign importer? We would need to understand where the seller is actually delivering the goods. The named place should be the point where the risk transfers from seller to buyer.

I'm trying to read through on the fly here too, because there's -- in the Incoterms book, and I'm sure we'll mention this before the end of this, but a lot of times there's notices in the end of the sellers and obligations. Pardon me, the sellers and buyers' obligations. There's notes at the end that explain some of these detailed scenarios, so we might have to research that. I want to get back to you as well. Just in the interest of everyone's time.

Okay. Another FCA question. For Ex Works versus FCA, if the loading place is the seller's plant, the scenario is that they have never seen the seller file the export paperwork. Export and import paperwork is filed as a whole by the buyer's forwarder. Can you explain why some companies are told that FCA is a better choice versus Ex Works?

Sure. Yes, no.....

I can too -- go ahead, Jamie.

No.

Yes, I'll chime in.

No, for ex-works, so the responsibility falls on the buyer for the loading and the export paperwork. If there isn't, say, if damage occurs while in, that risk falls on the buyer. However, the buyer typically is not involved in the loading of the goods. Same with the export paperwork. It is the responsibility of the buyer, and if the forwarder is working with them, but, again, that responsibility is on the buyer to making sure that that is set up for export, it's export-ready, documents and all. Dave, do you have to add to that?

I was going to say, with Ex Works, if the buyer has no con -- I'll back up. In any country where whoever the exporter of record is going to be responsible for the export paperwork, right? Under Ex Works, yes, the contract says that, and the Incoterm says all the risk, the cares, the cost, all of it transfers once it's off their dock. However, if that seller is the exporter of record, they're definitely going to be responsible for submitting export information through whichever carrier is taking the export declaration for that country. The seller, the exporter, going to be responsible for that, no matter what the Incoterms are. I just wanted to add that in.

Okay. We have a question that was submitted regarding a specific scenario. If there's an individual in Dallas, Texas, and they are selling to Mexico, the responsibility is to pay for freight until Laredo, Texas. Would FCA to Laredo, Texas be the best Incoterm to use, or do you think that this is a more specific question that should be discussed?

Yes, no, generally, that would be the best choice. If your responsibility is going to end when the goods are delivered to a carrier facility in Laredo, Yes, that's going to transfer the risk and responsibility. Generally, that would be the best choice.

Thanks, Jamie. We have another question regarding FOB terms. For prepaid collect and on the UCC slide that was presented, it was noted that FCA should be identified with multiple touch points and FOB for non-multiple touch points. Can you explain that scenario a little bit more in depth again, Jamie?

Yes, definitely. One thing that we also like to call out here is that, again, Incoterms are not law, and they can be interpreted many ways. For FOB, there is a clause, and I don't have my Incoterms book. Shame on me. But there is a clause under FOB specifically for mode of transport. For FOB, that's an ocean-only Incoterm. It is not a multimodal term. So when you have goods that are even going by air, FCA would be recommended. Or using multiple carriers in trucking from your location to the port, and then from the port to the consolidator, or consolidator to port.

FCA is going to be recommended versus FOB. FOB is really for containers that are loaded directly on board the vessel. They're not going by rail, they're not going by truck to get to that vessel, but loading directly on board the vessel. Again, you're loading bulk grain into a container that is already on board the vessel. That's where FOB is the best choice. FCA is the best choice for when we're seeing multiple touch points to getting on board the vessel. Dave, you have anything to add there?

I'm trying to find the clause that you were describing. No, I don't at this point.

It's on page one. I'm just kidding. I'm going to memorize that page now going forward. But no, we can send a follow-up with that information as well to call out that clause. It explains it very well and for all ocean-only terms, that would apply as well.

Okay. Jamie or Dave, under FCA with a FPPI routed shipment, is there a way to hold the shipment at origin until the customer has the AES filing document? They have experienced difficulty in obtaining this. Or they have also asked, would they be able to just offer the packing slip until the export information is received?

I think this digs a little more into compliance, so we will probably have to take this one offline and we will reach out to you directly.

I will just add a little color on that one. I think if the freight forwarder that is being worked with at origin has good practices in place, it should be delayed, it should be held before the export clearance even takes place. That is one where I would maybe just look into, what is the process or what are the stop gaps of whichever provider is being used on the export side to make sure that it does not start moving until it is export cleared. That would be my short answer to that one.

Thanks, Dave. We had another question come through, asking for some clarification about DDP terms. Would one of you be able to just briefly go through DDP?

Yes, I can...

Okay. You go ahead, Dave.

We're fighting over....

You go.

We love helping our customers. What can we say? Under DDP, the cost risk and the carriage all transfer. So it's seller from point A to point B, everything included. DDP includes duty. So it's delivered duty paid. Seller delivers the goods to the agreed place at destination. So you have DDP and then a named place at destination. So the Incoterms might read DDP, Brussels, Belgium, or maybe it's the specific location of the factory in Brussels, Belgium. Whatever it is, right? The seller assumes all the cost import formalities.

So, the export clearance, the carriage on the water or in the air, every single touch, every single point of carriage is all on the seller. Okay? Risk is also all on the seller until the goods are ready for unloading, duty is paid on it. Now, the thing you want to keep in mind here on this one is that you have certain countries, like in Latin America, also in the Middle East, just giving generic regions, but this is one where you want to do your research because DDP is not permitted in every country. So, I just want to point that out. Jamie, anything you'd add there?

No, I think you covered it.

Actually, let me go back. One other consideration with DDP, if tariffs are going to be doing a roller coaster all over the place, you would want to keep that in mind as well if you are selling or purchasing DDP because the duties are included in the Incoterms.

Thanks, Dave. We have a scenario where an attendee on the webinar call is shipping to an intermediate consignee for destination Mexico, and the seller is selecting the carrier option to the intermediate. Would this scenario be considered FCA or DAP Laredo, for example?

Intermediate. Seller is selecting carrier option to the intermediate. This can be an FCA or a DAP Laredo, for example. The seller is selecting the carrier option to the intermediate. If they are responsible for the cost, the risk, and obligation to Laredo, that would be DAP Laredo, and the seller would handle selecting the carrier and handle those costs.

Thanks, Jamie. Do either of you have any advice on if there's a more favorable Incoterm for the country-specific level at origin?

I would say it depends on the complexity of the country. I know I keep saying this over and over, but it's a lot of research involved to figure out how complex is it to export from whichever country you are trying to export from. Or vice versa, how complicated is it to import into whatever country that you are working with?

A lot of times, what you will find is that the expertise in those countries is you're going to have better on the ground, boots on the ground knowledge, whether that be your freight forwarding partner or your customs broker, or whether that be the seller and the buyer themselves, probably going to have the best command of that export and import clearance and the complexities of that. So, it is a big question and a complicated one to answer directly.

Yes. Every country has their specific rules and regulations. So again, to Dave's point, it's really important to do the research on that side to understand what you're potentially signing up for when working with those countries.

The next question that has come in is parcel carriers don't offer real insurance. They use declared value as a liability cap, and this specific instance had a buyer insist that they cover the insurance under CIP terms. Does this situation require that we use our own insurance since, in this case, the carrier does not offer insurance under the cargo clause?

Yes. Carriers limit their liability, Expeditors included. We follow the standards in the industry of, for domestic, it's $0.50 a pound. For ocean, it can be up to $500 per customary shipping unit. For air, it's about 26 SDR, and that's a Special Drawing Rights, so a combination of currencies, which equates to about $35 per kilogram on the air side. So again, they're limiting their liability. They're not going to charge based on the value of the goods.

They're going to charge based on the space and the weight that it takes up on board the vessel, the airplane. So yes, to answer that question, you'd have to use your insurance or work with your freight forwarder, see if they have insurance that you can purchase. But yes, definitely insurance would be required there because the carriers are going to limit their liability.

Thanks, Jamie. What if the buyer pays freight from China, but the seller is a U.S. entity responsible for customs clearance and port fees? Can you explain the Incoterm for this scenario?

Buyer pays freight from China, but the seller.....

Jamie's probably going to beat me to this one, but I'm going to take a look. Buyer's paying from China, then we're looking at buyer's paying from China, but the clearance is port fees.

Yes, this is an interesting....

Can you guys see that we don't have this memorized? We use charts all day, and we would encourage you to do the same. We can get everybody here an Incoterms chart.

At first glance, it would look like FCA. If the buyer is paying for the freight from China, or Yes, I would say FCA. It might be a case where this needs to be explicitly spelled out in the contract, because two terms fall into play here. But, Yes, for this case, I would say that you'd have to lay it out in the PO, the SO, the contract, so that it's clear who's responsible for the movement of the freight versus, because I could kind of see where FCA falls into this, but I can also see where DDP falls in because the seller's handling the customs clearance. We can follow up on this one, but I would highly recommend this would be something to lay out in the contract. I don't know, Dave, thoughts on that?

Was going to say the same. Yes, it could be the sales contract and the Incoterms need to work in concert with each other. Yes. Certain things can be detailed in a sales contract that you don't want it to be contradictory to what the Incoterms are, but that can take out certain parts of it and say, "This needs to be handled by this or the other party."

Someone asked about an Incoterm website. I would send you to the ICC website and/or use the book. I know the book is old school. There are also some sites, if you search reputable, like trade attorneys have written up explanations of Incoterms. A lot of the times when we get these detailed questions, we research that way as well. Because some of the questions we get, we've never heard before, so we try to do our best to answer.

Yes, every supply chain is so unique in how it's managed that definitely no question is the same when you talk to everybody. So it's definitely we're constantly learning and sharing what we learn as well. We'll also be sending, I think, a follow-up to this, and Sarah, correct me if I'm wrong, but we will be sharing the Incoterms chart that we have, which comes with a two-pager.

It's got the Incoterms on one chart, and then the second page is going to share who exactly is responsible for what cost, and it breaks it down by the buyer and the seller. So we find it to be very helpful as a reference sheet when these questions get asked to the team on a daily basis from your buyers. So, we will be sending that out as well.

Thank you. We are coming up on time, so we'll just do a couple more questions. Then for anyone who submitted a question in the Q&A, we will be reaching out to you shortly after the webinar concludes, to get you connected to either Jamie or Dave, or your specific account rep to schedule a meeting, and get these questions clarified and answered for you. So, a couple of the last ones. Can DAP be used in the origin country, or is DAP only an Incoterm that can be used in the destination country?

It's a named place at destination. DAP means the seller is delivering the goods to an agreed place at the destination. The Incoterm would be DAP, and then followed by a named place at destination. The seller is assuming all costs, risk, and obligation until that named place. The difference there is that DAP would not include duties and customs clearance, just the delivery to the place. At that point, the buyer would then become responsible for the customs clearance and the duties under DAP.

For service-related shipments, when the seller is repairing a finished good, what would you say would be the best Incoterm to use for an item that falls under warranty?

Again, that depends on the contract you have between the buyer and the seller, and who's responsible for the cost, the risk, and obligation. Really, it would depend on that contract between the buyer and seller.

Dave, I was going to ask one last question, but I see you're typing an answer to it. I am going to just ask the question to you both, in case anyone else on the webinar has the same question. Earlier, when you were answering a question about a scenario regarding what Incoterms would be the best, then you mentioned researching to decide on the best Incoterm. What would your advice be on how customers can do that research?

I would suggest country-specific websites of the actual customs authority in that country. In the United States, U.S. CBP, Customs and Border Protection, is the example I would give. There's going to be an equivalent of that in every single country worldwide. Every country has its own customs formalities that have to be followed. Every country wants to collect their money through duties, tariffs, whatever that may be, VAT tax, various different things that, as a shipper or as an importer, it's We work with customers of all different familiarity in this area.

A lot of times we will hear from our customers, "Hey, we hired you. Don't you know how to do all this stuff?" To that, I would just say, "Yes, we know a lot about it, and a shipper or an importer is ultimately the one that is on record with the government for whichever customs activities are being conducted.

All right. Thank you, Dave. Thank you, Jamie. We do have quite a few more questions in the chat, so for those of you who did submit a question, don't worry, we will be following up with you shortly. Thank you for joining today's webinar. Dave and Jamie, are there any concluding thoughts that you'd like to share with the group?

No, I think this is great. We appreciate all the questions and feedback that we are getting, and we are glad that you were able to join. If there's any questions, please don't hesitate to reach out to us. We're here for you.

Hello, everyone. Thank you for joining us today. Still seeing our numbers climb on the participant count, but we're going to go ahead and get started to be respectful of all of your time today. My name is Samantha Hurst. I'm one of our regional managers for marketing and bids here in the Americas region of Expeditors. And you are joining us today to listen to commentary on Denied Party Screening. We will be focused on Preparing for What Comes Next. New regulations have come out and potential rules that you need to be aware of that we will share today.

But before we get into all of that, I'm going to go through a little bit of housekeeping. I'm sure some of you have joined enough of these webinars at this point, you probably can recite this in your sleep. I know it's [indiscernible] mine. But for anyone who is new, just wanted to let you know that we do have about 45 -- today, we're actually going to have about 50 to 55 minutes of content as we traditionally do now with these custom webinars, there's a lot to cover.

If you have questions as we go through the content, just remember that you can drop those in the Q&A box that you'll see on the toolbar of your screen. One thing that I forgot to mention when I first started, if you're hearing my voice echo, first of all, I'm sorry. Second of all, just make sure that you're not joined twice. We often have 1 or 2 people that somehow get joined twice on their audio and then have to hear me echo, which is not fun. So if you're having that problem, that's what's going on.

Another thing I'll just note is in the Q&A window when you drop your questions, please just recognize if you have a question that's really specific to your particular product or even direct industry, we may not be able to touch that on this webinar because we're obviously covering a very broad subject matter of export-related compliance. But we do want to help you and support you as best as we can with getting those questions answered. So if you can't -- if we can't answer them today, we will get you connected with an expert after the webinar.

One question I get every time is how do I receive the slides or the recording? We're absolutely going to get that to you. So, one way that you can get that is by filling out the survey that you should get from me via e-mail within about an hour or 2 of us wrapping up this content today. If, for some reason, you don't get that, don't panic, I always send out an e-mail to all attendees and also really anyone who's registered because we know sometimes schedule conflict happens. So that will get to you via e-mail within about 24 hours. So have no fear, it's coming your way.

And then finally, how do you subscribe to get these invites? Maybe a colleague had forwarded this particular webinar invite to you. You can scan this QR code, and we'll also drop a link in the chat in case the QR code is not working for you. It should though. And you can actually subscribe to get all of our market updates as well as event invites, not only webinar invites, but also in person because we have a plethora of those going on throughout the year as well.

Okay. So now the most fun part that we go through is a quick little disclaimer. As we always mention, just remember, we are logistics compliance experts, but we're not legal attorneys. We're not financial planners. So please just understand that this content is all for educational purposes. It's not to give you direct advice on what to do from a legal business or financial standpoint. Our experts today are, however, absolutely experts in their field or their respective portions of our field. So I want to introduce them to you today.

And normally, we go into a very quick here's some titles and speed on through. But in the spirit of the content of today, which is really knowing who you're doing business with, we introduce our people a little bit more, so you know who you're learning from today. We have Sila Barr. She is our Manager of U.S. Export Customs Compliance. Sila is located in our corporate headquarters in Seattle, and she's been overseeing Expeditors' export compliance for about 10 years.

And so we appreciate all of her expertise. She is a licensed customs broker. And you probably recognize her if you joined our U.S. customs market update, she often pinch-hits for speakers and jumps in there when she can. So we appreciate her expertise. She's originally from Southern California. She loves traveling, food and especially traveling for food. Sila, we think alike. I love that, too.

Then we have with us Niko Kritsonis. He is our Customer Engagement Manager for Tradeflow. And Niko has also been with us for some time. He leads Customer Engagement for Tradeflow as well as onboarding for new customers. And if you're not familiar with Tradeflow, he will give you a little bit of explanation of what all that team does. And Niko started with Expeditors at the beginning of 2020 in our Seattle customs brokerage team. And he really is focused on creating brokerage processes that work to make us more efficient in a district but now also with Tradeflow.

So, as I mentioned, he oversees that process of onboarding and customer engagement, making sure our Tradeflow customers are getting the most out of those tools and services. And then from his standpoint, he is really into tending his large garden with his wife they built this summer. Niko, we'll have to trade tips on that, also started a garden this summer. He also enjoys training his German Shepherd puppy and working on classic cars. So here's just a little bit about our people. As we said, in the spirit of today's webinar, it is focused on knowing who you're working with.

So, I'm going to pass this off to Sila, who will get us started. And Sila, you are muted.

I'm muted and on video so that everyone can see that I'm talking and on mute. It's the best.

We at least saw that you're making the effort.

Yes, effort's 90% of it, right? Awesome. Welcome, everyone. Thank you guys all for attending. So happy to have you here. Happy to be able to speak with you here. A big thanks to Niko for inviting me to co-present on this webinar with him. So let me jump into the agenda here. So it's kind of broken up into a few parts, as you see. The first part, we're going to devote to talking a little bit about the BIS Affiliates Rule itself. Don't worry, we'll talk about what that means.

We'll go into the status of the rule currently. We're going to delve into a little bit of information about the rule, how it applies and some due diligence expectations that BIS has outlined as part of the rule. Then I'll turn it over to Niko, and he's going to go over a little bit more information on Party Screening strategy.

So with this particular rule, right, what has changed with maybe how we need to approach the concept of Party Screening, maybe a whole screening strategy that you want to employ and some good items that make the best practices for a good screening strategy. And then just as a side note, he will be talking about Tradeflow as a screening solution. So we do have a little bit of a sales pitch in here, but don't worry. We're not going to hit you over the head with anything. But in light of this rule, it's also really good to know some options that might be available out there.

And then we'll close it with some takeaways, both potential impacts that could be coming out of this particular rule and also actions that you can take now to try to help prepare for when this rule gets implemented. So before we jump into it, I also just want to level set some language we're using on the webinar. So I know there's probably a wide variety of people joining us today from the U.S., but also maybe from outside of the U.S. as well.

So because the regulations we're talking about, are U.S. regulations, they're part of the Export Administration Regulations here in the U.S. So because of that, most of this webinar is very U.S.-centric. So when you hear terms like export, you can assume we're talking about an export from the United States. If we're talking about sales, we're talking about sales from a U.S. party to a non-U.S. party, right, things like that. So it is a little bit U.S. focused.

The other term I want to highlight is the term denied party, which is fairly commonly used, but that might also be more commonly replaced by restricted party. But really, when we say denied party, what we're talking about is an entity or a person that appears on one or more government lists and more than just the U.S. has these government lists. I think many, many governments around the world have similar lists.

And what these lists do is they either prohibit doing business with particular entities or they restrict certain types of business being done with those entities. So -- when we say the term denied party -- Denied Party Screening, we're talking about this collective of these government lists that might have prohibitions or restrictions associated with them, okay? So let's dive into it.

So, let's talk about the BIS Affiliates Rule. So I have that here in quotes because the actual name as with many, many government regulations is much longer. So we have affectionately be calling this rule, which is the Expansion of End-User Controls to Cover Affiliates of Certain Listed Entities of it's formal name -- formal government name. That rule, we refer to that as the BIS Affiliates Rule, okay?

So this rule, the BIS Affiliates Rule is what we're talking about today predominantly. This was originally published back in September of 2025, and it was published as an interim final rule. That interim kind of means that BIS is publishing it and saying, "Hey, we'd love to hear additional comments." Like we're pretty sure this is going to be what we want to publish. However, Trade, we seek feedback from you on how to implement this rule, certain provisions of that rule, things like that.

So BIS published this rule as an interim final rule, and they did receive comments. Comments were due by November -- excuse me, end of October of 2025. And then in my opinion, they very quickly turned this around into a final rule. So comment period ended October 29, 2025, and the final rule was published on November 12, 2025. So normally, a final rule when it's published takes effect generally pretty immediately or by a date outlined within the rule. This one, BIS published it with a stay, a 1-year stay of the provisions in the rule.

So what that means is essentially, they suspended the effective date for lack of a better word, of the rule for 1 year. So it was published November 12, and they backdated that extension of the effective date back to November 10, 2025, very confusing. I will say this is not the first time this administration has published something with retroactive dating. They seem to like to do that.

So starting November 10 is when our 1-year period ends, which means that if nothing changes, if no additional actions are taken, on November 10, 2026, this BIS Affiliates Rule will truly come back into effect, meaning all of the stayed provisions that were outlined in the final rule that was published in 2025 will now be truly effective and enforceable by BIS. Now this is really up in the air at the moment. And I have not checked the news in about 1.5 hours. So please bear with me if something -- if I missed something that changed.

But as of right now, this rule potentially will be extended. We have no confirmation of this actually from BIS. But on September 24, Treasury Secretary Bessent was reporting to news outlets that the U.S. and China had reached a trade truce, meaning that certain provisions and regulations that the 2 countries are working on would be postponed another 2 months through January 10, 2027. However, BIS has not put out anything official on that.

Speculation is that the BIS Affiliates Rule is kind of part of this trade truce package, but we have nothing official. So, as of right now, the effective date of this rule will be November 10, 2026. However, it's possible it will get extended to January 10, 2027. We just don't have any details on that. That's just the word on the street.

Okay. So let's talk about what the BIS Affiliates Rule actually is. So as the name might suggest, the colloquial name might suggest, it was published by BIS, which is the Bureau of Industry and Security, they're a division of the Department of Commerce here in the U.S., and they regulate dual-use items and other items of national security concern. So really, what this rule does is it introduces a concept of ownership as a criterion for how to apply the restrictions that are imposed by certain lists administered by the BIS.

So really, what this means is -- and we're going to talk about what lists this affects here in a second. But if you have a party and that party is owned 50% or more directly or indirectly by another party and that other party is on the Entity List, let's say, for example. That means that the party that you're dealing with will also be considered an entity on the entity list. So there'll also be a listed entity and those restrictions are going to pass down to that owned party even if that owned party does not appear on the list themselves.

So really, this is a way to kind of expand the network of these BIS controls that are affected today by these particular lists. Okay? The reason BIS put this in place is, one, they looked at OFAC's 50% Rule, which we'll kind of touch on in a minute a little bit. And they said, "Hey, great, this framework already exists, and we think we could utilize that" to ultimately, their goal is to help prevent diversion of controlled technology, controlled items to listed parties.

So BIS is under the impression that there are lots of loopholes in play right now where listed entities that are not supposed to be receiving certain items under the EAR are able to receive them through their affiliates network, through more complex ownership structures, things like that, because only that entity is listed and none of their network is considered as controlled.

So this rule was really put in place to try to really help prevent diversion of items through these types of affiliates and ownership networks.

Okay. So let's talk about the three lists that this affects in the rule. The first one is called the entity list, which I've already alluded to a couple of times. The entity list is a list that's owned and administered by BIS. So they are the ones who make the updates to this list. They can add or remove parties from the list as needed. The entity list really targets parties that have -- the U.S. has deemed to have a national security or foreign policy concern. So there's a lot of different reasons that someone could be added to the entity list or a company could be added to the entity list. But really, those are the main -- those are kind of the main categories of reasons that a party might be added.

What the entity list does is it imposes supplemental license requirements. So the EAR already has a base of license requirements that apply, right? And the entity list is like an additional set of requirements on top of that for any of the parties that happen to be on that list. So now there's more license requirements you kind of need to wade through. Generally speaking, the scope of the restrictions is dependent on the entity that is listed itself. So every time a party is added to the entity list, there's also a lot of text and context given as to why they were added and also specifically, how they are restricted.

A lot of them, I will say all items under the scope of the EAR are restricted from going to that party, right? But each one has its own different set of criteria that kind of needs to be looked into to determine what you can and can't deal with for that particular entity.

Then we have the Military End User list, the MEU list. This is quite a bit of a smaller list, but it's also administered by BIS so they can add and remove parties as they see fit. It targets military end users or military end uses. So this one is much more narrow in scope. And it's really here to, again, control which foreign militaries are getting certain items of control from the U.S. This also imposes additional license restrictions on top of the ones that already exist on the EAR. So if you're dealing with a party on the MEU list, again, you may be able to proceed, but there's all sorts of criteria we need to go through to find out if your commodity can go depends on where they're located, right, all this kind of stuff. So there's additional analysis to determine if you can proceed.

And then we have the Specially Designated National list. So those of you who are my compliance friends may be like why is this one here? This is an OFAC list, which is true. And my compliance friends may also say, but OFAC already has a 50% rule, which is also true. But SDN list, even though that one is administered by OFAC, the BIS actually has a complementary set of regulations to the SDN list. So The BIS has a whole section in the EAR that actually addresses the SDN list and certain parties listed there and imposes additional EAR license requirements to certain parties on the SDN list. BIS is trying to help out OFAC in this particular case and say, "Hey, we can cover some additional stuff in these cases." So OFAC will still have its own -- if a party is listed on the SDN list, OFAC still has its own set of requirements. But in these certain cases, an SDN party may also come under purview of the EAR and have license requirements under the EAR as well.

Okay. So these are the three main lists that -- well, two main list and then one, I would say, subset -- subsection of another list that will fall under this 50% ownership change. Okay.

So let's look at a couple of examples of ownership. So the first example I want to talk to is aggregated ownership. So please note, I realize that these ownership examples are fairly simplistic. And I know that ownership gets created out there, ownership structures are way more complicated than this a lot of times. But for purposes of illustration, I've kept them a little bit more on the simple side, just to help communicate some concepts.

So let's say you have a buyer that's located in Taiwan and ultimate consignee that is different, also located in Taiwan. Both of those parties aren't listed. Great. Today, without the affiliates rule, theoretically, you would be able to proceed with this transaction without any entity list restrictions kicking in. So obviously, all the other EAR stuff you have to consider. However, the entity list as of today wouldn't be in play for this particular transaction.

Now when we bring in the concept of ownership, you now need to start doing a little bit more discovery on who owns parties involved in the transaction. So if we look at the ultimate consignee in this case, research shows it has three different owners. One owner owns 35% of the company. They are not listed, that's great. But then we have two additional owners, one in Hong Kong, one in China.

No, it doesn't really matter where they're located. It was just picking destinations. But both of these additional owners are on the entity list, okay? And this here, we have a combined 65% ownership between these two parties. So we have a 40% and 25%. Both of these are on the entity list and combined, they own 65% of our ultimate consignee. So because of that, that passes the 50% threshold for ownership because of the combined or aggregated ownership between these two parties. And so now the entity list restrictions pass on to the ultimate consignee and the ultimate consignee becomes an entity on the entity list as well. Even if they are not listed by name on the entity list, all the same restrictions now apply to this ultimate consignee because of their ownership structure.

Okay. So if we look at another example, this one shows indirect ownership. So again, we have a buyer in Taiwan and an ultimate consignee in Taiwan, and both of those parties aren't listed. Again, today, without the BIS Affiliates Rule under the EAR, this transaction would generally not trigger any additional list restrictions. However, in this case, if we look at the ownership of the ultimate consignee here, we see that they have one direct owner that has 55% ownership, the direct owner is not on the list, which is great. But we dig further and we find out that, that direct owner also has another owner. And the other owner, right, this is now an indirect owner of our ultimate consignee is on the entity list.

So in this case, because of this traced ownership, back to an entity listed party, the entity list restrictions apply. One thing I want to note here is that there's no real math involved to try to figure out what the actual percentage of ownership of this indirect owner is because the indirect owner owns the direct owner more than 50% and the direct owner owns the ultimate consignee more than 50%. This just flows on through between the parties and the entity list restrictions would now apply to our ultimate consignee.

Okay. So there's actually a lot more scenarios, obviously, that this would apply in. It's more than just aggregated and indirect, but these are two examples of ownership that I did want to highlight and make sure that you guys were aware of how this could apply.

So one other thing I want to call out from the regulations, the BIS Affiliates Rule itself, is this expectation that has been outlined by BIS and they've actually added this into the EAR. EAR has really helpful supplement called Red Flags or Know Your Customer guidance that's there, which is great. And they have all sorts of things to look for that include what due diligence might look like for an exporter, things like that. And they have added one specifically with regards to this BIS Affiliates Rule. I'm not going to read this whole thing. But essentially, what it's saying is if you have knowledge that a party you're dealing with might be owned by a party on the entity list or the MEU list or that subset of the SDN list that the EAR references, right?

If you have -- if you know that a party is owned by a party that is listed, it's your obligation to go ahead and figure out the percentage of ownership of those parties, right? So you need to make sure you understand what percent ownership the listed party has of the party you're trying to deal with. If you're unable to determine that for whatever reason, the expectation here is that you treat it as a listed party. So if you know that your party you're dealing with is owned by someone that's on the entity list, but you just can't get the documentation to try to figure out by how much, what percentage ownership they have. The expectation here is that you still treat that party as though it were on the entity list as well, which could mean applying for a license. And a lot of times, if you applied for a license, BIS might be able to help determine whether or not they are owned by a party on the Entity list or not. But you might have to apply for a license, you might not be able to proceed with the transaction. They would want you to treat it as though it were a listed party.

So that's just -- I really just want to call that out as an expectation that if you can't make the determination, you can't just say, "Oh, well, I don't know it's not available. So I'm just going to assume it's not owned 50% or more." If you know it's owned by a listed party, you should treat it as such is what their expectation is here.

So this regulation, again, the 50% rule does exist already for under OFAC. But in terms of the EAR and how we're screening this really does present a shift in mindset, a shift in methodology, especially as how we're looking at parties under the EAR. So it kind of eliminates this concept of a legally distinct entity, which I think for EAR purposes. Many people were operating under this concept of legally distinct when doing screening before.

Legally distinct no longer really exist at least in the purview of these three subsets of lists we talked about. Really the legally distinct expands and opens up to subsidiaries and other foreign affiliates, right? So it's really looking at more of a network. And because of that, name and address screening alone is probably no longer sufficient. You really need to look at doing name and address screening plus ownership analysis, right? So it really shifts the way that a lot of people are thinking about screening today.

So at this point, I'm actually going to turn it over to my friend, Niko, so he can talk a little bit more about screening strategy what things have changed and where you might need to go in order to help comply with this rule.

Absolutely. Thank you so much, Sila, for setting the scene, getting all the definitions out there and really setting the stage for talking about screening and strategy in general. If we just hop on to the next slide here, I want to talk briefly about kind of what was brought up earlier in the webinar about this OFAC 50% rule and the sort of BIS Affiliates Rule that's coming on the horizon here.

And really, the two mirror each other quite well. And the BIS Affiliates Rule took a lot of the sort of structure around this ownership screening or ownership networks from the OFAC 50% rule. And so you can kind of go down the list here comparatively left to right. It's still based on a list. It's still looking at not only the name on the list, but looking at the interconnected networks of ownership. But really what I want to kind of get across here is that because the OFAC 50% rule has been in place for some time, a little over a decade, the BIS -- the folks over at BIS figure, well, hey, this has been a concept in trade for a while now, let's fold in the BIS Affiliates Rule right into it and expecting folks to be able to bring that into their screening program and continue doing denied party screening with that involved. So really, yes, just highlighting the two, very, very similar, but there are some distinctions between the two like the list as previously mentioned.

And so not to sound like a broken record, but before really, it was pretty much a one-to-one match. The folks that I'm doing business with, I have a book of business, let me screen them against sanctions list. If I get a one-to-one match, I know that, hey, this is potentially a denied party and we need to treat it as such. We're really moving away from that to who controls the entities upstream, and really understanding who is that ultimate beneficiary at the end of the transaction here. So really, again, a shift from a one-to-one match on a list to further due diligence needing to be done, which some I'm going to elaborate here on this next slide.

So when we're thinking about the denied party screening in the framework, we still look at that initial entity that you're doing business with as the starting point. This remains the same. It sort of grounds our screening as a starting point. And so once you do the screening, nothing is changing, but the flags that then pop up from it is where there's further information that maybe needs to be delved into. And so really, again, as we've been mentioning, once the screening has happened and you've seen the results and you can see potential affiliates understanding that ownership structure then comes into play, and then decisions are made from there, not just, okay, whether they flagged or not on the sanctions list.

And other things to taking into consideration here when we're thinking about BIS specifically, it's not always just the entity that is in focus here. So things like the commodity, what is that item that's being moved. And when we're thinking about a transaction as a whole, right? So is the commodity something that's potentially going to flag maybe it's a Military End User commodity, and that needs to have heightened visibility or whether BIS is looking at how it's being routed, where it's going to, where it's coming from or how it's getting there.

There's -- it's in the best interest for BIS to sort of look deeper into overall transactions as a whole other than just the entities. So what I would say here is it's easy for the importer exporter to know what could potentially flag on the shipment because we have this information ahead of time, we know what we're moving, where it's going or where it's coming from. So there's that extra layer of due diligence that you can do ahead of time as BIS is focused on these sorts of things.

And lastly, with this item is when in doubt, escalate it out. That's what I always told our team whenever we're in the brokerage department here in Seattle. There's always convoluted items and opaque ownership when we're talking about an ownership in the network. And so bringing in legal, bringing in compliance to help make an informed decision based on the information available is always going to benefit you at the end rather than a rash decision on whether or not a company is denied.

And so talking about just generic overview of how screening is done. We broke it down into some simple steps. And as I go through these and as I talk about TradeFlow, I really want you guys to think about in your guys' operation, are we hitting these steps? Are there gaps that need to be addressed? Are we needing to enhance any processes? Because really, what I'm going to try to do is provide some best practices and understand or provide you guys with the information from what kind of conversations we're having with the field currently.

And so the first thing is always to capture, get as many entities you can, all the entities that you do business with, you want to make sure that you have a concise list of everyone you do business with. From there, it's just screen. And when we're talking about the screening, we want to make sure that you're screening on all the lists that are relevant for your transactions. And so some folks have taken it to the approach of, "Hey, I'm going to screen everything under the sun, so that I get like the largest level of due diligence as possible," where others are looking at, "Hey, I'm only doing business in Europe, let me screen the relevant lists that are relevant to the European Union, maybe."

And so pretty much just going through the steps from there. Once you screened and you've gotten results, you need to investigate those results and come up with a decision of whether or not this is an entity that is potentially denied or whether or not this is an entity that we can continue doing business with. Once that decision is made, I'll get into this a little bit further, but there's that archiving of information to ensure that -- moving forward, if somebody else comes in and takes a look at the same entity, they know the previous results as well as being able to call back to what decisions were made and when they were made. And then at the end of the day, this is a cycle. You wouldn't want to screen an entity one time and then move on and not rescreen them again. Rescreening is absolutely necessary as there's changes to not only the folks that you might do business with, but also changes to sanction list. I'm going to get in a little bit more in depth here shortly on that.

Before doing that, I'm going to plug a little bit about TradeFlow very briefly here. TradeFlow is a software that is -- you can think about it as a data repository. And we have four different centers which we house data in. The first -- the second one, which is what we're talking about today is that Trade Partner center. And so this is where we house trade partners. We do screening, provide results and can house records. Alongside that, we have our Trade Reference Center, which is that first box, which is just trade information that you might search anywhere in the corners of the Internet, but we house it all in one section.

We also have the Product Management Center. This is where you can house products for sending to your brokers and have all the information that your broker might need house alongside those products, we get integrated with brokers and go about business that way. And we also have Shipment Management Center, which is taking the Trade Partner center, taking those products, building documents and being able to send them out to stakeholders. But today, we're talking about the Trade Partner Center. So let's dive into that a little bit more.

Okay. So very similarly to a few slides ago, breaking down the general point of how to go about screening. This is just a little bit about how TradeFlow screens. And again, it's a cycle. It never ends, constantly being reviewed and rereviewed for potential hits on denied party screening lists. We'll start here in the green square. This is where folks might have additions to their trade partner center. They get new entities added in. Those then become the current version of your guys' truth. So this is your book of business. These are all the folks that we do business with today and tomorrow it might change. And so you might have to get back to the circle.

Anyways, that all of those entities get screened, a risk assessment score is applied to those parties. Users are notified, users go in, review the screening, save the results and then continue going about their business. So this is, again, a cycle. It's continuous, and I'm going to continue to hit on that fact. There's two main cadences of screening that I think are very, very important, and I want to highlight here in terms of that cycle.

The first one is that daily one, and that's that green highlighted box from the previous slide. So this is any entity that may be their name changed, and address changed, a contact changed. Those changes that then get pushed into the system are then screened on a daily basis. So any changes to your current address book then get screened. So that's pretty common folks when they do business with a new entity, they screen them, they get a result and they continue moving forward. And the one item that a lot of folks might be missing from their screening cadences is that monthly screening, which is actually instead of looking at the changes to your book of business, it's looking at changes to screening list or sanctions list.

So what it's doing is saying, hey, you've screened everything this week. It all looks good, then the monthly screening runs, and we might pick out, hey, that one entity that looked good a week ago now has a potential red flag, and so we want to check that out. And so we have both of those screening cadences running for any particular org in order to cover both changes to your address book or your book of business as well as changes to sanctions list as well. So very, very important distinction on the two.

And if we're talking about results, again, it's not just -- it's not black and white, it's not true or false. A lot of the times when folks are coming to us, one of the biggest concerns is, "hey, we want to be able to sift through those false positives." And we have mechanisms of doing so. But really false positives is one of the biggest pain points when it comes to denied party screening because so many companies have Inc. at the end of it or LLC or they might have a common name of an owner, that sort of thing. So ensuring your system, however you guys might do denied party screening has a way to sift through false positives is going to be very important.

The next thing is you can kind of mark something denied, mark something not denied. Those are pretty simple and straightforward. But there's also that conditionally denied result that could come through, which means it's one of those situations where maybe you're doing business with a certain country or entity, but you've got a license or a permit or an exception to -- in order to do that same business. And so what you want to do in that case is not only flag it as conditionally denied. And so it's almost like a third option from denied or not denied and then save any kind of documentation that you might have regarding that scenario, that exception along with that record so that the next time it gets screened, you've got that information available, but also say, new folks come in, you got to do training, they also have the same knowledge of what was decided previously, and that's a key important piece, which I'm going to elaborate here shortly.

So reporting and I'm talking about reporting, really, it's what you're getting out of the system, right? And so a lot of folks when they come to us, they're asking, "Hey, this is a tedious manual process. We've got 1,000-plus parties that we work with and then and their ownership structures, how can we ensure that things are being automated so that we're not having to go in there every day and spend the time and effort to do that."

So making sure your system is automated is really key, making sure your whole team has visibility. And what I mean by that is -- everyone has got the ability to jump in and view the results or even jump in as a backup to do the screening and do their review as well because at the end of the day, you don't want to have those results or record saved on someone's C-drive so that maybe they're out sick and you need to have some answer or you need to do some screening.

So having full visibility and access to a certain system or Excel spreadsheet or however you're managing it, it's very, very important. The archived results point. Really, what I'm getting at here is an entity is screen, they're constantly being put back through that cycle for screening. So it's important to note when they were screened, what the results were the first time, who made that decision, why the decision was made, having those notes saved, and then the next time a potential hit happens with that going through that same process. And what that does at the end of the day, is it creates a story around this trade partner that you're using or this entity that you're doing business with and sort of the journey through screening them. And so you can pass the red face test if it's ever in question to how has you screened in the past, what were the results and you're able to show that picture?

Last couple of items is folks are looking for things that are integrated. And so this little graphic here at the bottom is just shown with TradeFlow. We push out an SFTP file to an ERP system. They kick back new entities or edited entities into our system. They get screened results get pushed back. And again, it's this constant cycle. And I keep saying constant cycle, and it's kind of leading to this item of consistency, ensuring that you're consistently screening both in that daily manner, even that monthly manner, maybe a weekly manner. But just making sure it's consistent and you're picking up anything that's falling through the cracks or ensuring that things aren't falling through the cracks here. So really, just in terms of reporting, having that full picture and being able to do the work effectively and efficiently without necessarily having to step away from the day-to-day tasks that you normally would have to do that add value.

So the last here to wrap TradeFlow back into BIS here. We have partnered up with Kharon to provide BIS ownership structure screening. And so that was like a Sally sells seashells by the seashore. But TradeFlow, we have this mass screening capability. We've brought in Kharon as a partner to then bring in the OFAC 50 and BIS 50-Plus screening ownership structures to then provide greater visibility for risky entities for any of our -- the folks that decide to do screening with us.

So -- with that, I'm going to kind of plug. We do have a webinar at the end of the month in October with Kharon. I'll be speaking with them in case you are curious more about what Kharon is and how they go about the theory behind their ownership structures. But I'll pass this back to Sila to round out the key takeaways.

Thanks, Just waiting for my video to kick in, and we're back. Okay. Yes, thanks so much. And I think a lot of the things that you mentioned in the TradeFlow tool that it's doing are things that businesses want to consider for sure, in their general screening practices as well. So with that, let's just bring it home with some of the key observations and takeaways from this particular rule. It's a complicated one. There's a lot of really good questions in the chat with regard to how will I do this? And that's a great question. It's really difficult. There's no prescribed method. There's not one nice source database of information that exists that BIS recommends. This potentially is quite difficult to do. So in terms of impact, we're looking at quite a few things here. So obviously, there's more parties in scope, mainly because -- this rule really expands the universe of parties that are subject to these list restrictions, right?

I think between the entity ist and the MEU list today, there's probably around 3,500 parties listed. However, that number could potentially exponentially increase, right, once we consider ownership structures and who all of those listed parties also own in their network. Obviously, I don't have that number of all of the parties out there that are owned by listed entity today because it's very difficult information to get to. But as you can imagine, that will increase the universe of parties that we're talking about that are on the entity list or on the MEU list, right?

You're going to need more information to be able to do proper screening and proper ownership analysis. So a legal name and address, which is maybe what you have today, probably isn't going to be enough for doing a good complete ownership analysis in the future under the BIS Affiliates Rule, you might need to consider taking in registration numbers, you might need to get additional pieces of information about the business in order to try to make that determination on who they are owned by or how they are owned, what the structure looks like.

As many of you have had questions on in the chat, there likely will be difficulty obtaining information. So ownership information is very difficult to obtain. It can be very difficult to obtain depending, especially depending on certain countries. Some have nice business registries available and a lot more clarity. Other countries don't release that information, information you are able to find might be outdated, parties might not want to share information or release that information with you. So getting this information could potentially be pretty difficult to obtain, not impossible, but is it more of a challenge.

I will say BIS when they published this rule, they do mention in the rule, they did look at the OFAC 50% rule that OFAC already has pertaining to the SDN list today. And their thought process was, well, you guys are kind of already doing this research for the SDN list. So use that same structure to apply to the entity list. So in BIS' mind, for a lot of companies, this structure should already exist because of the SDN list restrictions that exist today. So not that, that is helpful per se. I just wanted to give that additional context in terms of where BIS' thoughts and expectations might be at here.

Obviously, the reviews become more complex when we're talking about a potential listed entity, not only the ownership review itself, right? Obviously, ownership structures can be really complex. There could be direct ownership, indirect ownership, there might be multiple owners, and those owners have multiple owners, right? These networks really get big. So that part is more complex. But additionally, EAR restrictions are more nuanced than OFAC restrictions are.

So if we want to compare the two, right, the OFAC 50% rule today, if there's a party on the SDN list and you have a party that is owned by them 50% or more, that's pretty much it for the transaction. It's done. There's not really a lot to navigate there. That's it. With the EAR though, there might be ways to proceed or there might be ways you want to be able to proceed with the transaction, but that requires obviously understanding what the commodity is, understanding the EAR rules and how they apply and how those rules apply to your particular listed entity and the particular list you're dealing with and the destination and, and, and, right? So the EAR is a lot more nuanced in terms of how the regulations work and how the controls work, okay?

And then not to harp on it, but there are penalties involved if we're talking about potential impact. Now the penalties themselves are not new. Obviously, violations of EAR have had penalties tied to them for a very long time. So this is not a new concept. However, if you consider kind of all of these other impactful pieces, right, the expansion of the universe of parties that potentially get sucked into this, the complexity of analysis management, how difficult this is going to be to manage things like that, right? Obviously, with more complexity, with more things in scope, your risk for penalties potentially increases there as well. So the current maximum amount of EAR violations is $374,474 or twice the value of the transaction, whichever one of those two is greater. So not really scare tactic, but just something to consider is that these penalties really are not to be trifled with, I will say. They're pretty large amounts that could have a pretty severe impact to an organization, right?

With that, though, we do want to cover some actions you can take now. Obviously, this isn't going to be an exhaustive list of all of the things that you can do or should be doing. These are just some things that can be done now to help get prepared for this role if you haven't already started taking some of these actions.

I would say one of the first things to look at is just understanding your exposure, getting your arms around your exposure. So take a look at your book of business today, take a look at your customers, take a look at your vendors, your distributors overseas, who your distributors' customers are, ultimate consignees, all of these types of things start looking at your supply chain essentially today and understanding as much as possible, the ownership structure there and where risks might lie. You may also identify risk. You may identify that certain parties do happen to fall under the 50% ownership provision, right? But understanding what your supply chain looks like and who you're dealing with. The earlier you start that the earlier we start getting information on that, the better. It will obviously help you make a lot more decisions going forward.

It also could be recommended to start prioritizing with higher risk destinations, meaning destinations like the UAE, which is BIS has that listed as kind of a transshipment hub for other locations of -- for diversion of EAR controlled items, right, places like that, that are a little bit higher risk of diversion could be a good place to start. You could also start by looking at your commodities, the more high-risk commodities, advanced semiconductors, any type of chemicals, anything that's really like highly controlled under the EAR, those might be places to focus more who you're selling those to and who those people are selling those goods to business models, things like that. You want to kind of start looking at the more high-risk items if you need to start whittling down your overall picture.

You could also look at transactions that already exist that may extend you past November 9. Again, this is assuming that this rule would take effect on November 10, which we don't have confirmation on at this time. But you really want to start looking at the transactions that already exist in your network that may extend you beyond that. So for example, sales that have already been made that you haven't fulfilled yet or will be able to fulfill for a while, make sure that those transactions are really in the purview of whatever the screening procedures are you're going to employ here. So that way, you can take action on those before they potentially become an issue down the line.

It's always a good time to assess your screening program. I think there's been a lot of good information on what a good screening program should entail. But really, you want to assess what you have going on and understand do you even have the data that's needed to do this type of analysis. Do you have just a name and address of the parties involved. You have a more complete business profile for them. You have business registration numbers. You have D-U-N-S numbers, all that kind of stuff, right? How complete is the profile today? Because the more information you do have on the parties you're dealing with, generally speaking, the easier it's going to be to try to do some of this ownership research, right?

I think it's also a good idea to kind of single out who in your organization has the expertise to do this type of analysis? How is bandwidth to do this analysis? How will you be doing the analysis, how you're going to tackle it? Are you going to have individual look at it? Are there going to need to be escalation so those people can look at it, who's going to be doing the EAR analysis to determine if the things apply all of the restrictions under the EAR apply, right? Identify people in your network that can do this work today if you're going to have people doing that work, so that they can be woven into escalation paths as needed if they're not already there.

Obviously, you want to make sure you may already have hold pattern established escalation procedures established licensing, things like that. you maybe have this as part of your plan, but it's always good to revisit it and make sure that it addresses what the affiliate rule would bring into the table, right? And then also, you want to make sure your company really understands what your escalation thresholds are, as Niko addressed a lot of times, if you're using software or some sort of data to do your screening, there could be tons of false positives. So -- and most of those false positive these days come with some sort of a percentage match, right?

So how comfortable is your company? Do you want everything from a 1% match up to be escalated and reviewed? Are you comfortable with 75% and above. There's no official guidelines on that, right? That's going to be part of that internal company discussion on where you feel comfortable with that and that number can shift, obviously. But having that procedure and understanding where your tolerance is, is a good way to try to help get your arms around the universe of what you're screening.

And then you want to take a look at your external providers. So most -- well, I can't say most people, I don't know that. But if you're using an external party to do denied party screening for you or if you're purchasing software or purchasing data in order to do that screening, make sure you're talking to your service providers to understand what they can provide in light of the affiliate rule. So does the screening provide ownership visibility. Does the screening provide percentage ownership visibility. How often is data updated within the tool itself and how frequently is the screening done if it's a software that's doing it on your behalf? How do you get that audit trails to try to understand what screening was done when if you need to produce that type of information, right?

So if you don't already have that relationship and that type of procedure established with your external service provider for screening, it's a really good time to make sure you have all that documented and shored up so that it can be very easily accessed and/or presented if needed.

And then just start working on contingency plans. If you do identify transactions that are going to go beyond November 9, and they happen to involve customers or parties that are potentially owned by a listed entity and would come into the purview of this rule. Make sure that you have a way to understand if you're going to cancel the contract, how you're going to deal with the purchaser, how you're going to -- whatever you need to do, make sure that everybody is clear on what the plan is for any existing transactions that are identified. Make sure you're communicating all of the requirements that may come as part of this rule to your organization, right, procurement, design arms, manufacturing arms, anyone who's shipping anything anywhere.

You want to make sure that everybody understands any new procedures that come into play in light of this rule. Everyone is on the same page and everyone understands how this might affect things going forward.

And then just work on developing a plan for how to affect this in November if this rule does come into play. Again, November 10 is the current date. We don't know for sure if that will stick or not. It's potentially extended to January 10, but we haven't seen anything official from BIS yet. So we're all watching that closely. But these are just some things that you can start working on now and start thinking about and start talking about within your organization to be able to try to get ahead of this rule as much as possible.

Okay. And with that, Samantha, I think I'm going to turn it back over to you.

Okay. Great timing. Everyone has a lot of information to cover in a short time, and it looks like our fantastic team in the background has answered my other questions. If any of you did have questions that are lingering out there, hopefully, we've responded and we will get back in touch with you with some more details. But I do also just want to encourage you all to join future webinars. I'm going to drop a couple of links in the chat right now that will get you registered. So we, of course, have our next U.S. Customs market update coming later in the month of October. I believe it's the 22nd, so that first link will get you registered for that event.

And then as always, if you didn't know, you can go to expeditors.com/events and you'll be able to see all of our events globally that are ready for registration. So not only here in the Americas, but we host events, really across the globe, our Europe and Asia team is always busy with those as well. So you can spread the word to your colleagues as well in other regions.

So we appreciate you all joining us today. You will again get a survey from myself via e-mail in about an hour or 2, and that will ask you just to answer a couple of quick questions. Very simple. We just honestly want your feedback about this Webinar and also what you would like to see in future webinars. And at the very end of that, just pay good attention. As soon as you hit submit, you'll get a little thank you message and there will be a link right there under the thank you message that will take you to the materials.

If for some reason you exit out of it, have no fear, I'll send an email tomorrow that will make sure you have it in your inbox. So we'll definitely work hard to get it to you. Again, thank you all so much for joining us. We look forward to seeing you on the next event. Thank you.

Thanks, Samantha. I hope you guys have a great week.

Good afternoon, good morning, everyone. Welcome to our U.S. Customs Market update presented to you today by our Expeditors Americas Customs team. So we're really glad that you all chose to join us and spend your time with us for the next hour to learn about what updates have happened in the U.S. customs market. Interesting, I think it's always funny to know that we work on this content, obviously, well in advance and then things happen within hours or the night before as they often do here lately with customs.

So we've got some very fresh updates to bring you here in just a moment. Really quick. My name is Samantha Hurst. I am one of our marketing and bid managers for the Americas region. I introduce myself just to remind you, if you have any technical issues or questions about the webinar, admin-wise, you are welcome to e-mail me directly from the confirmation e-mail that you received when you registered.

And that's my job here is just to support here in the background while our experts give you all the valuable content. So the first thing I just want to mention is if you are unfortunately hearing my voice echo, just make sure that you are joining the audio only from one device that is typically the issue we see people having. And we don't want to drive you crazy with mine or the speakers' voices echoing in your ear.

So a question that we get every single webinar is how do I get these slides. That's one of the many questions that come through. We will send an e-mail to you within about an hour or 2 of today's webinar wrapping up that will allow you to access the materials that will include the recording, the presentation deck and the Q&A as well as any additional link that we feel would be valuable to you.

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So finally, we do have this QR code here. If you would like to receive invites for future events, perhaps a coworker forwarded you this invite, we're glad to have you. You can get those invites direct to your inbox just by scanning the QR code or in the chat, I did drop a couple of pieces of information related to these updates, and you can click on that link there that we've dropped as well. So now I'm going to move on to just a quick disclaimer. This is less fun.

But just to remind you, we are not, neither are any of the experts today, legal experts. We are presenting all of this content for your educational benefit, and we will even share a certificate of completion at the end that you can use for actual credits if you are maintaining a certification. But again, this is really just for informational purposes, and we pull a lot of this information from the public domain and are simply trying to give you our best viewpoint on how to manage all these changes.

So now let's get on to introducing our speakers, and I'm really excited because you're going to see one super-familiar face in Stephanie Holloway, our Director of Customs Operations. But today, we have a couple of other faces. Some are familiar. Actually, I guess all 3 of these ladies are familiar.

They supported other webinars before, but we really appreciate them jumping in today. So we have Courtney Peterson, who's our Senior Manager of Customs for the Americas; Sila Barr, who's our Manager of U.S. Customs Compliance; and Ashley Lara, who's our Manager of Customs Brokerage Houston. So thank you all so much for joining.

I'm going to pass it off to Courtney, who's going to get us started. And actually, Courtney, if you will pause one moment, I did not hit record. I don't want to miss all of the good content. So one second, and we will be good to go. Now Courtney, please take us away. Thank you so much.

Thanks, Samantha. I appreciate it. And thanks, everybody, for joining us. We're going to talk about some great topics. I know I'm biased because I'm part of this webinar. But we've got some great trade developments, plus some bonus content that's not listed here that I'm excited to talk to you about. There are some ongoing legal challenges, things that are coming up. I'm super excited to share with you guys our takeaways from the Trade and Cargo Security Summit that we had that we attended.

Ashley is going to give an update on that and enforcement and compliance trends from Sila. So super excited. So let's get into it. This slide should be familiar to you if you've joined our webinars in the past. And the main thing I wanted to cover here is that there's a brand-new trade remedy in the toolbox that you can say. So familiar with these 4 on the left, but there's 338 brand new on the far right. And what I want you to take away from here is that things come on quickly kind of out of the blue.

And for 338 specifically, it's interesting because these were -- the section came out of nowhere and then is actually only valid a little bit later. So they set the actual implementation date a month ahead in advance. So what we've seen from the current administration is that either they go in immediately yesterday in 3 hours or they give a lot of breathing room for them to actually implement.

And when that happens, it's mostly trying to get people. It's a tactic to get people to come to the negotiation table, right? That's what's unique about those. So sometimes they go in, sometimes they get negotiated out in the final hour. And so we can just keep our fingers crossed that maybe some negotiations will go down with Canada. And also, these are governed by the U.S. ITC, and they posted their comment period.

So hopefully, it's about what does discrimination means under Section 338. And so this is just the new crossroads of a brand-new trade basis that the administration is trying to implement tariffs under, and it's going to come with a whole new set of legal challenges. So Section 338, it is -- we were kind of hoping that it wasn't going to happen. But here we are. This is one of those ones that it had a further implementation, and now we are seeing very, very high rates be implemented.

We've seen even higher from China. And so the main thing I want to talk about here is tariffs kind of old news. We always know that there's list, there's things that are happening. I want you to remember that even though the proclamation says alcoholic beverages, dairy and motor vehicles, that does not reflect the products that are covered. These are actions meant to combat their treatment of alcoholic beverages, dairy and motor vehicles.

And so the product covers -- products covered are all not under those topics. So please check the list, please check the provisions, check your products against those because it's not just those 3 product categories. I also wanted to make sure I called out that the scope had changed. So we had additional proclamations that came out on 2 of them, so covered alcoholic beverages and motor vehicles that added, removed and modified some HTS numbers underneath those actions.

So please know that the list have changed from when they were originally announced back in August. But the main thing I wanted you to take away from this are the import bans. So we've seen a lot of tariffs. We've seen very, very high rates, but we've never seen an outright ban. And I think this is something that we should all pay very close attention to and recognize what it means for the implementation of 338. 338 is not just tariffs, it's also outright banning products.

And it's indicative of the length that the administration is willing to go to for this and any future trade remedy actions. And I think that is something that is very notable, and we should be cognizant of as we move forward. And another thing I wanted to mention for Section 338 is the difference between the language that is used for the tariff, the actual tariffs, the 50% is entered for consumption or withdrawn from warehouse for consumption, very entry based.

The import bans are actually more about the date of importation; goods imported on or after. So we're interpreting this to mean it's not necessarily that you have to make entry on those goods, the goods just have to be in the country. So the options that I wanted to highlight before the ban goes in on the 29th of September is you can't just do the usual, bring your goods in, clear the goods, and you're home free.

But if you're trying to beat the deadline, if you're trying to get these things in before September 29, before the import ban is actually implemented and doing an entry on all of those goods, trying to push them all through at the same time is prohibitive because of the duties. You can also explore FTZ admissions. It doesn't exempt you from the duties, but it does put off that duty payment [indiscernible] an admission to get all those goods into an FTZ and only pay the duties as you pull it out of the zone.

So you could mitigate or put off that duty payment using an FTZ and inbound warehousing. So if you enter your goods into an inbound warehouse, you can also gamble that duty rate will be set when you remove it from the warehouse. So you can also see if maybe that 50% rate will move or change. So it reminds me of the China situation from way back when a lot of importers were gambling, I'll say gambling, that the duties wouldn't stick at 125%. So a lot of importers were letting goods sit at the port.

They were just trying to move this inbound, give themselves more time so that when they finally did the entry that the duty rate will be lower. Of course, this is complicated because it's Canada and the transit time is much shorter than something from China. But something that we wanted to call out was something that unique. My next topic is CBP Form 5106. So if you're not familiar with the 5106, it is the form that you use to update your contact information as an importer of record for CBP.

So if your company is an importer of record on your entrance, you need to make sure that the records that CBP has on their side are accurate and complete. That's the primary thing I want you to think about before you listen to the rest of this because the manufacturer, exporter, seller, importer of record, they're not necessarily the same company. So you need to determine if you are the importer of record. And I also wanted to call out that before a 5106 was kind of administrative.

It was very easy. Brokers would just submit them on behalf of you. It's just name, address, phone number, just standard stuff. But with the release of this enforcement EO, there is a significantly higher burden being placed on anyone that is submitting this information on behalf of an importer. It comes with additional vetting and verification. I, as a broker and saying, I verify that this importer is actually named this and is at this address, and this is their current contact information.

And we've never had to do that before. So that being said, the best way that you can update your 5106 information is directly in the ACE portal. You can see what's in there, you can monitor it, and you can correct anything that might be incorrect. The downside of this is CBP can void an importer number if your 5106 information is inaccurate or incomplete. So I beg you to please make sure that information is correct.

The last thing you want is notification that your importer number is voided, and you cannot make entry in your stuff for any entries that you have left to file, you won't be able to file them. So that will be terrible, and I don't want that for you just because an address is outdated because your office moved. So please go to the portal, review and correcting the information and use that as a tool to go forward.

We also sent out a job A. Hopefully, you're seeing the job A. I have a screenshot of it on the next slide. And that will help you identify the fields that you need to make sure are updated and accurate. The ACE portal is kind of wild. There's a bunch of different ways to kind of the similar things or the same things.

So if you didn't get this e-mail, if you didn't get this job A and you're interested in it, please reach out to your local Expeditors contact and they can get you this job A to help you go through ACE to update your contact information. Okay. So transitioning back into tariffs is the new Russian sanctions.

We've seen this before where it's 100% tariffs on goods from countries that purchase Russian crude oil or natural gas and is one of the -- either the 5 largest purchasers of Russian crude oil or one of the 5 leading facilitators of Russian oil sanctions evasions. So we've seen this kind of secondary tariffs before under the IEEPA duties for Russian oil for India.

So this is something to keep in mind that although it does have 500% tariffs on imports of Russian origin goods and there are some exemptions, the piece of this that's going to be hard to track down is this up to 100% tariffs on goods from countries that purchase, right? So you are going to have to go through your sourcing, identify countries that could fall within one of either of the 2, 5 largest purchasers by country or 5 leading facilitators of Russian oil sanctions evasions.

We have not received any actual implementation instructions. We haven't received any information regarding affected countries. So the best thing you can do right now is guess. Google it. I'm sure you've Googled it, I Googled it. Look at the countries that are -- that come up in those kind of conversations and just check your potential impact. Make a quick pass in your sourcing and see if you have things from those countries and just plan on that. That's the best thing we can do right now.

Just remember that it's not just Russian origin. That's not going to be what you do to figure out your impact, right? It's going to be those additional countries that deal often with Russia. And my last bonus slide is last night; we've got a new FRN and draft status for the Section 232 pharma. So the main thing I want you to take away from here is that 232 continues to evolve. It's not a one and done. It's not like the thing comes out, you get an FRN, get an CSMS, and this is your life now.

What we're seeing more and more now is and then there's changes and then there's updates and now there's exclusions and now there's a comment period and there are so many things rolling. So for this pharma new FRN that came out last night, they identified the 0 rate categories. There are specialty products, really specific definitions that are in there that I encourage you to go read for yourself.

But these qualify for a 0% Section 232 rate for pharma, but it needs to be from an eligible jurisdiction. So you can see at the bottom of the slide, there's all of the countries that are eligible. If you have a product that is a 0-rate category or even another highly specialized pharmaceutical product that is either not from one of the eligible jurisdictions or not included, they do have another path that you can take if your product is meeting an urgent U.S. health need.

So you can apply to Commerce for approval for that 0% rate. There's some information that you need to, including your request to BIS. And they've said in the FRN, and they've been very specific that the decisions are going to be individual, facts specific and company specific. So it's not going to be like the 232 cases where kind of someone else applies for a product exclusion, you like, oh, I have that same product. I'll use that same exclusion. Unfortunately, not the case.

Every single company that is producing a product needs to apply for that individual specific product. And they will be notified if they are approved and then you can start using that exclusion. Also included in the FRN are some HTS changes. There's the additional zero rate header. They updated some definitions for pharmaceutical and generic pharmaceutical articles. And before you freak out, the HTS changes are not general. They are specifically to address the statistical changes from July 1.

So this is the first 232 that we've seen that takes a specific HTS change and actually have implemented these changes into their list. There are also some other technical amendments that they did, which I think are just maybe mistakes, maybe things that they didn't intend on the original list and not realizing that coverage. Those are the first 232 that has addressed the statistical changes.

Most of the other ones are just saying, if it's split, it applies to both. So I think that's very interesting that they're reviewing that from July. And the main thing I want to address with this 232 pharma is, again, 232 program continues to evolve. It does not just stay. This is not the final word. We are going to hear about 232 Pharma again, I'm sure there's lots of questions still out there. So we'll look forward to keeping up with all those. That's it for current trade trends. So I'll kick it over to Stephanie for the legal battles that are going on.

That was quite the transition. Let me see here. Okay. So tariffs under legal challenge, as Courtney said, legal battles. So let's dig through this a little bit. This section, obviously, our colleague, Ted always does, and I appreciate him for doing that because I don't like talking about the legal system. I feel so ill-equipped. A couple of months ago, somebody put a question in the box saying, most of us aren't lawyers. How are we supposed to understand any of this, and I felt that deeply.

So regardless of how we feel about the lawyer or the legal system or lawyers, I guess, we all have to pay attention to this. We all have to kind of keep our finger on the pulse because it is such a game changer as we saw with IEEPA. So most of my updates today are referring to IEEPA. I kind of feel like this is one of those things where it's like nobody cares, move on. But there was some stuff that came out in the last month that I want to make sure for some of you will be very impactful.

And for the rest of us, of course, this might be just IEEPA, you got duties back on. But as we know, there's a lot of other legal challenges going on with Section 122, potentially at some point, Section 301 for slave labor, maybe Section 338. I don't know. So this is why we really have to pay attention to this. So with that said, for IEEPA, one of the best places to look is at the filings that U.S. Customs does. Brandon Lord files most of those, and he just filed one exactly -- well, probably him not personally, but he signs off on them.

And a week ago, there was one filed in the Court of International Trade. I have a link here, and they kind of gave an update, and it's a little bit interesting. So you can see here, this is the jump in entries. So it went from 17 million, what, a month ago to 27 million. And I actually had to go refresh my brain. So it's, I think, 55 million entries that needed refunds. So they're about halfway through the count, but then they have given back $134 billion, and that's out of $166 billion.

So they're about 80% the way through the actual dollar figure, okay? So not super shocking. They've given back 50% of the entries but 80% of the value. An interesting thing he had in there, of course, was that $1.3 billion has not been sent to treasury because there's not a bank account, a U.S. bank account associated with that refund. So it's kind of just gets into a holding pattern, okay? So if you think that you should have a refund, but you haven't gotten it yet, this might be one of the reasons why.

Also in that report, Brandon Lord called out CAPE Phase 3, okay? So CAPE Phase 3 has some major nuances to it. So I'm going to get a little in the weeds here. If you have gotten all your IEEPA money back, then you can just put your head down and take a little break for a second. But if you haven't or you are waiting on Phase 3, let's unpack this real quick. So Phase 3 is going to cover something called finally liquidated entries, okay?

And finally liquidated entries, unfortunately, I'm going to go over to this crazy chart is after liquidation occurs. So we have our entry filed. There's roughly 314 days. At that point, you can make updates to it typically through a post-summer correction called a PSC. At 314 days, liquidation occurs, as I always say, the book kind of gets closed, okay? Then there's 180 days post liquidation where you can make changes traditionally. Most of the time, you're going to be doing a protest if you owe CBP more money.

What we have learned through this process is that CBP views the first 90 days after that liquidation date fine, and they are processing those entries through CAPE, and they have no problems doing so. There's the second bucket that's between 90 and 180 days post liquidation date that they deem with this term finally liquidated. And that's the -- that bucket is stuff within 90 to 180 days.

What CBP is saying or what they have argued is that if you're in the finally liquidated bucket, they can only give a refund to you if it has been ordered by the Court of International Trade and you need to be a plaintiff. Essentially, you need to have filed in the Court of International Trade. You have to be suing the government to get this money back, okay?

So what's a little bit tricky is that customs has been saying, hey, we're prepping Phase 3, but at the same time, arguing against having to give all that money back. Judge Eaton at the Court of International Trade has said all the money needs to go back regardless of what state it is in, okay? So that's the newest court kind of battle. So the -- this is a battle. Courtney was right. Okay.

So what's happening on August or August -- October 6, that was hard for me, is that if you had filed in the Court of International Trade prior to July 30, you can request your money on the finally liquidated entry starting October 6. Hopefully, you all followed that. So if you do not have a court order, and you have not filed suit, this will not apply to you, okay? So you have to be in the court.

You have to -- and your lawyer that has filed, I've heard from some of our importers, they are -- CIT is in active conversation with them, okay? So you should definitely know what's going on and if you're in this bucket, okay? So that is good news for a number of these folks. But obviously, the eligibility, the big piece on this is that Phase 3 is not open to everybody.

It is open to this very select group of importers who already had filed in CIT, and their lawyers have worked with CIT and CBP to get these entries prepped and ready to go, and they can file them on October 6. With that said, there are some of you who are like, oh, maybe I should file. And I do think that is probably the fastest way to get your money back. But before you go down this road, I would absolutely say, first of all, quantify. How much money do you have?

How much refunds do you have falling into that finally liquidated bucket, okay? Then really try to understand some of you are saying, hey, it's just a couple of entries. It's not worth it. We don't want to pay for the lawyer's fee for that. That's fine. What you can do, though, is still try to preserve your right a bit, and that's really where the kind of the cheapest insurance policy you can get yourself is a protest because what we're trying to do is buy enough time while this decision works itself back through the courts, okay?

So the decision being can importers get their refund if they don't have a filing in the CIT, what a mess, right? So the other big thing is if you have -- this is -- once again, not a lawyer, but I believe you have a 2-year CIT filing deadline, and we are actually coming up on that. So it's 2 years, I think, from the date of injury. Most of you had started to pay IEEPA China fentanyl in the beginning of February 2025. So we're actually not that many months out.

So this is something that, first of all, quantify it, figure out how much you have and then you can actually make a strategy from there, keeping these other things in mind, okay. I think we've had enough fun with that topic. Let's talk a little bit about on the horizon. I only have one slide in here. Actually, let me flip back real quick. One thing, of course, many of us are watching is that China is, of course, going to be at the White House, I think, today, and they'll be doing a more formal dinner.

So I think many of us are keeping our eye on that as China has traditionally been a very important partner to the United States and the amount of goods that we import from there. From what I've read, and you can read what you want to, it doesn't seem like maybe a lot of tariff activity will come out. But just thinking about it, there is still so much on the table. One of the strategies of the Trump administration is kind of to kick the can down the road.

And we actually have a number of tariffs that have been kicked, sounds weird. But we have a number of tariffs that have been moved out that are specifically related to China. So we have the Section 301 Maritime. We have an open Section 301 on did China fulfill its Phase -- it's called Phase 1 commitments. We have the open Section 301 on structural excess capacity. So there's a number of ones in the Russian sanctions bill, honestly, too. I think China is one that many people agree is a large buyer of Russian oil.

So there's many things out there that can kind of be used and leveraged for additional tariffs on China as desired. So we'll watch. We'll see what happens, of course, with the rest of the world and then report as it actually becomes more impactful. So with that said, let's talk briefly about the FCC. So there was a pretty key comment period that actually just closed yesterday. And what this was looking at is the FCC is looking at different types of imports.

So I think in July, they actually did -- oh, I shouldn't say this out loud because I'm going to mess it up. It was like an import ban on robotics and one other thing that is going out of my head. So they're making more moves in this space. And this is really looking at restrictions affecting equipment covering certain components and software. So these are things like routers, things with the radio signal and the list is pretty extensive, okay?

So this comment period was open. It just got closed. So it will be very interesting to kind of see what shakes out of this. Similar to what Courtney was kind of alluding to on the Section 338, these are more restrictions than what we have traditionally seen in the last 18 months. In the last 18 months, there has been a lot of just more tariffs, right? And if you can pay it, it still can come.

This could fundamentally change that as well or require more restrictions or more data or things that you might have to provide ahead of time to the FCC. So this is something that we're really keeping our eye on. Just for fun, if you want, you can go out there. I have the link here to where the docket is, and you can see things that people submitted in their comments. And there are companies that have submitted.

There are everyday citizens. It is just the government in action. So with that said, that's a great transition. I'm going to ask Ashley to come on. So she attended with Madeline and Kelsey from my team in person to the CBP Trade and Cargo Security Summit 2 weeks ago, I think, in Dallas. So she'll walk us through what she heard and what you should all be aware of if you didn't have a chance to attend.

Hello. Can you all hear me?

Yes, we can hear you, but I can't see you actually.

I don't know why you can't see me. I don't know, maybe [indiscernible] choosing this moment in time to choose silence. Let's see. How about that?

Yes. Here you are. So exciting.

So exciting. All right. Thank you, guys. So yes, I was fortunate enough to attend CBP's -- they have an annual Trade and Cargo Security Summit. So they do it every year. They serve it in Dallas. I was fortunate enough to go alongside Madeline and Kelsey; you guys know those names and then a few other colleagues from our Texas district. And then, of course, I know many of you were there as well. So it's great to see some of you in person. The slide is really -- should articulate some of the vibes and overall what we heard from CBP.

But generally speaking, know your supply chain and what does that mean, but Tier 1 is no longer enough. So how are you making sure that you kind of explore past Tier 1 going to that additional Tier 2, Tier 3 suppliers' groups. There was certainly an overall air of enforcement. But definitely, they spoke a lot about being ready for more inquiries and more direct engagement from the regulatory agencies with the trade.

They're definitely using a lot more data, AI, the ability of AI has really given them -- they're able to use all of the data from all of the sources all of the time. They were very clear that they are doing so in these efforts. So be ready to prove origin was another kind of key takeaway. But CBP is using all of the data that they've collected, and they've been -- they've spent the last several years really getting good at this and leveraging that historical data along with what is possible out of countries.

So is the country of origin that's being claimed possible for the manufacturing capabilities? Is it probable, those types of things. And then be ready for a direct CBP contact. So they are actually expecting importers to be able to engage directly with customs. So making sure you have access to your ACE portal is a great starting point there and being ready to provide documents or answer questions, having a general plan there who's going to answer those inquiries, et cetera.

Yes, was the overall from overall buys. So what are they testing? So again, very broad discussions from them. So very broad assertions and discussions that importers should be able to use data, AI tools, historical data sources, Google. They gave a lot of examples about literally Googling locations or looking at street view or those types of things. So they -- it seems simplistic when they spoke about it, but really being able to connect all of those endpoints through your supply chain.

So do you have the records to back up where this manufacturing took place, et cetera? I know this seems like super hard, insurmountable, almost impossible, right? So I guess we would encourage, don't wait until you get a CF28 or CF29 to start looking at this, maybe start with one part, one supplier. Could you try to gather a document package, or could you try to gather backup as it were to support the country of origin that was used? Could you gather support or input for the Tier 2 inputs?

Do you know what that next level is beyond who you purchase goods from? And then as you're thinking about that, like what information do you already have within your organization and how can you tap into it? So there are other departments that might be involved in the onboarding of a vendor, maybe due diligence or designing of a product, maybe engineering groups. And maybe some of those efforts overlap with some of what you're trying to prove out.

So it's definitely well recognized that connecting all of these pieces of the process and maintaining and having access to all of those records, that's a big, tall task. So the encouragement here would be, give it a shot, try to trace back one product, maybe start with your biggest product or your largest by value, something like that to see what could you come up with and where would you struggle. And then AI. So it was a technology summit. So customs and AI technology as a whole were hot topics of conversation.

CBP talked a bit about how they themselves are leveraging AI, definitely seeing, again, they have the ability to review so much more data, larger numbers of entries, being able to compare that data across ports, across different centers of excellence, no longer having kind of that human labor element to limit what they can look at and the breadth of what they can look at.

So definitely seeing CBP having AI incorporated into those types of things and then triage up or still up to those humans, an almost complete audit package or more substantial information in there. So now it's not a CBP officer looking at that first level. Maybe they've used some tools that have already given them country-specific or manufacturer-specific data historically or whatnot to help them make a determination on whether or not a CF28 or CF29 or further information is required.

So they're using AI a lot in those spaces and also then the initial generation and population, I think, of some of those documents, which I'm sure several of you have seen as that enforcement has ramped up. So what does that mean for you? How do importers get involved? Lots of people are talking about embedding AI in every part of day-to-day work, your personal lives. We certainly don't encourage -- customs is a very knowledge-based area, entry writing itself and compliance as well.

So you would want always to have a human actually reviewing data, especially if we're talking about response to CF28 or CF29. But kind of an idea, what if in your previous exercise, you're trying to prove out origin on one of your items, throw it all into AI. Does what you're providing make sense? Does it tell the story? Does it actually convey an answer to questions that customs is asking?

Can you walk through that transaction, maybe talking to the AI and say, hey, I'm trying to prove the country of origin for this. Here are the documents I have. Could you use it in those types of ways. So think about that as well as you're -- I'm sure getting lots of pressure from all sorts of areas to use AI and how that could actually help in the regulatory space. And I'm going to turn it over to Sila now to talk about enforcement and compliance.

Thanks so much, Ashley. Well, we're really bringing the hits today. We got a lot going on. Okay. So let's talk about the Customs Enforcement executive order. This was published back in June. We've already been talking about it for a few months, but we're going to keep talking about it because it is a big deal. So the executive order is big.

It's driving basically what we can expect from customs enforcement, where the administration is taking customs, in terms of what they're looking at, what they're concerned about. And I think we're seeing a shift into a much more heavy-handed enforcement space than I think a lot of us have experienced, at least I have experienced in my career here so far.

One thing to note is that customs has recently issued a federal register notice, which is looking for feedback, and we really want to draw some attention to this. The feedback that they're looking for is with regard to a proposed requirement in the executive order to collect and submit export documentation in connection with your importations.

So what that would theoretically mean is that you need to gather some sort of undefined at this time, information that proves that the goods were exported from a particular country at a particular time. Again, this hasn't been defined. This is what customs has currently been tasked with implementing, and they are seeking feedback on that. So we do have a link to the federal register notice here.

We really highly encourage you guys go take a look at that and understand how this might affect your supply chain, make sure you're detailing how difficult this would be to get access to some of this documentation. If you have knowledge about regulations in other countries that would prohibit the submission of export declarations, for example. So the U.S. is a great example of this.

The U.S. has regs that do restrict the provision of the EEI, right, the U.S. export declaration to any foreign party or foreign government for any purpose. So there are other countries that have similar restrictions. So if you have knowledge about that, that's the type of information that we would suggest be submitted in these comments. The more comments that CBP can get around this, the better.

This really does -- historically, these types of comments really help them shape their programs and how they're going to implement things. So I think the more comments we can be providing as a trade, the better off we're all going to be. We also have done a whole webinar extensively about the executive order. This QR code here on this slide, if you stand that, that's going to take you directly to the recording of that webinar.

So if you're a little behind or you feel like you've missed some of the information so far, you can go ahead and access a previously recorded webinar that we gave that delves into way more detail on the executive order itself. So what I want to touch on really quickly is just some of the trends that we started seeing with regards to customs and what they're focusing on.

So we know that they're going to be focusing a little bit more on enforcement based on that executive order, and we've seen some trends that are starting to back that up. So as a broker, we get courtesy copies of all sorts of documentation from customs that's really directed towards importers. Two types of communications we get from customs are called CF28s and CF29s, what these are, are kind of requests for information from customs that the CF28 saying, hey, we got questions about an entry you submitted, we'd love more information.

We also get CF29s, which are much more -- they're less of a request for information, and they're more customs telling us, hey, we disagree with what you claimed on this particular entry. We're going to go ahead and make an update to that entry to make the correction and here's why we're going to do that, okay? So there's 2 types of main communication we get from customs with regard to entries that are filed.

So this slide just shows kind of a breakdown of specifically with regard to these types of communications, kind of the high-level areas of information that we're seeing. So first of all, about 86% of the requests that we record as a broker are CF28s and CF29s. So this is definitely the bulk of the type of requests, which is how customs contacts you as an importer and then by proxy us as a broker, most commonly is through these CF28s and CF29 forms.

On the CF28 side, we've received about 91 inquiries in the past 30 days, and you'll see the breakdown of topics here. They range from a standard documentation request where we can't really maybe ascertain exactly what it is they're trying to hone in on, but they just are requesting additional documents. They might be specific to Section 232 or 301 or 122, that might be specific to country of origin, okay?

So you can see we've received around 91. Most of them are general documentation requests from what we can tell at this time. If we flip it, though, to the CF29, which is where customs is now informing us and the importer, hey, we're going to go ahead and make a change to your entry because we disagree with what was submitted. So we have more CF29s. And then you can also see the topics of them become much more specific and much more voluminous, right?

So USMCA, FDA, they've issued 29 that are either stating, we disagree it wasn't USMCA or we think it should have been or they're moving it one way or another. Origin, same thing. They're questioning things and saying, hey, we have evidence to think this isn't actually the country of origin. So we're going to go ahead and change the country of origin, which these days, right, often is going to potentially mean a duty increase or a duty bill for a lot of you. Same thing with Section 232, 122, 301.

They're looking at these saying, hey, we disagree at how you process this in the first place, and we're going to go ahead and make that correction for you. Okay. Really -- 3 things we really want you to be aware of, though, is these are really, really important for you as an importer to be responding to. So your brokers should get a courtesy copy. We should be sending those to you as well, but you should also get a copy directly.

It's really important to make sure you're responding to those within the time frames allotted on them. They almost always will stipulate how quickly they would like a response. So make sure you're producing that documentation as soon as you possibly can. Make sure that you can provide as much detail as possible. These requests are becoming more and more detailed. We're going to be looking at a few examples here in a second on the types of information they're actually asking for.

But the more information that you can provide to substantiate your argument or what it is you're trying to paint a picture, right, tell that story, the more information and backup you can provide to help customs put together those pieces as well, the better off you're going to be, right? And then just note that these, I think, probably historically may have been reviewed as slightly more routine.

At least in my mind, they were a little bit more of like a partnership between customs and the importer saying, hey, we'd just like to get more information or hey, we'd just like to let you know we found something wrong. We're going to go ahead and advance that. But just keep in mind that these are now being issued through an enforcement lens. So we're looking at a little bit more risk than there was before, right?

We're looking at a little bit different tone. And especially when you're talking about really high-priority items like AD/CVD, any of the tariff programs that they're implementing are going to be highly scrutinized, right? So these are taking on a different level of risk than they may have been interpreted as in the past. Can we flip to the next slide, please? Thank you so much.

So I just -- I'm not going to read you these whole slides, don't worry. But I just want to show a few examples of CF28s and CF29s that we have received. Of course, we have completely anonymized them. We removed all of the tariff codes and the countries of origin, anything that might out a particular company. But these are the types of things that customs is looking for and asking for. So you'll see these are CF28s we're going to look at first. We have one for 9802 claim and one for a USMCA claim.

They're both really looking for very detailed information, right? We'll look at this 9802. They want to know why the goods were exported in the first place, why they're now being returned, any proof and every documentation to support the claim. Same thing with USMCA. They want purchase orders. They want any documentation identifying the actual producer and the actual manufacturer. They want bills of materials.

They want any other records that you can provide again to build your case that this is truly a USMCA eligible item that you're importing and why is it? Can we go to the next example. Now check this one out. They're getting more and more complicated and customs is -- we do know that customs is using AI in order to both find out information for these particular manufacturers, suppliers overseas, but also to build the CF28s and CF29s.

So they're getting a lot more detailed, and they're based on a higher level of information and intel, I would say, than they were in the past. So this is just an example of a CF28 where customs is requesting additional information to try to help make sure that the value that was declared actually made sense for the product. So you'll see here, they're asking for photographs. They're asking for any support that supports the unit value that was declared.

So they want to see wire transfer records, bank payment confirmation. They want to see price lists or quotes that were received in connection with the original purchase. They want manufacturing records, prototype prices, warranty pricing, right? Really, really, this is a much more drilled down detailed ask, I think, than we've seen probably not ever before, but certainly in quite a few years, at the very least, the things that they're asking for.

They also want information about the relationship with your sellers, with your vendors, with your manufacturers. This is getting much, much, much more detailed than -- again, than it's been in quite a long time. So really making sure that you have the backup that you're visiting your suppliers if possible, you're vetting all of your suppliers, you're vetting your manufacturers, right? We're really getting into a space where you really need to start knowing and vetting your entire supply chain.

And then we'll now look at CF29 that we received that is also quite complicated. If we can go to the next slide. Thank you so much. So this is just -- again, we've redacted everything, but this is a good example of the CF29 and customs was really focusing on connecting those dots and how everything worked together or in this case, I think they don't think it worked together very well to support what was claimed on the entry, right? So here is just a statement in bold, right?

While the information shows that manufacturing activities do take place in country A, it does not fully address CBP's concerns. So the importer actually did receive a CF28, and they submitted additional documentation to customs. And customs has taken all that information and saying, hey, thanks for the info, but we disagree still, and here's why.

And because of that, they went ahead and updated the country of origin, and you'll see here there was a rate advance that went along with that, okay? So again, these are just examples that we're starting to receive. And this is not like a one-off, unfortunately, a lot of these examples I've shown are ones that are becoming increasingly common, and customs is really looking at that. So I don't say any of this to scare you.

I don't share any of this to scare you guys, but this is all something it's going to become really important for us, everyone, brokers, importers, everyone, right, to really start taking stock in these communications that we're getting from customs and really making sure that the backup is in place to substantiate anything we're declaring on an entry. So fun, happy notes. But let me turn it back over to Stephanie, so she can bring us home. Maybe lighten the mood a little bit, too.

I don't know if any of this is lightening the mood. We are just definitely in a very different time. And I think many of us are trying to kind of recalibrate our brain in terms of what does risk look like? Where do I spend my time and energy. And at the same time, everything continues to shift on us. So we are all in this together as a broker, I know many of you as importers, none of us have the answers right now. We don't know kind of what and where customs is going.

But we do have many, I'll say, tea leaves for lack of a better word, and that's what we kind of keep talking about is that we can't ignore and we can't keep doing business like we did even a year ago. Customs is significantly different. Somebody's question in the chat was really saying, how can customs -- I think this was the question. How can customs take action on something if I, the importer, haven't even confirmed yet the information.

And that is the fundamental thing that is happening is they don't want you -- I shouldn't say they don't want you to confirm. They're not looking for you to confirm. They have invested in tools, and they genuinely believe that the actions that they're issuing in the CF28s and CF29s, these are not random requests. These are coming because they have intel and they have things that are pointing to these concerns.

And I'm hearing from our importers that they're not necessarily unfounded. They're actually discovering more about their supply chain because they have a CF28 saying, there's a component coming from this company. And when they go and research it with their buyers or sourcers or whoever, they're actually finding it to be true.

So it's not always perfect, but this is -- the thing is that customs has kind of leapfrogged, leaped over a lot of us in the trade with the intel that they have invested in, and they have bought software and they have done all these different things. So this is part of what is kind of shaking our world is that it's not being driven by the entry details that we're submitting day-to-day on entries.

They're getting that, but they also are looking at this entire universe. And that's where many of us are trying to figure out how do we get our footing in this universe. It's not a perfect universe by any stretch of the imagination, but it has completely changed on us, and it's changed very quickly. Okay. That was my soapbox. What are actions that you can take right now?

So for tariffs and trade remedy readiness, a lot of this, of course, has to do with Section 338 from Canada. Just to reiterate what Courtney already said, do not be fooled by the names of these actions. They name them alcoholic beverages, dairy and motor vehicles. Do not think to yourself, I don't import any of those. I don't care. This has nothing to do with those items.

Those are the items that the U.S. government pointed to that they could show discrimination. They picked a completely different list of HTS numbers that have nothing to do with dairy, that have nothing to do with motor vehicles, and those are the tariffs that they're targeting. So you could absolutely be caught up in one of these import bans that have nothing to do with dairy, okay? So just make sure that you -- I want you to hear that very deeply, okay? Then what are you going to do?

We still have so many days, a whole week before the import bans come on. So you can front-load this stuff, get it into the U.S. If you can't afford the duties right now, what are some options? As Courtney said, the IEEPA China challenges for May 2025 are kind of a good benchmark, but this is different. This is trucking. You can't just lease things at the port and cross your fingers and hope the tariff rate changes, right?

So be thinking about that and what is your strategy? There's not an unlimited amount of bonded warehouses, not an unlimited amount of FTZs and everybody is going to be trying to use them. And then the last one, definitely a cop-out bullet, really talking about the pharmaceuticals. But the Section 232s, if you pay them, they are going to keep shifting. So making sure that you have controls in place to know when they shift and if you have HTS numbers that could get reduced duty rates.

The complexity of making sure that you can take those exemptions, we talked about this last month, continues to mount, but it's important, and there's opportunities there. Enforcement, I feel like we're going to be talking about enforcement forever because we are at the tip of this iceberg. So first thing, customs, of course, as Courtney said, 5106 data need to be updated. I've answered a number of questions, and I'm sure my colleagues have as well.

You can e-mail the form to your center of excellence person. We can make updates as your broker, but we now have to go through many steps. CBP has said that I can't just update this. I need to do a Google search. I need to look at this. I need to look at this. You need to prove to me. I need to go there in person ideally. We -- and it's not just me, it's any broker, okay? So once something that was an admin task is now a whole thing on the broker side. I don't like it, but here we are living in this new world.

What a lovely bullet I put on there, totally just in your casual time map, your supply chains beyond Tier 1. Ashley touched on this. This is really hard. There's not an easy button for this. We're all in this together. We're trying to figure out ways, and we will, I think, get better, but customs truly believes that they have done this. And they think that they can use that data. So they have a whole lot of intel about you, whether it's right or wrong, that they believe to be true and that they are using for this targeting.

Of course, we talked a lot in the chat. I talked during the legal section on ACH refunds, making sure that, that's updated, making sure you have a clear strategy, know anything that's in that finally liquidated box and be having conversations internally with your folks, with your legal team, with your CFO, whoever is going to care to say how much do we want to try to get that money, okay?

And then financial planning, of course, the Russia secondary tariff exposure is definitely real. I know that Courtney said, hey, we can't put out a list of countries that says 5 countries. I don't know what the government is going to land on as those 5 countries, what they're going to use the criteria as. That's why we said right now, the internet can give you some ideas. You can use that as you would like. But for some of you, that's going to be very important to understand.

And so figuring out which of your products are going to maybe be hit, how risk associated with them, what can you do to front load that, okay? So just a couple of things in all of your spare time. We always include this slide for opportunities to engage. The biggest one here and somebody said is Expeditors is going to comment. Yes, we will. We might do it through a number of our trade associations.

They're all working hard on this. No, I always get nervous. ANPRM, maybe, did I nail it? The advanced notice of proposed rulemaking. But lots of people are working on this. It's like 46 questions, okay? You don't have to answer all of them. But we, as a trade community, really need to look at this. This is really expecting us to get all this documentation upstream like export declarations.

And this is a good opportunity, and we have a lot of -- I'll say a lot of time, a lot of time in the current administration, this is a lot. So we have until December 1. There are some other items on here that you can look at, that U.S. ITC, that is the one where you can make comments about how discrimination is defined for Section 338.

There's going to be a virtual COAC quarterly meeting that you can join and then 2 other kind of USTR items on here that are not quite as important, but you can click on those and check them out. Of course, the favorite part of the show, your certificate of completion, one credit for any licensed custom brokers out there or the NCBFAA, CICS, and CBFAA. I think I forgot the name. Okay. Samantha, that was rough, but I landed right on time. So I will turn it back over to you.

I'm so impressed and luckily, I can't add too much to all the fantastic content you guys provided today, except for to say, as I mentioned in the chat, just remember a feedback survey, we'll be coming to you all within about an hour to 2 hours. Please complete that. And at the end, you will be given a thank you message with a link right there on that message to all of today's materials.

And I am working to add everything that we suggested, we'll try to add to that material landing page for you all. In the end, we are at time. Thank you so much for joining. We appreciate you all jumping on, and we will do our best to get all of the unanswered questions answered or get you connected to Expeditors' support. Thank you all. Speakers, great job. Thank you.

Thank you, everybody, for joining. See you next month.

All right. I think we'll let people keep trickling in here, and we'll get started. So welcome, everyone, to your -- Getting It Right: EEI Basics and Denied Party Screening webinar. We are super excited for you guys to be here. There's some great content prepared. Before I kick it off to our host or our speakers to prepare the content, we will just make sure that we have some housekeeping items out of the way.

I am your host, Alex, along with Nathalia Juan and Cherokee Ford. So we will be in the background just monitoring everything. If you have any questions, you can direct them to us afterwards. But content-wise, we expect we'll be about 45 to 50 minutes with a little bit of time at the end for questions. Please submit your questions in the Q&A box that should be on the bottom of your screen by the react in the chat in the Q&A. So direct your questions there. We'll be monitoring throughout as we go, but we will be answering them at the end. If we don't answer your question for whatever reason, we will make sure that we'll be able to follow up with you. The webinar will be recorded, and you will get access to a recording of the materials right when we send a feedback survey after the webinar. So that is -- should come out within a couple of hours after we're done. You'll see that invite come from Cherokee Ford.

We really appreciate you guys taking the time to fill that out. It helps us plan content in the future that's relevant to your supply chain needs. So please be sure to take that, and then you'll get a copy of the webinar and a copy of the PDF presentation. So watch out for that. If for whatever reason you don't get it, again, you can reach out to myself, Cherokee Ford or Nathalia or your Expeditors representative, and we will get those over to you. I think that's all for me.

Okay. So I'll start with introductions. My name is Kahnee Rodriguez, and I am the Regional Trade Compliance Manager based in Miami, Florida. I cover the Southeast region. I've been with Expeditors for 26 years, and I'm a licensed customs broker, but I'm also here to hopefully present on to Party Screening to help you out in your customs in your business. I'm going to turn it over now to Sila to introduce herself. Thank you.

Hi, everyone. I'm so excited to be here supporting Sarah and Kahnee on this webinar. My name is Sila Barr, and I am the U.S. Export Customs Compliance Manager. I'm actually based at our corporate office in Seattle, but I'm really just here for support and to answer questions for you guys. So I'm going to be probably helping in the background answering questions. And at the end, I'll be facilitating some Q&A. If there's any questions and we have time, I'll be pitching some questions to our lovely, lovely hosts so that they can help get the answers that you guys need. So happy to be here. Sarah, why don't you kick us off into this presentation?

Perfect. Thank you, Sila. Hello, everyone. My name is Sarah Smith. I'm the Regional Trade Compliance Manager for our South Central region. I sit in Houston, Texas. I've been with the company for about 14 years, almost 10 of which have been in compliance with Expeditors. And I'm very excited to be with you today, talk about a really great like foundational topic in the export landscape, both with EEI Basics and party screening.

And with that, we're going to get going. I'm very excited to be talking about this material today. So the agenda looks a little long, bear with us. It's going to be as exciting as we can make it, but we're going to have some building blocks with an EEI basics and Party screening, and we're going to get started with Denied Party or EEI Basics.

So as I mentioned, foundational information, almost like a bunch of puzzle pieces that are going to build -- put together to then kind of paint the picture of EEI, okay? And I'll get to the lovely elusive EEI and some definitions here in a minute. But for starters, I want to talk about some governing authorities that are involved with this process. So this isn't an exhaustive list, but these are some of the main players that we wanted to discuss.

So first, you have the U.S. Census Bureau. The U.S. Census Bureau, you may or may not recognize within the U.S. is both involved with people statistics and economic statistics. And their involvement here is just that. It is to collect statistical information regarding exports from the U.S. and they regulate that through the EEI and through their Foreign Trade Regulations or the FTR. So similar to what they're doing with collecting information about statistics on households, incomes, population, things of that nature. It's very similar on the export side with the transaction of where are things going, who's it going to, how much of it is going there.

Next, you have the Bureau of Industry and Security, and they do their governance via the Export Administration Regulations. And in particular, this is to control the export of dual-use items. Now dual-use items are material technology that have both commercial and military application. An example that I like to use here is a drone. Let's say you can go to Best Buy and buy a drone, fly it in your backyard, fly it in your park, nobody is really the wiser, not really an issue potentially at hand. But let's say an entity wanted to export drones to a foreign entity, foreign country. There may be military application for that drone. So therefore, that drone may be controlled under these regulations, and that would be something that would be pertinent in the EEI process.

Next, you have the Office of Foreign Assets Control. They administer and enforce economic and trade sanctions based on our U.S. policies, security goals, et cetera. This is going to be something that is going to be pertinent to what Kahnee is talking about later in terms of party screening and different lists. The main list with Office of Foreign Assets Control is your SDN, maybe you've heard of that or Specially Designated Nationals List. That's going to be where those come into play.

Additionally, you have Department of State. Department of State is regulating defense article and the exports thereof. So these are items that are inherently military in nature, and therefore, the Department of State via the ITAR regulations, the International Traffic in Arms Regulations want to govern those commodities and where they're going in the nature of the transaction.

And lastly, you have the U.S. Customs and Border Protection, U.S. customs, U.S. CBP, CBP, they get called a different thing. And there's lots of acronyms and alphabet soup. So I'm going to do my best to make those less elusive but U.S. Customs and Border Protection enforces export regulations on behalf of these agencies, okay?

And as mentioned at the top, this is not an exhaustive list. This is not the only entities that are involved. Depending on the nature of your goods, there may be DEA or the Drug Enforcement Agency or the NRC, the Nuclear Regulatory Commission, right? You are an expert on your goods that you're exporting and knowing what entity would be involved in the transaction is a key part of exporting compliantly.

So from here, we're going to talk about some EEI fundamentals. I like to think of these as building blocks as well in a process, right? What is an export? Simply put, to send or transport goods out of the country, right? So it sounds simple enough. And the nature of it, it is a simple concept. But then what does that mean when exporting out of the U.S. So that is where the EEI or the Electronic Export Information comes into play.

The EEI is an electronic declaration required by the U.S. government for exports of certain goods, okay? So you know you're exporting, you know your goods qualify to need an EEI, and we're going to talk about some of that as we go along in the slide deck. Like I said, it's puzzle pieces that fit together as we go. You know you need to do an EEI. Well, where does that EEI need to be filed with the government? That's the Automated Export System, or AES. That's the centralized digital system used by exporters to electronically declare their international shipments. And Census and U.S. CBP are the ones that manage that system, okay?

And then from there, once you filed an AES, you get an internal transaction number or an ITN. Think of it kind of like your tracking number. This is a number that's generated automatically and assigned to the shipment and it's proof of filing, okay? That is your receipt. A couple of major call-outs here overall is you know you have an export, you know you need to file that EEI. In AES, where it's filed, while you are able to potentially file direct in the AES system, for example, like Expeditors, we don't file directly in their system, we have the ability through software connections to file systemically in our system and transmit to the government to file that EEI and get those ITNs back.

So this is the kind of map, if you will, of the steps of the process, but we're going to really focus just on the EEI itself and some of the details surrounding EEI. So when is an EEI required? Major caveat, it can be sometimes, it can be all the time. It depends. There are a lot of different elements and nuances to this information. So when is an EEI required? Simply put, if you're exporting to a foreign country from the U.S., from Puerto Rico or from the Virgin Islands, you more than likely need an EEI.

You always want to kind of start there, okay? But also if you're exporting from the U.S. to Puerto Rico or the U.S. to the Virgin Islands or from Puerto Rico to the U.S. or Puerto Rico to the Virgin Islands, you may also need an EEI. Those are U.S. territories that are involved here and mentioned, and you may be wondering why. Simply put, there's still statistical interest between the transactions between the countries.

So keeping in mind these certain elements on the left, and let's say you're exporting from the U.S. to a foreign destination, you know you need an EEI. Well, there are the potential for exemptions. Now we don't want to put the cart before the horse, okay? So these are simple examples of a few available exemptions, not an exhaustive list. But let's say the value of the goods that you're exporting per Schedule B is less than $2,500. Well, it's less than $2,500 and not licensable, that's always the big asterisk caveat that we want to call out, you may not need to file. If your shipments going to Canada, you may not need to file. And if it's traveling in bond, you may not need to file. But there are exceptions to these exemptions or exemptions to the exemptions. Don't say that 5x fast. But they do not apply to shipments requiring a license, shipments subject to ITAR, DEA permits, et cetera, et cetera. There are certain nuances depending on your commodities. where the exemption, while may at face value seem applicable, if you go maybe to Tier 2 of your export transaction and more complex elements, the elements that we're maybe not going to hit on too much today, it may not be applicable.

So overarchingly, when is an EEI required, exporting from the U.S., Puerto Rico, the Virgin Islands and if you don't have an available exemption. So we know you need to file an EEI. What parties are involved in this export transaction and impact the EEI? We're going to go through these 4 basic parties. So we're going to start with the USPPI or U.S. Principal Party in Interest. This is the person in the U.S. that receives the primary benefit monetary or otherwise from the export transaction. It can be the seller, can be the manufacturer, can be the order party.

The main thing that we like to call out when people are kind of first getting their feet wet into the EEI world is kind of all the money, all the monetary transaction. So the seller, the USPPI, let's align that there with the idea of the FPPI, your Foreign Principal Party in Interest. This is the person located abroad who purchases the goods for export or to whom final delivery of the goods will be made. So again, your purchaser. So for the sake of this conversation and again, keeping these things very foundational and back to basics, USPPI is your seller, your FPPI is very often your buyer.

Next, you have an authorized U.S. agent. So this is an individual or entity physically located in or otherwise governed under the jurisdiction of the U.S. that has some sort of power of attorney or written authorization from a USPPI or from an FPPI to act on their behalf to complete the EEI filing. So while it is possible for USPPI to do their own filing, it's not always necessarily the activity a USPPI wants to partake in or wants to be responsible for, so they can authorize a U.S. agent to do it on their behalf. And that may be where Expeditors could come into play, right? We could act as a U.S. authorized agent on behalf of the USPPI or an FPPI to help complete that EEI transaction.

Lastly, you have your ultimate consignee. This is the person or entity located abroad who ultimately receives the export shipment as known at time of export and it's not the foreign forwarding agent or the intermediate consignee. So I definitely want to call out there that if your transaction involves going to a foreign forwarding agent to then be actually delivered to the entity at the end of that transaction, your foreign forwarding agent is not your ultimate consignee. Your ultimate consignee is the person who's actually receiving that export shipment.

So remember how I said building blocks, okay? We've talked through the parties. Now we're going to go through the types of transactions to go through a couple of definitions that's going to help paint some picture for us, okay? So you have types of export transactions. You have standard and you have routed. Standard is where the USPPI is going to authorize that U.S. agent that I mentioned on the previous slide to facilitate the completion of the EEI on their behalf. So as you can see in this depiction here, the FPPI in blue is going to place an order with our USPPI there in green. That USPPI doesn't want to file their own EEI, they're electing to authorize a U.S. agent. They're going to contract that U.S. agent, provide the authorization and provide the data for them to be able to file the EEI. And that U.S. agent is going to file the EEI and perhaps if they're contracted to ship the goods, also ship the goods to the FPPI.

So pretty standard circle of life there in that type of transaction. The only difference that we're going to go into next with the routed export transaction is there's an extra step involved from our FPPI. So in a routed transaction, the FPPI is the one authorizing the U.S. agent to facilitate the export and/or the EEI. So the FPPI is still placing the order with our USPPI that the FPPI is the one electing that U.S. agent, okay? And that U.S. agent is going to need to file that EEI and perhaps export the goods that they're contracted for the transportation.

But the USPPI here is not completely absolved from any responsibility. There are certain data elements and involvement that needs to happen from the USPPI to the authorized agent for the agent to have everything that they need to be able to correctly and compliantly and timely file that EEI.

Now routed export transactions are sometimes seen as a risk because it does shift the control of the movement of the goods and the filing of the EEI from the U.S. entity to the foreign entity. But if you so choose to do it, this is an applicable and available option to you with the type of transactions that are out there. So we know our parties, we know our types. Now what is each party involved in these transactions responsible for? So we're going to go through some responsibilities, and we're going to start with the USPPI and then talk about the authorized agent.

So our U.S. PPI in a standard transaction, okay? That's our first example where it's pretty much circular, right? The USPPI is the one involved for the EEI filing. They can either prepare and file that EEI themselves, as I mentioned, or authorize an agent to do it on their behalf. They have to provide a POA or a written authorization of some kind. They also have to provide the EEI information. That includes making the license determination and providing that to the U.S. authorized agent.

And then the USPPI wants to retain documentation. You're going to see pretty consistently through all of these responsibilities through both parties, everybody needs to retain documentation for the elements that they're responsible for as part of the transaction. And inherently, typically, it's about 5 years from the date of export that you want to retain your documentation, but it can differ depending on the different controlling agency that may be involved with your type of transaction.

But in a routed transaction, the USPPI responsibilities are a little less. The FPPI can ask the USPPI actually to file the EEI. But if you so choose not to, they would then provide the authorization to the agent. And therefore, as a USPPI, you'd only be responsible for providing the specific export information and retaining documentation. So again, not completely absolved of any activity in a routed transaction when you're a USPPI, you want to make sure you provide the accurate information to the agent for them to provide an accurate filing to the U.S. government when they file that EEI.

So from here, we're going to focus on the authorized U.S. agent responsibilities. This would be where perhaps an Expeditors could come into play as an authorized U.S. agent on behalf of a USPPI or an FPPI. So in a standard transaction, we must first obtain authorization or POA from the USPPI. This is important because we are not able to complete customs business on the behalf of any entity without certain authorization or POA in place. We would then prepare and file the EEI record accurately and timely and then we would also retain documentation. Again, retaining those receipts of why we filed what we filed, what we received from certain parties and have that back up in case we're ever audited and need to have proof of what was filed on the EEI.

In a routed transaction, it's very similar. We would just be getting the authorization from the FPPI. In this case, we would still prepare and file the EEI record timely and accurately, and we would retain documentation accordingly. Now there are a couple of extra bullet points here at the bottom of if we are requested, there is certain information that we would provide to the USPPI if requested at time of filing. Something to keep in mind there. So we know who the parties are. We know the types of transactions. We know the responsibilities of the parties involved.

Now what is actually on an EEI, okay? Let's kind of demystify that a little bit. So there are certain data elements that are required for every EEI. There are a lot of elements here. I'm not going to go through every one inherently individually, but we're going to talk about them more holistically. So you have the who, the where, the what and the control and compliance that's involving that export transaction. So for your who and your where, that's your parties that are involved. That's the routing of the goods. That's the method of transportation and the transportation details, right? That is information that the transportation provider would need to provide to whatever entity is filing the EEI, whether the USPPI is filing it themselves or they've contracted a U.S. agent and perhaps that U.S. agent isn't also doing the transportation.

However, if your U.S. agent is filing your EEI and doing the transportation, they very well should have and may have most of the information in terms of mode of transport and carrier information and the like. Now as to what, right? I mentioned earlier with Census, they want to know what we're sending into whom. This is your classification. This is your Schedule B. This is your commodity description, your unit of measure, your value, the domestic or foreign indicator, right? What are the origin of the goods. This is some of the statistical elements that Census is aware of, involved with and tracking.

And then lastly, you have control and compliance. This is a lot of technical flags that go into certain indicators that are involved in filing an EEI. But the main call out here would be that license code or license exemption, right? Whether or not something is licensable, you must provide the information to the filer on whether or not it is licensable every single time. They need to be aware of something is licensable in order to make sure they're filing the EEI correctly and/or following the elements of that license correctly and compliantly as well. So these are the required data elements that are a part of every EEI filing.

But now we're going to talk about some conditional ones. Just to kind of give you an idea of things to be on the lookout for. It's a little bit more of EEI 2.0, right, not quite so basic, but I think it's important for you to understand to maybe have your Spidey senses on of certain things that are involved in your transaction that may lead to other elements that would be important to be included.

So special shipment scenarios. So whether it's coming from an FTZ or a bonded warehouse or it's a re-export of some kind, that may require certain information on the EEI. The export control and licensing data. Again, if your shipment is under a license, the number, the ECCN, the value, the license itself, right? That information very well is required on the EEI, but may be required to be provided to your agent doing the filing, so they can make sure they abide by the stipulations of that license as well.

Then you have vehicle exports for used self-propelled vehicles, VIN numbers, title state and title number, certain, again, statistical information and tracking information there. And then you have ITAR and DDTC. I mentioned ITAR earlier, but DDTC is Directorate of Defense Trade Controls. This, again, is if you are shipping something that is military in nature, and it is significant military equipment. It's on a military license. There are particulars that are involved in that, that would be potentially required as a part of the EEI data elements for your export filing.

So we know we need to file an EEI. We know who's responsible for what. We know what needs to be on the EEI, and we're going to close out with the timeliness for filing of these EEI. We don't just get all the time in the world. There are regulations restricting the time line in which EEIs are filed. And a quick call out is that these time lines are non-ITAR in nature, okay? ITAR and licensable in that nature are going to fall under different stipulations. But timing for EEI filings is split between pre-departure and post departure. Pre-departure, as it sounds, is prior to the freight leaving. So whether the mode of transport is vessel, truck, by air or rail, there are certain stipulations and time lines that you are required to file the EEI by.

This is important to keep in mind because if you are authorizing a U.S. agent to file on your behalf, please keep in mind these time lines and make sure you're giving them the information far enough upstream for them to be able to file the EEI in time to meet these requirements to hopefully avoid any fines or penalties for a late filing, okay? They are beholden to these as well as you are and need the ability to have the information from you, input it, file it, do it correctly and do it timely, and that's definitely a group effort.

And then you have post departure. Post departure is after export. So for all modes, it's 5 calendar days from the date of exportation. That's a major caveat that we want to provide here. The USPPI must obtain prior approval from Census before this is applicable. Even if granted, not all types of shipments would qualify for post departure. And most importantly, U.S. Census is not currently accepting any applications for post-departure filings at this time. So unless you're a USPPI who already has this authorization, you're not able to right now go in and apply to be able to use this option. So unless you already have this, you're living in a pre-departure land and these predeparture time lines would be the ones that would be applicable to you and your export transactions.

So I used the example of saying building blocks, puzzle pieces to kind of give you a strong foundation. Every element that we talked about definitely seems like it could be individual in nature, but it does all build together to kind of lay the land of when an EEI is required, what needs to be on it and the stipulations that you need to abide by when filing your EEI.

From here, I'm going to be handing it over to Kahnee. She's going to be talking about party screening and the role that it plays in the export transaction in partnership with EEI filings.

All right. Thank you, Sarah. Very good information. I love the building block example. So I'm going to use that as we continue on with party screening. So let's start off with -- before we begin to review denied or restricted party screening, we must first review the 10 General Prohibitions in the Export Administration Regulations or the EAR. I call these the 10 Commandments. These foundations are the foundation -- I'm sorry, these provisions are the foundations of U.S. export control regulations. They identify activities that are generally prohibited unless authorized by the appropriate government agency through either an export license or some other approval. At a high level, these provisions help ensure that controlled goods, technology, software and services are not transferred to unauthorized destinations, end uses or end users. I will walk through this list using simple examples. However, when I say this would be restricted, I mean that the USPPI must determine whether or not an export license is required or whether a license exemption is available.

So let us briefly review each provision. First one, export to restricted countries prohibits exporting controlled items to certain countries without required authorization. Each country has its own reason for control based on the EAR's Commerce Control List and Country Chart. If you recall that, that's like the tic-tac-toe list. The same items shipping to different countries may have restrictions. For example, a shipment to Canada will face no restrictions. However, the same shipment going to North Korea might face restrictions.

Reexports of controlled items controls the export of U.S. origin items when they're transferred from one foreign country to another. From a U.S. perspective, this concept is usually easy to understand because we routinely handle U.S. controlled items and are familiar with the associated export regulations. However, it's important to remember that these regulations can also apply to certain transactions that occur entirely outside of the U.S. For example, a shipment of encrypted semiconductor microchips made with U.S. content from Korea to China could still be restricted if the items are subject to U.S. export controls. This highlights why it's important to evaluate not only the origin of the item, but also the destination and also whether or not U.S. regulations apply to the items being transferred.

Foreign Direct Product Rule extends U.S. export controls to certain foreign made products that are derived from a specific U.S. technology or software. Here's a simple example of the Foreign Produced Direct Product Rule. Imagine a semiconductor manufacturer in Taiwan uses a U.S. origin chip design software and U.S. origin semiconductor manufacturing technology to produce advanced microchips. Even though the chips are manufactured outside of the U.S., they may still be subject to U.S. export controls because they are the direct product of specific U.S. technology or software.

As a result, shipping these chips to certain restricted destinations or end users could require U.S. government authorization. The highlight, denied restricted parties prohibits or restricts transactions with individuals, companies, organizations that have been identified by government authorities as restricted entities. This rule is all about knowing who you are doing business with. Even if the product is allowed and the destination country is acceptable, the transaction could still be restricted if one of the parties involved is on a government restricted party list. That's why screening customers, companies and end users is such an important role in the export compliance world.

We will review this rule in depth during this webinar. So I'm going to go on to the next prohibition. End use or end user restrictions prevent exports that support prohibited activities such as weapons programs, military uses or prohibited end users. This is why knowing your customer isn't enough. As a USPPI, you also need to understand who will ultimately use the product and for what purpose. Even when the shipment is going to a nonrestricted country and the customer is not on a restricted party list, the transaction could still be prohibited or require a license if the item supports a military application, a weapons program or any other type of restricted activity.

The key takeaway on this rule is simple. Don't just ask where is it going, ask who is the final user and what is it used for? Those answers will help you determine whether or not the shipment is allowed. I remember a story from my initial export compliance training many moons ago that really highlights this prohibition. So during the Iraq conflict, large industrial grade stainless steel mixing bowls, baking bowls were being imported into Iraq. At first glance, these appear to be ordinary commercial items, right? Again, what's so unusual about large stainless steel baking bowls. The concern wasn't the item itself, but it was who was receiving it and how it would be used. It turns out that they needed these big stainless steel bowls to incorporate into their weapons arms program.

So this example highlights a key compliance principle. An item that may appear to be low risk on its own can be highly sensitive depending on the end user and intended end use. Again, as the USPPI, it's not enough to know who you're shipping to. You also need to know who will use this item and how they receive it in the end. The answers to these questions, as I mentioned, may help you determine whether or not you need government authorization or some type of special permission to proceed. Embargoed or sanctioned destinations restricts business activities involving countries, regions or jurisdictions subject to U.S. sanctions or embargoes. This rule is straightforward and simple. Again, items moving to an embargoed or sanctioned destination, especially anything of a military nature are prohibited. One common misconception is that sanctions only apply to a handful of countries. And in reality, the U.S. maintains both comprehensive sanction programs and targeted sanction programs. Comprehensive sanctions such as those involving Cuba, Iran and North Korea generally prohibit most transactions unless authorized.

Other countries such as Russia, Belarus and Venezuela may not necessarily be fully embargoed, but specific parties, industries, products or even activities can still be heavily restricted. This is why screening the country, the parties involved and the end use is critical for every transaction. Violation of license conditions restrict strict compliance with the terms and conditions of any export license or authorization that's been granted. The next rule in-transit and diversion violations prohibits changing the destination, end user or intended end use of controlled items without proper authorization.

Next one, acting with knowledge of a violation prohibits participation in a transaction when you know or have reason to know that a violation is occurring or will occur. This actually is one of my favorite export compliance provision rules because it comes down to due diligence, professional judgment and common sense. U.S. companies are expected to pay attention to red flags and cannot simply choose to ignore information that suggests a potential compliance issue. In other words, if you know something or something doesn't seem right, you have a responsibility to speak up and investigate further. A common defense after violation is no. However, for an experienced exporter, that explanation is unlikely to carry any weight. There is an expectation that exporters remain informed and exercise reasonable care throughout the entire transaction.

As mentioned, export compliance doesn't stop once that shipment leaves your dock. You're expected to understand the transaction before the export, monitor for issues, identify any red flags and respond appropriately. The key message again here is simple, don't ignore warning signs. If something looks unusual, ask questions, perform additional due diligence before moving forward. And then the last prohibition, proceeding after a violation or the catch-all requires parties to stop and address compliance concerns once a potential violation, red flag or regulatory issue is identified.

This, as I mentioned, is the catchall because it applies whenever you become aware of information that again provides a potential compliance issue or a violation has occurred, you cannot simply proceed with the shipment and hope for the best. The expectation here is you stop, investigate and resolve the concern before going forward. In many situations, this is where your export compliance team and your legal counsel becomes critical partners. If there's a possibility that a violation has occurred or that regulations may have been breached, you will likely need guidance from an attorney to assess the risk, determine any reporting obligations and advise on appropriate next steps.

As stated, once the compliance concern is identified, please don't ignore it. Pause the transaction, escalate the issue and seek legal advice or expertise before proceeding. And then last on this slide, we have these little globes that we added. I'd like to call them my little [indiscernible] badges. These provisions highlight where the product is going, which Sarah mentioned is a very important EEI requirement.

Okay. Now let's look at what is a denied party. Okay. So a denied party can be an individual company, organization or vessel that has been restricted by a government agency from participating in certain trade activities. Again, the EAR or the Export Administration Regulations, they tell us that we cannot conduct business with a denied or restricted party without appropriate authorization. The regulations do not tell us how to screen. They simply place the responsibility on us to ensure we do not transact with [indiscernible] parties. Because of that obligation, companies must implement effective compliance and screening processes to identify potential matches before shipments actually move.

Denied party screening is not optional. It is a proactive compliance control that helps us meet obligations -- our obligation to avoid doing business with a restricted party. So let us now explore what is screening. So on this slide, screening is the process of checking the parties involved in a transaction against a government-restricted party and sanctions list. These lists are maintained by agencies such as, as Sarah mentioned in the beginning, right, Department of Commerce, Department of State and the Department of Treasury. Those are just a few to name some lists and can include individuals, companies, organizations and vessels.

One important thing to understand here is, as I mentioned, the regulations do not tell us how to conduct screening. They just say, you have to do it. So they don't -- again, they don't prescribe a certain tool or mechanism or process. They just expect U.S. companies to have a procedure in place prior to handling the transaction. So if a potential match is identified during your screening process, that doesn't automatically mean the transaction is prohibited. It does mean additional due diligence is required before proceeding. So first thing first, we need to identify, is this party on the list? Does it actually match the party to the transaction? And then again, do additional research.

I always think of screening as one of our most basic and important compliance controls because before -- again, you have to focus on the product, what is it, where is it going, but now we focus on who we're doing business with. As I mentioned, the shipment that can be perfectly compliant from a product and country perspective, there's a party that's restricted. Now that could be a prohibited transaction. This is also another area where your compliance impact involves your sales team. One of the best compliance collaborations is you can initiate from your side is understanding and sharing who the customer is before the sale happens.

Proactive screening helps identify potential issues early, reducing risk and delays, avoid compliance violations, avoid costly investigations as well as reputational damage. So when we screen for denied restricted parties, there are generally 4 types of parties. So on the next slide, we have 4 different pillars here. So I'm going to start with the first one, which is denied parties. Again, they're the most straightforward. These are individuals or organizations, sorry, with whom business is generally prohibited without government authorization. I always say denied parties like a red stop, stop, do not pass go, you cannot do business with them. And if you have a situation with this type of party, immediately stop and get help.

Now restricted parties may not necessarily be completely prohibited, but transactions involving them can require a license or some special authorization before proceeding. A common example is you can import from this party, you can't export to that party. Parties of concern is another restricted party that warrant additional scrutiny. Again, these could include unverified parties or entities that have been linked to activities involving with the programs in certain countries or certain other sensitive areas. Now a match here doesn't necessarily mean you can't proceed, but it does mean you need to perform additional due diligence.

And then finally, many companies maintain an internal list. Let's look at a little gray box. These are parties that a company such as yourself has independently determined they pose some kind of risk, either business risk, compliance risk, financial risk or even a reputational risk. Even if a party is not on a government list, you as a U.S. PPI may decide not to do business with them, and this is absolutely your right as an exporter to maintain. Now you may notice that screening for any match condition or just by name can be challenging and very subjective. So I'm going to share with you one of my favorite compliance stories when it comes to denied party screening because it illustrates, again, identifying red flags and why instincts matter.

So once upon a time, a U.S. importer was preparing their very first export shipments. The order was simple enough. Again, it was a shipment of video game consoles going to Dubai. As part of our screening process, the overseas consignee was flagged as pending determination, which in our world or in any case, it means a trained compliance professional needs to take a closer look. So on the surface, there wasn't an exact match to any party, nothing restricted, everything looked great, but something did not seem right.

So one lesson that I've learned over my many years and many moons is always pay attention to your gut and your instinct when something seems a little bit off. So again, some additional due diligence was performed. The company name was searched online, and I found the website beautiful. Interestingly enough, this website with the exact same company name came back with a website completely in Farsi, which is the primary language spoken in Iran, which is a sanctioned country by the U.S., right?

So this site also had various products. You are able to look to their website, and I found, guess what, video game consoles. So at this point, these are the red flags that we address with our customer, hey, U.S. import or exporter, this is a red flag, who is the end user. So they actually went back and requested an end-use certificate to better understand who would ultimately receive and use this product. Now their response, these are more questions. The buyer said, "Oh, -- that's not the name. Different name, same address. That's early on, right? When your story starts changing, that's also another indication of the slow down.

So based on the information available, again, the party wasn't a restricted party. There were just a lot of concerns with who was involved and where it was going. Again, the decision from the exporter side was to not proceed with the shipment. They canceled the order. And again, it was because it might end up in Iran, and that might was big enough to say, hey, we're not going to handle the shipment. The nice part of this was this U.S. exporter actually attended one of our seminars, and we talked about the party screening, and this was like a really good lesson that they took home and saying, "Hey, wow, that was really important.

Okay. Let's move on to looking at some ways to ensure compliance and risk mitigation. Denied Party Screening, as I mentioned, is one of the most effective ways to reduce compliance risk and who you're doing business with. But the best practice here is to screen early as soon as you know who the parties are rather than waiting until the shipment is ready to move. Again, as I mentioned earlier, you want to collaborate with your internal stakeholders.

Compliance is a team effort, sales, logistics, your transportation team and your compliance team should all be involved in identifying potential issues before the transaction happens. Usually, your sales team, they know who the customer is first, right? Your operations team handles all the details. And then your logistics teams coordinate that final movement. Each group in your company needs to understand what screening is required and what potential red flags look like.

Training must be part of your company compliance culture. The regulations place a responsibility on companies to avoid doing business with denied or restricted parties but they don't -- again, they don't tell you how to do that, okay? That is why ongoing training is so important. Employees at all levels must understand the company's procedures, policies as well as their role in the shipping process. Again, training reinforces screening, the importance of screening early. Again, sooner the parties identified and screened, the easier it is to address potential issues.

Again, you want to do this before the orders are accepted or booked or shipments possibly delayed. Again, investing in compliance upfront is far less costly than dealing with the violations later. So speaking of violations, let's explore some consequences of not screening. There are several costly consequences for failing to perform denied party screening. The most common enforcement action is a monetary penalty. While fines can be significant, they are often not the most damaging outcome. Honestly, penalties is the easy part, okay? A shipment can be detained and seized. And again, all of this results in delays, right, delays to your customers, delays in the sale, additional costs, disrupt your supply chain and ultimately, you can even lose the customer.

Now in more serious cases, the Department of Commerce can suspend or revoke exporting privileges, preventing a company from participating in certain export activities altogether. Individuals involved in rules violations may also face criminal penalties, including jail time. One consequence that often gets overlooked is the possibility be placed on a denial order by the Department of Commerce. If that happens, the impact goes far beyond a fine. A denied person or company is prohibited from participating in any export transaction as well as all other U.S. parties are prohibited to also doing transactions with them as well. So again, for many businesses, a denial order can basically put them out of business.

Okay. Now let's talk about why denied party screening is so important. As I mentioned, the goal here is not to just avoid a penalty. The goal is to protect your company's ability to conduct business and maintain its reputation in the global market. So as you look at those lists, long list, the financial penalties, again, they're significant. But the reputational consequences often have the greatest long-term impact. So the Bureau of Industry and Security publishes a well-known compliance publication called Don't Let This Happen to You! It's a little image of that on the screen as well. They highlight real export enforcement cases, including and there's also a whole section on denied party violations by the way.

Now the purpose of these case studies is not necessarily to embarrass anybody. Actually, they serve as a reminder that violations occur in ordinary transactions. If they can happen to a company similar to your industry, guess what? It can happen to you, again, the name. So let's share a real-world example that highlights why the regulations matter. So in one enforcement case, U.S. authorities, they share this in a seminar, and I love sharing the story from Miami, okay? So there was an exporter shipping aviation-related parts from Miami to Bulgaria. Great. That's great. No issues.

However, Bulgaria was not the true end destination. These parts were ultimately being shipped to Bulgaria to then be diverted to Syria, which is a sanctioned destination, okay? This is known as transshipment or diversion. And again, they conceal the end user as well as the end destination. As a result, the company faced significant enforcement action, including substantial financial penalties. But what stood out to me when they shared the story with the group was the individuals involved reportedly begged not to be placed on the Denied Person's List. They took that as a far severe or more severe consequence than being again fined even so my understanding, they also face jail time. Again, they'd rather pay a penalty, go to jail than being placed on the denied order list. I thought that was really, really, really wow. That was shocking to me. And again, if they had been placed on the denial order list, that's it. They would have been out of business.

So always remember, don't ever ignore red flags, don't make sure your cargo was not being diverted. In any case, you just definitely don't want to be placed in this publication. Now let's wrap up today with this -- again, Sarah and I would like to leave you with some -- a few resources that we regularly use that when researching export regulations as well as denied party screening requirements. One of the most important things to remember here is compliance is not about memorizing every regulation, but it's about finding reliable information and understanding how it can impact your business.

And again, as I mentioned, these references here on the slide are to help you stay informed, validate any information you need and understand your obligations under the Export Administration Regulations as well as other government agencies. And again, I encourage you to read Don't Let This Happen to You. There are some good stories in there. As I mentioned, these real-world examples provide valuable lessons on compliance issues, how failures occur and most importantly, how they can be prevented. And again, it doesn't matter where you are in your organization, if you're in sales, operations, logistics or compliance, maintaining a culture of awareness and continuous learning is one of the most effective ways to reduce risk and protect your organization.

So today, on behalf of Sarah and myself, thank you so much for taking the time to join us today. We appreciate you, and thank you for your commitment to compliance. We hope that we found everything very valuable in today's webinar. And so now let's open up our Q&A session for any questions we've received so far. Thank you.

Kahnee, let's stick with the denied party screening for a second. So a lot of the slides that you were covering seems pretty specific to the EAR. BIS the only party that maintains denied party list or list of parties of concern? Or do other agencies maintain these list as well?

So there's multiple government agencies out there. I generally refer to the U.S. as we're based in the U.S., but I know there's multiple. So you have other governments, like there's a Japanese proliferations concerns list. The U.K. has a list. I know the Department of Treasury has a list. So a lot of -- what a lot of customers use is a software provider that has subscription access to all of the various lists out there and you choose as an organization what information is pertaining to your business, like if you want financial stuff, there's that out there as well. But yes, there's multiple lists out there for multiple government agencies in the U.S. as well as around the world.

Awesome. Thanks for clarifying that. So a couple of questions came up in the chat with regards to value to report on an EEI. So kind of going back to EEI filing, Sarah, maybe you can answer this one. But generally speaking, there can be lots of parties involved in an export transaction, right? So what value -- which transaction ultimately should people be reporting the value of in their EEI filings?

Yes, great question. To keep it as straightforward as we can, I mean, it's just between the USPPI and the foreign buyer, right? You're following that monetary transaction between the USPPI and most likely your FPPI, but it's the amount with that transaction between those parties.

Great. Okay. And then another one that popped up a couple of times that I kind of wanted to speak to is there's a few questions that are around the concept of in a routed export transaction, right? You're a USPPI and you're working with a foreign buyer and that foreign buyer is the one who's selecting the agent that you're going to use to be able to get these goods out of the U.S. So in those cases, do you have any specific information you can provide around maybe how to maintain a relationship with that EEI filer, maybe who's responsible for keeping information, just some things like that in a routed export transaction.

Yes, it's a great question because routed transactions can get kind of tricky. I feel like you have extra hands in the cookie jar kind of, and there's a lot more players in the EEI specifically being filed itself. If you're a USPPI and you become aware that maybe something wasn't filed correctly on an EEI on a routed export transaction, that it was not the authorized agent that you picked, right? Your FPPI picked it. You can do your best to definitely try and have some sort of relationship and kind of use them as a resource to get those updated because the filer is going to need to be the one that typically makes that update.

So you're going to need to do your best to also have contact there. But selfishly, I also want to take a chance to mention that oftentimes, if the USPPI is wanting to guarantees their ability that things are filed correctly, accurately, timely, your standard transaction type is going to be the more appropriate type because it does become harder when you are then having to not only work with your FPPI, but also have to keep track of their authorized agent that they have in play and what they're doing. So it gets a little hairy, but both are viable.

Yes. And just to add on to that, too. I think it's because another question came in just as we were talking about it and someone had asked if the USPPI has responsibility for recordkeeping in around a transaction. And absolutely, you do. So I think a lot of in my experience, no one on this call would ever be in this camp. But in my experience, a lot of people who are the USPPI in a routed transaction, I think, are really hoping that, that kind of hits them off the hook, right, for lack of a better word, in their responsibilities as acting as USPPI, and that's not the case.

The USPPIs are still responsible for the data transmitted in the EEI. They're still responsible for if there's licensing determination, making sure they have that in place. There's a lot of things that you still need to keep track of. So I agree with Sarah. It's a really good idea to know -- at the very least, know who your FPPIs are working with as their agents in a routed transaction, so you can try to maintain a relationship with them as well.

Perfect. I think do we have any other questions in the queue, Sila?

There are a couple that I will try to tie up that are a little bit more specific, but I'll try to tie up before the end of the webinar. Nathalia, I'm going to go ahead and turn this over to you, so you can help bring us home here.

Thank you so much. And thank you to everyone who took time out of their day to join us on today's webinar. And thank you, a huge thank you to our wonderful speakers who are always so great on these webinars. If you do want to stay informed with any disruptions or up to date with new offerings, please do subscribe to our Horizon brief as well as if you want to stay connected with us, if you want to check out more webinars, we also have more information on our next webinar, which is actually quite similar to this one in a way, the Denied Party Screening, which is actually next week.

And also if you want to have more information on events that are part of your region as well, like in-person seminars, get a little bit more acquainted with your your actual offices, we have those available as well. But again, I just want to say a huge thank you. And just keep in mind that you are going to be receiving that survey. Once you see that survey, you will receive all of this information, the PowerPoint slides as well as the recording. So please do fill out that survey. We really appreciate it. And on that note, thank you, and I hope you have a great rest of your day. Thank you, everyone.

Goodbye.

Hello everyone. Good morning to most of you, maybe good afternoon to some of you if you're joining us from Europe. Appreciate you jumping on today. So you are joining for Expeditors' mission-critical AOGs across aviation and aerospace supply chain's webinar. So we appreciate you joining. My name is Samantha Hurst. If you've not joined one of our webinars before, I typically serve as host on these and really work in the background just to make sure that you have the best experience possible. So if you have any problems with today's webinar, feel free to e-mail me directly through the confirmation e-mail you would have received when you signed up for today's event.

Now I'm going to go over a little bit of housekeeping before we introduce our speakers, and then we'll get right into today's content. I will say just one thing I thought was kind of interesting, Jim, when we were going through the practice session for this that I know we're maybe boring you with all of this aerospace aviation talk.

And I said, not really, I grew up in Huntsville, Alabama with a grandfather that worked on many space missions. So I know that this is actually very interesting to me. And I imagine probably very interesting to all of you, including some who aren't directly in the aviation and aerospace industries, but we hope you find all of today's content really valuable.

So if you are hearing my voice twice and annoying echo, I apologize, make sure that you are not accidentally joined in two different places on your devices that can sometimes happen. We don't want you to have to hear an echo of me or the speakers. And then if you have questions, otherwise, we're going to encourage you to drop those into the Q&A box.

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All right. So now I have to go over just a quick disclaimer go over this at all of our webinars, all of the people that are speaking to you today are absolutely experts in logistics and aerospace, aviation industry, but we're not lawyers. We also can't give you legal or business adviser or financial advice about how to go about the things we're going to talk about today, but we can give you advice from the logistics side of things and what we know from their experience working in these types supply chain. So that's just our quick disclaimer to make sure everyone understands that this is all informational and educational purpose content.

Okay. So now I will introduce our experts. And we have with us Jim Cangiano. He's our Global Director of Aviation and Aerospace. Oscar Stiles is our Regional Manager of Aviation and Aerospace for the Americas and Chris Greenham is our Senior Director for Critical Logistics Services. I got a little tongue tied on those titles there.

But now I'm going to pass it over to Oscar, and he's going to get started with all of our content.

Thank you, Samantha. Good morning, good afternoon, everybody. So just a real quick high level, I wanted to just give you an idea of what the agenda was going to be like today. So what I'm going to be covering is kind of a growing demand and some of the backlog that we all hear about. And really, what this is doing is just giving you a good kind of global overarching theme of what we see in the marketplace at large. And from there, Jim is going to take over. He's going to talk about the changing industry and the needs. And then Chris Greenham is going to get into a little bit more about how do we respond with critical logistics.

I'll also mention very briefly before we start that I'm going to be showing you just some charts and some other tables. This is all from publicly available sources. We will have that information again, when Samantha shares the presentation with everyone if they're looking for it. But generally, this is all coming from either IATA, it's coming from Boeing, it's coming directly from Airbus. So there's nothing like proprietary Expeditors here. It's all just publicly available information.

But we think it's important because it still tells a good story that most of the time we don't necessarily see because on our day-to-day, we're so focused on what it is that we're doing with our own little cog in the wheel of aerospace. And so the first thing we want to start off with is there is strong demand, and there's projected to be strong demand for the next 20 years. These are estimates of what GDP growth is going to be like over the next 20 years. And really, if you're kind of wondering why GDP growth is a big thing, as GDP increases, especially in countries like India and China, we've heard before about the growing middle class.

What that means is that more people will be traveling for leisure purposes, I guess. And so this is looking at how GDP is growing compared to the number of yearly trips per capita that are going to be happening. And so while the U.S. and the EU were remaining mostly static over the next 20 years just because there's already so much travel that is coming from those two geographies.

You can see how much India and how much China, Brazil, some of these other countries, how much they're growing, right? And if more people are flying, there's just going to be more demand on airplanes. So what does that demand look like? This is from Airbus. This is what they showed the global fleet to be like in 2025. And again, this is -- again, because it's Airbus, this is looking at it through the lens of commercial aviation. So 18,700 aircraft in the fleet in 2025.

And Airbus is predicting that, that fleet is going to grow by almost 20,000 aircraft, right? So 37,000 in the next 20 years. But it's important to note, and most of you may already know this or suspect this, right? It's not just growing by that 18,000 aircraft because in the next 20 years, it's expected that over 15,000 aircraft in the current fleet are also being replaced. And so what that really looks like as this chart shows is that there's almost 34,000 new aircraft deliveries happening.

And in the next 20 years, it's only expected -- at least according to Airbus, it's only expected that 3,000 planes that are currently in service today will still be flying in the next 20 years. Let's look at it a slightly different way about the complexity of what the supply chain is looking like. This was kind of a shock to me almost. It is very interesting at least. This is strictly looking at A321 cabin configuration. So narrow-body aircraft, regional aircraft or regional planes. This is not your larger wide-body aircraft flying the larger international longer routes.

I mean it's historically been a 1 to 2 cabin configuration. But you can see 10 years ago, you started to see a third cabin class with certain airlines. And as of this year, there are now 4 cabin classes on several of these airlines flying narrow-body aircraft. And that just -- it seems almost like it's interesting to say the least, right? But you can see it as we have more cabin classes coming on, on even narrow-body aircraft, it's just increasing the complexity of these manufacturing lines. It's not just low-cost carrier configurations of 240 seats on one of these single-aisle aircraft. Now you're looking at 4 different cabin classes for these things.

So that's it's more seat components, more lavatory components, the overhead bins could be different in size, just depending on where within the cabin, the galleys that they're fitting for all of these multiple classes on narrowbody, again, it's just quite interesting. And that complexity is only going to continue to grow within the next 20 years as the industry also continues to grow.

This is very similar to what I just said, but it's from Boeing's perspective just because we want to be sure want to just talk about either Airbus or Boeing. This is Boeing's outlook on things. And you can see it's very similar. Their estimates of what the 2025 fleet look pretty close to how Airbus is showing it. Boeing is predicting much stronger growth over the next 20 years from just under 40,000 to now 50,000 aircraft in the fleet within the next 20 years.

The average annual revenue growth is also exceeding what Airbus is even predicting. An interesting thing to note on Boeing's slide is they even have the services outlook. So this would be spares programs. This could be MRO work that they're predicting. They're estimating the thousands of additional new personnel and the billions of dollars that will be spent on the services side of things that happen after new aircraft are delivered to their airlines. And I mean, the rest of this, I mean, you can kind of see single aisle still completely dominates what the airline -- the aircraft manufacturer deliveries are. Single aisle is the largest growing kind of size of aircraft that's out there.

Now some of you probably may not necessarily be interested in commercial aviation. And so I want to show this as well. This is global military aircraft deliveries. And with certain events that are happening globally right now, we know that there's a lot of focus on drones, a lot of focus on unmanned aircraft. But as you can see, the darkest line, the darkest area that's on the bottom of the graph still represents piloted fighter aircraft. The next one about that is rotary wing, piloted rotary wing aircraft.

And as military spending continues to go up, there is still strong demand coming for piloted systems. So fighter aircraft, bomber aircraft, helicopters, those are all continuing to grow as well as military spending globally continues to increase. And also for our general aviation people that are here, you can see that there's still, for the next 20 years, strong demand for fixed wing piston. You can see there's growth for fixed wing turbine, how much that is starting to grow.

Rotorcraft is starting to grow. Experimental and other, what might be these new flying cars from companies that offer these single-seat electric vertical takeoff landing aircraft to the larger air taxi companies that we hear about in the news, that is all increasing as well as part of general aviation. And so here, we have these three distinct sectors of what I'd like to call aerospace and they're all growing. And the projections for the next 20 years is nothing but growth. And there's different things that are driving this growth, right? Passenger growth, fleet expansion on the commercial side, military spending goes up, modernization programs on the defense side. General aviation, corporate travel continues to increase, right? There's larger demand for business jets. Turbine fixed-wing is one of the larger growing segments of general aviation.

And so I mean, it all kind of sounds great. This is the golden days of aerospace, right? It's like we're all just growing over here. But it's interesting to note that the challenges that we're finding, the challenges that we all run into day-to-day has nothing to do with demand. It has to do with capacity because if you're a manufacturer of landing gear or aerostructures or avionics or turbines and distant driven motors, your companies are constantly in this balancing act of are we going to be providing to military? Are we going to be providing to general aviation and commercial aviation.

And then beyond that, are we producing spares for the aftermarket, which is growing? Or are we producing for new production lines that are out there, right? Because the reality is there's just not enough capacity. There's not enough manufacturing lines across all of our companies to be able to satisfy these demand needs that are out there in the market.

And so let's start kind of going back a little bit in time and seeing everyone hears about this aircraft backlog and how it's created a supply chain problem. And these two charts from IATA kind of show it in a very -- in a stark way starting back, we obviously see the big dip that was the pandemic, right? New aircraft deliveries dropped quite substantially because the whole world, for the most part, shut down. I think we all remember that. It was very interesting times. It's also very interesting that even the new aircraft deliveries slowed down significantly, sales didn't, right? Salespeople were still being salespeople. They're still out there pounding the pavement and selling new aircraft.

And that's when it really started to exacerbate this backlog situation. I'd like to point out though, and it's not to pick on anyone, but it's interesting to note the backlog actually started the year prior in 2019. There were some specific events that occurred that year that caused Boeing to have to start stocking or slowing down their new aircraft deliveries in 2019. And while they may have been able to recover from that quickly, the fact that the pandemic happened immediately after, I mean, you can see how the deliveries just dropped off.

And ever since then, the industry has just been trying to play catch-up. And the truth is that they have not been able to. The other chart is now talking about the age of aircraft. What is the average age of the fleet that's out there? And you can see just before the pandemic, I mean, things were looking great, and it matches up with the aircraft delivery rate on the left-hand side chart. New aircraft are being delivered at a rate that we hadn't seen before and the average age of the global fleet was going down, down, down.

And then again, 2019 happened, then the pandemic happened, and suddenly, you see this massive spike where as of 2024, and it's only gotten worse in many aspects, the average age of the aircraft in the fleet is older than it's ever been in our history, right? Aircraft that were predicted to have 10, maybe 12-year life cycles are stretching out into 15 years. And there's a lot of implications that go along with that.

Newer aircraft that are coming out in the last 10 years with newer engines are promising fuel efficiency gains. And because those aircraft can't be delivered, airlines that have budgeted for these fuel efficiency gains now are suddenly in a position where they're having to continue to spend on fuel with their less efficient engines, the less efficient airframes. And it's just keeping the costs up, right? And I'll make this comment with some of the customers that I visit with it's like we thought that at this point in life, we would all have flying cars. We would all have Nikes that lace themselves.

And airfare would be super cheap. And the reality is because a lot of what these market conditions are causing, airfare hasn't really gotten any cheaper for us. In some respects, sure. But low-cost carriers are not quite as viable as they used to be and everyone now is starting to act like a normal commercial air carrier. And so just to kind of show you what this looks like, this is through the end of May of 2026. This is showing again the deliveries, the orders and the total backlog that has accumulated so far for both Airbus and Boeing.

And the deliveries continue to go, and it's great that different organizations, EASA, FAA are continuing to increase the number of deliveries that these manufacturers are able to make. Their sales, their orders are still completely outstripping what the delivery rate is. And as you can see right there, the estimated backlog towards the end of May for Airbus is just over 9,000 aircraft. And for Boeing, it was just under 7,000. So it's quite substantial.

And the truth is that backlog continues to grow because, I mean, not a week goes by where we don't see that some airline in some country has just placed a new order for another 100 aircraft. I'll point out that there's other regional aircraft manufacturers not listed here that are very much in the same boat. So it's just -- it is a very large problem that's happening. And as this backlog continues, as the fleet gets older, it's causing these aircraft, these airframes to have more flight hours on them than were originally anticipated and budgeted for when the aircraft were delivered 10 years ago, 12 years ago, and they were budgeted for 15 years ago.

And what this causes is now you have more engine shop visits. If any of you are in the MRO sector, if any of you are on the engine side of things, I mean, you know what this is like. You know the challenges of trying to make sure that these engines now are hitting their induction dates and finding space at an MRO to be able to get an engine is quite challenging. And if you're in the actual MRO, you're going to be seeing engines from all over the world where before it might have been a little more regional for you.

So engine shop visits are really just driving up this higher MRO demand, and it's causing a lot of parts shortages and parts delays. And again, the comment that I made earlier, a lot of tier suppliers out there, you're having to make the decision, am I going to satisfy -- I'm going to use my production capabilities to satisfy the parts shortages that exist in the aftermarket? Or are we going to be satisfied by contracts with the OEMs to produce for new aircraft deliveries. And because we don't have the capacity out there, it's just increasing the backlog, which increases the age of the fleet, which increases the flight hour. And we're just kind of in this cycle, right? That seems that there's not really any way to get out of it or to fix it.

And so what we found and it's a very interesting thing is that the engine MRO is the pressure point here, right? The global MRO spend, it's estimated to $96 billion to $100 billion just in spend. It's looking like it's going to be continuing to grow at a rate of about 5% every year for the next 10 years. And the interesting thing is while the MRO spend, almost half of it is dedicated to engines. It's the most cost of MRO for any airline. And the entirety of everything else, components, airframes, line maintenance items, all of that makes up the other 50%. And it's such that as you can see, this is only looking at CFM LEAP, right? So there's a lot of different engines out there on the market.

But just looking at CFM LEAP, you can see how this was noticed kind of early on in the pandemic that third-party MROs realized that this is going to be a problem and they started investing in facilities. And you can see now that third-party MROs are doing more of the CFM LEAP work than CFM themselves are doing. And it's just a very interesting dynamic. It's not something that historically, at least we've seen within aerospace. Historically, any of the MRO work was kind of guarded and done by the OEMs, by the original manufacturers themselves. And now because there's just so much work, there's so much demand, third parties are much more involved in that.

And kind of looking at it in a different way. And again, this is just narrow-body engine shop visits. So these are the probably 7 most common engine types that you'll find on narrow-body aircraft. And you can see, again, it's the same thing as the average age of the fleet. The largest number of engines in the fleet going back 10 years was a lot of the older models, right, the CFM56s, the V2500s, Pratt & Whitney 1100G and that's been going. And about 2020, 2021, a lot of those were supposed to be retired and the new LEAPs were supposed to really come in and start to take over for that.

Pratt & Whitney GTF engine was supposed to really come in and take over for that. And you're seeing that because the fleet got older, that didn't really happen. I mean the number of CFM56s that are still out there in service is still quite high. And I know a lot of the activity that we see for moving engines is tied to CFM56. So it's just an interesting dynamic now where before it used to be like we need people to fly more so that our industry can continue to grow. And now there's so many people end up waiting to fly and the growth is only going to be managed by how quickly the industry can turn around engine MRO work.

So very different, like a paradigm shift within aerospace, right? It's a large change. And as aerospace changes, everyone else that's tied to aerospace in one way or another is also having to change. And so here's what I'll leave you, and I'm going to turn it over to Jim, and he's going to talk a little bit about what changes has to occur.

Thanks, Oscar. Appreciate it. Wow, that was a lot of data to be shared in 25 or so minutes, a lot coming at us, but very, very telling and important information. Kind of looking back and as we prognosticate and look forward, it's not -- as Oscar said, we take the information that's available to us in the public domain. The second part of the webinar here, we want to talk a little bit about what we did as a company and seeing the -- kind of reading the tea leaves that are out there in collecting all of this data, what does it mean? And really, it's the headline in this slide, which is we said, "Hey, we need to change as well.

But what does that mean? Is it a step change? Is it a massive change? What does that mean for us? And so I'll talk a little bit about that. The quote that you see there on top, everything that Oscar just talked about that we see near term or medium term. This is a quote from IATA just within the last couple of months, despite signs of improvement in the supply chain, this is not going to normalize until 2031 to 2034. My goodness, this is going to be going on for a long, long time.

So these three questions, as we looked at this, and we -- again, we saw this coming from a couple of years ago, how can we adapt to help our partners? Would the company choose to invest in aviation aerospace solutions. Those of you that know Expeditors know that we work in many different industries. We have our vertical industry structure that we have our focused industries, but my goodness, we work and we're very appreciative and honored to work with so many customers in so many different industries. It gives us such a broad base of knowledge to choose from.

And then if we did invest, what would we propose? What does that look like? And that's our team in in the aviation vertical that would go through that. So Oscar, if you go to the next one. So what we didn't want to do is we didn't want to change our groups. And Expeditors for 45-plus years now, we've got an operating model. We've got a model that we use that's our core. And as we went and looked and said, okay, our global network, we have 300-plus offices, deep local experience. Each one of those offices is an individual office with their own financials and their own people and really a local knowledge that was key to Expeditors, keeping that local knowledge.

Our service providers, I mean, as a non-asset-based provider, our service providers are our lifeblood and relationships and having good, strong relationships with our service providers, we knew we didn't want to change that. Expeditors and aviation fit well because of our compliance. That was something that we really wanted to -- that was not going to change. Again, that's our core, almost like safety is the core of aviation and probably the core of many or all of your companies, compliance is for us as well.

And then T&I. So when we say T&I, that's transition and implementation, basically the handoff from the sales process to account management. It's almost kind of preparing for the wedding and then the marriage. So T&I is our transition and implementation. We had strong discipline there. So again, as we looked at what Oscar just described and what was coming, we said that's our core, and that's really what we want to keep. So what happened?

A couple of years ago, Oscar, if you go to the next slide, A couple of years ago, we went to our senior leadership, the aviation vertical team in concert with some others. And we tried to answer these questions and speak with them about what was coming, about framing up kind of where we were and what we saw coming and did we want to do this? And our executive leadership team said, absolutely.

There was a few changes that we needed to make, recognizing what was coming, speed. And every other synonym for the word speed that we could use, rapid. We knew that speed in quoting, routing and delivery was going to be key. Not that we don't do that now. Of course, we do, but there's always the balance as a logistics company and working with our partners of cost and speed. We know that.

So recognizing that speed in this world, if we were going to look at really enhancing our AOG solution and critical logistics solutions that embracing that speed and what that meant. So when a part is finished, it had to go, whether that's for someone who manufactures new components, whether that's a spare part in this world, we needed to do that. And again, we did this quite a bit all day, every day, but we took a hard look at our processes.

And then the second one is really, again, where our executive leadership came in, we didn't have to invest here, but the company chose to do that. So we said, "Hey, yes, with the things that we do, we want to -- things that we do well. We think that fits the industry well. So let's invest. So we brought in some folks -- we really focused on training our people throughout the network, even more, say, deeper dive training. So the company absolutely did invest.

And then if so, what would we propose? So that was up to us to go to our leadership and say, "Hey, this is what we proposed. And again, just like I'm sure your organizations, we had some very clear tenets. Those four kind of pillars that I showed were core to what we do. So what we did was enhanced our model. We didn't change our model. Expeditors, again, has been in business for 45-plus years, but we did carve out a small section and what we would classify as a more centralized operation, but this complements our model.

It doesn't replace it in any way, shape or form. So Chris is now going to walk you through a little bit of what that means in a little more detail than I described. But hopefully, that was a good bridge from what Oscar talked about with what was coming to kind of our thought process around it. And we hope that it helps you as you frame up your thought process around what needs to change.

So Chris, I'll hand it to you to talk a little bit more about what we did.

Thanks, Jim. Thanks, Oscar. So again, kind of shifting gears now, kind of what is important for a CLS program overall. So again, this is not just Expeditors, but any CLS program that you're actually looking for. And again, just as Jim said, we recognize the need in the industry, and there's always been a recognition that AOG requires definitely special services. But really, the need has never been greater based on that changing environment. So -- and the recognition is, again, express services fall short. The fixed cutoffs, these hub consols, CF delays, this is no longer acceptable. I mean AOG really is a separate program within itself.

And then the second point here is that urgency is not -- again, urgency, it needs to be part of a larger program. And traditionally, it has not been. So you can't handle urgencies ad hoc. You definitely need that centralized booking, that centralized management for these very specialized high-touch type shipments. And then as Jim had mentioned, again, customers ask for more. So they need to be able to reach -- you need to be able to reach your service provider, your forwarder at any hour.

You need proactive you need accountable owners throughout the shipment life cycle and so on. And so that was definitely recognized. And next slide, Oscar. And so in addition to the -- so Jim had talked about, again, some of the foundational elements that are important for CLS programs. In addition to those, really CLS programs have evolved to be better suited for the changing environment that Oscar had outlined.

And these are kind of the three additional elements that are really critical when you're looking for a CLS type program or an AOG type program. So the first one really is CLS regional hubs. And so we recognize that it's important to rely upon the network, the network district local offices, but there has to be those regional hubs. And ideally, those regional hubs are centered around kind of the aviation center of gravity. So there's a lot of shipments that actually happen within the hub itself as well as extended throughout that particular region.

And that hub drives accountability, oversight, proactive management. So very important that when you're looking for a CLS type of provider that they do have some regionalization going on in addition to those local districts.

The second kind of critical element here is in-office 24/7. And it's recognized that just having somebody on call with a cell phone next to their bedside, that's not enough. We need staff desks, not on call rotations as well as an extended network of 24/7 providers and escalation paths, not only between the hubs, but also between your service provider -- I mean, your AOG provider and their service providers as well.

So again, very important to understand what those escalation paths are and that both origin region, destination regions are basically pushing and pulling that shipment all the way through. And then the final component here, and Jim had touched upon this through the training piece is really having specialized teams. So having aviation or critical logistics specialists doing that work every day, trained and each customer has a specific onboarding process as it relates to critical logistics. As well as the customer SOPs. And the customer SOPs are very important because it just recognize each customer has different requirements and making sure that they are onboarded into a CLS program is very important to keep that high level of premium services.

So again, these are kind of the three high-level components that you should be looking for in a CLS program in an AOG program when you're looking for providers. Next slide. Here's Expeditors' hub. Again, this is what we have done. So we would expect that any provider, any AOG or CLS provider that you're doing have something similar setup. So 6 regional hubs. Each hub is responsible for their whole region, not just for the freight in their backyard and then supported by the larger office network.

And it's these two things working hand-in-hand, regional oversight, regional accountability, but still having boots on the ground in the local office, which really is meant to meet basically a formula for the best success. And so again, we recognize that other AOG, other CLS providers may have different nuances of this, but I think that this is really a critical component that you should be looking for when setting up -- when deciding your service provider program for AOG CLS.

Okay. Next slide. So in addition to the three major components, here are some finer nuances of what every CLS shipment needs. And so again, strict KPIs -- so this is important that it's not only the acknowledgment and the booking, it's also the quote turnaround, and it's really that proactive live updating of every subsequent milestone all the way through to delivery.

And so again, that touches up on the second point, that proactive management of it, where shipments -- each regional hub, again, is that push-pull model. So origin regional hub pushing that out, destination hub pulling that in. Each shipment is very proactively managed. Each KPI is very proactively managed. So as those KPIs are approaching, it's very important to have that oversight office, ensuring that, that event will be happening timely to avoid any unnecessary delays.

The third point here is rapid quotes. So we recognize that not all AOGs are actually quoted as part of an RFP that many providers require spot quotes. And so again, being able to turn around a quote very quickly within about 45 minutes or so is really critical as part of the booking process as part of that shipment actually moving through the network. So please be looking for that as a component when you're looking for providers.

The fourth component here flagged as critical. So again, I think this is pretty obvious, but we have to make sure that everybody in the hubs, everybody in the network understands when a shipment is flagged as AOG or critical when we call it CLS or Critical Logistics Services. It's very important that the network understands the premium nature of that particular service. And so it's never mixed in with just general freight. It's never treated similar to what a general freight shipment had treated.

Fifth point here, 24/7 escalation. So again, very important that the hubs are running 24/7 as well as we have escalation processes with our service providers, with our local districts as well as with government agencies and whatnot. So it's very important that the hubs understand the working hours of government agencies as well as if there are special provisions for after-hour services. And so again, it's that high level of expertise throughout the network, I think, is a very important component to actually see that.

And then finally, customer SOP. So I mentioned this a little bit earlier, but every customer is set up and it should be introduced specifically to the CLS program. So when you are talking to providers around critical logistics services, just make sure that they have a good onboarding process, a good SOP type process.

All right. Next slide. So again, I labeled this one beyond standard freight because, again, there's other aspects of CLS, right? So it's not only just -- we have the next slide out. So I think that's pretty obvious on premium service levels with carriers. So it's very important that we're adhering to that. But there's also just beyond freight itself. So we have hand carry options. And so that's very important. That's recognized that we are able to do hand carries and have broad coverage for hand carries as well as understanding the special requirements for hand carry. Sometimes boxes cannot be opened.

So again, having those prearrangements for how that hand carry is going to be processed is very important. And then we also have charter aircraft in addition to hand carry. And so that could be a dedicated aircraft and having a provider that can actually have a good relationship with service providers to be able to go and get those charters in place very quickly is a pretty important component.

Already mentioned about 24/7 ground providers. Again, as a non-asset-based carrier, it's very important that these providers are organized upfront. And then as we onboard customers, if there's oversized needs and whatnot, that we are accounting for those special customer requirements when it comes to the pickup and the delivery portions of this because that often is a very, very critical part of an AOG type shipment.

Service recovery. So again, each of the hubs or each one of the people involved in this need to be able to understand that when we're proactively managing these shipments, if it does look like that something is going to be a miss that they are immediately on it and escalating accordingly and then have a full recovery plan to be able to get that freight back on track.

And then the final component of a good AOG CLS program is visibility and exception, so live shipment status and definitely be looking for providers that have the opportunity to put GPS sensor monitoring on the freight. And those GPS sensor monitoring are very important to be able to create geofences to be able to create exception delays. If you have special cargo, for example, that can -- where the cartons cannot be open, those sensors can actually go inside those cartons and you could have light and dust monitoring as well as all of the other parameters that would be expected to go along with a particular sensor.

So just realize that, that complementing these CLS AOG shipments with GPS tracking can be very effective to help reduce service delays as well as increase the ability to monitor on those particular shipments.

The next one. We couldn't not talk about compliance. So compliance obviously, is a very important factor. And a lot of this goes back into some of those foundational components that Jim had mentioned. We do a lot of this with all of our freight. But when it comes to AOG and CLS type services, it's even more important because a solid compliance program will minimize any type of delays that could actually occur from the compliance side of things.

And so again, this goes back to the question of, I think this is the third time I've mentioned it. So that's obviously very important. And then the standard controls of chain of custody, it's very important that you are vetting your providers to make sure that they have the proper controls in place.

DG and IATA, not only for your providers, ability to be certified, but also the service providers may have higher level of things like DG certification when it comes to being able to do pickups and effecting those transports directly to the carriers without it going through your service provider warehouse.

Vendor governance. So again, all the service provider program governance. So please make sure that you're checking with your providers to make sure that they have a highly qualified program because those service providers are an extension of their service. Then security and trade as well as training and certification are all very important parts, all very important parts of a certified program.

Okay. Oscar, do you want to go to the next one? Okay. Two more slides on my side here. So this is the process. Again, very, very, very high level. There's much finer nuances to this. But it's important that when you are looking for CLS providers that you understand what does the booking look like? Can you make a booking with any one of their hubs? Is it a centralized booking? Can it be done via e-mail? Can it be done via phone? Can it be done via EDI and so on?

And then the confirmation piece of this. And between the booking and the confirmation, those KPIs listed below are very important. And again, this is what Expeditors does: 15 minutes to acknowledge request, 45 minutes to quote route and confirm the booking. But again, I would expect other providers to provide very similar KPIs, and it's important to hold them to those expectations.

And then the collection piece of it, again, 24/7, we've mentioned that a few times for pickup and tenders and specialized cargo, oversize, weekends, holidays. Again, these are all very important. And then the freight flies. So again, very important to have proactive management as well as your provider should be updating you in the way that you want to be updated, whether that's a pre-alert or an e-mail, whether that's a phone call. Again, it's very important that the provider adheres to how you want to be communicated. And then the final delivery of it.

And then every step of these other -- of these subsequent milestones needs to be very proactively and live -- basically touched upon live. And then just acknowledging here that frankly speaking, AOG CLS type service processes, they're not as efficient as normal -- these are high touch, and they're not as efficient as normal freight, and that is as designed. So these are very purposeful, high touch. We absolutely trade efficiency for expediency, for urgency to be able to make sure that we are absolutely minimizing service failures whenever possible. And you should be looking for that in any provider.

And the next slide, Oscar. And then finally, what we do for aviation for all those non-aviation customers that have joined us, again, it's absolutely extendable to other industries. And so again, you have high tech here, health care, high fashion, automotive. And these foundational elements that we kind of mentioned as well as the evolution of the CLS program are extendable to these other industries.

Now some of these other industries may have different nuances for how they're handled. They may have different center of gravities and whatnot, but the basic components of the CLS service is extendable beyond just aviation into lots of other industries, and there's just four here that we indicated, okay?

And Oscar, do you want to wrap up? Next slide?

Thanks Chris. So just some of the key takeaways, right, for the future of AOG. What are successful companies doing?

As we've mentioned, right, the backlog is not going away soon. And I had a customer once kind of articulate it this way that they keep every year, every few months, they keep preparing and hearing in the news about what the next big disruption is that they have to plan for. And what he said was when he was able to see the information and the data from this point of view, like the next big disruption that happened back in 2019. And everything that we've been fighting there's just been like a symptomatic problem with that.

So instead of focusing on whatever the current news is, like how do we contribute to the larger disruption? And how do we contribute to make sure that we're prepared for that and helping to fix that from our side.

AOG is a fact of life, right? And as Chris pointed out, it's no longer good enough for companies to transactionally or in an ad hoc manner react to AOGs. And similarly, for service providers, freight forwarders and the like, it's no longer good enough for us to have like ad hoc ways of executing on AOGs. So what are you doing? How are you making sure that you have a process for that in place as a company instead of just constantly reacting to those scenarios when they come up because as mentioned, this is always -- this is going to be here. Like AOG is -- we would love for AOG to not exist so that I'm not stuck at a gate waiting for the tyre to change on an aircraft the next time I need to fly, but it's just a reality of life now.

And so the main thing is for years, aerospace really focused on kind of following the automotive model, the whole Kaizen, the lean model, right, just in time. And it was about like how can we have the most -- the quickest, the most agile, the most reactive supply chain. And the way that these disruptions have affected aerospace, it's becoming clear that the most successful supply chains, the most successful companies operating good supply chains have resilient supply chains, not just reactive supply chains.

So it's not how can you react to the market disruptions, it's how can you set up your supply chain to survive every disruption that comes up and not be negatively impacted to such a large extent as may be occurring right now. So hopefully, you found this information helpful. Hopefully, you found it informative. I believe we have some questions. Samantha, are you going to read through some of those?

Yes, absolutely. So I wanted to mention one of the questions we got in the registration process, and you guys hinted at this a little bit. But one of the questions was, can you talk about the preparedness like common preparedness gap that you all see organizations commonly overlook. And I think, like Chris hinted at knowing who your provider is or the compliance pieces that we talked about. So can you guys reiterate some of those, like what are some of those common gaps that you see?

Yes. Sorry, I'm getting out. I would say that, again, the biggest one really it's just to -- the onboarding piece, I think, is very important for us to be able to understand your business, the providers' business and the nuances of that business. Because even though we -- even though there's broad coverage, 300 offices, 6 CLS hubs and whatnot, there's always going to be special nuances with oversized freight, emergencies, freight going into different -- difficult compliance-related destinations.

And by having a good onboarding process, it allows us to be able to understand the government agencies that are going to be involved, any service providers that special -- that need to be specially alerted and whatnot and then being able to kind of walk that process all the way through. So I think that within itself is a very critical component for success of an AOG program.

So then kind of piggybacking off of that a little bit, Oscar, I'm going to pitch this one over to you. We had someone in the Q&A box asked about the complications of compliance, especially when the airline is not domiciled in that particular country where we have an AOG situation. So can you talk a little bit about how we work with customers who have those complicated pieces of the supply chain for AOG and what we can do with it?

Sure. So I'll start off by saying that I don't believe Jim, Chris or I are the customs and compliance experts, especially in the global compliance space. But I will say, John, that -- from that perspective, we do have companies that we've worked with in the past that will act as importer of record or exporter of record for customers in the case where there is no legal representation in a country where an aircraft might be in.

There are -- every country's rules about that are also different. So depending on how the part is getting there, if it's being flown in on another aircraft of that same company, it could be moved to [indiscernible]. There are fly away kits. There are other schemes that allow for repairs to be done where a customs entry like, I suppose, could be filed to just say that this is a part coming in that's not going into commerce. It's just going to be used to repair this aircraft and then immediately leave. But certainly, it's something that we can follow up with you on and have more detailed discussions preferably with one of our compliance experts on the line as well.

And that is certainly one of the things you all talk about too is having a provider that does have those capabilities globally, right, that has the compliance experts in each of those countries that work, which is certainly important?

Sorry, I was going to say, that is a great question. And I think very timely, again, as we all -- I think all three of us alluded to the speed and the necessity of this. So if it's okay, we'll put you in touch with our customs experts who have been doing this as well. So that's probably the best way to go.

Right. We're pivoting a little bit, but still on the subject of speed. So that's definitely a common thing here is let's talk a little bit about air quoting. And from our perspective, this is very Expeditors specific, but how are we working to speed up that quoting process and being able to get back a cost to customers who need to move fast?

Yes. This is very exciting. So again, just picking it from Expeditors' side. So very similar to the changes that we've seen in the CLS and AOG. We've had also quite an evolution when it comes to quoting and pricing. So we have formed 5 -- not 6, but 5 regional pricing teams who are managing all quotes basically quotes for RFQs and spot quoting.

And that team is opening up their spot quoting tools for our AOG CLS hubs. And so now they're able to actually turn those -- basically turn those quotes around. We're not quite 100% there yet. We'll be there, we still need probably about another month or so.

But once those internal spot quoting tools are opened up to our CLS teams, they will have the ability to turn those spot quotes around very, very quickly, especially for destination door charges. So origin, the door to airport side is not a problem because the CLS hubs is responsible for that region. But the destination door charges, especially for AOG type services are -- has probably been the most difficult for us to be able to quote quickly.

That makes sense. Good to hear some updates coming in that realm too. Okay. Finally, I think that's all the questions we have in the Q&A box. But in general, we've talked a lot about trends that are shaping aviation logistics and how companies like the ones that are joining us can evaluate just how ready their AOG program is.

Can you all talk a little bit about what they can do and Oscar, you hit on this a little bit in one of our last slides, what they should do leaving this webinar to make sure that their program is -- a lot of them that have programs that they are as ready to take on the next challenge as possible.

Yes. So I just -- again, we provide -- we're going to be providing the slides to them, and I would ask them to take these components of a CLS program. And basically incorporate that into the discussions with their providers.

As well as, again, if they want to understand finer nuances of the program, please feel free to reach out to any three of us, and we can actually kind of give them some customized feedback based upon the lanes or any specific concerns that they may actually have about their particular business. So we're very excited to engage with them on that.

Yes, it's not slowing down. It's only going to speed speed. Like you said, Samantha, that's been the theme of the webinar here. But hopefully, this was an insight into, "Oh my gosh, we knew this was coming. We knew we were going to", but please like action now and if we can -- the information that we provided helped whether it's resources, human resources, just modifying your model, maybe not changing your model but a little bit of what we talked about, complementing carving out or complementing the model a little bit. So hopefully, we gave the participants something good to think about.

Thank you guys, absolutely did. Thank you so much for all the content you provided. Thank you to everyone who joined us today. I know you're getting on to the next thing on your list. For some, that may be lunch. But keep your eyes open for an e-mail from myself, again, within an hour or 2, and that will include the link to our survey.

We'd love to get your feedback about the content today and what else you'd like to see from us. And then also, you'll have an opportunity to let us know if you would like to schedule a follow-up meeting with any of these three gentlemen or other experts within Expeditors to help support your program. And again, thank you all for joining us. We look forward to seeing you next webinar. Have a great day.

Thank you.

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 for 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 hearing 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 invites 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 than 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's 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 surtaxes 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 bills 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 where 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 end 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 remissions.

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 the 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 applied.

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 apply to goods determined to be a U.S. origin.

Companies will need strong documentation supporting country of origin, manufacturing location, marking 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 key factors is your 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. There could be NPE opportunities, bonded warehouse strategies, duty deferral considerations and potential CBSA remissions and exemptions. Can I have the next slide, please? All right. Government support and 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, waives, 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 is $2 billion going to the 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 and 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 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. It 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 ship 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, CSIS, the Canadian Armed Forces, those types of kind of health care, public safety and national security relief. 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 Canada 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 I might contain a 50 certain classifications, Schedule II 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 remission process. We'll talk about that briefly in a second. But again, importers are claiming relief through those designated OIC remission codes, and those are expected to continue moving forward as well.

And then specific remission requests. So this is really where you have a specific issue with products that you're importing that are being -- that are getting hit surtax. 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 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 remission. 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 manned this a little bit more than they had in the spring.

Then 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 are 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 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 CUSMA eligibility does not provide an exemption for -- from the new surtaxes, assess your import timing, review, 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 reinforced 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, how's that? So 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 force 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 getting the cost [indiscernible]

Possibly. The way it stands right now.

Transit 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 to 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 Annex 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 way -- 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 Annex 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 heard back. I've heard their backed 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 CSMS 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, has this been discussed in Canadian discourse?

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 where 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 Tradewin division or a consultant to help you with that process and push that through. So again, CBSA 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 of 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 truck shipments or documentation signed to state when it left and made its journey to Canada.

So the in-transit is based on date of direct shipments typically.

Correct.

Okay. Steve, just to kind of keep it going back and forth, and Liz, 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?

The answer would be yes. And again, as I reiterated earlier, you need proof of purchase order, et cetera, that you have the -- you have that sale or purchase order from Department of Defense.

It's causing the, sorry Cara, it's causing the import -- so not just the sale happening once it's in Canada already but the cause of the import itself. Cara, please go ahead.

Yes. No. And I was just going to reiterate, really looking at that prior to those shipments crossing into Canada is imperative, right, so that we can get ahead of that. As Steve said, often, if we have to do a correction or a second version, that's when we'll be requested for documentation. So we really want to get that remission attached to the part and send it prior to release.

Okay. So our Canadian entity will be the importer of record for shipments for a data center. The goods are not for resale. Do we still owe the extra tariff, I would say, surtax. Anybody want to take that?

Yes. If it's applicable to the surtax, the answer would be yes. Yes. U.S. origin and 1 of the 700 items, I think, was on the list, if I'm not mistaken, it would be applicable.

Looking for the questions, so I could read over it again.

Please read over again. I don't have access, Cara.

It's okay. I'll come back to it, too, Dave. I'm sure Steve got it.

Okay. So do remissions for items used in manufacturing, including items that might not have been physically altered, but we're reshipped as part of an assembled unit. This is very detailed. Moving under a new HS code. So would that apply for remission? So used in manufacturing, they weren't physically altered, but they are being shipped back out as part of a unit that's unassembled.

That one is pretty complex, Dave, and I would be more than happy to get the full details of that, including classification et cetera, the complete classification, right, prior to the ship, et cetera. And I will answer that via an e-mail if that person that sent that question wanted to send it to me direct.

Just rolling through, okay. So these is -- these countermeasures will be effective as of 12:01 a.m. Canada's countermeasures do not apply to U.S. goods that are in -- okay. Sorry. Thank you. Are there relief codes on the U.S. side as well, something being shipped from Canada to the U.S. with country of origin Canada.

I think this is the Canadian -- we could make an answer. But if you want to reach out with that question after the webinar, we'll make sure to get a proper expert on that for you. You can also include a little bit more detail as to specific products, and we'll make sure that we connect you with the right person.

Dave, I saw a question -- a couple of questions, actually, which is very common. I've gotten this quite a few times on USMCA.

I guess there was. Sorry, you kind of juggled around on me a little bit.

No, that's okay. I thought I saw a couple of them.

Yes. Would USMCA relieve the surtax. So go ahead.

And the answer is no.

Right. So it could relieve duty, right? But surtax is a tax, and it's additional. So if you go back to Cara's calculation on about the fifth slide, that duty could be relieved by USMCA, but the surtax would, of course, be additional. That's where you need to take a look at these remissions around uses.

Correct.

Okay. Can the company still continue to apply for remission under the steel derivative goods surtax remission order, to avoid impact on these retaliatory tariffs, which include items from Chapter 73? So I think just to reiterate on that restate until the General Counsel approves the remission orders to be applied to these retaliatory tariffs, we don't know that they're going to be in effect or not. So that's going to require Order in Council and it will be stated on a customs notice, which basically is our operational guidance that we can use remission orders against this particular retaliation.

Cara, maybe you could do this. What kind of supporting document is CBSA asking for when reviewing manufacture remissions?

Yes. So I'm just going to go by what I have seen them ask for in the past, and it could be a statement from the consignee that they're using those specific parts for manufacturing. They could ask for a bill of material they could ask for something on a letterhead stating.

They do ask for the commercial invoice, the Bills of Lading, all of those regular documents for the clearance but proof that, that's a manufacturing facility. And in that specific piece or part that's coming in is actually being used in the manufacturing of the good. I hope that was detailed enough.

It was. Steve. Will intercompany shipments be treated any differently? Or is it all just based on country origin? Steve?

I missed it, Dave, could you speak up?

Will intercompany shipments be treated any differently or is it all just based on country of origin.

Country of Origin. U.S. country of origin.

Classification and country of origin.

Yes, of course. Yes.

Either one of you, products made of steel with a country of origin that is not U.S. will not be subjected to these surtax changes, only products made from the U.S. I don't know if that's a question or a statement.

Yes. So if it's a question I can answer it, the answer is it won't, the shift of the way the steel surtax is going to be calculated, no. However, we still have to comply with the other orders that are in place for steel. If it's quota or country of melt and pour or surtax on other steel products. Those will stand.

I'm going to answer this one. So you mentioned remissions are for the benefit of specific sectors, including government, emergency response, health care and defense. You also mentioned manufacturing items that are consumed in manufacturing -- was manufacturers generally or manufacturers linked to sectors you mentioned?

So there are certain -- there are different remission orders. One of them is specific to health care, defense and all of that. That was the first one that we walked through. And then there's a separate remission order that applies to manufacturing processing of goods, packaging and food and drug packaging.

So really from that perspective, take a look at the classifications within that remission order specifically and the classifications that are going into your inputs. And you'll want to see which one fits the best. There could be that 2 remission orders would apply to the same product. But really from that perspective, you really want to follow along with your documentation to that specific remission order.

And again, we're here to help if you have more detailed questions or you could take a look at that with consultants or something as well.

Okay. So just to clarify, the shipment does not have to actually clear customs to avoid surtax, just need proof that it started moving towards the border by September 8.

And the way the notice reads it states in transit.

So in reference to value-added work performed in the United States, we ship materials to the U.S. not sold to perform value-add work and Canadian goods are returning to Canada after modification is completed, what should be declared value. Note the order was drop shipped to the U.S. value added.

So again, I think this is one of the specific ones that you help us out with a little bit of classification and all that kind of fun stuff. I don't know that this is asking about surtax or really what valuation should be used. So happy to reach out. We're happy to have you reach out, and we'll take a look at that. Thank you.

All right. Just clicking a couple of these up. People were typing there. This is a relatively long one, guys. So we source base paper stock from Italy, which has delivered in rolls to an outside partner in the United States. They then glue the 2 rolls of base paper stock together and send eliminated rolls to another outside partner in Canada, our Canadian outsource partner that adds holographic foil to the rolls, sheets them and sends the finish sheets back to us in the United States.

Our Canadian outsource partner sent us the below. So that was talking about the tariffs and that announcement. I can't believe I got through all of that without stumbling over 17 words.

I read this one, too, Dave. I think -- so just -- this is what I take from it. First of all, the rules of origin because the paper stock is coming from Italy and it's glued in the States, you have to look at the rules of origin and figure out what origin is actually going to be.

But one of the things that stood out for me was that you stated being shipped from the U.S.A. I want to be very clear that if goods are just being shipped from the U.S.A., that's not the determination. The determination is actually the country of origin of the goods.

Here we've got one that are the relief codes on the U.S. side as well. So something being shipped from Canada to the United States with country of origin is Canada. Again, I would ask that you send that to our teams after the webinar. And we will get a U.S. expert on that for you and kind of marshal that reply.

All right. So if an oil and gas company builds equipment in the United States and sells to a company based in Canada, can we expect 50% surtax?

I can take this one. So again the surtax is going to be based off of classification and country of origin. So to answer this question without the classification of the goods, and to figure out, okay, it's coming into an oil and gas company for what reason. Right? Is it going into a new build? Is it going into further manufacturing. So there's a lot of details there. If somebody would like to get with me on a call, I would be happy to do that or take that question in more depth.

Thank you, Cara. And then I think also, depending on that classification, it might be a different percentage of surtax as you go through. So it's very dependent on those things. I think we made it through all of the questions that we asked so far. So you guys did a great job. Thank you.

Steve, do you...

Yes, absolutely. And some great questions there, and it's a perfect segue into the next slide. Again, we'd like to thank you for joining us today, and if you'd like to discuss the potential impact on your business or have any questions whatsoever, we're here to help.

So please feel free to reach out to any of our Canadian customs team, as noted on the slide here. So thank you very much. We'd be again, more than happy to assist.

And then Samantha. All right.

Thank you so much you all. It was great bit of information, not bit, great amount of information that you guys just covered. So thank you so much for providing all of that. And for those of you that are still with us, we do have some additional webinars coming up that we wanted to make you aware of.

We, of course, have our U.S. Customs Market Update that we do at least once a month now. That is coming up on September 22 and can scan that QR code below. We have a ground transportation webinar focused on Canada, talking about the market volatility and how you can use that to support margin control. So that is later in the month and then unlocking growth in Canada for smarter distribution, that will be in October.

So we hope you guys join us for more of those events that are coming down the pipeline. And again, as far as getting the content, the recording and the presentation from today's webinar, you will again see an e-mail. And I think I said it came -- will come from me, but it will actually come from Sal. So if you're used to getting e-mails from Sal, that is will come from still didn't want you to get confused there, but you'll have it in your inbox within about an hour or 2 of this wrapping up, and that is how you get access to those materials.

So again, thank you all for joining us. We hope you found this information valuable for anybody that had open questions, we will work to get those answered for you. Thank you again. Team, great job.

Thank you everyone. Bye.

Bye for now.

We will provide our AI outlook. So the AI boom has led to a physical build-out of chips, servers, data centers and power infrastructure globally and the speed and scale of this hardware build-out is actively reshaping supply chains and logistics strategies. So join our analysts today as we assess the impact of the AI boom to air and ocean freight markets, shipping lanes and discuss the longevity of this build-out. Now before we begin, we've seen a lot of interest in the application of AI to logistics operations, notably in shipment visibility and service improvements. So however, in this webinar, we'll focus instead on the impact of AI investment boom on freight markets and supply chains.

Before we begin with the content, there are just a few administrative details to cover. We will have about 45 minutes of content to share, and we will save the last 15 minutes for the Q&A session. Please submit your questions in the Q&A box, and we will do our best to address your questions during our Q&A session. A copy of the presentation, notably the slides will also be available later. To receive a copy of the presentation, please fill out the brief survey that will be e-mailed to you shortly after this webinar. And please visit our website as well and subscribe to receive information on Onex's future webinar. We would also like to invite you to explore our latest insights on LinkedIn and the VantagePoint blog, which features a mix of short updates and in-depth articles.

So please use the QR codes at the top to follow us either on LinkedIn or to subscribe to our VantagePoint blog. For those of you who are not familiar with Onex, just to do a quick introduction. Onex is a consulting division of Expeditors, and we help clients build more efficient and resilient supply chains. We are uniquely positioned to help our clients in identifying geopolitical, regulatory, economic and operational disruptors, which can then be translated into a more forward-looking and supply chain. All of these are done through advisory engagements and insight. Projects are also tailored to individual client needs, either as one-off projects or ongoing retainers. These are Onex's services lines. In a nutshell, our service offerings cover various areas within the supply chain like planning and strategy, trade compliance, sourcing and manufacturing.

Please contact us if you have a project or a need where our advisory expertise can assist. So on to our speakers today. I'm excited to introduce the speakers who will be presenting today, myself, Adam Karson and Suryo Nugroho. I'm a senior geopolitical analyst in Onex, and I work primarily on the Indo-Pacific. I hold honours degrees in history international political economy, and my work has been featured in the Pacific Forum, the Asia Times and other media outlets.

Suryo Nugroho is a seasoned policy expert with 14 years of experience across geopolitics, policy analysis and supply chain management. He currently serves as Onex's senior geopolitical analyst, leading the firm's Southeast Asia coverage. And on to Adam Karson, Adam has more than 20 years of experience as an economic adviser to global leaders across a range of industries. He has extensive experience in the U.S., Europe and Middle East. Adam most recently worked at Chevron as a senior economist and is responsible for Onex's macroeconomic analysis and forecasting. So with that, I think we will cover one more slide on our content today in the webinar.

So what we will cover in the next 45 minutes or so with 15 minutes for Q&A is the current state, where the AI build-out stands in terms of capital, supply and delivery. We'll cover hyperscaler CapEx plans through 2030. We'll look at data center power demand as it relates to infrastructure and then the supply chain and critical minerals for the AI supply chain. Adam will cover our possible future trajectories, bringing you through 3 scenarios of AI development moving forward, a fast-build scenario, a slow build scenario and a pullback. And lastly, he'll touch on what it means for freight and what to watch. So with that, I will hand it over to Suryo to kick us off. Thanks, Suryo..

Thanks a lot, Olivia, for the kind introduction. So good morning, everyone. So we will -- as Olivia has mentioned before, so we'll start by basically providing you with our analysis as well as insights on the current state of AI development, right? So where are we going with AI? What's the state of play of AI currently, right? So there are 4 elements that we want to cover here. First one is about capital, right? Capital is readily available around Big 5 data AI CapEx projected to exceed USD 1 trillion by 2029. And then the revenue is scaling as these AI companies have already started to also offer like enterprise AI functions, right? So it's -- the revenue for them is scaling up as well. And in terms of economic impact, the economic impact is significant, especially for the U.S. economy. And now AI contributes around 1.5% to 2% of the U.S. gross domestic products as well as 50% of the growth net imports, right? And supply chains are heavily concentrated and it benefits a handful of countries.

We are seeing -- we're talking about Taiwan, South Korea, China and Mexico, carry the value chain. And then -- but there is one thing or one risk that you all need to monitor, right? So we will discuss this in the second part, and Adam will talk about this later on in more in depth. So delivery is lagging from 2 different sides. The first one is on the power supply or energy supply construction. So right now, it's only about 5 gigawatts of the roughly plus we are talking about components, right, and equipment as well. So there are a couple of bottlenecks emerging in the AI supply chain, namely high-bandwidth memory, chips bottlenecks as well. And then we are also seeing that packaging is also experience -- starting to experience a bottleneck as well. I'll talk a bit more detail about the CapEx plans, right, the first one.

So hyperscaler CapEx plans will grow by about 28% per annum from 2025 to 2030 after like a tremendous growth of CapEx growth from 2020 to 2025, around 114%. This -- most of the CapEx will go to inferencing. So why inferencing is so important here? Because right now, AI is at the face of implementation. So now more and more people are using AI and the inferencing is -- the cost of inferencing is really high, right? We're talking about because of the scale. So inferencing happens millions of billions of time depending on the use. And because of that, they need more data center. Hence, you can see the figure on the top that data center CapEx on data center is also increasing tremendously, right, because they need data center, more and more data center to do inferencing, right?

And then to do like a better inferencing, we're talking about speed as well. So instantaneous responses, which require advanced and basically power hungry GPU. So there are more investments are needed to basically acquire a more advanced GPU for doing a better inferencing, right? And then complexity as the model becomes more advanced in terms of complex task, it requires more computational resources, which led to more defense data centers, as said before, need to be built. And with that, that comes with a rising cost of energy as well as the wear and tear of the hardware in this case, the GPU. So you see that the CapEx plans is really high, right? So it's tremendous. So for that -- for basically for the AI companies to justify the CapEx plans, they need to get high margins as well as sustained rapid growth, right?

So we anonymize the company here, but this company, A, B, C and so on and so forth represents the top AI firms. globally. So when we talk about -- I think the most important graph here is the one on the right side, right? So we're talking about the revenue growth required to breakeven NPV. So there's one firm, more specifically company B that relies on frugality to generate positive ROI, right? So company B, basically, they need a smaller revenue -- a lower revenue growth to basically make a breakeven for the breakeven point to reach breakeven point, right, meaning that they spend more efficiently compared to the others. So it's a different strategy, right? And the other strategy is basically company A, C and D, they rely more on the strong revenue streams, but they spend more on the infrastructure, they spend more on the data centers, and that's why they require a stronger revenue growth in order for them to justify the CapEx.

So moving on to the AI to the supply chain mapping, right? So as I already said before, the AI supply chain is heavily concentrated in a handful of countries, more specifically here in 5 countries. So number one is the first one is Taiwan. So we're talking about chips, the leading-edge logic and advanced packaging. So 90% is -- 90% of the sub-5 nanometers of logic output is produced in Taiwan by one company, TSMC. And then Netherlands, because Netherlands ASML is headquartered in Netherlands, and they are the only supplier of EUV lithography at the moment. So yes, it's -- for the EUV lithography is pretty much concentrated in this one company, right? And Japan, about 50% of global silicon wafers is produced in Japan. We are talking about photoresist and substrate film as well. In South Korea, we're talking about high-bandwidth memory.

So there are only 3 manufacturers -- 3 companies that manufacture high-bandwidth memory, right? One based in the U.S., Micron Technology and the other 2, SKHynix and Samsung are based in Korea or Korean company. So clearly, the South Korea is -- clearly the high-bandwidth memory is pretty much concentrated in South Korea. And I think we cannot leave China out of it because China basically dominates -- basically dominates critical minerals refinery. So about 99% of primary gallium refining is done in China. Also a couple of different rare earths as well, talking about germanium, tungsten. And Olivia will talk about this about the potential export control because China -- the Chinese government is actively basically developing measures or measures to basically control the export of this refined -- refined critical minerals or gaining geopolitical advantage over the U.S.

Absolutely. I think Suryo has taken us through, I think, a wonderful overview of the AI industry. In the next 3 couple of slides, I think, as we finish out the context setting before we move on to the scenarios that Adam will take us through, Here, we're really looking at infrastructure right and specifically power demand. So a headline for us today is that data centers power demand are projected to surpass heavy industry by around 2030, and that demand remains the highest in the U.S., China and Europe, while Southeast Asia more than doubles as well by this time frame. So when we think about it from an infrastructure perspective, for Southeast Asia, in particular, that data center power demand will be driven by hubs in Singapore and Southern Malaysia, which makes assessing, I think, the country capabilities of each of these regions to provide things like reliable power, affordable power, it becomes much more critical.

And despite the fact that data center energy demand absolute growth is much smaller, they tend to cluster geographically, which makes grid integrated than other sectors like industry, electric transport or appliances. And I think as we move on to critical minerals, what we've done for you here as well is to summarize a list of critical minerals most exposed to export controls. So as we know, critical minerals are a pretty key upstream component of AI supply chains. And when we think about the geopolitics of the longevity of the AI build-out, critical minerals are a big part of this. As Suryo mentioned, China is very dominant in refining, and it prefers to use these upstream inputs in trade confrontation. So we've listed out here, I think, a couple of minerals that are most exposed.

Something that I really would like to highlight for us here today is that last year in 2025 in October, China kind of put in a series of export controls on critical minerals. Those are expected -- that pause is expected to expire in the next 2 months, which makes the upcoming Trumpsea Summit very critical as we will see both governments try to reach, I think, an extension of that pause and to prevent some of these export controls from coming back into place. So a key milestone, I would say, in the next 2 months. That being said, critical minerals are -- there are workarounds that exist for mining and price coordination, but diverse China in refining is a long-term process. So we've identified a few workarounds at the supplier and government level.

We often, I think, tell our clients that you can work with suppliers to source pre-refined inputs from partner nations, conduct audits on geographic origin of your raw materials, coordinate on the minimum percentage of "western refined inputs" if that is a strategic requirement. Of course, license monitoring is a big part of your strategy here, really confirming the status and the speed of export license approvals. I think a lot of nations are also being quite active in mineral alliances and stockpiles. Specifically in the U.S., you have Project Vault strategic reserves and members will essentially subsidize the difference from the preset minimum price if China tries to crash the price of germanium or another commodity crowd out new miners. So these alliances and stockpiles definitely exist as alternatives, but refining is still a chockole that will take time to work.

A lot of that are currently underway, like the Canadian Ohio pipeline, Vietnam's processing plants, a project in France, all of these will only kind of kick in, in the next couple of years and will take time to ramp up. So refining will still be a chockole in the next few years.

So I think just to round up this section, I think we really want to maximize the amount of time available for the scenarios, which is really the key part here. For this context, we've kind of gone through an overview of the AI industry, its financial viability and then as well as some of the infrastructure and geopolitical constraints of the growth of this industry. So with that, I'll pass it over to Adam, and he'll take us through the scenarios.

All right. Thanks, Olivia. Thanks, Suryo. So that was a really good kind of background level setting of kind of where we are in the AI growth cycle and how the ecosystem is global and complex, which leads to some pretty interesting and equally complex scenarios that we need to think through. and how they impact the logistics market, even the broad economy, but specifically how they impact air, ocean and trucking. So what I'd like to start with is kind of when we think about scenarios, I think it's really useful to think about who the main actors are, what are the decisions that need to be made and how do those kind of factors drive which path we're on. And if we take kind of a step back then and just think about the environment, I think there are 3 groups that really determine the path forward here. It's their customers, investors and suppliers.

And the first 2 customers and investors are really pushing the acceleration here. where you have, as Suryo mapped out, this rapid increase in the infrastructure build-out and the investor money flowing in to support those ambitions. You have customers on the downstream side of that consuming a lot of that AI bandwidth consuming tokens, not just everything that we're doing individually hacking away at LLMs all day, but also some enterprise solutions popping up, and that's starting to scale. If you look at Anthropic's revenue over the past year, it's like gone up 10x or something in that kind of order of magnitude. So those 2 kind of actors are really full throttle pursuing the opportunities here. Then you have the third actor suppliers. And this is everything from power to chips and equipment, everything that goes into the buildings, into the data center buildings and supports that ecosystem.

And this is where things are struggling a little bit, as Suryo mentioned kind of the first couple of slides, where we're not quite keeping up. Now it's not doomsday. It's not that this is a major obstacle today or necessarily kind of holding out the build-out today, but this is something that we really need to pay attention to because it's where probably the most immediate risks fall in terms of what pace the ecosystem can be built out. So I just kind of want to frame that. So keep those actors in mind as we talk about the scenarios and kind of where the risks and opportunities may lie. So we came up with 3 scenarios that really turn on revenue and delivery.

And I'll talk -- I'll explain what I mean by that. But those are the 2 things that really determine how those 3 actors kind of evolve. The 3 scenarios we came up with our best case, which is a fast build. So even an acceleration from where we are today. And this means that customers are realizing accelerated productivity gains, driving a lot more revenue growth. So the 10x type growth we've seen over the past year, that continues. And that just becomes a flywheel. As that revenue grows, the hyperscalers build more, the investors put more money in there, achieving higher return on investment. And a key here really is that in the best case scenario, it would rely on suppliers innovating past their bottlenecks, which I think is a pretty fair assumption actually.

With this much money of capital flowing into something and if the prize is really as big as some people think it is, then the problems that need to be solved on the supply side probably aren't that complicated. They just require some dedication and some capital. So really, this is this best case is that kind of everything kind of comes together and get that flywheel, as I said. One caveat here worth paying attention to in the best case is the full impact really depends on the labor market outcome. And that's a whole other kind of 1-hour discussion we could have on how AI is going to impact the labor market. I'll kind of maybe touch on that a little bit as we go on, but we just want to highlight that as a key caveat for that best case scenario.

In terms of mechanisms for this best case, I think some key things worth highlighting are that this depends on things like behind-the-meter generation. So if we're going to rely on public utilities building out massive power generation and grid. I mean that's going to -- that would take a decade or more, right? So this requires things like innovation behind the behind the meter generation. It requires CapEx rates to remain very high, but shift over time and get a little more creative on kind of how much can be prefabricated instead of kind of build on-site construction. And also things like the siting of data centers follow the power, not necessarily the demand.

So in the U.S., we're seeing certain states kind of put some restrictions up around what data centers can be built and whether or not contingencies on whether they have impact on the grid. So I think you'll see more and more data centers kind of move to geographies that have existing excess capacity on the power side. So moving across the screen here, that's the best case. Base case is a slower build and kind of a plateau or even a bit of a slowdown from where we are. Thinking like 2026, 2027 is probably sort of the peak rate at which we can build out the infrastructure. So in this case, there are a couple of conditions, right? So you have customers that are slower to achieve the scalable productivity gains. So there's some -- there's certainly some return on investment, but it's -- the capital comes at a higher cost and a lower ROI than the best case.

And suppliers are more in a management mode. They're managing constraints that don't really get ahead of them. And so therefore, the build-out kind of plateaus or slows in the next year or 2. The key mechanisms here are that construction schedules are kind of slipping. We're seeing these like longer and longer lead times for some of the key infrastructure components, and that just kind of becomes the norm. CapEx growth rates certainly decelerate from the super rapid growth we've seen over the past couple of years. And then back to the constraints, I think here, we would see the constraints evolve, right? Like right now, you're seeing tightness for memory and the prices are shooting up. Then probably now also for electrical equipment. next, it might move to the grid.

So you see kind of this whack-a-mole approach to trying to deal with these constraints. Then you have the worst-case scenario, which actually comes in kind of 2 forms. You could have either a demand side shock or a supply side shock. And this is just where the economics of the system kind of break down. And so for example, on the demand side, you could see a situation where the economics for the consumer just don't make a lot of sense. And they're not -- because they're not achieving productivity gains. So they pull back on some of their AI spending or vice versa, the economics for the big developers, the frontier kind of models don't work either.

I think it's very plausible where there's a situation that in order to achieve scalable productivity gains, sort of at an enterprise level, you don't necessarily need the frontier models and pay that premium for that -- for those models. And actually, the models that are more like the fast followers that have a very clear business case and are solving kind of very discrete problems. Those are the ones that kind of build up scale and -- but there's not a really strong revenue model behind those because they're more commoditized. So in that kind of environment, you would see much lower return on investment, investors kind of pulling funding or maybe even facing some losses on some of their bets. So that's kind of the demand side.

On the flip side, you can have a supply side problem. Olivia touched on some of the constraints the policy-driven constraints that we might see in kind of the AI ecosystem going forward, specifically around critical minerals. Now this is one where maybe the models are working well, productivity is going -- is scaling up, but there just isn't enough supply capacity to keep driving up the infrastructure investment and the cost of those materials becomes prohibitively expensive. So the mechanisms here are that to pay attention to that revenue -- either revenue falters and/or there's some supply side issue that just finally gives away. And then the financing becomes tested.

And then when kind of the tide rolls out, you have some very expensive assets with long lives that don't match the debt that was needed to finance it. And then also to watch out here -- watch out for the critical mineral export control, whether those return or not could be a big turning point. So those are the 3 scenarios. Now what do we make of them? How do we think about the impacts here? And I've tried to break this down into 2 major buckets, the economic impacts and then the logistics and supply chain impacts. And let me preface this with saying these are the direct sort of first order impacts, okay? So specifically related to the scale and pace of capital expenditures.

Later on, I have a slide on sort of how this sort of multiplies or kind of multiplies the indirect impacts across the economy. So for example, just to kind of foreshadow that. In the worst-case scenario, if you were to have a collapse in capital expenditures, you would also have other parts of the economy kind of falling as well and you have like these multiplier effects. Same with the best case scenario, you get that flywheel effect, you're going to have all kinds of impacts on the labor market, revenue growth, et cetera. So you have a lot of indirect impacts as well. But again, I'll just focus here on the first order impacts, what happens to the economy and to the logistics markets under each scenario. I won't read everything on here, but just to highlight a few things. First, if we compare the economic impacts.

In the best case scenario, here's where you get the productivity gains really accelerating and you get a very material boost to U.S. GDP growth for like the next decade. Upwards of -- I think a conservative estimate would be, say, 0.5 percentage point or 0.6 percentage points per year above baseline growth for the next decade. So that's -- that may not sound like a lot, but if you compound that over 10 years, that's a pretty big jump in the size of the U.S. economy. Again, the catch here is what happens with the labor market, depending on what those indirect impacts are, you could have something above or below that 0.6%. The base case is our baseline view, right? So here, we're looking at GDP growth in the low 2s over the next decade. I think one thing to pay attention to in the base case is that inflation increases before output.

So go back to the mechanisms of this scenario where you have suppliers dealing kind of triaging constraints as they come along, which means you're going to have kind of continued waves of inflationary pressure like kind of what we've seen over the past year or 2. And then in the worst-case scenario, whether you have a demand shock or supply shock, you kind of get different outcomes. The demand shock, I think, is probably, I would argue the more likely. And here's where you get, I think, much more negative impacts to the U.S. and global economy, where you're talking about potentially putting at risk the whole financial model that's kind of backing this endeavor.

And if you get significant write-downs, equity repricing, here's where the direct impacts really multiply across the economy and you get -- you probably get a recession at the end of the day. And then for the worst-case scenario, this is really more of kind of an inflationary scenario in addition to marginally slower growth. So then if you look at that last row, what happens to logistics and supply chains. on -- in the best case scenario, this is really where freight kind of takes off, especially heavy oversized ocean cargo becomes a real growth engine because we have to build out a really heavy physical infrastructure on the power generation and equipment side. I think in the base case, the air market is really kind of a thing to watch that stays tight for the next year or 2, but then may normalize, right? If we're essentially kind of plateauing on how fast we can build out the infrastructure, then the air cargo market balance kind of mirrors that over the next couple of years.

One thing to pay attention there is project cargo. There's long lead times there. So that kind of cargo probably has a longer kind of a longer peak cycle over the next -- maybe into 2028, '29. And then in the worst-case scenarios, here's where you get volumes falling. Again, tracking the investment cycle, volumes and rates fall together commensurately across both the kind of chip and technology side and then also the kind of power and infrastructure side. And so both air and ocean are hit in that scenario. Air is hit disproportionately. Let me move on to this slide. So kind of going into this in a little more detail, and this is kind of mirrors the last slide a little bit, but going into slicing it a couple of different ways to think about what's improving or getting worse. in each scenario.

Again, I won't read everything here. I just want to highlight a couple of things. And most importantly, I think power is the only input that in -- basically gets worse in every scenario. And that -- and really in the short run, power, we're short on supply. The best case scenario assumes that, that kind of catches up over the medium term becomes more kind of a comfortable supply-demand balance over the long term. But in the base case, this is -- that's something that really is a stress point and creates those constraints that I've spoken about. I think another thing to kind of pay attention to is how sourcing changes. And by sourcing, I mean diversification and whether or not we can kind of debottleneck or derisk some of the sourcing that is happening right now.

And in the best case scenario, we assume that kind of naturally -- diversification kind of naturally happens as the ecosystem evolves and gets a little more innovative and creative on where we're sourcing from. But in the base case scenario and certainly in the worst-case scenarios, that diversification doesn't really happen much at all. And so we're kind of living with some of the inherent risks in the AI supply chain that we have today. In particular, I would focus on Taiwan as being the main source of chips. And then what I really wanted to get to here is kind of more direct impacts on the logistics market. And I'll just spend a minute on this slide. And as I mentioned, I think air is hit the hardest, right? So when we think about where the volumes are today, I think the numbers I've seen suggest that about, I think it was 7% or 8% of global air cargo is related to AI. And that's on a volume basis.

On a value basis, it's something like 40%, 50%, some crazy big number. So when we think about how -- and then on the ocean side, it's probably less than 1%. North America domestic trucking, probably 1%, but kind of concentrated in particular segments of trucking. So there are some areas of concentration there. But when we think about how these scenarios impact logistics, air is definitely hit the hardest. So the -- just because of the scale, right? So if you have a pullback in CapEx spending, you would have a commensurate decline in air freight and that 7% of volume becomes some significantly lower number. So these are just kind of directional what to think about what would happen to on the demand side, growth for air freight, ocean container freight, project cargo and heavy haul and then trucking, specifically North American cross-border and last mile trucking.

And obviously, we're in a -- kind of when we look across the board, we're in a relatively kind of tight market, certainly in air, ocean, trucking. Not all of that is related to AI. There -- we've held other webinars on the geopolitical factors driving that market tightness. But in the best case scenario, while it might be the best case scenario for sort of anyone playing in the AI ecosystem, not a best case scenario for anyone outside trying to ship things because it just means kind of tight market for the foreseeable future, upward pressure on rates.

Base case, you kind of get a milder version of that and potentially in the long term, kind of a neutral impact. And by long term, I mean, say, 5 years out. And then in the worst-case scenario, that's where volumes kind of really take a big hit and rates come down commensurately. Now one thing I want to kind of highlight there we go. How we calibrate -- those were obviously qualitative kind of measures, but we can calibrate this a little more precisely. And I think the dot-com era provides a useful comparison to calibrate the downside scenario. So if we look back to the telecom sector 2000 and 2003, spending CapEx spending fell about 80% from its peak and then took about a decade to soak up the fiber optic glut that we built out.

So if we just kind of take that as a very rough example, I think a conservative estimate then would be in a worst-case scenario, AI CapEx falls by, say, by half, by 50%. AI-related goods, as I said, we're about 7% of global air cargo volume in 2025. So a 50% CapEx reduction means that it goes from 7% market share down to 3.5% market share. So all else equal, air cargo volumes would fall 3.5%, okay? So in 1 year, that's a significant hit, right? That creates some looseness in the market. And certainly, the transpacific lanes are much more exposed to U.S. high-tech air imports. So you would see a lot more looseness on particular lanes. But just globally, 3.5% is something that -- a 3.5% decline is something that could be absorbed over a year or 2. Like it's not necessarily sort of an existential issue for air cargo.

And then when you look at ocean and trucking, when the volumes that we're seeing today are fairly negligible, 1% -- probably less than 1% of global volumes are related to AI on ocean. So it's just not enough to move the market really. Now I'll get to the indirect impacts on the next slide, which probably would be big enough to move the market. But again, just the direct impacts, not a major shock to ocean. On cross-border trucking, you could see more of an impact there. And I think, in particular, on flatbed and heavy haul. So if you're kind of -- if you're using those services, that might be something that gets hit a little bit harder, and you can see some slackness in that segment of the market.

Now I talked about the -- I talked about direct impacts and now the indirect impact, I think, is where the real money is here. So this is where you get a compounding of both upside and downside. And so when we look at the best case, if you are getting this direct impact that you have some modest acceleration in CapEx and project cargo, air cargo, air freight, et cetera. But then you get this flywheel effect that spills out across the rest of the economy and you have the U.S. economy just consistently growing at 3% or higher, that obviously has spillover effects into other sectors of the economy, in particular, consumer spending, and then you get even more rapid growth. So I think you get spillover effects that compounds not necessarily evenly, but you get much more kind of positive upside for Ocean in that scenario as well.

Base case is kind of what it is. Not -- there's not a whole lot there in terms of indirect impacts because we're kind of -- it kind of looks like the world does today. So you get some kind of positives and negatives, positives on maybe the consumer side, some negatives because the AI CapEx plateaus and maybe even shrinks a little bit. So we basically we kind of end up where we are today. But then on the worst-case scenario, and I'm highlighting the demand side version of that worst case is that if you get a -- again, so you get that 50% reduction in AI CapEx -- right now, the current level and growth rate of AI CapEx is contributing somewhere between like 1/3 and 1/2 of U.S. GDP growth. Those are the best sort of third-party range of forecast. My forecast is closer to 50%. So if the U.S. economy right today is growing at 2%, a full percentage point of that is coming from AI.

So if you basically get rid of that and the sector is not only flatlining, but actually declining, the direct impacts alone might put us into a recession, certainly would probably flatline growth. But if that happens, you have potential equity you have a bear equity market, you have bonds getting defaulted on, you have kind of ripple effects throughout the investment community. consumer sector, this is almost definitely a recession, probably worse than what we saw during the dot-com bubble. And if that's the case, then you have these compounding effects that impact not only to air cargo, but then to ocean cargo as well because retail sales are probably going to decline for a solid 2, 3, 4 quarters. So I just want to highlight here that like these indirect impacts really compound both on sort of the bookends of these scenarios.

Now let me end up quickly with a couple of slides, and then we can get to Q&A. So just a couple of things to watch over the next year or so. First, always pay attention to memory prices and the transpacific air cargo and volume mix. I think those are sort of the canary in the coal mines of how fast things are moving and is the build-out kind of keeping pace or even accelerating going forward. But the next thing to really watch after that is what happens with Chinese export controls in November. Is that pause extended or not? Then we want to look at the power generation order books at year-end. This is a great forward-looking indicator of whether things are staying hot or cooling down. And then when we get into February, we want to look at the fourth quarter plans from the Q4 2026 plans and then kind of 2027 construction starts.

What does that pace of growth look like? And then finally, what I'll end you with here is kind of 2 sets of conclusions depending on where you sit. Basically, are you in the AI value chain or not? If you are, things to kind of pay attention to are the wait time for power equipment is not going to get shorter. We think for the time being, chips and packaging stay in Taiwan. I think medium to long term, that risk could -- we could derisk that as we're kind of building out North American capacity, but not quite yet. Mexico stays as a strong U.S. assembly hub and that sort of cross-border lanes are something to really pay attention to. And then there's a lot of talk about racks getting kind of more dense, heavier, hotter. And so the -- it requires more power and cooling freight per server.

So that's just more demand for power and cooling. If you're not in the AI value chain, the bottom line here is you're competing with AI for the same capacity, right? So air and flatbed and cross-border trucking, in particular, are going to remain hot in most scenarios. AI CapEx is really kind of setting the rate. That's kind of -- that's the marginal good being moved right now. And that's what sets the rate and air spot rates are up 38%. Not all of that is AI. Obviously, there's geopolitical stuff going on in the Middle East. But that demand just kind of keeps that upward pressure. And then the power and component costs, although you don't have -- you not -- may not have direct exposure to that, that ends up coming -- you end up feeling that no matter what. So electricity prices are up, memory prices are up.

So say you're in the auto sector, looking for chips. I mean, these are -- the cost pressures are only pointing up to some of these key inputs. And then just pay attention if there's a pullback. So if we're in a downside scenario, that's really kind of the main driver of rates coming down. But the flip side of that is that remember those indirect impacts. If we fall into that worst-case scenario, you're depending on where you sit in the economy, you may get kind of rolled up in those indirect impacts as well. Okay. So I went a few minutes over. We have about -- I think 10 minutes for Q&A. So I will stop sharing and we can go to Q&A.

Absolutely. We've got a long list of questions here. And first of all, thanks, Adam. That was a wonderful set of scenarios. And I'd like to kick off a question here in the Q&A box. I'm going to take a little bit of liberty here in rephrasing it. But what do we assume that the AI infrastructure build-out is a government-backed adventure, right? And it's not strictly based on market dynamics, but rather on strategic capability. How would this kind of affect the stability or the time frame of the AI infrastructure build-out? I think either for Adam or for Suryo?

I love that question, and I'll take a stab at it. This is something I've been thinking about a little bit as we prepared for this webinar. I think I think there's a strong case that you could make that parts of the AI ecosystem are -- could be treated like a public utility. One hypothesis would be, and this is not a recommendation, just a hypothesis that frontier models could be treated as a public good and funded to have a completely different funding mechanism with a lot of taxpayer dollars. And there's a ton of precedent for something like that. Think of like how NASA operates, right? You go to the moon, all that's publicly financed, but all the benefits that spill out of that, all the technologies that are created as you kind of embark on projects like that.

So I think you could make a very good argument that the frontier should be at least partially public financed. And that would also kind of open the door for some different tax models. So how you prepare for -- how we prepare for labor market disruptions kind of is like the corollary to that. So imagine that world where that kind of financing mechanism exists. I think that would add a ton of stability to the AI infrastructure build-out and alleviate some of that pressure on the margin and allow more of a focus on really the enterprise scalability, fast follower models that are much less expensive to operate and consume. And I think you have a very -- so you kind of have a bifurcated view of the market that way. And I think it's much -- in my mind, it's easier for investors to have a clear return on investment if they're not having to participate on the frontier all the time.

So I think that's a really I love that question. And I think it's kind of a whole field study that is kind of emerging right now. Suryo, I don't know if I made any sense at all and I answered that.

Yes. I think you made a really good point here, Adam. I mean a couple of countries have already started that. In fact, like the U.K., for example, they just -- I mean, they earmarked about GBP 1.1 billion for developing national AI supercomputer, right? So this is to expand national computing capacity by 2030. So that's a clear indication there that state has already started embarking on this journey, right? And then we are also seeing a couple of different countries like Canada, France, India and the Gulf countries like the UAE, Saudi Arabia, they have already started embarking on AI infrastructure as well, right? And a couple of them, they have already started also public private funding. It's basically to reduce the risk of private investment in frontier sector, as you say it, Adam. So yes, I think it's getting there. I think the traction is moving forward towards that direction. I can totally say that.

Absolutely. And we've got a lot of questions, which I think is a very positive sign. I'll take this one very, very quickly. What are the countermeasures companies can take regarding China's export controls regarding rare earths, what is the lead time to have a second country option? What may be helpful is a slide I think we presented earlier and a couple of work. The first thing that I think we can really advise is to have visibility really into the upstream supply chain. So really having audits on the geographic origins of your raw materials. And alternatively, I think really staying on top on when those export licenses are passed, when they're being approved. Right now, I think export licensing -- the export licensing mechanism is still ongoing and MOFCOM is approving those.

So just really staying on top on how long it takes for those licenses to be approved. Lead times, I think it's a very personal question, very personal to the company, very personal to the commodity and the product. But we will highlight that any kind of sustained either at the government level or at the company level efforts to diversify sourcing of these raw materials outside of China is really quite limited because of the long gestation period because of China's dominance in refining. So that's fully possible to have alternative options. It's just that you may not get as much of that diversification as we would possibly like to. And I think with that, we've got one more question on what -- sorry, excuse me, what U.S. ports will see the largest increase in incoming goods in 2027 due to the importing of goods in support of AI, either directly or indirectly?

I'll take a stab at that. So my understanding is that the ports that have seen the biggest volumes so far in the U.S. are San Francisco, L.A., Dallas, Dallas-Fort Worth, what else? Chicago maybe. And so I don't -- I'm not sure I would necessarily see a reason why those locations would change in the next 12 months. I think you could -- if you look out a bit longer, I think maybe there's a question that we can look into of where our data centers more likely to pop up over the medium term. I think the best outlook I've probably heard is that really pay attention to the Rust belt, so kind of the middle of the country and in the Southeast.

So if you think of like that kind of an L-shaped corridor, where data centers are most likely to be located, what ports -- a lot of the stuff is coming in, all the tech stuff coming in by air, so what airports make the most sense and then the heavy kind of power infrastructure that's going to come in by ocean and then have to go on tanker trucks, like -- I mean that's -- I think certainly L.A. Long Beach and then maybe if we're building out the Southeast corridor, maybe it makes sense to land on the East Coast. But I think those are kind of -- that's more of like a 2-, 3-, 4-year kind of view.

Perfect. And I think with that, we are at time. So thank you all today for your time. You will receive a survey shortly after this webinar. If you fill it out, you will get a link to a copy of the slides. And please stay tuned for our future webinars. Thank you very much.

Thank you very much, everyone.

Thank you, everyone.

[Audio Gap] Time, we will provide our AI Outlook. So the AI boom has led to a physical buildout of chips, service data centers and power infrastructure globally, and the speed and scale of this hardware build-out is actively reshaping supply chains and logistics strategies. So join our analysts today as we assess the impacts of the AI boom to air and ocean freight markets, shipping lanes and discuss longevity of this build-out.

Now before we begin, we've seen a lot of interest in the application of AI to logistics operations. notably in shipment visibility and service improvements. So however, in this webinar will focus instead on the impact of the AI investment boom on freight markets and supply chains.

Before we begin with the content, there are just a few administrative details to cover. We will have about 45 minutes of content to share, and we will save the last 15 minutes for the Q&A session. Please submit your questions in the Q&A box, and we will do our best to address your questions during our Q&A session. A copy of the presentation, notably the slides, will also be available later. To receive a copy of the presentation, please fill out the brief survey that will be e-mailed to you shortly after this webinar. And please visit our website as well and subscribe to receive information on Onyx's future webinar.

We would also like to invite you to explore our latest insights on LinkedIn and the Vantage Point blog, which features a makes of short updates and in-depth articles. So please use the secure codes at the top to follow us either on LinkedIn or to subscribe to our Vantage Point blog.

For those of you who are not familiar with Onyx, just to do a quick introduction. Onyx is a consulting division of Expeditors and we help clients build more efficient and resilient supply chains. We are uniquely positioned to help our clients in identifying geopolitical, regulatory, economic and operational disruptors, which can then be translated into a more forward-looking and supply chain. All of these are done through advisory engagements and in projects are also tailored to client -- individual client needs, either as one-off projects or ongoing retainers. These are Onyx's services lines. In a nutshell, our service offerings cover various areas within the supply chain, like planning and strategy, trading compliance, sourcing and manufacturing. Please contact us if you have a project or a need where advisory expertise can assist.

So on to our speakers today, excited to introduce the speakers who will be presenting today, myself, Adam Karson and Suryo Nugroho. I'm a senior geopolitical analysts at Onyx, and I work primarily on the Indo-Pacific. I hold honors degrees and history of international political economy, and my work has been featured in the Pacific Forum, the Asia Times and other media outlets.

Suryo Nugroho is a seasoned policy expert with 14 years of experience across geopolitics, policy analysis and supply chain management. He currently serves as Onyx's senior geopolitical analysts leading the firm's Southeast Asia coverage.

And on to Adam Karson, Adam has more than 20 years of experience as an economic adviser to global leaders across a range of industries. He has extensive experience in the U.S., Europe and Middle East. Adam most recently worked at [ Sharon ] as a senior economist and is responsible for Onyx's macroeconomic analysis and forecasting.

So with that, I think we will cover one more slide on our content today in the webinar. So what we will cover in the next 45 minutes or so with 15 minutes for Q&A is the current state where the AI build-out stands in terms of capital, supply and delivery. We'll cover hyperscaler CapEx plans through 2030. We'll look at data center power demand as it relates to infrastructure, and then the supply chain and critical minerals for the AI supply chain. Adam will cover our possible future trajectories, bring you through 3 scenarios of AI development moving forward, a fast build scenario, a slow boot scenario and a pullback. And largely -- lastly, we'll touch on what it means for freight and what to watch.

So with that, I will hand it over to Suryo to kick us off. Thanks, Suryo.

Thanks a lot, Olivia, for the kind introduction. Good morning, everyone. So we will -- as Olivia has mentioned before, so we'll start by basically providing you with our analysis as well as insights on the current state of AI development, right? So where are we going with AI? What's the state of play of AI currently, right?

So there are 4 elements that we want to cover here. First one is about capital, right? Capital is readily available around Big 5 AI CapEx projected to exceed [ USD 1 billion ] by 2029. And then the revenue scaling as this AI companies have already started to also offer like enterprise AI functions, right? So it's -- the revenue for them is scaling up as well.

And in terms of economic impact, the economic impact is significant especially for the U.S. economy. Now AI contributes around 1.5% to 2% of the U.S. gross domestic products as well as 50% of the growth net imports, right? And supply chains are heavily concentrated and it benefits a handful of countries. We are seeing -- we're talking about Taiwan, South Korea, China and Mexico carry the value chain.

And then -- but there is one thing or one risk that need you all need to monitor, right? So we will discuss this in the second part, and Adam will talk about this later on in more in depth. So delivery is lagging from 2 different sites. The first one is on the power supply or energy supply construction. So right now, it's only about 5 gigawatts of the roughly as we are talking about components, right and equipment as well. So there are a couple of bottlenecks emerging in the AI supply chain, namely high-bandwidth memory, chips, bottlenecks as well. And then we are also seeing that packaging is also experienced -- starting to experience a bottleneck as well.

I'll talk a bit more detail about the CapEx plans, right, the response. So hyperscaler CapEx plans will grow by about 28% per annum from 2025 to 2030 after like a tremendous growth of CapEx from 2020 to 2025, around 114%. Most of the CapEx will go to inferencing. So why inferencing is so important here because right now, AI is at the pace of implementation. So now more and more people are using AI. And then inferencing is the cost of inferencing is really high, right? We're talking about because of the scale.

So inferencing happens millions or billions of time depending on the use. And because of that, they need more data center. Hence, you can see the figure on the top that data center -- CapEx data center is also increasing tremendously, right? Because they need data center, more and more data center to do inferencing, right? And then to do like a better inferencing we're talking about speed as well. So instantaneous responses, which require advanced and basically powered only GPU. So there are more investments are needed to basically acquire a more advanced a GPU for doing a better inferencing, right?

And then complexity as the model becomes more advanced and can solve complex task, it requires more computational resources, which led to more dense data centers, what we said before, need to be built. And with that, that comes with the rising cost of energy as well as the wear and tear of the hardware in this case the GPU.

So the -- you see that the CapEx plan is really high, right? So it's tremendous. So for that for -- basically for this -- the AI companies to justify the CapEx plans, they need to get high margins as well as sustained rapid growth, right? So we anonymize the company here, but this company A, B, C and so on and so forth, represents the top AI firms globally.

So when you talk about -- I think the most important graph here is the one on the right side, right? So we're talking about the revenue growth required to breakeven and NPV. So the -- there's one firm more specifically company B that relies on [indiscernible] to generate plastic ROI, right? So company B, basically, they need a smaller revenue -- lower revenue growth to basically make a breakeven for the breakeven point to reach breakeven point, right, meaning that they spend more efficiently compared to the others. So it's a different strategy, right?

And the other strategy is basically company A, C and D, they require -- they rely more on the strong revenue streams but they spend more on the infrastructure. They spent more in the data centers, and that's why they required a stronger revenue growth in order for them to justify the CapEx.

So moving on to the AI, the supply chain mapping, right? So as I've already said before, the AI supply chain is heavily concentrated in a handful of countries, more specifically here in 5 countries. So number one, the first one is Taiwan. So we're talking about chips, the leading logic and advanced packaging. So 90% is -- 90% of the sub-5-nanometer of logic output is produced in Taiwan by one company at TSMC. And then Netherlands, because Netherlands have ASML is headquartered in Netherlands, and they are the only supplier of EUV lithography at the moment.

So so yes, it's -- for the EUV lithography is pretty much concentrated in this 1 company, right? In Japan, about 50% of global silicon wafers is produced in Japan. We're talking about -- we are talking about photoresist and sub film as well. In South Korea, we're talking about high-bandwidth memory. So there are only 3 manufacturers -- 3 companies that manufacture high bandwidth memory, right? One based in the U.S. Micron Technology. And the other 2 SK Hynix and Samsung are based in Korea or a Korean company. So clearly, the South Korea is a really that high bandwidth memory is pretty much concentrated in South Korea.

And I think we cannot leave China out of it because China basically dominates -- of basically dominate critical minerals refinery. So about 99% of primary gallium refining is done in China. Also a couple of different [indiscernible] as well, talking about germanium, tungsten and Olivia will talk about this about the potential export control because the Chinese government is actively basically developing measures or measures to basically control the export of this refined critical minerals for gaining geopolitical advantage over the U.S.

Absolutely. I think Suryo has taken us to, I think, a wonderful overview of the AI industry. And the next 3 couple of slides, I think, as we finish out the context setting. Before we move on to the scenarios that Adam will take us through. Here, we're really looking at infrastructure and specifically power demand.

So a headline for us today is that data centers power demand are projected to surpass heavy industry by around 2030. And and that demand remains the highest in the U.S., China and Europe, while Southeast Asia more than doubles as well by this time frame. So when we think about it from an infrastructure perspective, for Southeast Asia, in particular, that data center power demand will be driven by hubs in Singapore and Southern Malaysia, which makes assessing, I think, the country capabilities of each of these regions to provide things like reliable power, affordable power, it becomes much more critical. And despite the fact that data center energy demand absolute growth is much smaller, they tend to cluster geographically, which makes grid integrated than other sectors like industry electric transport or appliances.

And I think as we move on to critical minerals, what we've done for you here as well is to summarize a list of cortical minerals most exposed to expert controls. So as we know, critical minerals are a pretty key upstream component of AI supply chains. And when we think about the geopolitics of the longevity of the AI build-out, critical minerals are a big part of this. As Suryo mentioned, China is very dominant in refining, and it prefers to use these upstream inputs and trade confrontation. So we've listed out here, I think, a couple of minerals that are most exposed.

Something that I really would like to highlight for us here today is that last year in 2025 in October, China kind of put in a series of export controls on critical minerals those are expected -- that pause is expected to expire in the next 2 months, which makes the upcoming Trump Summit, very critical as we will see both governments try to reach, I think, an extension of that pause and to prevent some of these export controls from coming back into place. So a key milestone, I would say, in the next 2 months.

That being said, critical minerals are -- there are workarounds that exist for mining and price coordination. But China in refining is a long-term process. So we've identified a few workarounds at the supplier and government level. We offer and, I think, tell our clients that you can work with suppliers to source pre-refined inputs from partner nations, conduct audits on geographic origin of your raw materials, coordinate on the minimum percentage of "Western refined inputs" if that is a strategic requirement. Of course, license monitoring is a big part of your strategy here, really confirming the status and the speed of export license approvals.

I think a lot of nations are also being quite active in mineral alliances and stockpiles. Specifically in the U.S., you have Project Vault strategic reserves and members will essentially subsidize the difference from the preset minimum price if China tries to crash the price of germanium or not a commodity [indiscernible] new miners. These alliances and stockpiles definitely exist as alternatives, but refining is still a chokehold that will take time to work at. A lot of that are currently underway like the Canadian Ohio pipeline, Vietnam's processing plants, a project in France. All of these will only kind of kick in, in the next couple of years and will take time to ramp up. So refining will still be a chokehold in the next few years.

So I think just to round off this section, I think we really want to maximize the amount of time available for the scenarios, which is really the key part here. For this context, we've kind of gone through an overview of the AI industry, its financial viability and then as well as some of the infrastructure and geopolitical constraints of the growth of this industry.

So with that, I'll pass it over to Adam, and he will take us through the scenarios.

All right. Thanks, Olivia. Thanks, Suryo. So that was a really good kind of background level setting of kind of where we are in the AI growth cycle and how the ecosystem is global and complex, which leads to some pretty interesting and equally complex scenarios that we need to think through and how they impact the logistics market, even the broad economy, but specifically how they impact air, ocean and trucking.

So what I'd like to start with is kind of when we think about scenarios, I think it's really useful to think about who the main actors are? What are the decisions that need to be made? And how do those kind of factors drive which path we're on? And if we take kind of a step back then and just think about the environment. I think there are 3 groups that really determine the path forward here. It's their customers, investors and suppliers. And the first 2 customers and investors are really pushing the acceleration here where you have a serial mapped out this rapid increase in the infrastructure build-out and the investor money flowing in to support those ambitions.

You have customers on the downstream side of that, consuming a lot of that AI bandwidth, consuming tokens, not just everything that we're doing individually hacking away at LLM all day, but also some enterprise solutions popping up and that's starting to scale. If you look at Anthropic's revenue over the past year, it's like gone up 10x or something in that kind of order of magnitude. So those 2 kind of actors are really full throttle pursuing the opportunities here.

Then you have the third actor suppliers, and this is everything from power to chips and equipment everything that goes into the building into the data center buildings and supports that ecosystem. And this is where things are struggling a little bit, as Suryo mentioned, kind of in the first couple of slides. where we're not quite keeping up. Now it's not doom day, it's not that this is a major obstacle today. or necessarily kind of holding out the build-out today, but this is something that we really need to pay attention to because it's -- we're probably the most immediate risks fall in terms of what pace the ecosystem can be built out.

So I just kind of want to frame that because keep those factors in mind as we talk about the scenarios and kind of where the risks and opportunities may lie.

So we came up with 3 scenarios that really turn on revenue and delivery. And I'll explain what I mean by that. But those are the 2 things that really determine how those 3 actors kind of evolve. The 3 scenarios we came up with our best case, which is a fast build. So even an acceleration from where we are today. And this means that customers are realizing accelerated productivity gains, driving a lot more revenue growth. So the 10x type growth we've seen over the past year, that continues. And that just becomes a flywheel. As that revenue grows, the hyperscalers build more, the investors put more money in there, achieving higher return on investment.

And a key here really is that in the best case scenario, it would rely on suppliers innovating past their bottlenecks, which I think is a pretty fair assumption, actually. With this much money and capital flowing into something. And if the prize is really as big as some people think it is, then the problems that need to be solved on the supply side probably aren't that complicated. They just require some dedication and some capital. So really, this is -- this best case is that kind of everything kind of comes together, you get that flat wheel, as I said.

One caveat here where it's paying attention to in the best case is the full impact really depends on the labor market outcome. And that's a whole other kind of 1-hour discussion we could have on how AI is going to impact the labor market. I'll kind of maybe touch on that a little bit as we go on, but I just want to highlight that as a key caveat for that best case scenario.

In terms of mechanisms for this best case, I think some key things worth highlighting are that. This depends on things like behind the meter generation. So if we're going to rely on public utilities, building out massive power generation and grid, I mean, that's going to -- that would take a decade or more, right? So this requires things like innovation behind the meter generation. It requires CapEx rates to remain very high, but shift over time and get a little more creative on kind of how much can be prefabricated instead of kind of build on-site construction. And also things like the siting of data centers follows the power, not necessarily the demand.

So in the U.S., we're seeing certain states kind of put some restrictions up around what data centers can be built and whether or not contingencies on whether they have impact on the grid. So I think you'll see more and more data centers kind of move to geographies that have existing excess capacity on the power side.

So moving across the screen here so that's the best case. Base case is a slower build and kind of a plateau or even a bit of a slowdown from where we are. Thinking like 2026, 2027 is probably sort of the peak rate at which we can build out the infrastructure. So in this case, there are a couple of conditions, right? So customers are slower to achieve these scalable productivity gains. So there's some -- there's certainly some return on investment, but it's -- the capital comes at a higher cost and a lower ROI than the best case. And suppliers are more in a management mode. They're managing constraints that don't really get ahead of them.

And so therefore, the build out kind of plateaus or slows in the next year or 2. The key mechanisms here that construction schedules are kind of slipping. We're seeing these like longer and longer lead times for some of the key infrastructure components and that just kind of becomes the norm. CapEx growth rate certainly decelerate from the super rapid growth we've seen over the past couple of years.

And then back to the constraints, I think here, we would see the constraints evolve, right? Like right now, you're seeing tightness from memory and the prices are shooting up, then probably now also for electrical equipment next, it might move to the grid. So you'd see kind of this whack-a-mole approach to trying to deal with these constraints.

Then you have the worst case scenario, which actually comes in kind of 2 forms, you could have either a demand-side shock or a supply side shock. And this is just where the economics of the system kind of break down. And so for example, on the demand side, you could see a situation where the economics for the consumer just don't make a lot of sense. And they're not -- because they're not achieving productivity gains. So they pull back on some of their AI spending or vice versa, the economics for the big developers, the Frontier kind of models don't work either.

I think it's very plausible where there's a situation that in order to achieve scalable productivity gains, sort of at an enterprise level, you don't necessarily need the frontier models and pay that premium for that -- for those models. And actually, the models that are more like the fast followers that have a very clear business case and are solving very kind of very discrete problems. Those are the ones that kind of build up scale and -- but there's not a really strong revenue model behind those because they're more commoditized. So in that kind of environment, you would see a much lower return on investment, investors kind of pulling funding or maybe even facing some losses on some other bets. So that's kind of the demand side.

On the flip side, you could have a supply side problem. Olivia touched on some of the constraints the policy-driven constraints that we might see in kind of the AI ecosystem going forward, specifically around critical minerals. Now this is one where maybe the models are working well. Productivity is going -- is scaling up, but there just isn't enough supply capacity to keep driving out the infrastructure investment and the cost of those materials becomes prohibitively expensive. So the -- the mechanisms here are that to pay attention to are the revenue -- either revenue falters and/or there's some supply side issue that just finally gives way. And then the financing becomes tested. And then when kind of the tide rolls out, you have some very expensive assets with long lives that don't match the debt that was needed to finance it. And then also to watch out -- watch out for the critical mineral export controls, whether those were churn or not could be a big turning point.

So those are the 3 scenarios. Now what do we make of them? How do we think about the impacts here? And I've tried to break this down into 2 major buckets, the economic impacts and then the logistics and supply chain impacts. And let me preface this with saying these are the direct sort of first order impacts, okay? So specifically related to the scale and pace of capital expenditures. Later on, I have a slide on sort of how this sort of multiplies or kind of multiplies the indirect impacts across the economy.

So for example, just -- just kind of foreshadow that. In the worst-case scenario, if you were to have a collapse in capital expenditures, you would also have other parts of the economy kind of falling as well. You have like these multiplier effects. Staying with the best case scenario, you get that flywheel effect, you're going to have all kinds of impacts on the labor market, revenue growth, et cetera. So you have a lot of indirect impacts as well.

But again, let's just focus here on first order impacts, what happens to the economy and to the logistics markets under each scenario. I won't read everything on here, but just to highlight a few things. First, if we compare the economic impacts in the best case scenario, here's where you get the productivity gains really accelerating and you get a very material boost to U.S. GDP growth for like the next decade -- upwards of -- I think a conservative estimate would be, say, 0.5 percentage, 0.6 percentage points per year above baseline growth for the next decade. So that's -- that may not sound like a lot, but if you compound that over 10 years, that's a pretty big jump in the size of the U.S. economy. Again, the cash share is what happens with the labor market depending on what those indirect impacts are you could have something above or below that 0.6.

The base case is our baseline view, right? So here, we're looking at GDP growth in the low 2s over the next decade. I think one thing to pay attention to in the base case is that inflation increases before output. So go back to the mechanisms of this scenario where you have suppliers dealing kind of triaging constraints as they come along which means you're going to have kind of continued waves of inflationary pressure, like kind of what we've seen over the past year or 2. And then in the worst case scenario, whether you have a demand shock or supply shop, do you kind of get different outcomes. The demand shock, I think, is probably -- I would argue, than more likely. And here's where you get, I think, much more negative impacts to the U.S. and global economy where you're talking about potentially putting at risk the whole financial model that's kind of backing this endeavor. And if you get significant write-downs, equity repricing here's where the direct impacts really multiply across the economy and you get -- you'd probably get a recession at the end of the day.

And then for the worst-case scenario, this is really more of kind of an inflationary scenario in addition to marginally slower growth. So then if you look at that last row, what happens to logistics and supply chains -- in the best case scenario, this is really where freight kind of takes off, especially heavy oversized ocean cargo becomes a real growth engine because we have to build out the really heavy physical infrastructure on the power generation and equipment side. I think in the base case, the air market is really kind of thing to watch that stays tight for the next year or 2, but then may normalize, right? If we're essentially kind of plateauing on how fast we can build out the infrastructure, then the cargo market balance kind of mirrors that over the next couple of years.

One thing to pay attention there is project cargo. There's long lead times there. So that kind of cargo probably has a longer kind of a longer peak cycle over the next -- maybe even '28, '29.

And then in the worst case scenarios, here's where you get volumes falling. Again, tracking the investment cycle, volumes and rates fall together commensurately across both the kind of chip and technology side and then also the kind of power and infrastructure side. And so both air and ocean are hit in that scenario, air is hit disproportionately.

Let me move on to onto this side. So kind of going into this in a little more detail, and this is kind of mirrors the last slide a little bit, but going into slicing it a couple of different ways to think about what's improving or are getting worse in each scenario. Again, I won't read everything here. I just want to highlight a couple of things. And most importantly, I think power is the only input that in -- basically it gets worse in every scenario. And that -- and really in the short run, power, we're short on supply. The best case scenario assumes that, that kind of catches up over the medium term becomes more kind of a comfortable supply-demand imbalance over the long term. But in the base case, this is -- that's something that really is a stress point and creates those constraints that I've spoken about.

I think another thing to kind of pay attention to is how sourcing changes. And by sourcing, I mean, diversification and whether or not we can kind of debottleneck or derisk some of the sourcing that is happening right now. And -- in the best case scenario, we assume that kind of naturally diversification kind of naturally happens as the ecosystem evolves and gets a little more innovative and creative on where we're sourcing from. But in the base case scenario and certainly in the worst-case scenarios, that diversification doesn't really happen much at all. And so we're kind of living with some of the inherent risks in the AI supply chain that we have today. In particular, I would focus on Taiwan as being the main source of chips.

And then what I really wanted to get to here is kind of more direct impacts on the logistics market. And I'll just spend a minute on this slide. And as I mentioned, I think air has hit the hardest, right? So when we think about where the volumes are today, I think the numbers I've seen suggest that about, I think it was 7% or 8% of global air cargo is related to AI and that's on a volume basis. On a value basis, it's something like 40%, 50%, it's some crazy big number. So when we think about how -- and then on the ocean side, it's probably less than 1%. North America domestic trucking, probably 1%, but kind of concentrated in particular segments of trucking. So there are some areas of concentration there. But when we think about how these scenarios impact logistics, air has definitely hit the hardest. So the -- just because of the scale, right? So if you have a pullback in CapEx spending, you would have a commensurate decline in air freight and that 7% of volume become some significantly lower number.

So these are just kind of directional what to think about, what would happen on the demand side, growth for airfreight, ocean container freight, project cargo and heavy haul and then trucking, specifically North American cross-border and last mile trucking. And obviously, we're in a kind of when you look across the board, we're in a relatively kind of tight market, certainly in air, ocean, trucking, not all of that is related to AI. The -- we've held other webinars on the geopolitical factors driving that market tightness. But in the best case scenario, while it might be the best case scenario for sort of anyone playing in the AI ecosystem, not a best case scenario for anyone outside trying to ship things because it just means kind of tight market for the foreseeable future upward pressure on rates.

Base case, you kind of get a milder version of that and potentially in the long term kind of a neutral impact. And by long term, I mean, say, 5 years out. And then in the worst case scenario, that's where volumes kind of really take a big hit and rates come down commensurately.

Now one thing I want to kind of highlight books -- there we go. How we calibrate those were obviously qualitative kind of measure, but we can calibrate this a little more precisely. And I think the dot-com era provides a useful comparison to calibrate the downside scenario. So if we look back to the telecom sector 2000 and 2003, spending -- CapEx spending fell about 80% from its peak and then took about a decade to soak up the fiber optic glut that we built out.

So if we just kind of take that as a very rough example, I think a conservative estimate then would be in a worst-case scenario, AI CapEx falls by, say, by half, by 50%. AI-related goods, as I said, we're about 7% of global air cargo volume in 2025. So a 50% CapEx reduction means that it goes from 7% market share down to 3.5% market share. So all else equal, air cargo volumes would fall 3.5%, okay? So in a 1 year, that's a significant hit, right? That creates some looseness in the market. And certainly, the transpacific lanes are much more exposed to U.S. high-tech air imports. So you would see a lot more loose on particular lanes.

But just globally, 3.5% is something that -- a 3.5% decline is something that could be absorbed over a year or 2, like it's not necessarily sort of an existential issue for air cargo. And then when you look at ocean and trucking, when the volumes that we're seeing today are fairly negligible, 1% probably less than 1% of global volumes are related to on ocean. So this is not enough to move the market really.

Now I'll get to the indirect impacts on the next slide, which probably would be big enough to move the market. But again, just the direct impacts, not a major shock to ocean. On cross-border trucking, you could see more of an impact there and I think, in particular, on flatbed and heavy haul. So if you're kind of -- if you're using those services, that might be something that gets hit a little bit harder, and you could see some slackness in that segment of the market.

Now I've talked about the -- talked about direct impacts and now the indirect impacts, I think, is where the real money is here. So this is where you get a compounding of both upside and downside. And so when we look at the best case, if you are getting this direct impact that you have some modest acceleration in CapEx and project cargo, air cargo, airfreight, et cetera. But then you get the flywheel effect that spills out across the rest of the economy and you have the U.S. economy just consistently growing at 3% or higher. That obviously has spillover effects into other sectors of the economy, in particular, consumer spending, and then you get even more rapid growth.

So I think you get spillover effects that compounds not necessarily evenly, but you get much more kind of positive upside for ocean in that scenario as well. Base case is kind of what it is. Not -- there's not a whole lot there in terms of indirect impacts because we're kind of -- it kind of looks like the world does today. So you get some kind of positives and negatives positives on maybe the consumer side, some negatives because the AI CapEx plateaus maybe even shrink a little bit.

So we're basically, we kind of end up where we are today. Then on the worst-case scenario, I'm highlighting the demand side version of that worst case is that if you get a -- again, so you get that 50% reduction in CapEx right now, the current level and growth rate of AI CapEx is contributing somewhere between like 1/3 and 1/2 of U.S. GDP growth. Those that sort of third-party range of forecast. My forecast is closer to 50%. So if the U.S. economy right today is growing at 2%, a full percentage point of that is coming from AI. So if you basically get rid of that, and the sector is not only flatlining, but actually declining, the direct impacts alone might put us in to a recession, certainly would probably flatline growth.

But if that happens, you have potential -- you have equity -- bear equity market, you have bonds getting defaulted on. You have kind of ripple effects throughout the investment community, the consumer sector, this is almost definitely a recession, probably worse than what we saw during the dot-com bubble. And if that's the case, then you have these compounding effects and impact not only to air cargo, but then to ocean cargo as well because retail sales are probably going to decline for a solid 2, 3, 4 quarters.

So I just want to highlight here that like these indirect impacts really compound, both on sort of the book ends of these scenarios.

Now let me end up quickly with a couple of slides, then we can get to Q&A. So just a couple of things to watch over the next year or so. First, always pay attention to memory prices and pension-specific air cargo and volume rate. I think those are sort of the canary in the coal lines of how fast things are moving and is the buildout kind of keeping pace or even accelerating going forward. But the next thing to really watch after that is what happens with Chinese export controls in November? Is that pause, extended or not? Then we want to look at the power generation order books at year-end. This is a great forward-looking indicator of where -- whether things are staying hot or cooling down. And then when we get into February, we want to look at the fourth quarter plans for the Q4 2026 plans and then kind of 2027 construction starts. What does that pace of growth look like?

And then finally, what I'll end you with here is 2 sets of conclusions depending on where you sit. Basically, are you in the AI value chain or not? If you are, things to kind of pay attention to are the wait time for power equipment is not going to get shorter. We think, for the time being, chips and packaging stay in Taiwan, I think medium to long term, that risk could -- we could derisk that as we're kind of building out the North American capacity. But not quite yet. Mexico stays as a strong U.S. assembly hub and that sort of cross-border lanes or something to really pay attention to.

And then there's a lot of talk about racks getting kind of more debts, heavier, hotter. And so the -- it requires more power and cooling freight per server. So that just more demand for power and cooling. If you're not an AI value chain, the bottom line here is you're competing with AI for the same capacity, right? So air and flatbed and cross-border trucking in particular are going to remain hot in most scenarios. AI CapEx is really kind of setting the rate. That's kind of that's the marginal good being moved right now, and that's what sets the rate and air spot rates are up 38%. Not all of that is AI. Obviously, there's the geopolitical stuff going on in the Middle East. But that demand just kind of keeps that upward pressure.

And then the power and component costs, although you don't have -- you're not -- may not have direct exposure to that, that ends up coming -- you end up feeling that no matter what. So electricity prices are up, memory prices are up. So say, you're in the auto sector, looking for chips. I mean these are the cost pressures are only pointing up to some of these key inputs.

And then just paying attention if there's a pullback. So if we're in a downside scenario, that's really kind of the main driver of rates coming down. But the flip side of that is that remember those indirect impacts. If we fall out of that worst-case scenario, you're -- depending on where you sit in the economy, you may get kind of rolled up in those indirect impacts as well.

Okay. So I want a few minutes over. We have about 10 -- I think 10 minutes for Q&A. So I will stop sharing and we can go to Q&A.

Absolutely. We've got a long list of questions here. And first of all, thanks, Adam, that is a wonderful set of scenarios. And I'd like to kick off a question here in the Q&A box. I take a little bit of liberty here in rephrasing it. But whatever we assume that the AI infrastructure build-out is a government-backed adventure, right? And it's not strictly based on market dynamics, but rather on strategic capability. How would this kind of affect the stability or the time frame of the AI infrastructure build-out? I think either for Adam or for Suryo?

I love that question. I'll take a stab at it. This is something I've been thinking about a little bit as we prepared for this webinar. I think I think there's a strong case that you could make that parts of the AI ecosystem are -- could be treated like a public utility. One hypothesis would be -- this is not a recommendation. It's just a hypothesis, is that frontier models could be treated as a public good and funded -- and just have a completely different funding mechanism with a lot of taxpayer dollars. And there's a ton of precedent for something like that.

Think of like how NASA operates, right. You go to the moon, all that's publicly financed, but all the benefits that spill out of that, all the technologies that are created as you kind of you embark on projects like that. So I think you could make a very good argument that the Frontier should be at least partially public financed. And that would also kind of open the door for some different tax models -- so how you prepare for -- how we prepare for labor market disruptions kind of like the core layered into that.

So imagine that world where that kind of financing mechanism exists. I think that would add a ton of stability to the AI infrastructure build-outs and alleviate some of that pressure on the margin and allow more of a focus on really the enterprise scalability, fast follower models that are much less expensive to operate and consume. And I think you have a very -- so you kind of have a bifurcated view of the market that way. And I think it's much -- in my mind, it's easier for investors to have a clear return on investment if they're not having to participate on the frontier all the time.

So I think it's really I love that question, and I think it's a kind of a whole field study that should -- is kind of emerging right now. Suryo, I don't know if I made any sense at all to my answer, but...

Yes, I think you made a really good point here, Adam. And a couple of countries have already started that, in fact, like the U.K., for example, is -- I mean the mark about [ 1.1 billion ] for developing national AI supercomputer, right? So this is to expand national computing capacity by 2030. So that's a clear indication there that state has already started embarking on this journey, right? And then we are also seeing a couple of different countries Canada, France, India and the Gulf countries, like the UAE, Saudi Arabia, they have already started embarking on AI infrastructure as well, right?

And a couple of them they have really started also public private funding is basically to reduce the risk of private investment in Frontier sector as you say it, Adam. So yes, I think it's getting there. I think the traction is moving forward towards that direction. I can totally see that.

Absolutely. And we've got a lot of questions which I think driving as a very positive sign. I'll take this one very, very quickly. What are the countermeasures companies can take regarding China's export controls regarding rates? What is the lead time to have a second country option?

What may be helpful is a slide I think we presented earlier on a couple of workers. The first thing that I think we can really advise is to have visibility really into the upstream supply chain. So really having audits on the geographic origins of your raw materials? And alternatively, I think really staying on top on when those export licenses are passed, when they're being approved. Right now, I think export licensing -- the export licensing mechanism is still ongoing and [ MOFCOM ] is approving those. So just really staying on top on how long it takes for those licenses to be approved.

Lead times, I think, is a very personal question. Very personal as a company, very personal to the commodity and the product, but we will highlight that any kind of sustained either at the government level or at the company level efforts to diversify sourcing of these raw materials outside of China is really quite limited because of the long gestation period because of China's dominance and refining. So it's absolutely possible to have alternative options. It's just that you may not get as much of that diversification as we would possibly like to.

And I think with that, we got one more question on what U.S. ports will see the largest increase in incoming goods in 2027 due to the importing of goods in support of AI, either directly or indirectly?

I'll take a stab at that. So my understanding is that the ports that have seen the biggest volumes so far in the U.S. are San Francisco, L.A., Dallas, [ Del Fort ] Worth. What else, Chicago maybe. And so I don't -- I'm not sure I would necessarily see a reason why those locations would change in the next 12 months. I think you can -- as you look out a bit longer, I think maybe there's a question that we can look into of where our data centers were likely to pop up over the medium term. I think the best outlook I've probably heard is that really pay attention to the [indiscernible], to kind of the middle of the country and then the Southeast.

So if you think of like that kind of an L-shape corridor, where data centers are most likely to be located, what ports -- a lot of the stuff is coming in, all the tech stuff coming in by air, so what airports make the most sense. And then the heavy kind of power infrastructure that's going to come in by ocean and then have to go on trains or trucks. So like I mean that's -- I think certainly, L.A.-Long Beach and then maybe if we're building out the Southeast corridor maybe it makes sense to land on the East Coast. But I think those are kind of -- that's more like a 2-, 3-, 4-year kind of view.

Perfect. And I think with that, we are at time. So thank you all today for your time. You will receive a survey shortly after this webinar. If you fill it out, you will get a link to a copy of the slides. And please stay tuned for our future webinars. Thank you very much.

Thank you very much, everyone.

Thank you, everyone.

Good morning, everyone, and welcome to our webinar today. My name is Olivia Tan, and I am a senior geopolitical analyst at Onyx. So we offer a different webinar topic each month. And this time, we will provide our AI outlook. So the AI boom has led to a physical buildout of chips, service, data centers and power infrastructure globally, and the speed and scale of this hardware build-out is actively reshaping supply chains and logistics strategies.

So join our analysts today as we assess the impacts of the AI boom to air and ocean freight markets, shipping lanes and discuss longevity of this build-out. Now before we begin, we've seen a lot of interest in the application of AI to logistics operations, notably in shipment visibility and service improvements. So however, in this webinar we'll focus instead on the impact of the AI investment boom on freight markets and supply chains.

Before we begin with the content, there are just a few administrative details to cover. We will have about 45 minutes of content to share, and we will save the last 15 minutes for the Q&A session. Please submit your questions in the Q&A box, and we will do our best to address your questions during our Q&A session. A copy of the presentation, notably the slides, will also be available later. To receive a copy of the presentation, please fill out the brief survey that will be e-mailed to you shortly after this webinar. And please visit our website as well and subscribe to receive information on Onyx' future webinar.

We would also like to invite you to explore our latest insights on LinkedIn and the Vantage Point blog, which features a makes offshore updates and in-depth articles. So please use the QR codes at the top to follow us either on LinkedIn or to subscribe to our Vantage Point blog?

For those of you who are not familiar with Onyx, just to do a quick introduction, Onyx is a consulting division of Expeditors, and we help clients build more efficient and resilient supply chains. We are uniquely positioned to help our clients in identifying geopolitical, regulatory, economic and operational disruptors, which can then be translated into a more forward-looking and reply change. All of these are done through advisory engagements and is. Projects are also tailored to client -- individual client needs, either as one-off projects or ongoing retainers. These are Onyx' services lines. In a nutshell, our service offerings cover various areas within the supply chain, like planning and strategy, trading compliance, sourcing and manufacturing. Please contact us if you have a project or a need where our advisory expertise can assist.

So on to our speakers today, I'm excited to introduce the speakers who will be presenting today, myself, Adam Karson and Suryo Nugroho. I'm a senior geopolitical analysts and Onyx, and I work primarily on the Indo-Pacific. I hold honors degrees and history of international political economy, and my work has been featured in the Pacific Forum, the Asia Times and other media outlets. Suryo Nugroho is a seasoned policy expert with 14 years of experience across geopolitics, policy analysis and supply chain management. He currently serves as Onyx' senior geopolitical analysts leading the firm's Southeast Asia coverage. And on to Adam Karson, Adam has more than 20 years of experience as an economic adviser to global leaders across a range of industries. He has extensive experience in the U.S., Europe and Middle East. Adam most recently worked at Chevron as a senior economist and is responsible for Onyx' macroeconomic analysis and forecasting.

So with that, I think we will cover 1 more slide on our content today in the webinar. So what we will cover in the next 45 minutes or so with 15 minutes for Q&A is the current state where the AI build-out stands in terms of capital, supply and delivery. We'll cover hyperscaler CapEx plans through 2030. We'll look at data center power demand as it relates to infrastructure and then the supply chain and critical minerals for the supply chain. Adam will cover our possible future trajectories, bring you through three scenarios of AI development moving forward, a fast-build scenario, a slow-built scenario and a pullback. And lastly, he'll touch on what it means for freight and what to watch.

So with that, I will hand it over to Suryo to kick us off. Thanks, Suryo.

Thanks a lot, Olivia, for the kind introduction. So good morning, everyone. So we will -- as Olivia has mentioned before, so we will start by basically providing you with our analysis as well as insights on the current state of AI development, right? So where are we going with AI? What's the state of play of AI currently, right? So there are four elements that we want to cover here. First one is about capital, right? Capital is readily available around big 5 data AI CapEx projected to exceed USD 1 trillion by 2029. And then the revenue scaling as this AI companies have already started to also offer like enterprise AI functions, right? So it's the revenue for them is scaling up as well. And in terms of economic impact, the economic impact is significant especially for the U.S. economy.

Now AI contributes around 1.5% to 2% of the U.S. gross domestic products as well as 50% of the growth net imports, right? And supply chains are heavily concentrated, and it benefits a handful of countries. We are seeing -- we're talking about Taiwan, South Korea, China and Mexico, carry the value chain. And then -- but there is one thing or one risk that need -- you all need to monitor, right? So we will discuss this in the second part, and Adam will talk about this later on in more in depth. So delivery is lagging from two different sides. The first one is on the power supply or energy supply construction. So right now, it's only about 5 gigawatts of the roughly like 16 gigawatts of U.S. capacity announced for 2026 as well as we are talking about components, right, and equipment as well. So there are a couple of bottlenecks emerging in the AI supply chain, namely high-bandwidth memory, chips, bottlenecks as well. And then we are also seeing that packaging is also experienced -- starting to experience a bottleneck as well.

So moving on to -- I'll talk a bit more detail about the CapEx plans, right, the first box. So hyperscaler CapEx plans will grow by about 28% per annum from 2025 to 2030 after like a tremendous growth of CapEx from 2020 to 2025, around 114%. This -- most of the CapEx will go to inferencing. So why why inferencing is so important here because right now, AI is at the pace of implementation. So now more and more people are using AI. And then inferencing is the cost of inferencing is really high, right? We're talking about because of the scale. So inferencing happens millions or billions of time depending on the use. And because of that, they need more data center. Hence, you can see the figure on the top that data center -- CapEx on data center is also increasing tremendously, right? Because they need data center, more and more data center to do inferencing, right?

And then to do like a better inferencing we're talking about speed as well. So instantaneous responses, which require advanced and basically power-hungry GPU. So there more investments are needed to basically acquire a more advance a GPU for doing a better inferencing, right? And then complexity as the model becomes more advanced and can solve complex task, it requires more computational resources, which led to more intense data centers, what we said before, need to be built. And with that, that comes with the rising cost of energy as well as the wear and tear of the hardware, in this case, the GPU.

So the -- you see that the CapEx plan is really high, right? So it's tremendous. So for that for -- basically, for this -- the AI companies to justify the CapEx plans, they need to get high margins as well as sustained rapid growth, right? So we anonymize the company here, but this company A, B, C and so on and so forth represents the top AI firms, globally. So when you talk about -- I think the most important graph here is the one on the right side, right? So we're talking about the revenue growth required to break even and NPV. So there's one firm more specifically company B that relies on frugality to generate mastic ROI, right? So company B, basically, they need a smaller revenue -- lower revenue growth to basically make a breakeven -- for the breakeven point -- to reach breakeven point, right, meaning that they spend more efficiently compared to the others. So it's a different strategy, right? And the other strategy is basically company A, C and D, they require -- they rely more on the strong revenue streams, but they spend more on the infrastructure. They spend more in the data centers, and that's why they required a stronger revenue growth in order for them to justify the CapEx.

So moving on to the AI supply chain mapping, right? So as I've already said before, the AI supply chain is heavily concentrated in a handful of countries, more specifically here in 5 countries. So number one -- the first one is Taiwan. So we're talking about chips, the leading edge logic and advanced packaging. So 90% is -- 90% of the sub-5-nanometer of logic output is produced in Taiwan by 1 company, TSMC. And in Netherlands because Netherlands -- ASML is headquartered in Netherlands, and they are the only supplier of EUV lithography at the moment. So yes, it's -- for the EUV lithography is pretty much concentrated in this one company right? In Japan, about 50% of global silicon wafers is produced in Japan. We're talking about photoresist and sub film as well. In South Korea, we're talking about high bandwidth memory. So there are only three manufacturers -- three companies that manufacture high-bandwidth memory, right? One based in the U.S., Microtechnology and the other two SKHynix and Samsung are based in Korea or a Korean company. So clearly, the South Korea is -- I mean, really the high-bandwidth memory is pretty much concentrated in South Korea.

And I think we cannot leave China out of it because China basically dominates of basically Domino's critical minerals refinery. So about 99% of primary gallium refining is done in China. Also a couple of different rates as well, talking about germanium, tungsten. And Olivia will talk about this about the potential export control because the Chinese government is actively basically developing measures or -- yes, measures to basically control the export of this refined critical minerals for gaining geopolitical advantage over the U.S.

Absolutely. I think Suryo has taken us to, I think, a wonderful overview of the AI industry. And the next three couple of slides, I think, as we finish out the context setting before we move on to the scenarios that Adam will take us through. Here, we're really looking at infrastructure and specifically power demand. So a headline for us today is that data centers power demand are projected to surpass heavy industry by around 2030. And that demand remains the highest in the U.S., China and Europe, while Southeast Asia more than doubles as well by this time frame. So when we think about it from an infrastructure perspective, for Southeast Asia, in particular, that data center power demand will be driven by hubs in Singapore and Southern Malaysia, which makes assessing, I think, the country capabilities of each of these regions to provide things like reliable power, affordable power, it becomes much more critical.

And despite the fact that data center energy demand absolute growth is much smaller, they tend to cluster geographically, which makes grid integrated than other sectors like industry electric transport or appliances. And I think as we move on to critical minerals, what we've done for you here as well is to summarize a list of cortical minerals most exposed to export controls. So as we know, critical minerals are a pretty key upstream component of AI supply chains. And when we think about the geopolitics of the longevity of the AI build-out, critical minerals are a big part of this. As Suryo mentioned, China is very dominant in refining, and it prefers to use these upstream inputs and trade confrontation. So we've listed out here, I think, a couple of minerals that are most exposed. Something that I really would like to highlight for us here today is that -- last year in 2025 in October, China kind of put in a series of export controls on critical minerals. Those are expected -- that pause is expected to expire in the next two months, which makes the upcoming Trump-Xi Summit very critical. -- as we will see both governments try to reach, I think, an extension of that pause and to prevent some of these expert controls from coming back into place. So a key milestone, I would say, in the next two months.

That being said, critical minerals are -- there are workarounds that exist for mining and price coordination, but diverse China in refining is a long-term process. So we've identified a few workarounds at the supplier and government level. We offer and, I think, tell our clients that you can work with suppliers to stores re-refined inputs from partner nations, conduct audits on geographic origin of your raw materials, coordinate on the minimum percentage of "Western refined inputs," if that is a strategic requirement. Of course, license monitoring is a big part of your strategy here, really confirming the status and the speed of export license approvals. I think a lot of nations are also being quite active in mineral alliances and stockpiles. Specifically in the U.S., you have project Vault strategic reserves and members will essentially subsidize the difference from the preset minimum price if China tries to crash the price of germanium or another commodity crowd-out new miners.

So these alliances and stockpiles definitely exist as alternatives, but refining is still a charcoal that will take time to work [indiscernible]. A lot of that are currently underway, like the Canadian Ohio pipeline, Vietnam's processing plants, a project in France, all of these will only kind of kick in, in the next couple of years and will take time to ramp up. So refining will still be a to charcoal in the next few years.

So I think just to round off this section, I think we really want to maximize the amount of time available for the scenarios, which is really the key part here. For this context, we've kind of gone through an overview of the AI industry, its financial viability and then as well as some of the infrastructure and geopolitical constraints of the growth of this industry.

So with that, I'll pass it over to Adam, and he will take us through the scenarios.

All right. Thanks, Olivia. Thanks, Suryo. So I thought was a really good kind of background level setting of kind of where we are in the AI growth cycle, and how the ecosystem is global and complex, which leads to some pretty interesting and equally complex scenarios that we need to think through and how they impact the logistics market, even the broad economy, but specifically how they impact air, ocean and trucking.

So what I'd like to start with is kind of when we think about scenarios, I think it's really useful to think about who the main actors are, what are the decisions that need to be made, and how do those kind of factors drive which path we're on? And if we take kind of a step back then and just think about the environment, I think there are three groups that really determine the path forward here. It's their customers, investors and suppliers. And the first two customers and investors are really pushing the acceleration here where you have a urea mapped out this rapid increase in the infrastructure build-out and the investor money flowing in to support those ambitions you have customers on the downstream side of that, consuming a lot of that AI bandwidth, consuming tokens, not just everything that we're doing individually hacking away at LLM all day, but also some enterprise solutions popping up, and that's starting to scale. If you look at Anthropics revenue over the past year, it's like gone up 10x or something in that kind of order of magnitude.

So those two kind of actors are really full throttle pursuing the opportunities here. Then you have the third actor suppliers, and this is everything from power to chips and equipment everything that goes into the building into the data center buildings and supports that ecosystem. And this is where things are struggling a little bit, as Suryo mentioned, kind of, in the first couple of slides, where we're not quite keeping up. Now it's not doom that it's not that this is a major obstacle today or necessarily kind of holding out the build-out today, but this is something that we really need to pay attention to because it's -- we're probably the most immediate risks fall in terms of what pace the ecosystem can be built out.

So I just kind of want to frame that because keep those factors in mind as we talk about the scenarios and kind of where the risks and opportunities may lie. So we came up with three scenarios that really turn on revenue and delivery. And I'll explain what I mean by that. But those are the two things that really determine how those three actors kind of evolve. The three centers we came up with our best case, which is a fast build. So even an acceleration from where we are today. And this means that customers are realizing accelerated productivity gains, driving a lot more revenue growth. So the 10x type growth we've seen over the past year, that continues. And that just becomes a flywheel. As that revenue grows, the hyperscalers build more, the investors put more money in there, achieving higher return on investment. And a key here really is that in the best case scenario, it would rely on suppliers innovating past their bottlenecks, which I think is a pretty fair assumption actually with this much money and capital flowing into something and if the prize is really as big as some people think it is, then the problems that need to be solved on the supply side probably aren't that complicated.

They just require some dedication and some capital. So really, this best case is that kind of everything kind of comes together you get that, that flywheel as I said. One caveat here where it's paying attention to in the best case is the full impact really depends on the labor market outcome. And that's a whole other kind of 1-hour discussion we could have on how AI is going to impact the labor market. I'll kind of maybe touch on that a little bit as we go on. But I just want to highlight that as a key caveat for that best case scenario.

In terms of mechanisms for this best case, I think some key things worth highlighting are that. This depends on things like behind the meter generation. So if we're going to rely on public utilities, building out massive power generation and grid, I mean that's going to -- that would take a decade or more, right? So this requires things like innovation behind the meter generation. It requires CapEx rates to remain very high, but shift over time and get a little more creative on kind of how much can be prefabricated instead of kind of build on-site construction. And also things like the siting of data centers follows the power, not necessarily the demand. So in the U.S., we're seeing certain states kind of put some restrictions up around what data centers can be built and whether or not contingencies on whether they have an impact on the grid. So I think you'll see more and more data centers kind of move to geographies that have existing excess capacity on the power side.

So moving across the screen here so that's the best case. Base case is a slower build and kind of a plateau or even a bit of a slowdown from where we are. Thinking like 2026, 2027 is probably sort of the peak rate at which we can build out the infrastructure. So in this case, there are a couple of conditions, right? So customers are slower to achieve these scalable productivity gains. So there's some -- there's certainly some return on investment, but it's -- the capital comes at a higher cost and a lower ROI than the best case. And suppliers are more in a management mode. They're managing constraints that don't really get ahead of them.

And so therefore, the buildout kind of plateaus or slows in the next year or the key mechanisms here that construction schedules are kind of slipping. We're seeing these like longer and longer lead times for some of the key infrastructure components and that just kind of becomes the norm. CapEx growth rate certainly decelerate from the super rapid growth we've seen over the past couple of years. And then back to the constraints, I think here, we would see the constraints evolve, right? Like right now, you're seeing tightness for memory and the prices are shooting up, then probably now also for electrical equipment.

Next, it might move to the grid. So you'd see kind of this whack-a-mole approach to trying to deal with these constraints. Then you have the worst case scenario, which actually comes in kind of two forms, you could have either a demand-side shock or a supply side shock. And this is just where the economics of the system kind of break down. And so for example, on the demand side, you could see a situation where the economics for the consumer just don't make a lot of sense. And they're not -- because they're not achieving productivity gains. So they pull back on some of their AI spending or vice versa, the economics for the big developers, the Frontier kind of models don't work either. I think it's very plausible where there's a situation that in order to achieve scalable productivity gains, sort of at an enterprise level, you don't necessarily need the frontier models and pay that premium for that -- for those models.

And actually, the models that are more like the fast followers that have a very clear business case and are solving very kind of very discrete problems. Those are the ones that kind of build up scale and -- but there's not a really strong revenue model behind those because they're more commoditized. So in that kind of environment, you would see a much lower return on investment, investors kind of pulling funding or maybe even facing some losses on some other bets. So that's kind of the demand side. On the flip side, you could have a supply side problem. Olivia touched on some of the constraints the policy-driven constraints that we might see in kind of the AI ecosystem going forward, specifically around critical minerals. Now this is one where maybe the models are working well. Productivity is going -- is scaling up, but there just isn't enough supply capacity to keep driving out the infrastructure investment and the cost of those materials becomes prohibitively expensive. So the mechanisms here are that to pay attention to are the revenue -- either revenue falters and/or there's some supply side issue that just finally gives way.

And then the financing becomes tested. And then when kind of the tide rolls out, you have some very expensive assets with long lives that don't match the debt that was needed to finance it. And then also to watch out for the critical mineral export controls, whether those were churn or not could be a big turning point.

So those are the three scenarios. Now what do we make of them? How do we think about the impacts here? And I'm trying to break this down into two major buckets, the economic impacts and then the logistics and supply chain impacts. And let me preface this with saying these are the direct sort of first order impacts, okay? So specifically related to the scale and pace of capital expenditures. Later on, I have a slide on sort of how this sort of multiplies or kind of multiplies the indirect impacts across the economy. So for example, just a kind of foreshadow that. In the worst-case scenario, if you were to have a collapse in capital expenditures, you would also have other parts of the economy kind of falling as well. You have like these multiplier effects. Stay with the best case scenario, you get that flywheel effect, you're going to have all kinds of impacts on the labor market, revenue growth, et cetera. So you have a lot of indirect impacts as well.

But again, let's just focus here on the first order impacts, what happens to the economy and to the logistics markets under each scenario. I won't read everything on here, but just to highlight a few things. First, if we compare the economic impacts and the best case scenario, curious where you get the productivity gains really accelerating, and you get a very material boost to U.S. GDP growth for like the next decade, upwards of -- I think a conservative estimate would be, say, 0.5 percentage point or 0.6 percentage points per year above baseline growth for the next decade. So that's -- that may not sound like a lot, but if you compound that over 10 years, that's a pretty big jump in the size of the U.S. economy. Again, the cat share is what happens with the labor market depending on what those indirect impacts are, you could have something above or below that 0.6.

The base case is our baseline view, right? So here, we're looking at GDP growth in the low 2s over the next decade. I think one thing to pay attention to in the base case is that inflation increases before output. So go back to the mechanisms of this scenario where you have suppliers dealing kind of triaging constraints as they come along, which means you're going to have kind of continued waves of inflationary pressure, like kind of what we've seen over the past year or two. And then in the worst case scenario, whether you have a demand shock or supply shock, you kind of get different outcomes. The demand shock, I think, is probably -- I would argue the more likely, and here's where you get, I think, much more negative impacts to the U.S. and global economy, where you're talking about potentially putting at risk the whole financial model that's kind of backing this endeavor. And if you get significant write-downs, equity repricing, here's where the direct impacts really multiply across the economy and you get -- you probably get a recession at the end of the day. And then for the worst-case scenario, this is really more of kind of an inflationary scenario in addition to marginally slower growth.

So then if you look at that last row, what happens to logistics and supply chains. On -- in the best case scenario, this is really where freight kind of takes off, especially heavy oversized ocean cargo becomes a real growth engine because we have to build out the really heavy physical infrastructure on the power generation and equipment side. I think in the base case, the air market is really kind of thing to watch. That stays tight for the next year or two, but then may normalize, right? If we're essentially kind of plateauing on how fast we can build out the infrastructure, then the air cargo market balance kind of mirrors that over the next couple of years. One thing to pay attention there is project cargo. There's long lead times there. So that kind of cargo probably has a longer kind of a longer peak cycle over the next -- maybe to '28, '29. And then in the worst case scenarios, here's where you get volumes falling. Again, tracking the investment cycle, volumes and rates fall together commensurately across both the the kind of chip and technology side and then also the kind of power and infrastructure side. And so both air and ocean are hit in that scenario. Air is hit disproportionately.

Let me move on to onto this slide. So kind of going into this in a little more detail, and this is kind of mirrors the last slide a little bit, but going into slicing it a couple of different ways to think about what's improving or getting worse in each scenario. Again, I won't read everything here. I just want to highlight a couple of things. And most importantly, I think power is the only input that in -- basically, it gets worse than that in every scenario. And that -- and really in the short run, power, we're short on supply. The best case scenario assumes that, that kind of catches up over the medium term, becomes more kind of a comfortable supply-demand imbalance over the long term. But in the base case, this is -- that's something that really is a stress point and creates those constraints that I've spoken about.

I think another thing to kind of pay attention to is how sourcing changes. And by sourcing, I mean, diversification and whether or not we can kind of debottleneck or derisk some of the sourcing that is happening right now. And in the best case scenario, we assume that kind of naturally diversification kind of naturally happens as the ecosystem evolves and gets a little more innovative and creative on where we're sourcing from. But in the base case scenario and certainly in the worst-case scenarios, that diversification doesn't really happen much at all. And so we're kind of living with some of the inherent risks in the AI supply chain that we have today. In particular, I would focus on Taiwan as being the main source of chips.

And then what I really wanted to get to here is kind of more direct impacts on the logistics market. And I'll just spend a minute on this slide. And as I mentioned, I think air has hit the hardest, right? So when we think about where the volumes are today, I think the numbers I've seen suggest that about, I think it was 7% or 8% of global air cargo is related to AI, and that's on a volume basis. On a value basis, it's something like 40%, 50%, some crazy big number. So when we think about how -- and then on the ocean side, it's probably less than 1%. North America domestic trucking, probably 1%, but kind of concentrated in particular segments of trucking. So there are some areas of concentration there. But when we think about how these scenarios impact logistics, air definitely hit the hardest. So the -- just because of the scale, right? So if you have a pullback in CapEx spending, you would have a commensurate decline in air freights and that 7% of volume become some significantly lower number. So these are just kind of directional what to think about, what would happen on the demand side growth for airfreight, ocean container freight, project cargo and heavy haul and then trucking, specifically North American cross-border and last-mile trucking.

And obviously, we're in a kind of when you look across the board, we're in a relatively kind of tight market, certainly in air, ocean, trucking, not all of that is related to AI. There's -- we've held other webinars on the geopolitical factors, driving that market tightness. But in the best case scenario -- while it might be the best case scenario for sort of anyone playing in the AI ecosystem, not a best case scenario for anyone outside trying to ship things because it just means kind of tight market for the foreseeable future upward pressure on rates. Base case, you kind of get a milder version of that and potentially in the long term kind of a neutral impact. And by long term, I mean, say, 5 years out. And then in the worst case scenario, that's where volumes kind of really take a big hit and rates come down commensurately.

Now one thing I want to kind of highlight, oops, there we go. How we calibrate those were obviously qualitative kind of measure, but we can calibrate this a little more precisely. And I think the dot-com era provides a useful comparison to calibrate the downside scenario. So if we look back to the telecom sector 2000 to 2003, spending -- CapEx spending fell about 80% from its peak and then took about a decade to soak up the fiber optic glut that we've build out. So if we just kind of take that as a very rough example, I think a conservative estimate then would be in a worst-case scenario, AI CapEx falls by, say, by half, by 50%. AI-related goods, as I said, we're about 7% of global air cargo volume in 2025. So a 50% CapEx reduction means that it goes from 7% market share down to 3.5% market share. So all else equal, air cargo volumes would fall 3.5%, okay?

So in a one year, that's a significant hit, right? That creates some looseness in the market. And certainly, the transpacific lanes are much more exposed to U.S. high-tech air imports. So you would see a lot more loose on particular lanes. But just globally, 3.5% is something that -- a 3.5% decline is something that could be absorbed over a year or two. Like it's not necessarily sort of an existential issue for air cargo. And then when you look at ocean and trucking, when the volumes that we're seeing today are fairly negligible, 1% probably less than 1% of global volumes are related to AI on ocean. So this is not enough to move the market, really.

Now I'll get to the indirect impacts on the next slide, which which probably would be big enough to move the market. But again, just the direct impacts, not a major shock to ocean. On cross-border trucking, you could see more of an impact there, and I think, in particular, on flatbed and heavy haul. So if you're kind of -- if you're using those services, that might be something that gets hit a little bit harder, and you could see some slackness in that segment of the market.

Now I've talked about these -- I've talked about direct impacts and now the indirect impacts, I think, is where the real money is here. So this is where you get a compounding of both upside and downside. And so when we look at the best case, if you are getting this direct impact that you have some modest acceleration in CapEx in project cargo, air cargo, airfreight, et cetera. But then you get this flywheel effect that spills out across the rest of the economy, and you have the U.S. economy just consistently growing at 3% or higher. That obviously has spillover effects into other sectors of the economy, in particular, consumer spending, and then you get even more rapid growth. So I think you get spillover effects that compounds, not necessarily evenly, but you get much more kind of positive upside for ocean in that scenario as well.

Base case is kind of what it is. Not -- there's not a whole lot there in terms of indirect impacts because we're kind of -- it kind of looks like the world does today. So you get some kind of positives and negatives positives on maybe the consumer side, some negatives because the AI CapEx plateaus maybe even shrink a little bit. So we're basically we kind of end up where we are today. But then on the worst-case scenario, I'm highlighting the demand side version of that worst case is that if you get a -- again, so you get that 50% reduction in CapEx. Right now, the current level and growth rate of AI CapEx is contributing somewhere between like a third and a half of U.S. GDP growth. Those are -- that sort of third-party range of forecast. My forecast is closer to 50%. So if the U.S. economy right today is growing at 2%, a full percentage point of that is coming from AI. So if you basically get rid of that, and the sector is not only flatlining, but actually declining, the direct impacts alone might put us in to a recession, certainly would probably flatline growth. But if that happens, you have potential -- you have equity -- the bear market -- bear equity market, you have bonds getting defaulted on, you have kind of ripple effects throughout, the investment community, the consumer sector, this is almost definitely a recession, probably worse than what we saw during the dot-com bubble. And if that's the case, then you have these compounding effects and impact not only to air cargo, but then to ocean cargo as well because retail sales are probably going to decline for a solid 2, 3, 4 quarters. So I just want to highlight here that like these indirect impacts really compounds, both on sort of the book ends of these scenarios.

Now let me end up quickly with a couple of slides, then we can get to Q&A. So just a couple of things to watch over the next year or so. First, always pay attention to memory prices and transpacific air cargo and volume rates. I think those are sort of the canary in the coal lines of how fast things are moving and is the buildout kind of keeping pace or even accelerating going forward. But the next thing to really watch after that is what happens with Chinese export controls in November? Is that pause, extended or not? Then we want to look at the power generation order books at the year-end. This is a great forward-looking indicator of where -- whether things are staying hot or cooling down. And then when we get into February, we want to look at the fourth quarter plans for the Q4 2026 plans and then kind of 2027 construction starts. What does that pace of growth look like?

And then finally, what I'll end you with here is kind of two sets of conclusions depending on where you sit. Basically, are you in the AI value chain or not? If you are, things to kind of pay attention to are the wait time for power equipment is not going to get shorter. We think, for the time being, chips and packaging stay in Taiwan, I think medium to long term, that we could derisk that as we're kind of building out the North American capacity. But not quite yet. Mexico stays as a strong U.S. assembly hub and that sort of cross-border lanes or something to really pay attention to. And then there's a lot of talk about racks getting kind of more dense, heavier, hotter. And so the -- it requires more power and cooling freight per server. So there's just more demand for power and cooling.

If you're not an AI value chain, the bottom line here is you're competing with AI for the same capacity, right? So air and flatbed and cross-border trucking in particular are going to remain hot in most scenarios. AI CapEx is really kind of setting the rate. That's kind of that's the marginal good being moved right now, and that's what sets the rate and air spot rates are up 38%. Not all of that is AI. Obviously, there's the geopolitical stuff going on in the Middle East, but that demand just kind of keeps that upward pressure. And then the power and component costs, although you don't have -- you're not may not have direct exposure to that, that ends up coming -- end up feeling that no matter what. So electricity prices are up, memory prices are up. So say you're in the auto sector, looking for chips. I mean these are -- the cost pressures are only pointing up to some of these key inputs.

And then just pay attention if there's a pullback. So if we're in a downside scenario, that's really kind of the main driver of rates coming down. But the flip side of that is that remember those indirect impacts. If we fall into that worst-case scenario, you're -- depending on where you sit in the economy, you may get kind of rolled up in those indirect impacts as well.

Okay. So I went a few minutes over. We have about 10 minutes for Q&A. So I will stop sharing, and we can go to Q&A.

Absolutely. We've got a long list of questions here. And first of all, thanks Adam, that was a wonderful set of scenarios. And I'd like to kick off a question here in the Q&A box. I'm going to take a little bit of liberty here in rephrasing it. But whatever you assume that the AI infrastructure build-out is a government-backed adventure, right? And it's not strictly based on market dynamics, but rather on strategic capability. How would this kind of affect the stability or the time frame of the AI infrastructure build-out? I think either for Adam or for Suryo?

I love that question. I'll take a stab at it. This is something I've been thinking about a little bit as we prepared for this weather. I think I think there's a strong case that you could make that parts of the AI ecosystem are -- could be treated like a public utility. One hypothesis would be, this is not a recommendation. It's just a hypothesis. Is that frontier models could be treated as a public good and funded -- and just have a completely different funding mechanism with a lot of taxpayer dollars. And there's a ton of precedent for something like that. Think of like how NASA operates, right. You go to the moon, all that's publicly financed, but all the benefits that spill out of that, all the technologies that are created as you kind of you embark on projects like that. So I think you could make a very good argument that the Frontier should be at least partially public financed. And that would also kind of open the door for some different tax models. So how you prepare for -- how we prepare for labor market disruptions kind of like the corollary to that. So imagine that world where that kind of financing mechanism exists. I think that would add a ton of stability to the AI infrastructure build-outs and alleviate some of that pressure on the margin and allow more of a focus on really the enterprise scalability, fast follower models that are much less expensive to operate and consume. And I think you have a very -- so you kind of have a bifurcated view of the market that way. And I think it's much -- in my mind, it's easier for investors to have a clear return on investment if they're not having to participate on the frontier all the time. So I think that's really -- I love that question, and I think it's a kind of a whole field study that should -- is kind of emerging right now. Sorry, I don't know if I made any sense at all, I answered, but.

Yes, I think you made a really good point here, Adam. And a couple of countries have already started that, in fact, like the U.K., for example, is -- I mean, you mark about GBP 1.1 billion for developing national AI supercomputer, right? So this is to expand national computing capacity by 2030. So that's a clear indication there that state has already started embarking on this journey, right? And then we are also seeing a couple of different countries. Canada, France, India and the Gulf countries, like the UAE, Saudi Arabia, they have already started embarking on AI infrastructure as well, right? And a couple of them, they have really started also public private funding is basically to reduce the risk of private investment in Frontier sector as you say it, Adam. So yes, I think it's getting there. I think the traction is moving forward towards that direction. I can totally say that.

Absolutely. And we've got a lot of questions, which I think is a very positive sign. I'll take this one very, very quickly. What are the countermeasures companies can take regarding China's export controls regarding rare earths? What is the lead time to have a second country option? What may be helpful is a slide I think we presented earlier on a couple of workers.

The first thing that I think we can really advise is to have visibility really into the upstream supply chain. So really having audits on the geographic origins of your raw materials. And alternatively, I think really staying on top on when those export licenses are passed, when they're being approved. Right now, I think export licensing -- the export licensing mechanism is still ongoing and MOFCOM is approving those. So just really staying on top on how long it takes for those licenses to be approved. Lead times, I think, is a very personal question. The person very personal as a company, very personal to the commodity and the product, but we will highlight that any kind of sustained either at the government level or at the company level efforts to diversify sourcing of these raw materials outside of China is really quite limited because of the long gestation period because of China's dominance and refining. So it's absolutely possible to have alternative options. It's just that you may not get as much of that diversification as we would possibly like to.

And I think with that, we got one more question on what U.S. ports will see the largest increase in incoming goods in 2027 due to the importing of goods in support of AI, either directly or indirectly?

I'll take a stab at that. So my understanding is that the ports that have seen the biggest volumes so far in the U.S. are San Francisco, L.A., Dallas, Dallas Fort Worth what else, Chicago maybe. And so I don't -- I'm not sure I would necessarily see a reason why those locations would change in the next 12 months. I think you can -- as you look out a bit longer, I think maybe there's a question that we can look into of where our data centers more likely to pop up over the medium term. I think the best outlook I've probably heard is that really pay attention to the rest belt, so kind of the middle of the country and then the southeast. So if you think of like that kind of an L-shape corridor, where data centers are most likely to be located, what ports -- a lot of the stuff is coming in, all the tech stuff coming in by air, so what airports make the most sense. And then the heavy kind of power infrastructure that's going to come in by ocean and then have to go on trains or trucks, like I mean that's -- I think certainly LA Long Beach and then maybe if we're building out the Southeast corridor, maybe it makes sense to land on the East Coast. But I think those are kind of -- that's more like a 2-, 3-, 4-year kind of view.

Absolutely. I think to your point, Adam, there's this idea of kind of bringing stuff to the air and ocean gateways and then onward to the final data center positions as well locations as well. So I think we got time for one more question. And perhaps then, Suryo, you would like to take this, but which on geopolitical risk currently poses do you think the greatest threat to AI supply chains?

Yes. I think I thought we have already covered before in the supply chain concentration, right? So AI supply chain is concentrated in only like handful of countries, more especially 5 countries. And then these countries might use or is using this kind of supply chain concentration as geopolitical leverage, right? Olivia we talked about China using that critical minerals export control as a point of leverage for negotiating with the U.S. And then also one more example is Taiwan, right? So as I've already said before, 90% of the sub-500 nanometer chips are produced in Taiwan. So they -- and Taiwan doesn't on the fabs to be located outside of Taiwan because this kind of fabs located in Taiwan can create some kind of silicon shield, right, basically to prevent China -- [indiscernible], Taiwan. So this and create some kind of geopolitical leverage for Taiwan as well. And then I think aside from geopolitical risk, there's some domestic policy risk that could also affect AI supply chain, right? I'm talking about a more specific data center regulation policy. Right now, more and more countries are concerned about data center consuming like more and more energy as well as water. So because of that -- because of data center investment right now it starts to crowding out investment in like traditional sector, like industrial investment, investment in factories and manufacturing as well. So a couple of different governments, like, for example, Malaysia has put moratorium on data center build out data center investment because they want to give way to other type of industrial investments coming to the countries. So that kind of domestic policy risk should be taken into account as well.

Perfect. And I think with that, we are at time. So thank you all today for your time. You will receive a survey shortly after this webinar. If you fill it out, you will get a link to a copy of the slides, and please stay tuned for our future webinars. Thank you very much.

Thank you very much.

Thank you very much, everyone.

Good morning, everyone. Well, welcome to our Series that's hosted by the Expeditors family and then from the customs brokerage team. So today, our session is really about breaking down the U.S. Customs Enforcement Executive Order. So why are we bringing topics for our audience today? That really is coming from the executive order that was issued in the 3rd of June this year on strengthening customs enforcement for the U.S. Customs. So that brought about quite a lot of inquiries. And as shippers and as active importers, we like to learn about what are some of the advice, what does that really mean for our customers.

So therefore, especially curated for our dear audience today, we are going to invite our guest speakers from the Americas, Vice President of Customs as well as the Directors of Customs Operations for Americas, Stephanie Holloway and Madeleine Veigel to join our session today. Just a little bit of housekeeping before we kick off today's session. First and foremost, [Operator Instructions] and we do have a Q&A session. In fact, you can also post the questions that you may have alongside during the session. So simply just submit those questions in the Q&A box that you can find in the control panel at the bottom of this webinar.

At the end of the session, yes, we would like for you to do a short survey for us upon completion, and that will be guided through locations where you could download the slides. Finally, so we do have several exciting webinar coming up. And so stay tuned with us by subscribing and checking up through the QR code over there. Today's session, I'd like to reintroduce again the next page, please, key.

We have Madeleine Veigel, she's Vice President, Customs of Americas, and we have Stephanie Holloway, the Director of Customs Operations America. So in the next few sessions, they will be giving us more details regarding the topic today. So thank you so much for tuning in. I'm Wang Ping, the Directors of Account Management for Expeditors. And at the end of this session, my counterpart, Sonya, she will be helping to wrap up the session as well. So on to Madeleine and Stephanie to take us away.

Thank you, Wang Ping. Okay. So we are going to get started. Madeleine and I are also happy to take your questions. You can see the Q&A box. So if you have things that you're thinking of during this by all means, you don't have to wait until the end. You can go ahead and type them into the box, and we will maybe actually address them during the webinar or answer them as we continue on with the presentation.

So with that said, we always like to say that we're actually not lawyers. We are just customs brokers in the United States, and we are trying to get you the best information we have at the point that we have it. So that's what this message helps describe.

So as Wang Ping said, this is all about what is happening with U.S. Customs right now. So U.S. Customs is going through lots of changes under the direction of the Trump administration, right? So President Trump is making a lot of changes in the United States and importing is absolutely going to be impacted. It already has been, but they are really taking steps to formalize a lot of these changes.

So one thing that's a little bit interesting about the Trump administration is that they will tell you what they're going to do. We don't always have a lot of notice, but they do kind of lay out what their plans are. So these 4 documents that are listed here are really important to understand if you're trying to really understand what the Trump administration is doing or where this is all going. And we're going to touch specifically on the second one, the Executive Order 14411. But there have been a few other documents that have just come out in the last couple of weeks that are very important. And I just want to highlight them.

So of course, back when President Trump first took office in January 2025. One of the first documents he put out was this America First Trade Policy, and that really sets the stage for all of the things that have been happening as far as importing goes. So there is a very strong desire by President Trump to have more items produced within the United States and they are actively using tariffs to help support that goal, okay?

So then in June, June 3, there was an executive order came out that really directs U.S. Customs to take a number of actions. That's what this webinar is about, okay? And then in the last couple of weeks, there are some, I'll say, kind of scary. This is not the same U.S. Customs from a year ago or 2 years ago. This is very different. There was a Trade Fraud Resource Guide that was published with our Department of Justice. So that's an area of our government that really laid out enforcement and what your expectations are, if you are an importer into the United States and really talks about what is expected of you.

And then just a couple of weeks ago, there was a report published. It was called the Great Transshipment Scam, but it really talked about really the belief of freight and goods that are moving through the supply chains and maybe not in an ethical way or not the correct way that there is a lot of freight that is not being declared correctly, maybe not being labeled correctly. So it's very important to understand that this piece because that is where a lot of this is coming from, okay? So there's a belief from the Trump administration that there's a lot of freight, like I said, moving between countries and maybe not being legally declared correctly or being labeled a different country or things like that, okay?

So I know a number of you on. Some of you might be an importer into the United States, and this will all directly impact you. But even if you are not directly serving as Importer of Record, a lot of this will still impact you because whoever is serving as the Importer of Record is going to have a lot more questions for you. So think of it through that lens, even if you're not directly -- even if you're not the direct U.S. importer, this will trickle down. There will be impacts to manufacturers and shippers and lots of other parties in the supply chain.

So let's first quickly look at what we are seeing right now in the United States as far as enforcement. So like I said, there have been different documents laid out, but some of them are pretty new, but we are really starting to see the shift in U.S. Customs and what's happening, and we started seeing that last year. So if you don't know, CF-28 and 29, those are kind of formal requests that are sent by U.S. Customs to a U.S. Importer of Record. So you can see here in 2025, that number has jumped dramatically. There are lots and lots of questions being asked, okay?

Also on the right-hand side, U.S. Customs actually publishes a lot of data statistics. I have one here that's linked. But if you just Google, you'll find a bunch of dashboards. Customs through their own statistics are telling us that they are doing less audits, but collecting more money. So they are now collecting almost $800,000 per audit. Also, they are issuing a lot of penalties. So they have already exceeded their fiscal year in this year. So they have already collected $70 million in penalties and that is well above what they collected last year, which was $46 million. okay? So there's a lot of activity. This is just a small portion that we're choosing to show here.

Now tied into this left-hand side here about document request. One thing that's really important, and I'm not going to go through this in detail. But one thing that's really important to know is that when importers are getting requests from U.S. Customs now they are very detailed requests, okay? So when they get sent these notices, it's not just a simple line like, please provide a certificate of origin. It is show me the paper trail, show me the documents, help me understand how you came to this conclusion, okay? Here's a very long one, right? So even if you're not the Importer of Record, whoever you sold to is going to come to you because they will need help understanding and gathering all of this information. Okay?

So this particular example is U.S. Customs saying, I read the description and I'm looking at the value, and those 2 aren't making sense. So help me understand the product. But it's not just hey help me understand a little bit of the product. I need photographs. I need a written detailed description. I need where was it manufactured? I need product specification sheet, right? They need a whole lot of information.

Also for the value, right? How did you get there, wire transfer records, bank payment, account numbers. These are very detailed information, okay? So these are things, like I said, that might end up on you, even if you're not the Importer of Record into the United States. This is a good example. So a CF-28 is when customs is asking for questions. CF-29 says that they are taking action, okay?

So this one is a little bit interesting because the importer had received the CF-28, they had responded and they had given, and you can actually see here in the top second paragraph, the importer has submitted manufacturing process, production records, factory overview, equipment records, workforce records, they had given a lot.

But customs looked -- U.S. Customs have looked at all of that data together, and they said, this doesn't make sense. They're saying, you're using machines that you bought after these goods were produced. The amount of employees you have doesn't make sense for how many items you're creating, okay? So they are looking very detailed to see if all of this story, it's not just can I find all the documents, it's does this document tell a full story, okay? And if they can't determine that, that's true, the Importer of Record might be responsible depending on what's happening to pay additional duties or potentially additional penalties if needed or if determined.

One other thing that I'll highlight is that U.S. Customs is working very closely with the Department of Justice. This is kind of the people who like kind of run big like lawyers for the government, and they are -- they don't -- they haven't always traditionally worked very closely together. This is very different, okay? So importers, as you can see here, and don't get hung up on the case. But Department of Justice and Customs are actively showing how much they're working together. They're actively showing you can see here I just gave 2 examples, 2 came out in May, 1 came out in July. They have a very steady pace of cases that they're publicizing and they are big enough, okay? And you probably don't know this, but the FCA, that stands for the False Claims Act. So they're using interesting ways to show that importers are not doing their job, okay? But they're looking at -- you can see in that bottom line, they're looking at things like country of origin. They're very interested in how freight is moving, okay? So that's going to be a common theme that we're looking at.

So even without the executive order, right, because this big piece that we're talking about, this Executive Order 14411, I want to highlight that all of this has been happening for the last 18 months, okay? So we have a lot of momentum right now with U.S. Customs and everything they're moving to before we even start talking about the executive order. So I'm going to hand this over to Madeleine now, and she's going to help break down what does this executive order have? And how should we understand it?

Okay. Thank you so much, Stephanie, and hello, everybody. Yes. So what you've heard so far from Stephanie is she went over the policy background in the beginning, highlighting those different documents that are making up the enforcement environment under the Trump administration. And then she also went over what is happening on the ground in the day-to-day world with the Customs Forms 28 and the Customs Forms 29, lots of requests and demands being made of importers.

But now we will pivot to the actual executive order that came out on June 3 from the administration. And this, everybody is a huge change here in the United States. I would say -- well, first of all, it's not a very long document. It's only about 5 pages. And if you are an importer in the United States, then I would highly encourage you to take a look at the document because it's not too long, and you will immediately see the direction that the administration -- the Trump administration is going with this executive order and how that sort of blends in with the other documents that Stephanie talked about at the very beginning here of the webinar.

So this is a big change because it shifts the right to import. I think anyone who's importing into the United States kind of believes they just have a right to import into the country. But it turns -- the executive order turns this into a privilege. So it becomes the -- importing into the U.S. becomes more of a privilege, and you have to meet certain conditions in order to import or continue importing into the United States. So we've broken out the executive order into 5 big areas, and that's what you see here.

The first one being importer eligibility. There is a lot of additional information that customs and the administration are going to request -- well, are going to require from companies importing into the United States. And I will talk about that a little bit more in my next section as well. But the administration also expects importers to remain in good standing. And so you have to be what's called good standing, which means that you're a compliant importer and you've paid all your duties and amounts due to the U.S. government in order to import into the U.S. So there's that larger bucket of importer eligibility.

The next big area is supply chain information. Now this is something that has been evolving, meaning even the past or the previous administration under the Biden administration, there was a heavy focus on forced labor. And that trend, of course, continues under the Trump administration. So that's goods that are manufactured with any forced or child or indentured labor. And with that heightened area of focus, the government really began to scrutinize all entities in the supply chain, not just importer company shipper, but actual manufacturer of the goods and the manufacturer of those components that make up the goods.

So U.S. Customs, the administration, they want a lot more information about all the entities that are part of the supply chain. They go all the way back. And so this is a big theme of this executive order, obtaining more information about the product, the components of the product and the entities involved in manufacturing and making those products.

Then the third bucket is limited mitigation for penalties. So today, when you receive a penalty in the U.S., you have the option of mitigating that penalty to a lower amount, but you have to tell a good story. You have to explain to U.S. Customs and Border Protection. The reason why you feel that the penalty should be mitigated to a lesser amount. And normally, that has to do with maybe it was a simple clerical error that caused the penalty. Well, this is going to change with this executive order. You're not going to be able to mitigate as far down or maybe you can't go quite as low as we've been used to going with mitigation requests. So this is going to be a big change for penalties in general in the U.S.

And the fourth bucket is earlier risk identification. So the government, again, not only wanting more information upstream in the supply chain, they are going to be vetting all parties within the supply chain. And we don't yet know what that means, but it means vetting importers, it means vetting customs brokers, it means vetting other entities in the supply chain. And then the last bucket, which is very interesting, which will affect many of you are export records. This administration wants access to export records, which means the export declaration and possibly other documents that are filed at the time of export. And I will talk about this a little bit more, too, in my next section. But these are really the big 5 areas that are really important and that are really the 5 big themes of the executive order.

So if we go to the next -- yes. So one thing that's -- another thing that's very important to know about the executive order is that it really -- it affects all parties throughout the supply chain. So this is not just the Importer of Record. It also affects beneficial owners and affiliates of the companies, manufacturers and exporters, customs brokers, freight forwarders, custodians of bonded merchandise, meaning merchandise that is not released yet with U.S. Customs and just all parties within the supply chain. So this is really, really important, why this executive order is so big is that it really affects all parties within the supply chain, and that's critical.

So it's not just customs declarations, everybody. And this is what's key it is manifest data. And many of you affect, of course, how the manifest with the information you provide how the manifests are filed into the United States. It affects manifest data, it affects importer security filing. I know many of you are involved in ensuring that the importer security filing is filed with accurate and timely information. It also affects in-bonds or in-transit declaration. So it's really up and down the whole supply chain and all the declarations that are filed with U.S. Customs.

And then what we know and what we're still waiting on. So we know the general direction, right? And we've been going over that. And we know what the general priorities are, but the time lines are kind of fuzzy or what we call fuzzy because in the executive order, it calls out that a few of the main buckets, such as the penalty mitigation guidelines, the export documentation is actually supposed to be -- when you read the executive order, it is supposed to be implemented this month in September, and all the other items in the executive order, it looks like would be implemented at the end of November. However, the way the executive order is worded is fuzzy, meaning, oftentimes, they say CBP or Customs and Border Protection will start or will initiate a certain area.

So that means that such as penalty mitigations does not have to be fully implemented. It just means CBP or Customs and Border Protection has to take an initial step. They have to start the process. So that's why we think that this implementation of the executive order will actually be something more between 12 and 18 months. But again, we really have to watch because there's things -- we have to be ready for whatever comes out, but we do believe that a lot of this will be implemented over -- go well beyond the end of November.

We don't exactly know yet how customs will implement this. And there's 2 ways that customs normally does this in the United States. It's either through rule-making, a notice of proposed rule-making or they can also implement interim -- what they call an interim final rule, which means the regulations are alive and well, and you can comment on them, but the comments will be -- the changes will take place immediately, the comments will come after. The notice of proposed rulemaking, the first way is Customs solicits a whole bunch of comments, and then they issue the final regulations. We are hoping that that's the way that customs will make these changes, many of the changes or the things that talked about in the executive order, but we don't have -- we don't know that yet, which way they will go.

We also don't have the procedures yet from U.S. Customs on how they're going to implement these changes nor do we have the specific requirements. So that executive order, the problem with it right now is there's a lot of detail that is missing, a lot of detail missing, and that's what we're waiting upon. So there's still much more that will be coming. So you will hear much, much more from us as soon as we get and obtain more details from U.S. Customs.

Okay. And then this is very important and important for many of you who may be foreign importers of record in the United States. The term or the definition of foreign Importer of Record begins to change in terms of how the executive order looks at it. So today and normally, how we've always looked at a foreign Importer of Record is a foreign company that has a Customs and Border Protection assigned importer numbers. So they're basically an entity without a U.S. tax ID. But with the executive order, that begins to shift because the executive order focuses more on who is responsible for the duties, right? Because U.S. Customs wants to make sure that those duties are paid. They want to make sure that the company, the foreign company has sufficient U.S. assets in the United States. And we don't yet have the details on that. And they want information about the ownership of the company.

So basically, they want to know, hey, does the company have enough resources to be able to pay all the duties? And is there a company that U.S. Customs can hold accountable if there are compliance issues. So there's more will come out of this, I'm sure, but it's a little bit of a shift on how the U.S. government is looking at foreign importers of record because they consider them a risk, because, again, they're worried that they don't have a party to go after, if not all the duties are paid or there's some other type of compliance breach. So anyway. So that gives you a summary of the executive order.

And now I'm going to go into what this really means for importers, even for foreign importers of record and for you who might just be exporters or manufacturers. Because again, as Stephanie mentioned also earlier in the webinar, you may be getting a lot more questions from the actual importer based on these changes. So these are the big -- based on what importers can do right now and what they should be focused on based on the information that we have. Because remember, we don't have a lot of detail yet.

So as I mentioned earlier, the shift here with the executive order goes to importing becomes a privilege and not a right. And again, I said this is -- this change is so big. It's one of the biggest changes, I think, or in my opinion, the biggest change we have seen since 1993 when there was what's called the MOD Act, and that gave the responsibility, the administration, U.S. Customs put the responsibility of all the elements on a customs declaration to be the responsibility of the importer.

And then the other big change that we have seen, which was very large, which my colleague, Ted reminded us of on last week's webinar is NAFTA. Of course, that agreement between Canada, the U.S. and Mexico, which is now USMCA and which is also in a little bit up in the air. But that was also a very big change. But this one is in that same realm. It is just as big.

And as I mentioned, customs is looking for a lot more information about the company, the importer in the United States. The kind of information they're looking for is whether the company has, and that's also if you're a foreign Importer of Record, do you have tangible and sufficient and tangible domestic assets here in the United States? What is your anticipated import volume? When were you organized as an organization, the year? Who are the beneficial owners of the company? Who are the affiliates, business affiliates of the company? We don't know how Customs will want to collect that information, exactly what that information needs to look like in order for it to be sufficient, but it's a lot more information about the company itself.

Also very important and what I mentioned earlier is the importer must be in good standing. The only definition we have of that is that they are a compliant importer and they have paid all of their customs liabilities, so they have nothing pending. No pending payment liabilities with U.S. Customs. So that is also very important. And as we learn more, of course, we will disseminate more information on that. And then there's going to be, as I mentioned, enhanced vetting of all parties, including importers and brokers, and they've also said that a foreign Importer of Record will need to be CTPAT, which is our supply chain security program, but there's also a compliance element to that -- piece to that. But the foreign importer would need to be CTPAT. And if they're not, then they must work with a customs broker who is CTPAT.

But what we have told -- asked importers to really look at in regards to some of these changes is see, hey, do you have any current unresolved compliance issues with U.S. Customs. Or do you have any customs liabilities that you owe the government? This is something that you can already begin looking at as an importer to see even a foreign importer if you have any of this outstanding just to take inventory at this point.

Okay. Now the next piece is something I think you may all be -- will get very involved in. And that's what I mentioned earlier about export records. So the U.S. administration wants to see the export declaration that was filed at the country of export along with possibly other documentation and other certification or certificates that may have been filed in order to export the goods to the United States.

Now there are a whole bunch of questions about this. What exactly are the documents? At what point in time must those documents be provided to U.S. Customs? And who should be the party providing those documents to U.S. Customs and how do we get those documents to U.S. Customs? Today, in the U.S., we have -- U.S. Customs has a system called DIS, which is the document imaging system. And today, we provide a lot of import documentation to U.S. Customs through that system. But we don't know if that will be the system for the export records or an entirely new system. We just don't know.

So still lots of questions about this. But what we have told importers is begin to look at and begin to reach out to your exporters or overseas manufacturers or who is responsible for the export overseas. Is there a way for you to get at that documentation, so that's something that you can look at already today is do I have access to the export documentation? Or if you're the shipper manufacturer thinking, hey, how can I get this information to the importer. So this is something to at least think about at this point in time until we get more detail.

Okay.

So then Customs and Border Protection is also looking for proof earlier on and for more information earlier on in the supply chain. So again, they want more information about the companies and the entities, they're going to be vetting several parties within the supply chain. But what we also know is that they want to know about the imported goods supply chain and production methods, such as the manufacturer's product identification or identifier like a model number, key specifications about the product. What are the components that make up that product and where do -- where were those components obtained from. And then they all -- customs also said they're going to be very focused on misclassification. So where someone misclassified a product, undervaluation where they didn't value the product correctly and illegal transshipment. So those are all areas that they're very focused on.

So again, what we're telling our importers with all of this is look at the products that are most critical to what your -- most critical products that you're importing today into the United States. The most critical ones are maybe the most urgent ones. And can you trace the information all the way back to the origin. So this is where you may have importers reaching back out to you. You're trying to obtain more information about where do the components that are in this product that I purchased from you, where were they obtained from? Who are the manufacturer of those components or maybe there will be more questions about the actual country of origin and how that was determined.

So we have told -- again, we've told our importers see if you can do that supply chain tracing on your most urgent or most riskiest products that you bring into the United States. So again, you may get a lot more questions from companies in the U.S. about additional information.

And then lastly, penalties. So again, as I mentioned, the penalty mitigation guidelines will be changing with U.S. Customs. Today, U.S. Customs has penalty mitigation guidelines that have been in place since the early 2000s. They are going to completely revamp those, and there's really 2 -- there are penalties in the U.S., and there's also what's called liquidated damages. Liquidated damages is when you breach the bond really that you have, the security that you have on file with customs. A penalty is more severe, where you've broken the law and where -- where you've broken the law and there may be gross negligence of some sort involved. So it's more severe.

But again, customs is revamping those mitigation guidelines, and they're saying that they are going to establish a floor of at least 50% of assessed penalty. So the penalty amounts oftentimes are very high because they're based on the value of the goods or sometimes can be 3x the value of the goods. So if customs is only going to mitigate that down about 50%, the penalty can be quite steep. Whereas today, especially with liquidated damages, you can reduce the amount of the penalty substantially if you provide a good explanation to U.S. Customs with the proper backup.

The other important point here is that the standard -- the revised standards are going to eliminate mitigation for repeat offenders. So for those -- again, if you've done this mistake more than once, you're not going to be able to mitigate that penalty. And again, what is worrisome is we all know that even the very highly compliant importers, highly compliant transportation providers, highly compliant customs brokers, we can all make a mistake. So we're hoping that customs will reevaluate this and still provide some flexibility. But at this point, penalties can be -- can end up being something very, very costly.

So again, we've asked importers to really look at, for example, those document requests that Stephanie was talking about earlier, have they received a bunch of those this year? Is there a theme? And if there is a theme, do they have the proper -- have they been able to put the proper controls in place to mitigate that? Because, again, you want to do as much as possible to avoid getting a penalty since these amounts or since the mitigation guidelines are changing. And again, I must remind everybody that this is penalties, again, liquidated damages for everything. That includes manifest. So it's going to be really critical that all that information is super correct, importer security filing, in-bond transit declarations. So anyway, it affects all, it affects all the parties. So anyway, this is not very uplifting news, I apologize, but there's lots to think about and a lot to get ready for with this executive order.

So I am going to pass it back to Stephanie and Stephanie, you are going to talk further about what we can do practically to prepare ourselves. We need a lot of preparation.

We do need a lot of preparation. And as Madeleine said, we have been trying at Expeditors to figure out ways to practically get ahead of this, and it is really hard without having a lot of information in those details from customs. But one of the things, of course, that we're talking about is making sure that everybody knows this is happening, and share some practical things that some of our kind of best-in-class importers into the United States are doing.

So one thing that's really important to know, we keep saying that. This is all very important. But U.S. Customs just put out a bulletin maybe 1 -- maybe 10 days ago, telling anybody who serves as an Importer of Record into the United States that they have to make sure that all of their information is updated, okay? So if you are an Importer of Record and hopefully, you know this, you have to make sure this information is updated. And what they're looking to make is updated is your name, of course, your tax ID or the number that was assigned to you by U.S. Customs, your physical address, and it needs to be your physical address. It can't be your broker. It can't be an agent. It has to be the physical location.

The mailing address -- and your physical location can be outside of the United States. I'll just clarify that. Your mailing address, your e-mail address and your phone number. And if you look into everything that we've been talking about, of course, this is the first step that U.S. Customs are going to take because if you're going to enforce things, you need to make sure you have the right information on record.

So like I said, if you are an Importer of Record, this is very important. This form that's kind of like your contact information, it's called the 5106, 5-1-0-6. So if you hear that number, that's what that is, you can Google U.S. Customs Form 5106, and you can see it. But this is what needs to be updated. So ideally, you can update this in your ACE portal. So many of you that are U.S. importers have gotten an ACE portal account because you wanted to get your IEEPA for duty refunds and this was one way to get those, make sure that all the information is updated. I have a job aid that I'll also distribute. So if you need help looking at your accounts, how to do that, and then make sure that all the information is updated, okay? This has to be done by September 18.

If it is not done by September 18, customs may void your importer number and that is going to cause delays because then it needs to be reactivated, and we don't quite know what customs is going to do when we ask them to reactivate importers, because it is a very different U.S. Customs than what previous U.S. Customs was, okay? So this is very work. One thing that's very tricky for me as a broker is I can't see this information anywhere. I can submit the information to customs, but I can't get it back. So I don't know. I can see your mailing address. I can see your physical address, I can see your name. But I cannot see your phone number, and I can't see your e-mail. So it's very hard for me to know which holes are out there or if you're at risk to have a hole, okay?

So we have to all work together to make sure that we can get this information updated. So this is very, very important. If you have a contacts or a logistics team in the United States, it is worth sending them an e-mail, and just making sure that everything is updated.

The other thing that's tricky, I'll say one more thing on this. Some people -- this was set up when you became an importer. So at that time, phone number and e-mail may not have been collected. So we have -- I think we probably have very big good importers who might have holes in their data. So this is very important for us to, like I said, all work together. So what else can we do to help prepare? So this is something that we've talked to U.S. importers. But as we keep saying, even if you don't import into the U.S., this is still going to impact you.

So the first thing you need to make sure that you are doing or as you're an importer is you have to make sure that you're getting -- you have a way to get the information from U.S. Customs. The best way is to make sure that you have a login to the ACE portal, okay? The ACE portal is the online system that U.S. Customs loves to use, okay? They will also mail CF-28 or 29, but you have a very short time to respond to that, and you have 30 days for a CF-28 and 20 days for CF-29. So if it's going all over in the mail system, you might use up all of your time. So make sure that there's a named person who's checking in the ACE portal, there's also a report that you can set up where you get noticed, if you get sent a notice if U.S. Customs have sent something to your company.

Then you need to try to understand. And I gave those examples early on, CF-28, 29, what is customs asking for, okay? Read between the lines, right? What are they testing? Then put your packet together all of your information, and this is where maybe as a shipper, you're going to have to provide information. And you have to realize that the importers of record into the United States need this information very quickly, okay? They have very short periods of time. Make sure that all the documents and everything you're submitting is telling a good story, okay?

U.S. Customs, I know, is using AI to help check does all of this tell a story, right? Is there any inconsistencies. So it would be a good practice to make sure that it's telling a story. Of course, you reading it and putting it together, but understand that they're going to be using extra types of tools as well to help check it all, okay?

And then learn from this whole experience, right? How can you do this quicker? What could you have done differently, okay? So just even knowing right now where are all these documents at, how can you get to them? How can you put it all together, okay? And ideally, how can you test this before U.S. Customs comes and ask you for, right? What can you do upstream right now before you have a very short period of time, okay?

So all of this, like we keep saying is so different than what we've done before in the United States. So we all have to figure out how to be very good citizens when it comes to importing if we all want to continue importing, okay? So Madeleine kind of alluded to this idea. Don't test everything, don't get overwhelmed. I think sometimes we do that. We get overwhelmed and then we don't know where to start, okay?

So take a deep breath and think about one product, okay? How quickly and maybe to your most popular product or the one that you make the most money on or whatever it might be, can you show who made it extensively, not just the top layer. Can you show where they outsourced from? Can you show where it came from? What supports it, right? What are all the documents that help tell that story? And then how do you connect all those pieces? And go look at that example of the CF-29 I gave, where they had given all those documents but then they didn't believe it told the whole story, okay?

And then from this, you can grade yourself. Are you green, yellow, red, right? Are you complete? Is it to do the whole thing? Do you have it, but it's not telling the right story? Or are you missing pieces of the puzzle, okay? And then how do you document what you have and then also test for the next product, right? So really trying to understand, but don't do it all at one time. In English, we have a phrase shovel the ocean, just means you're trying to do too much. Just start with one product. You will learn so much just from that product.

There is a really good use case that U.S. Customs has published. Now it is specifically regarding forced labor. But I want you just to kind of put the specific topic aside because in this guidance, U.S. Customs does a really good job laying out what they expect for a U.S. importer and how did somebody prove all of these things, right? It feels overwhelming. So how can you actually prove this? So that's what this guide does. So this guide, like I said, it is specifically for this one topic. But if you put that aside, you can actually see here when you look at these appendix starting at Appendix B. Supply chain due diligence, tracing and management, best practices for importers, okay?

Appendix C, best practice for submitting documents. Appendix D isotopic testing. That's a specific way that you can try to show how a product comes to be and what types of components there are. Then it also has other types of things in here. But you can see here they give actual examples of how you could do this. So if you don't know where to start, this document, even if you don't read it forced labor, you can really read it to understand supply chain diligence, tracing and management and what Customs is looking at, what U.S. Customs is looking for from you as an importer, okay?

So what do you do with all of this information, what are the key takeaways? The first thing, I think, is genuinely scary. And I take it very seriously when I say it. We don't know what it's going to look like to be able to be an importer into the United States. As Madeleine said, most of us really have only ever experienced you being able to import into United States, anybody being able to import into the United States. I wouldn't say easy way, but it's been accessible. We don't know what that's going to look like. And we think that there's going to be kind of maybe 4 buckets. So there's going to be this concept of a foreign importer or non-foreign importer. And remember, that's just not where you're headquartered, right? Madeleine touched on this. This is going to be what types of assets you have in the United States. How easy would it be for the U.S. government to try to recoup money per se, if they needed to get that from you.

So that's going to define whether or not you're foreign or not foreign, okay? Then you're going to have good standing or not good standing. So there's kind of -- you could be a foreign importer in good standing. You could be a non-foreign importer in bad standing, not good. I shouldn't say bad and not good standing. So there's going to be different configurations as what the executive order seems to say, but we don't know how that will be defined yet, okay? We don't know -- somebody asked what does it look like to have enough assets? We don't know yet.

So a lot of that's going to be coming out. But the first thing, as Madeleine said, making sure you don't owe the U.S. government money is a great place to start. I think anyone who owes the U.S. government money is probably not going to be in good standing, okay? Read, especially if you're an Importer of Record into the U.S., make sure you read this executive order. This is -- I know we all love using AI to help us read things, but this is really important. And we referenced other documents here that are well worth your time to go look at them. They really are telling the story of what the U.S. government is doing and what direction they're moving in, and this is a big change, absolutely a big change.

At the core of Customs is always the fundamentals of classification, valuation, origin, record keeping. Those are going to become more important than ever. So those all need to be very dialed in, and you need to be able to defend them, okay? And then obviously, beyond those, those are, of course, the fundamentals, how can you support and tell that whole story, okay? How do you tell the story of how your price came to be, how your freight moved, can you show that? Can you defend it? Can you speak to what is happening in your supply chain? There are very complex supply chains. And this is more than any of us have ever been asked to do, okay? I don't know how we're going to do it, but we will keep moving forward, of course, and figuring it out together, okay? So the big key part of the end here is, of course, don't wait and Madeleine said this. We can't all wait to have everything defined because then it will be too late. So the thing that we can be doing now is to know our product, know what records we have available, know our supply chain and how do we tell that story cohesively.

So I think with that said, that is the end of this. If you have more questions, go ahead and throw them into the chat. Madeleine, was there any kind of themes of questions that you wanted to highlight before we wrap up?

Well, there was a good question someone asked about with the export documentation, when that gets submitted, is that going to be compared to the import declaration, which I think is a great assumption that, that's what the government -- the administration is probably looking to do. But we don't know for certain, but it's probably a good assumption. What was declared at the time of export versus, hey, what do I see now on this import declaration?

Yes. And now that was especially interesting because U.S. Customs just today put out a notice where they're asking for feedback on essentially what export docs are available. There are many questions, but you can tell that they're trying to go deeper in understanding the export docs portion. So...

Yes. And it was good to see everybody this notice today from Customs we haven't -- it's about 20 pages. We haven't had a chance to read it at least I haven't. But it's good that they're asking for feedback from the trade. So this is an opportunity to tell Customs, hey, I can provide this type of information, but I can't provide this. And anyway, it's good that they're asking for this feedback. And hopefully, lots of people in the trade will provide that feedback.

Yes. And especially around one of the thing that's really intriguing of our export declaration is the U.S. ourself doesn't allow our export declaration to be given, right? Am I saying that correctly?

That's right. Yes. Yes.

Yes, so really ironic situation here. So I think there's other countries who probably have similar regulations or things like that. We also have in the U.S. between the U.S. and Canada. There's not always an export declaration done. So there's also going to be situations where they're just not available. So the export declaration one causes a lot of chaos, I think, in many of our brains, but we don't have any answers. And I think Madeleine, do you remember the date that the comments need to be submitted by?

I think it's actually a ways out like December 1, if I'm not mistaken.

That's what I thought. Yes. It's in December. I think that pretty much said that we probably maybe won't see something active.

Right. That's what I'm thinking.

I mean we can't rule out anything, but that's what that's pointing to is that we probably won't see big meaningful export changes until at least after that comment period.

Yes. Yes.

Okay. I think that we can wrap up here, Sonya, did you want to come on. A lot of people want the presentation. So help them out. Can they get the presentation, can they get the recording?

They can. Thank you very much, Stephanie and Madeleine. So we hope the session provided useful information and clarity around all these changes. You absolutely can get access to materials. What you need to do though is complete the post-event survey that we send out. And then once you do that, all these materials will be made available to you.

So just a quick recap on today. So Stephanie and Madeleine, thank you so much for coming during your evening on our Asia-friendly time frame we really appreciate it. We focus today, especially on the Executive Order 14411. And this is all about strengthening the Customs enforcement and introducing new standards for foreign importers. And so what we're seeing is the increased Customs scrutiny, more penalties we discussed that along with these audits and now require much more detailed information than previously. So as a result, even if you're not that direct importer, you may be obliged and involved with having to provide a lot more thorough information. So be ready to help out there.

And a quick reminder to get your importer records updated by September 18, and that is in that Form 5106 that was mentioned. So -- and lastly, Stephanie yes, Stephanie, with a great tip around the product exercise, go through the process on one of your prominent products and see if you can test and improve the product information that Customs would need.

So with that, I'd like to thank our speakers, and I'd like to thank all of our customers for joining today and taking out some of your valuable time to participate in the webinar, and I wish you a great day ahead. Thanks, everyone.

Thank you, everybody. Thank you.

Thank you. Have a good day everybody.

Bye.

Hello, everyone. Thank you for joining us. Continuing to see our numbers climb. But as always, we have a ton of content today. So we are going to get started so that we could get every bit in that we can. Thank you for joining us again.

My name is Samantha Hurst, and I'm here to support in the background of today's webinar focused on understanding and breaking down the U.S. Customs Enforcement executive order. So let's talk real briefly about some of our housekeeping items so we can get started.

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So now I'm going to pass things off. Well, first, I think I need to introduce our speakers. These are not new faces here, but unless you've joined us for the very first time, welcome. So we have Madeleine Veigel, who's our Vice President of Customs for the Americas; Brenda Smith, whose lovely face just popped up on video. She's our Global Director of Government Outreach. Ted Henderson is our Senior Adviser for Customs and Stephanie Holloway is our Director of Customs Operations.

Now Brenda is going to get us kicked off.

I am, and thank you, Samantha, and hello, everyone. Thanks so much for joining us today. It has been a busy August. We appreciate you taking time out to talk about this executive order that dropped in early summer.

Before we get started, we wanted to issue our usual disclaimer. Translated means we are not attorneys. We do the best we can to translate the policy and the legal documents that are issued by the U.S. government and give you our best interpretation, but we are not attorneys nor do we play them on television. So with that, let's get started.

As we dive into the environment that we are operating in from an enforcement perspective, there's a couple of key policy documents. And the reason that we wanted to spend a little time on this is because what we have observed about the Trump administration is it is rare for them to take action without telegraphing it in advance. Now sometimes the telegraphing comes very close to when an action actually happens.

But typically, if you look at the documents, you look at the guidance, you will understand where the administration is going, at least in the general direction. So on inauguration day, one of the very first documents that President Trump issued was the America First Trade Policy. It was very broad. It was very sweeping and had a lot of new ideas in it and new actions. That pretty much set us up for the 18 months since then.

In early June, however, after a lot of the tariff activity and the agreements on reciprocal trade activity had kind of hit a consistent rhythm, we saw a new document, the Executive Order on strengthening Customs Enforcement, which directs very specific action, most of which is to be taken by U.S. Customs and Border Protection. It essentially gives us a framework for how the government is thinking about enforcing current laws, making changes to either law or regulation, and doing an operational approach to enforcement.

That was fairly quickly followed by the Department of Justice and the Department of Homeland Security issuing a pretty extensive guide, the trade fraud resource guide, which really outlined the enforcement priorities from both DOJ and DHS. And really set up a red flag for those participating in U.S.-bound supply chains to really pay attention and make sure that all your I's are dotted and your T's are crossed because there is a renewed focus by the U.S. government to identify and address trade fraud.

And then finally, and one might have thought that this came -- would come out earlier, but it came out in August, just a week or 2 ago, something directly from the White House. Our assumption is that Peter Navarro, one of the President's key trade advisers, his team drafted a report called The Great Transshipment Scam. We are used to working with a very specific description of -- or definition of transshipment. Mr. Navarro has actually kind of expanded the approach.

He raises a number of points about goods moving between countries, how origin is not or could be verified, and the expectations around supply chain visibility. A lot of these ideas we have seen before, but this really puts the meat on the bones for the justification of why the Trump administration is taking the actions around enforcement that it is. So this is sort of a policy background for how CBP will be moving forward.

And with that, I'm going to turn it over to Stephanie that will give us a little bit more insight into how that policy translates into the day-to-day.

Thank you, Brenda. Okay. Let's see. My computer seems to have a mind of itself. So as Brenda said, she just covered the high-level policies. How are we actually seeing this play out day-to-day? So this is where I love not for enforcement purposes, but what I always like to look at and what I'd like to bring to the table during these webinars is the practical sense as a broker, how are we seeing this role.

So this slide shows, and we've talked about this before. On the left-hand side, this is activity or data that Expeditors has collected. So as a broker, you often get copies of the CF-28s and CF-29s. So that's a request for information at the CF-28, a very formal document that's sent, or CF-29, which is a notice of action or notice of proposed action from customs, also a very formal letter. So you can see here how it has jumped around and really made a significant jump in 2025.

The other thing that you can see is that our general document request, you see for just kind of the e-mails informally sent from customs, that's almost completely disappeared. And you can see the amount of CF-29s to CF-28s has significantly increased. So most of the time before the pattern was you would get a CF-28, you would respond, customs would come back or not with a CF-29. Now we're often just seeing a CF-29 issued and not a CF-28.

On the right-hand side, there are some interesting data points. So these are all published by customs. Customs actually have a number of dashboards. This particular data set is coming from a dashboard that's called CBP Trade Statistics. You can Google it or you can just use this link here. This is not secret information. You have access to it just like I do. But some of the signals per se that we're seeing on the ground is importer of audits or imported audits. So customs is actually doing less of them, but yielding much higher results per audit.

So traditionally, through -- you can see, I think their data goes to 2021. They used to yield about $200,000, $250,000 per audit. Last year, that took a jump to about half a million, $500,000, and they are trending at almost $800,000 per audit now, doing less audits. So you can really see when they go to do an audit, there's -- I think they already have the smoke, right? They know it's not a random thing. They really have intel.

The other thing that we're seeing a lot more that their data is saying is liquidated damages. So they're issuing much more of these. Liquidated damages are often issued if you have a late payment, a notice -- not following a notice to redeliver things like that. They are issuing many more of these. And then the way they group the amount they've collected is with penalties, so it's a little bit harder. But they have now exceeded not by double, but close. Last year, they collected $46 million in penalties and liquidated damages. And this year, even though they're not through their whole fiscal year, they're already at $70 million. So these are just some kind of random -- not random, intentional steps that we pulled to help paint some of the picture of what's happening on the ground.

The other thing, and we've mentioned this in passing before, is really understanding what is being issued. We know they're issuing more CF-28s and 29s, but what are -- what's in them and how are they asking for data. So if you have not gotten a CF-28 or 29 from customs in the past year, this is going to be very surprising to you. They are very different than what we used to see. These examples that I have here, I have anonymized, but these are ones that we got in the last couple of weeks. I didn't go dumpster diving for really hard weird ones. This is just how they look now. If you get one, it's going to look like this, okay?

I used to see 1 year ago that were like, send me your certificate of origin. That's it. Those things are gone. So this CF-28, the request for information, they're already testing a specific claim. So a lot of times, we see like the one on the left is saying, you claim 9802 U.S. goods, now prove it to me, right? Show me all the activities and documents that support that claim. Same thing on the right, the USMCA or any free trade agreement, it's really show me all the documentation and prove that to me.

So these are a little more robust than what we may have seen before, they just ask for a lot more things. It's important also to know that you have 30 days to respond to this. So if you're looking at this, you should be thinking right now, how long would it take me to put this all together. This is a doozy of a CF-28. This one is really them asking for alignment between the product description and the value that was declared.

So they're saying, I don't quite understand what the product is and now please justify the value. But it's not just write me a little paragraph. It's give me, I need photographs. I need written descriptions. I need all of these things. And then now go in depth on the value, tell me exactly how you got there. Are there any additional charges that your company paid? Now who are all the people in the transaction? So once again, I have genericized this a bit, but I have tried to really keep the actual intent here so that you can see how they are coming, okay? They are large and they are massive amounts.

The other thing I'll touch on is this CF-29 sample. So in this scenario that importer had received the CF-28, they had responded. And if you look in this first paragraph, it says you gave us a ton of documents, okay? But then customs goes on, if you have time to read this, and I encourage you to, they're saying these documents you gave us aren't telling the full story. You can't justify the amount that you produce based on the documents that you are giving me.

We don't actually believe that this could have been accomplished. Therefore, the country of origin that you're claiming is not correct, and we're going to change it and you're going to pay a different duty amount. So this should be very alarming and really make you understand or make you think about it's not just accomplishing the task of getting the documents, it's making sure that they're telling the cohesive story.

And I think many of us, of course, have been using AI and things to look at documents and understand them. And of course, I think you should assume that customs will be doing the same. And if you get these requests, also trying to figure out how do you actually make sure that they all come together and tell the story cohesively and back up what you've claimed on your entry, okay?

The last thing I'll point to is kind of an on-the-ground data point is the Department of Justice trade fraud cases. So these are being highly publicized now. No. You know what I'm trying to say. They're putting the news alerts out on these. And if you look here, look at the overall patterns. Don't get bogged down on each commodity, but you're seeing them put them out on a very consistent basis. Of course, they're big numbers. Another theme that you're seeing is that they're using FCA. So that's the False Claims Act. I'll let you deep dive on that. That's not what this webinar is about.

But it's really looking at these common themes, and we're going to be talking about these because they come up all over the place with enforcement right now, the AD/CVD, country of origin, transshipment. So these are the themes that are coming up, and we're seeing this. One other thing that I'll say is they have, of course, put together this task force -- fraud task force. And as a broker, we are seeing some of that activity as well, also being asked in subpoenas and things like that for data and documents. So just to bring that home a little bit more, the Department of Justice is very active. They are asking for things. They are putting cases forward so that the partnership between CBP and DOJ is stronger than we have ever seen it.

So I feel like that was really rough and a downer, but I'll hand it back to you, Brenda, to tie it a little bit more into the executive order and what we're seeing and thinking about that.

Great. Thanks, Stephanie. So we've given you the policy background, and we've given you the on-the-ground enforcement activity. What we want to do now is really do that deeper dive into the executive order that came out in early June.

The executive order is only 5 pages long. It sounds like it's pretty dense, but you all read legal stuff all the time. We would strongly encourage you to read the executive order from start to finish. But here's the framework as you read it, to be able to hang on different provisions. We believe that these are really the 5 big areas that are the takeaways from the executive order and capture what CBP and the administration is trying to accomplish with the actions taken as a result of that EO.

So the first one is the importer eligibility. And when the EO first came out, there was a lot of discussion about importing shifting from a right to a privilege. There's a lot of language about importers in good standing and certification and vetting of importers. So that's going to be a pretty critical change for those of us in the trade community, and we expect to see CBP issuing either policy guidance or more probably regulatory guidance.

We also expect to see a pretty significant advances in the requirements around supply chain information. Traceability has been a word that we have been hearing from CBP for the last 18 months. And as Stephanie pointed out, in the CF-28 and 29 process, the supporting documentation requirements and the expectation of visibility is getting very strong. And so that continues to carry out as a theme.

We are also seeing that if you don't get it right, that your ability to get a penalty mitigated down is going to be much more limited than it currently is, especially for repeat offenders. Going along with that supply chain visibility, we're seeing CBP really committed to earlier risk identification. They are expecting of both importers and brokers earlier vetting of not only transactions, but of business entities and expect private sector players to be able to demonstrate that they've actually done this vetting.

And then finally, we are seeing some interesting language around export records and the expectation that an importer will be able to provide any records associated with the export from the initial country of origin. So just keep in mind these 5 areas and as you review the executive order, this is your framework.

And so as we really think about who's going to be impacted, in our world, we often talk about importers and brokers. But in fact, if you parse the language of the executive order, you'll see that there are many other parties to the supply chain that are likely to be impacted, not just the importers of record, but those known as the beneficial owner. Stephanie, I've got that same speech issue. But beneficial owners and their affiliates, manufacturers and exporters, brokers, freight forwarders, custodians of bonded merchandise and any other party involved in the transaction will be impacted by the executive order. It goes beyond customs declarations. It is about who is facilitating lawful or perhaps violative trade.

There's a lot of things that we know and a lot of things we don't know as we look at the executive order. So if we could go on to the next slide. We know the direction that CBP and the administration is going. And we've just kind of talked about that, and we've given you the flags for where you can find that information. We know what the priorities are, who the importer is, who owns the company and whether traceability of entries can actually be demonstrated.

We know the time lines, but just a small caveat to the 180-day calendar that is represented in the executive order. In our conversations with various government officials, they have pointed out to us that the executive order has language that's a little bit I hate to call it fuzzy, but I will. And it says things like CBP will start or will initiate, which means that CBP has to get regulatory and legislative processes rolling, but they don't have to complete them within that 180-day time frame. We are hearing much more likely to see this activity over the next 12 to 18 months. We also know the enforcement objectives, and we've kind of hit those pretty hard.

We don't know -- we don't have a lot of insight into the rule-making processes. We don't know what -- whether they will use interim final rules or notices of proposed rulemaking. We don't know what those regulatory packages will look like. We don't know what the implementing procedures will be or the specifics around documentation and data, and we don't know how CBP as a whole organization will be implementing those new requirements. So there's a lot of things we don't know. But for now, we have a pretty good sense of where CBP is going.

There's one more issue that we wanted to flag for you. In the past, we've often dealt with this idea of a foreign importer of record. And we know that CBP often sees a great deal of risk in companies that do not have a U.S. presence. In the executive order, that is certainly an area of focus. And what we're seeing is a shift towards a definition of a foreign importer of record to someone or an entity that is financially responsible for the duties or someone that does not have U.S. assets or bonding, someone who does not have beneficial ownership or business transparency.

And whether at the end of the day, that importer can be held accountable for compliance, whether they provide the data in the documents, whether they pay their duties and whether a penalty can be issued and successfully collected. So this is a new concept. Well, it's not a new concept. We believe the definition is likely to be new. So a lot of change on the horizon, and Madeleine is going to walk us through what that means for importers.

Gosh. Okay. Thank you, Brenda. All right, everybody. I just want to reiterate actually the same point Brenda made earlier. And I think I may have mentioned it on earlier webinars, but please, if you haven't had a chance, please read that executive order. As Brenda said, it's only 5 pages, so it's not too long, but it's so important to review it and for you all to become familiar with what's in there currently.

So -- and again, I think this is -- for me anyway, I think this is one of the biggest changes since 1993 and the Mod Act. I really -- this is a huge change. And what we see with this executive order and really some of the other things that Brenda talked about, some of the other policy directions that Brenda mentioned earlier, is that importing now really becomes more of a privilege versus a right. So that is a huge shift that we all have to now understand and anyway trying to get our arms around.

So one of the things that this -- and as you go through the executive order, one of the things you'll see is that the administration wants to collect a lot more information about your company. So there is information in that executive order about understanding and wanting to -- or the administration wanting to collect information about your domestic assets, the year your organization or the year your company was organized, ownership of the company disclosure or ownership disclosures, business affiliation disclosures, domestic asset disclosures. So that's a lot more company-specific information. And you may be asking, well, what does that really mean? And that is the question we are all asking. We do not know.

The problem with this is that there is no official guidance yet from CBP or the administration in terms of what that really means. But these are all kind of additional points that are stated in the executive order that the administration wants to collect. So we are also reviewing internally as a broker, how -- what additional questions do we need to ask you as a new importer, for example, or even to our existing customers, do we need to collect this additional information. And if we do, how do we even validate it and what do we do with it? So there's lots of questions. We don't have answers yet, but this is just to give you a flavor of some of the additional pieces of information that are mentioned in the executive order.

In addition, they talk about the fact that in order to continue importing, you as an importer must be in good standing. Well, what does good standing mean? So far, the only thing we know for the executive order is that you have to be a compliant company and that you've paid all of your customs liabilities or any liabilities to the government. That is all we know so far. So we're very much hoping that we're going to get more information here very soon on better definitions and guidance in both of those areas.

CTPAT, of course, is also mentioned, especially for foreign importers of record that if they're not CTPAT, they have to work with a broker who is CTPAT. But what does this mean for all of you? So with -- since we're lacking a lot of detail and more official guidance, I think some of the things you can begin to look at are, do you have any outstanding compliance issues? And I'm thinking especially of companies who have maybe -- if you have purchased a lot of companies over the past several years.

And do any of those companies that you've purchased have any compliance issues that are outstanding or customs liabilities. These are things that you can begin to look at and review while we await for more guidance on what many -- what much of the rest of this still means. So anyway, these are some things, again, to begin looking at compliance issues and outstanding compliance issues and customs liabilities.

Okay. So the other thing, and Brenda mentioned this, too, as we go to the next slide, is export documentation. So this is really interesting, but the administration would like to collect the export declaration that was filed within the -- at the country of export. So when you ship your goods to the United States, the country of export -- there was an export declaration filed. And the U.S. administration is saying they would like a copy of that and perhaps -- and we don't know if that's the only thing they want to see or if they want an entire document packet that includes maybe a packing list, a commercial invoice, maybe certificates that you have to file at the -- within the country of export.

So first of all, so we don't know what all that comprises. Second of all, we don't know the timing. So in other words, do you need to file that at the time the goods export the country of export? Or do you need to file it at the time that we file the customs entry or sometime after the customs entry? And where in the heck do you file this information? Is this going to be filed via the document imaging system or DIS as we know it? Or will this be a whole separate application through which we file the export documentation? We don't know any of this. This is still very -- not clear.

And this is one of the objectives in the executive order that CBP is supposed to start something on as of September 1, which is next week. And we don't have any further information. So we'll see if any guidance or anything is issued next week. But in the meantime, what would be good, one thing you can do is begin looking at, do you even have access to that export declaration. Do you know how you could even get access to it? So that would be one thing to begin looking at as an importer is, hey, can I even get my hands on that export declaration or any of the export documentation. So again, a lot more information, hopefully, will be shared by CBP on how this requirement is going to be implemented.

All right. So then the other area, and I should say that we've bucketed this into 4 areas. But the other one, and Brenda touched on this, is also the penalties. Actually, I think we have maybe -- Stephanie, I think we're one slide ahead or before. I think there's one other. Just before penalties. Yes. Okay. Perfect. All right. So this was something Brenda touched on too earlier. And this is CBP looking at information further up in the supply chain.

So there's a couple of things here that are in the works. First, there's the -- of course, the additional information that CBP and the administration is seeking about the company or your company. Then there is also vetting that they're going to be doing. And they're going to be doing vetting of various parties. It's not just you as the importer, also the customs broker and several parties in the supply chain.

But in addition, what they highlight is prioritizing, specifically, you'll see that in the executive order, they're prioritizing forced labor, misclassification, undervaluation and illegal transshipment. And aside from those 4 priorities, they also say that they would like to obtain detailed information about the imported goods supply chain and production methods. So examples of that are manufacturer's product identifier, model or style, key specifications. So they're getting at some very intricate detail.

And we see -- so there's a couple of things here. First, also what Stephanie noted earlier with the CF-29s. You saw how deep CBP is getting. And we know that CBP is using AI. They've invested in AI, and they're using it more prevalent or more -- they're using it a lot more. And so the expectation is that they are looking at more entities in terms of AI, not just here, importers, brokers, they're looking at other entities upstream, and they're looking at more information and more detail upstream. So we have talked about this before in other webinars, the importance of doing supply chain mapping.

So as we -- as you read through this executive order, you'll see this and the importance of really looking at maybe your most critical important products? And are you able to map them, map that supply chain all the way back to the origin. And again, as we have discussed before, do you know where the components of the actual manufacturing product or manufactured product come from? Where are they sourced from? Who is that entity? Where is that entity located?

So really beginning to look at supply chain mapping, I would say that would be one big takeaway or one thing you certainly want to look at. And then second, because they are prioritizing, again, forced labor misclassification, undervaluation and illegal transshipment, the compliance of those core elements are going to be critical. And we've talked about that also on other previous webinars.

The fact that, hey, can you provide the backup documentation in terms of how you arrived at the classification of your goods? How did you arrive at determining the country of origin? How did you arrive at the valuation or the valuation of your product? Having that backup documentation is so critical. So that's another piece that you can really look at, especially maybe for some of your key or most critical products because you can't boil the ocean one day. But starting with the most critical products, really looking at do you have that backup documentation? And do you know all the entities associated with the product that you're importing.

So anyway. And then kind of the fourth big area are penalties. And this is something that we all have to look at very closely. This is worrisome, everybody because, first of all, the mitigation guidelines that exist today from CBP, those go back, I believe, to the early 2000s, some of the penalty mitigation guidelines. And we have heard CBP is completely revamping those mitigation guidelines. So now they're looking at revised standards that establish a floor of at least 50% of the assessed penalty. And that is a large amount, everybody because we know that those penalty amounts can be quite large.

And so if the minimum or the floor is 50% of that amount, that could still be a very, very large amount. And think about today, when we look at liquidated damages and penalties, especially like with the liquidated damage example of a late file penalty, where you pay -- ended up paying the duties too late to customs. You can mitigate those now down to $100 or if it's a periodic monthly statement, it could be $1,000. But anyway, those mitigation guidelines exist today. But with this complete revamp, what is that going to look like?

And it's not just customs penalties, everybody. You have to think about it's also ISF penalties, AMS, Advanced (sic) [ Automated ] Manifest System penalties, in-bond penalties. So it's across the board. And as we all know, very highly compliant traders, highly compliant brokers, highly compliant importers, highly compliant transportation providers, we can all make mistakes and make simple mistakes, and that can result in a liquidated damage notice or maybe even a penalty. So this is worrisome and also the fact that the revised standards are going to eliminate mitigation for repeat offenders. So this is also worrisome.

So the thing is, I think a few things to keep in mind. We cannot maybe just put this aside and say, well, I hope I'm not going to get a penalty because, of course, hope is not a strategy or maybe saying, hey, let's put a bunch of money aside in case I do get a penalty. I think what you should do is look or begin to look for what kind of trends do you see right now in any -- if you're getting any CF-28s or 29s, what are the trends that you're seeing? Is there a classification issue or claiming of a free trade agreement, whatever it might be, look for trends, look for trends in any penalties you may have seen, liquidated damages, audits and then see what is the issue surrounding those trends?

And then what can I do about it? What kind of control can I put in place? Is it a systematic control? Is it a process control? Is it a training control? And I know this is a lot easier said than done, much easier said than done. But these are things you can at least begin looking at while we await further guidance on all of this. I should also say that many of the associations, including ourselves, are providing CBP feedback. So if you're part of an association, please make sure your voice is heard and you provide input on these areas because we definitely need more guidance in order to figure out how this is all going to play out. But it is worrisome.

And Ted, I'm going to -- this is not very uplifting any of this, but I'm going to pass it on to you. You can maybe be able to help us with preparing for all of this scrutiny that's coming our way.

Yes. I think it will only get better during my section. So...

I know, of course.

You can take an ice cream out and have a heck of a big pout.

Yes, you can take ice cream out of this, Ted...

So as Madeleine said, and I think I'll lead off with kind of echoing one of our last thoughts. We get it. Sometimes we have no choice but to be reactive. Hopefully, after what you've heard from us so far, hopefully, you agree that we should try to get ahead of what we anticipate will happen with the EO when it goes into full effect. Again, to echo Madeleine's comments, for those of us who've been around for a while, this is the biggest darn deal since the NAFTA and the Customs Modernization Act went into effect a long time back in the '90s.

So we first talked about the idea of a response model really in the early days of the implementation of the UFLPA, the Uyghur Forced Labor Prevention Act. And at that time, we said, look, if you wait until your container is detained, it will be too late to put together what you need to prove your goods are not connected to forced labor. The same logic applies here today. We've already given you examples of 28s and 29s, it really is time to be ready and make sure you have a protocol in place.

Final note I'll share is I've talked about in the past that I started my journey in this industry at the old U.S. Customs Service. And even though I was a second-generation customs officer, I often decided to join the dark side and became a customs compliance manager for a high-tech importer. And I'm going to say, I'm sure my experience then is no different than what you live today.

I didn't have a team of 15 people, endless resources, nothing but free time. And in our case, we had 3 different business units, a whole bunch of complicated stuff to import. We barely had enough people just to hang on. And frankly, we didn't deal then with all the tariff actions that you're dealing with today. So again, I get it when we ask you to take some time to prepare, lay out a plan, do some preemptive testing of that plan. You, of course, will do it as soon as you put out your most current dumpster fire. But please bear with us. We're sharing this information. Hopefully, you'll get a chance to build a plan if you haven't already, that you can execute against.

So here are the 5 components of a response model that we put together for when CBP reaches out. And please understand CBP reaches out to us just as they do to importers. So we do have some experience in this area. It just -- it's really very simple. First, number one, there should be an owner. There should be an owner in any project in any plan, whatever. But definitely in this model, make sure there's somebody who owns -- has the responsibility. Take the time to understand what CBP is asking you. And what exactly is the claim that they're testing, what are they looking for? Then you assemble a packet. Hopefully, it's a pretty standard consistent response packet that you've got together in your mind. We give you an example of that in the lower middle left side of this slide, but be ready to retrieve those supporting records.

And then number four, take the time to review and look not just at the individual declaration that customs is looking at, look at other like imports, related articles, things along that line. And then once we put all this together, like anything, let's try to learn from what we did and look at the outcome, could we do things better? Could we do things simpler? I will share this as a former customs officer, carefully consider your response, that step 4, that review spot. Don't be flippant. Don't just send a pile of documents to CBP with the attitude that they can figure it out.

And I will also tell you, most customs officers, and I certainly was an example of that, have 0 experience in business. They didn't work for an importer or they don't -- by and large, in my case, I got out of the army, went back to college and I went for customs. Never -- I didn't know what a P&L was. I didn't understand any of that stuff. So don't just throw acronyms at them. Give them a road map, clear information, lay things out in a response packet, measuring your response, don't give too much, don't give too little. I know that's somewhat subjective. But think about what you're sending off to customs.

And test this model if you can before you actually have to implement the model. Maybe you've gotten a CF-28 or 29 in the past that you had to respond to or maybe there was an internal issue that somebody identified that was all hands on deck to try to sort out. Maybe you can use that as a kind of a test and kind of run the plan as an after-action review and just say, okay, here's what we did in that scenario. Could we have done it better maybe using this model or something like that. So again, try to test the model. And hopefully, you're really prepared for when you do have to start responding to CBP in this new environment that we anticipate or actually we're already in, but we expect it to get a little more severe as we move forward.

All right. Let's really narrow it down to a single product and take this a step further. In all of our recent customs market update webinars, if you've been part of them, we've talked about the importance of not just focusing on your overall supply chain, but the specific value chain of the individual articles you import. We've talked about that again today. So just kind of continuing the theme of that previous slide, let's take this down a notch and how you would respond to an inquiry from CBP about a specific product.

So let's take a look at the 4 points here on the left side of this slide. These are the things we've got to be able to prove to customs, who made it? Not just who you buy it from, but go back farther in that value chain of the relevant suppliers of components and the manufacturers and things like that. What about country of origin, not just the country of origin of the final article as it's coming to you, but how about the depth of the various articles that make up that product and specifically manufacturing locations.

We have seen examples already where CBP is taking a hard look at manufacturing locations, claimed manufacturing locations. So let's make sure that we -- you're saying a manufacturer is the Ted Henderson Company in Penang. CBP will do some basic searches on the Ted Henderson manufacturing company in Penang and maybe come back to you with a shot from Google Maps that shows that actually that looks like the address you gave looks like a storefront for convenience.

So they're looking -- they not only -- Madeleine talked about, do they have AI tools? Yes, but they're also working with third-party private sector companies who are providing a lot of interesting data elements to them that speak to international shipping patterns and origin of products from around the globe and can, in many cases, give a very good picture of what is a claim manufacturing location and the fact that there have been 0 inputs coming into that location. So how could it manufacture something?

Look at the supporting evidence, that's bullet 3 there or item 3, what supports all the things that you're trying to tell it. And then ultimately, how does it all connect? Again, the road map, paint the picture for CBP, explain how everything is connected so that it makes it easier for them to come to a conclusion and you can guide the direction that they're going to go.

So again, what should a test tell you whether you had a really nice complete connected story, whether you had records available, but hard to paint the picture or there are areas that are missing. And these are the areas that we need to dig into and make sure we can come up with something as things go forward. So document the gaps, assign that owner, repeat the test, find something once you do it with, say, an easy product, let's find something with a really complicated bill of material. Let's dig down 3, 4 layers and make sure that we can actually do what customs expect us to do.

All right. We've mentioned -- I mentioned UFLPA and forced labor and how the early implementation period of UFLPA, we worked through some basic concepts of preparing to validate your imports and confirm that there's no forced labor connected to those imports. Maybe some of you joined those webinars several years ago, even though now it seems like a million years ago, we were talking about it. Yes, this webinar is focused on the recent executive order, but we do want to step back and revisit forced labor.

We want to show you briefly how CBP has progressed in their actions, what they're expecting these days. And most importantly, we really want to take a look at a recent document that CBP released. My ask here is, please, don't just ignore this section because you don't have goods that are remotely connected to forced labor.

I think that if nothing else, we can look at the most recent Section 301 forced labor actions, tariff actions that were put in place by the administration. And I think we can understand that forced labor has relevance in a number of ways in the new world. So about 2 months ago, CBP released a new document, the CBP Forced Labor Enforcement Operational Guidance for Importers, comprehensive document, 79 pages, legal authorities, a whole bunch of other interesting things, but it really offers some really good transparency to CBP's enforcement protocols. And again, the learnings for all of us from this document should not just be focused around forced labor.

CBP provides some really clear expectations about what the things that they are applying in all sorts of inquiries, not just forced labor. So let's take a hard look at this document. We have a link to it here. The key thing and the really fine print on the 2 columns on the middle and right, these are the appendices in the document that really speak to very specific and very useful supply chain tracing information. There's also a whole bunch of other great information related to the UFLPA and legacy forced labor enforcement, WROs, whatever. But this really gives you some excellent guidance by sector, by product and some thought of how to engage in supply chain tracing and what CBP is looking at. So again, please, I know we've asked you to read the EO. I'm going to ask you again, but also take a look at this CBP document and of course, the DOJ DHS document as things are going.

As we said at the outset, the administration is telling us something very important right now. We saw it in that EO, the DOJ, DHS trade fraud resource guide. And here, CBP is laying out the operational environment that they're conducting enforcement operations in. So we pay attention to what's being telegraphed as we look at it.

All right. So what do we hope you will take away from all of this last hour. First, we don't know everything yet. There is still much that has to be laid out, but we can definitely see the direction that the administration and the enforcement agencies are going.

For those of us who have been engaged in this U.S. import world for a few decades, the core concept that we've kind of just taken as a given that importing is an inalienable right, that's no longer the reality. So that first point, we really need to understand that CBP acting as the enforcement arm on behalf of the administration is now much more concerned about making sure only the right people, the people in good standing, folks that are doing the right thing are actually engaged in imports into the United States. So again, fundamental shift going on just in that concept.

Second point, I've already said it once. We've said it across the thing. I'm going to say it again, I beseech you. Please read the documents we talked about today. Third, I know I'm old school, but I want to remind you to focus on the fundamentals. When I was a young customs officer, it was all about classification, valuation, admissibility. And I took those same fundamentals with me when I ran off to be the Head Customs Compliance nerd at that importer. So I want you to understand nothing's really changed in today's environment.

The core statute that all of us operate under in U.S. imports is The Tariff Act of 1930. For those of us who watch Ferris Bueller's Day Off, remember the high school teacher, Ben Stein, talking about the Hawley-Smoot Tariff Act of 1930. Anyone? Anyone? That's the same law that we operate under today. So those same core legal principles, that's what the current administration is using today with the EO and all the other things we've talked about today. It's all built on that history. Focus on those historical fundamentals as we're moving through things.

And finally, I've seen this so many times over the years as a customs officer and a customs broker, folks only tend to look at an individual entry when CBP asks a question about that entry or that item on that entry. You have to think beyond the entry and question. Look at the whole value chain of an imported article. Look at the whole history of your imports of that article because CBP definitely will. So make sure you're ready to support a larger discussion, not just about that one entry, but about everything that might be related to that.

So bottom line, let's not wait until CBP starts issuing the implementing actions for the executive order. The federal register notices, new policy announcements, all of those things. As the prophet Bob Dylan said back in 1965, you don't need a weather man to know which way the wind blows. So let's get ready for where the wind is blowing right now.

And with that, we'll close this thing down. We'll look at the accreditation slide for those of us who are licensed U.S. customs brokers. We are getting close to the end of a triennial year. We hope that you've been taking advantage of all of our webinars and the opportunity to knock out some of your continued education credits that you have to do as the licensed brokers. We have more customs market updates planned for the remainder of the year. So more hours are underway. But please do take a look at your current credits and make sure you're set for that obligation when we renew in the new year.

All right. With that, we do have 5 or 6 minutes. So for my colleagues, any core things that we want to address as part of things you saw in the questions?

But Ted, I think I echo one of our commenters here, the fact that you quoted Bob Dylan. I mean, way to just bring this thing to a close. I have to quit webinar everybody Ted has. He is the master. So well done on that.

A couple of things I do want to touch on that I saw questions about. One was about the -- it's hard to remember time. There was a recent Federal Register notice about CBP 5106 and making sure everything is updated. So once again, now that we have gone through the framework, we know what customs are trying to do. One of the most basic things they need is to know how to contact you, right? That is why this Federal Register notice is published because they need to make sure they have the right information on file.

So we're going to be looking at this. Samantha is going to be including a blog post that our colleagues over at Tradewin did on this topic, and we'll be circulating that as well. Many of you will be completely fine. Your names and addresses and everything is fine. But this is once again a call because customs to implement any of this, they need to know who is out there and how to get hold of you. So that -- we will address that and send some extra materials on that.

No, I was going to say something else super profound, but it fell out of my head. Oh, it came back. Other conversation in the chat about making sure that you have access to CF-28s and 29s and not wasting any minutes on that. I don't know if I said this clearly during my section, but a line that is now being -- it almost feels like preprinted on CF-28s is we will not issue any extensions.

So that used to be really common practice was that you could go to customs and ask for an extension. We're not seeing that now. So you cannot waste any of your 30 days going to mail stop, you're working from home, whatever it might be. So make sure that you have a process in place ideally in your portal, there is a report. Somebody says the ES13, don't quote me on that, where you can get a notice. There's also a form section. I think importers have said you need to watch both because they're not always in sync.

So just please look at that. That's an area as a broker where our system doesn't quite align perfectly. So it's hard for me to answer that completely.

But thank you. Thank you so much for attending. Anybody else on my colleague side want to chime in?

I think you've got it all, Stephanie. No. Actually, the only other thing that I would add, Stephanie encourage or Madeleine, encourage you all to work with your trade associations and take the opportunity to submit comments. I think there's a groundswell of interest. CBP is listening, and we just want to try to get ahead of the open questions. So be sure you're participating, your trade association is a good place to start.

Yes. Very good, everyone. Well, thank you so much for joining. I am also very happy that others picked up on the Ferris Bueller comments as well. That was fantastic. Appreciate that. I think everybody is having fun with that levity.

Just a reminder, if you are looking for the materials or maybe your sound wasn't working and you want to hear part of the recording. I know we've had a couple of people that had those issues. We're going to get the materials to you. Keep your eye out for the survey that will be e-mailed to you here in about an hour, and that's the easiest way. As soon as you finish the survey, a link pops up that will say, thank you for participating, and you'll get your link materials. So that's the easiest way to get access to that.

And again, we just appreciate you all participating. If you have any questions or need a follow-up meeting, that survey will also give you an opportunity to request that meeting. Thank you all for joining the team. Great job, as always.

Thank you, all.

Thank you. Take care.

Thank you, everybody.

Bye. Bye-bye.

Hello, everyone. Thank you for joining us. I'm starting to see our participant numbers steadily climbing there. So it means you all are probably getting your alerts for what's next on your agenda for the day. And we are very glad that part of your schedule is joining us for the U.S. Customs Market update. I don't know? Anybody else feeling like deja vu or Groundhog's Day here because we've definitely done a lot of these. But we are glad you're here for another one. And today, we've got a lot of content to cover.

So let's talk about the housekeeping items in case you have not joined us before. [Operator Instructions]

All right. Moving on along, we're going to get you guys to people you really want to hear from, which include today, Madeleine Veigel, our Vice President of Customs for the Americas; Brenda Smith, our Global Director of Government Outreach; Ted Henderson, who is our Senior Adviser of Customs; and Stephanie Holloway, our Director of Customs Operations for the Americas. And Stephanie is going to get us started today.

Thank you so much, Samantha. Okay. So let's dive in. Of course, our -- the best slide of the whole show, the disclaimer. We are doing the best we can here. We are going to give you the best information we have. But just know that we are not lawyers. We are just customs brokers, which is a very noble profession. So here we go.

I'm going to start us off with tariff and trade developments. We have not been light on those in the last month. In fact, it kind of blew up the whole system. So I'm going to do the best I can to talk about those in a concise and meaningful way. I'm going to cover the ones that were recently implemented and then which are coming soon. Ted is going to talk about tariffs under legal challenges. So of course, now the court system is right in the thick of tariffs, still dealing with IEEPA, and he's going to touch a little bit more on the most recent cases that are popping up for the Section 301 forced labor. Brenda is going to really level set. This will be fun to hear from her about our key trading partners. And what is the status of our relationships with them and what does that maybe look like? And then Madeleine, everyone's favorite topic, enforcement. She'll touch on some CBP enforcement activity, our favorite, the trade fraud enforcement guide that came out in the last couple of weeks, and then really give you some more information about that executive order.

So let's dive in. This -- when I was making this slide, it kind of cracked me up because I was like, "Oh, there's actually some space, I guess, for October." So we'll see what is in there. But since we last met, of course, the biggest headline was that Section 122 tariffs expired. So those expired on July 23 and immediately were replaced at 12:01 on July 24 with the forced labor tariffs. So we're going to dive into those a little bit more because that has kind of dominated most of our world. However, at the same time, we've had some Section 232s coming on. We're going to be touching on the Canada Section 338 that were announced and what that might entail for us. And then, of course, we always have this long tail of activity that we need to keep an eye on. So let's get going.

Before I talk about all the things that have been going on, I just thought it would be really -- almost said fun. Fun is not the right word. It would be good for all of us just to reset again. And Samantha always reminds us, there's many new people coming into the industry all the time. And we are -- sometimes I listen to a sentence I say, and I think just 2 years ago, I wouldn't have understood what I was trying to get across. So we have the 232s, the 201, the 301s. All of these things, of course, are the legal basis of how the Trump administration is applying tariffs. And this really helps you understand where these are coming from, how durable they are, how long lasting are they are -- how long lasting they are, how long would it take from a case being announced to tariffs potentially coming on?

So this is the key, right, to really understanding this is kind of your guide book of how to understand how tariffs might impact your business in the future. This chart is actually from a congressional research service paper. If you don't know who they are, they're a fantastic government group whose job is to do research for Congress people and present these reports in a very easy-to-read fashion. If you have -- if you're new or if you're trying to get people in your organization to understand, this link is a great one to look at. The report, I think, is from April. So not too old, but it really highlights some of the main legal basis in how tariffs can come.

So the ones that I'm going to focus on, of course, because actually, we've had all of these in the last month come at us. So you can see here, of course, on 232, 201, and 301, if you look at this line that says agency required to make findings, all of those ones have an agency that's tied to them that have to go do a report, and that's going to be important to know. It's the Section 122 and the 338 that can be very quick, right? There's no report needed. So always understanding that is really important.

So what has been happening? I resurrected this list, although I tried to make it look cooler. Brenda informed me my font is too small. So just bear with me here. So on the Section 232, this is listed in order of when these cases were initiated, okay? So you can see here, we've been checking down the list of the 232s. So we have skipped over critical minerals, but pharmaceuticals went live. The first part went live July 31. They officially have closed the commercial aircraft one. And then we just got instructions last Friday, I think, for polysilicon, although it's planned for December 2026. So if you're wondering, in your case, if you have one of these that's going to be highly impactful, you can I see what's happening here.

Section 301, this is a little bit more all over the board, but there's a lot open, right? These are all ones that are formally open. If you Google Section 301, open investigations, you'll see the page. They're all there. But we've had 2 of these go live in the last couple of weeks. So we had Brazil and we had the forced labor one. So both of those just days apart.

And then Section 201, haven't seen an appearance of tariffs under that for a while. I always say my fun fact is 201 was the original tariffs that came on during Trump 1.0. They were for washing machines and solar cells. So there's your fun fact of the day. It is coming back to life with quartz surface products. That will be middle of August. It's actually a quota. So interesting twist. We haven't seen that in a while. And then just in the last month or 2, they also opened up a Section 201 on lamb meat. So I'm not quite sure the background on the lam meat, but it is out there. Okay.

So this is kind of an overall view. Let's look at what got implemented, okay? So I'm going to hit -- usually, we try to go a little deeper on this, but we kind of have to do an overall pass by. And what I'm going to try to hit is what are the key parts that are important because this kind of gives you the outline of how the Trump administration is looking at tariffs. And even if this directly doesn't impact you, you can see the writing on the walls. You can read between the lines to really see the patterns that are emerging. So Section 301 Brazil, this was essentially the -- what do you call it? The repeat of the IEEPA Brazil case. So if you remember for Brazil, there was actually 2 IEEPA cases. There was the IEEPA Reciprocal Tariffs and in IEPA Brazil specific. They stacked on top of each other. When IEPA Brazil came on, they actually opened on the same day, the Section 301 Brazil case.

So this started on July 22. It's a 25% rate, which is ironically, the exact same amount as the IEEPA one. They exempted many commodities from Brazil. The list actually was not exactly the same when it went live, but it does stack on top of the forced labor. So very similar patterns as what we saw before with the IEEPA cases, okay? A lot of exemptions on that, by the way, as well. And I'm going to have a slide about exemptions because exemptions are becoming their whole own thing that you have to have a strategy of how you manage them.

The big, big headline, of course, for many of us was forced labor. So this was the Section 122 expiring at the end of July 23 and then July 24, right? These were coming in. The other big headline, of course, was that many brokers and software providers had very little time. We had 7 hours to prepare for this. It's a 400-page Federal register notice, a gigantic CSMS. I keep bragging about my team. They did a fantastic job getting that implemented. But this covered 60 economies. And it says economies because it includes the EU. So I think it's 84 individual countries, if I did my math right, don't quote me on that, please. And it came out with a structured duty rate.

So there's 10% or 12.5%. But in each of those, there's one that's with the MSN rate, right? That's that old standard duty rate that we used to pay. And then there's another one where it's an all-in rate. So certain countries, really depending on if we had one of the trade agreements signed with them, got grouped into these different buckets. USMCA goods are exempt. And there was actually a pretty broad list of exemptions, and I have some listed there, a lot of them being ones that are already tied to Section 232 cases. So that was a very similar pattern that we saw with IEEPA Reciprocal was if we can exempt it on a 232, they did. Same thing with these, okay? And this can stack on other 301. So in my example with the Brazil, it is both of those coming together. The Brazil stacked with the forced labor, giving you a 37.5% additional duty.

The other one we had was Section 232 pharmaceuticals. Of course, the pharmaceutical folks are all over this. But this one was really interesting. We had actually a lot -- we had 120 days' notice. So the original notice came out on -- in April, if I remember right. And the complexity around how to calculate these duties are unmatched. We haven't seen this level yet. It looks at, is it a generic or pharmaceutical? How big is your company? Have you worked out a preferential trade deal, like essentially a pricing agreement with the U.S. government? They call it MFN pricing, which is very confusing to the trade nerds because we know that to mean our Most Favored Nation duty 1 column rates. They're using this to mean that you have worked out a preferential pricing agreement with the U.S. government, but also looks at do you have an onshoring agreement? Are you investing in building a factory in the United States? All of those factors impact your duty rate for pharmaceuticals.

This is kind of mind-blowing stuff. Also, if there was a trade deal, those countries got the preferential rate. So these are huge tariffs, by the way. I didn't capture that. There's different tiers, but you can get easily up to 100% tariff on these goods. So this really kind of shows the playbook on how the Trump administration is trying to bring back certain types of manufacturing to the U.S., of which pharmaceuticals is one that they really care about, okay?

So that's what we've lived through implementing. And I think most -- 2 of these have been on -- we get instructions on a Thursday night, and we implement on Friday. So we have not been short on activity. The other thing that we're seeing is we've gotten some pre-announcements. So pre-announcement is always a little bit interesting in terms of the lead time that you see. The Trump administration often signals that they're willing to negotiate or maybe the story is not quite done when you have more of a lead time because they're trying to get companies, countries, whoever, to come to the table and figure out ways to make things happen.

So these ones are a little bit interesting courts. So once again, this is a Section 201 with a quota. So we have not seen this type of activity for a long time, and it is going to start August 15. It's 25% in quota, 50% once it goes over. So I -- we have just a handful of commodities in the U.S. that still have a quota. But just in case you don't know or can't deduce what it is, it's essentially a certain amount can come into the country at a certain rate. So once that gets filled -- that first amount can come in at 25%. Once that's filled, you can still import, but now you're going to be paying 50% okay?

So that just makes watching -- it's just a whole another aspect to pay attention to, watching what's coming in, knowing how full the quota is and using that as part of your tariff strategy is really important. There was a lot of country exemptions, and I have some of those listed there. But if this impacts you, this is something, of course, I'm sure you're paying attention to, and we have more detailed information that we can circulate.

The other, I'll say, kind of trade announcement that got a lot of press in the last month was Canada. So it wasn't just Canada. Of course, Canada always causes a lot of noise in the trade scene because they're such a key partner with us. But also, it was because the President used Section 338 for the very first time, okay? So that's almost the bigger headline is, is this now going to be a trade remedy or tool that the administration reaches for often, okay? So we had 30 days, I think, because it got announced mid-July, and it's 50% on covered goods. So I just want to make sure everyone is really level set on what this is.

So there's actually 3 actions that were listed, 3 different Section 338. So there was one for autos, for alcoholic beverages, and one for dairy market access. And remember, a 338 -- so I'm going to go back here, a 338 is when you can show that it burdens or discriminates against U.S. commerce, okay? So -- that was not the best choice I made. Okay, here we go. So what they're saying with in this case is that these industries are being discriminated against, okay? The retaliation action, though, and this is the part that's really important, is that they're not just saying that 50% tariffs will be applied to autos or to alcoholic beverages that are being imported from Canada. It's actually a completely different HTS list.

So even though it might not feel like this should impact you, you're like, I don't import an auto. I don't import an alcoholic beverage. It doesn't matter. The HTS numbers that are being targeted for these tariffs tied to each of these individual 338s are not one for one, okay? So it's -- if you import from Canada, if you have products with the country of origin of Canada, you really need to be looking at these lists. There are some exclusions, but it's not -- as it's written right now, it's not going to exclude or give you a break for USMCA, which is a pretty big thing for products from Canada. I don't have to tell you if you know that. The bigger story, as I said, of course, is that the Trump administration hasn't used 338 yet.

There's not ever been a legal precedent of using that. So that would be very interesting if this actually happens, okay? And I do think that 30-day lead time that we've been given or that we're seeing is really potentially trying to get Canada to come and negotiate directly with the government. We'll see how that works out. But I do think you need to scenario plan for this because this is going to be very impactful for many of you.

The last one I'll say is polysilicon. I'm not going to go too in the weeds. We actually have a pretty good lead time on this. It doesn't go until December. But this is, once again, you can see the playbook of what the administration is trying to do with tariffs. This is its own thing. So it's going to be looking at pricing, how much did you sell it for if you didn't sell it for a certain amount, there's almost an ad valorem and a specific rate duty that are going to be added together. So it's a very, very complex duty scheme. It's going to be very complex for us, both as a software provider and as a broker to actually accommodate this in our systems. So we will see on this one. I think that customs might have some additional data elements they want because, A, we do have the longer lead time, and this is going to be very difficult to actually implement well and make sure that you can prove and calculate the duty correct. So lots there.

Last thing I'll say before I hand it over to Ted is what do you make of all of this? This is so much, right? It's -- I won't say it felt like we've ever really had a break in 2026. But we kind of hit our groove in the last couple of weeks have really just feel like they've really amped up. So the thing I do want to hit on is exemptions. Exemptions are great, but they are becoming so difficult to understand and make sure that you can use them correctly. So the one thing I'll say is just make sure that you're not assuming because you're on one list that you're on another list. All of these lists are different. Kelsey and our teams is absolutely brilliant. She always says the civil aircraft. She's like the civil aircraft list, trade agreement to trade agreement can be very different. So you just have to double check everything.

Also, we're seeing so many more expectations around end use, contract timing, origin, pricing, manufacturer location to use exemptions, okay? So you can't just assume that it's a one-size fits all, and it's no longer just I have this HTS in country, do I have an exemption? It is a very complex process to understand. A lot of it, too, might require documentation that you need from your suppliers. So my last point is, especially with these, making sure you pull in the right teams early on because sometimes you're going to need to get completely different things from finance or procurement or, of course, having your legal teams look at it.

I think right now that the companies who are doing really well are really leveraging industry association and trade groups well as they also are trying to pull this apart and understand sometimes with not much clarity how to interpret this and how to read it and then how do you actually build this into your tariff strategy. So that's my soapbox on exemptions. It's really tough out there. So make sure that you're doing this well and that you have a good strategy in place. Okay, Ted. I'll hand it over.

Thank you, Stephanie. Appreciate it. As Stephanie said, just so much happening in this last month. It really -- it just keeps washing over us. And as we say to all of -- you all out there, hang in there, take a break when you can, try to reset, and then we get to plow forward with the next announcement.

So back in our June webinar, we talked about how legal challenges are becoming the new norm with respect to tariff actions. And at that time, we pointed out that U.S. importers clearly have become emboldened to take on the administration, particularly now that we've seen the Supreme Court action the win, if you will, for importers on the IEEPA tariffs. And second, again, to say this again, it just doesn't appear that Congress is emboldened sufficiently to take back their constitutional authority over tariffs and attempt to manage the actions coming from the executive branch. So basically, importers have to go to the third branch of the government, the judicial branch, and try to get interpretations and potential revocation of those executive actions related to tariffs.

And so as we can see, not quite as much going on as Stephanie talked about, but certainly some things going on in the courts right now as we're going through. We'll talk a little bit more about the IEEPA stuff in some detail here in a second. But the big round -- the first big round of activity that was, like I said, a win, if you will, for importers was the IEEPA court actions proceeding all the way up to the Supreme Court. And it -- now we're just kind of left with dealing with how to the refund process, and we'll talk about that.

Section 122, I think it was pretty obvious. The administration felt somewhat uncomfortable that Section 122 was the durable way to go, but it was the immediate answer they had to impose tariffs after IEEPA. That is moving through the courts now with the Federal Circuit appeal pending on that. So I think on any of these actions, we can expect things to move through the full court system, Court of International Trade, Court of Appeals, and the Supreme Court. And we likely will see this with 122.

The key point, if nothing else, hopefully, if it does come to a resolution where importers can get refunds such as in the IEEPA case, hopefully, it also sets the precedent that the administration can't go back and reuse 122, that it does establish some boundaries perhaps around 122 as we move through the court actions.

Section 232 metals, this was that interesting one that really talked about valuation and the plaintiffs are suing, really, at CBP and stating that the way CBP is imposing valuation rules on certain derivatives is not in accordance with the valuation statutes and Section 232. So this is really directly very specific about valuation. But it's certainly, depending on how the court ends up finding, we could have to pay attention to changes in valuation models that we're currently using.

And then the current big darn deal that replaced IEEPA is the Section 301 forced labor actions, and we'll talk a little bit more about those as well right after I talk about IEEPA. But again, the U.S. court system seems to be the place where tariff actions and policy are now being evaluated and defined. All of the things that Stephanie just talked about, I think we can anticipate more court actions as this goes along. So let's keep in mind that certainly, there's stuff going on now, but we expect more things to be going on as we move forward.

So with that, let's talk a little bit about IEEPA. So I just was talking about our June webinar and our July webinar, we did really a deep dive into IEEPA and looking at the duty refunds and all that's going on, the continuing court actions. Today, we just want to kind of do a quick highlight and run through some things and what's going on right now. First, the big -- I think the good news is things in general are going relatively well on this one with the duty refund process.

In CBP's latest update to the courts, they talked about over 17 million entries having been processed for refunds. There -- that amounts to about $130 billion in potential IEEPA duty refunds that are going out or will be going out. So by and large, most IEEPA entries seem to be moving pretty well through CBP's Cape processing. The big sticking point continues to be those entries that are considered finally liquidated. That is -- they're the ones that are 90 days past the liquidation date. The U.S. government, in their court filings and general statements, are continuing to maintain that those entries cannot be actioned by CBP unless an importer filed suit in the CIT, the Court of International Trade.

CIT Judge Eaton has ordered CBP to reliquidate all entries for importers who have filed suit and the government has stated that they will not appeal that action. So at this point, it does appear that filing suit may be the most promising route to getting refunds on finally liquidated entries. There was also a recent testimony in the CIT around the potential for a class certification for all importers that are tied to these IEEPA duty refund matters, which that could potentially create an opportunity for importers who have not filed suit in the lawsuit to address those finally liquidated entries.

The court recognizes the cost of filing suit, even the government recognizes this. And for small, medium-sized importers, they don't necessarily have the wherewithal to go hire outside counsel, go through the process of filing and all that goes along with it. So it is clear that the court is interested and see if there is an alternative and maybe class certification is it. But at this point, we're back to the government continuing to hold the line that CBP does not have the statutory authority to issue refunds on finally liquidated entries without that court filing by an importer.

So bottom line, I wouldn't recommend just sitting back and hoping that the court does a class certification. Definitely possible that, that happens, but it's not a given. As we all probably have heard from our high school coach or a drill sergeant or maybe even our mom, hope is not a strategy. So let's think about where we're going, and we're going to stick with the recommendations we've been talking about over the last several months. Excuse me. Enjoying a summer cold here that hopefully, you don't get to enjoy it either.

Really, the key thing is quantify that potential refund exposure with finally liquidated entries. Is it worth the investment and the time that it takes to do it through a court filing. But think about it, pay attention to your liquidation dates. Really, we continue to strongly recommend that you think about your protest strategies and whether or not you do want to engage outside counsel for those finally liquidated entries. So again, don't just assume that we're going to get class certification or the fact you've got protest filing filed will guarantee you have access to those finally liquidated entries to get a refund on them. Take the action that you need to do, figure out the cost benefit analysis, and then move forward to make sure you're doing okay. Watch the statutory time frame on -- it's a 2-year limit that you get before you get -- before you run out of time to file in the CIT. So keep that in the back of your mind as well. Don't just keep delaying things as it goes.

All right. With that, let's talk about Section 301 forced labor. As Stephanie pointed out, the 122 tariffs went away. And right after that, we saw the 301 forced labor tariffs fall into place. And a combination of the timing, and public statements, and the basis of the forced labor tariffs, and all that stuff have caused a number of folks to pile in with lawsuits. So on the 24th of July, we saw 2 suits being filed. There were 2 importers who, I think, came in first and got there then and then right after that, another importer filed their own suit. It was a class action suit that was filed by the first 2 importers. And really, they're talking about things that are constant and then consistent across all 3 cases. They're saying that the tariffs and, specifically, were arbitrary and capricious. It was a preordained result that come up with the tariffs, things along that line. They're also in the class action suit talking about the fact that 301 is a very targeted trade remedy statute and can't be used to just broad -- do a broad-based sweeping countrywide tariff. There has to be specificity to it.

The second suit that was filed similar arguments and in fact, all 3 are similar. They also brought out the point that the USTR in their investigation preceding the tariff action, they didn't meet the statutory requirements for individual findings for each of the 60 economies. So they bring in some additional points. And then finally, we saw about a week after that first round, 25 states led by Oregon, Arizona, and California led their own lawsuit, same arguments. They're also pointing out a potential violation of the Administrative Procedures Act. They're talking about the short time frame that the investigation -- you're talking about 60 economies and yet it took 2.5 months from announcing the investigation to closing it and taking action.

They also point out accurately that certain goods that are allegedly made by forced labor are not -- are indeed exempted from the 301 tariffs. Stephanie talked about all the range of exemptions. And it seems interesting that if certain goods are allegedly made by forced labor, then, wouldn't they be subject to these tariffs? So this is all just started. This is early in the process. We expect that we might see actual action in the courts, the parties are all sorting out what's the lead case, who's going to meet when. Maybe by October, we start actually seeing testimony in the Court of International Trade on this. But it's possible that we do see some action on 301.

In the past, the courts have been very differential to the executive grant decisions around 301 and 301 cases have not -- the plaintiffs haven't prevailed against the government in the past. But this one does have some merit perhaps. So we also know that, again, CIT will make a decision. We'll see it go to the Appeal, Court of Appeals, and we'll probably see it go to the Supreme Court. So we're in for another long haul on this one. It's just the latest round of lawsuits that we need to keep an eye on. So now as I often have the pleasure of doing, I get pass the baton off to my friend, Brenda. So Brenda, it's all yours, please.

Thanks very much, Ted. Greetings, everybody. So as we head into the fall, we wanted to be sure that you had a really good grasp on what is happening internationally. We have a number of important trading partners. The stability of those relationships has been a little inconsistent over the last 18 months. But just going into September, kind of understanding where we are with the various trading blocks, we think is important as you work through your compliance and your strategic planning decisions.

So let's start with North America. We spent a lot of time in the last month or 2 talking about the USMCA review, which is certainly a key aspect, in fact, probably the main driver with the relationship between the U.S. and its North and South neighbor. That review process is still underway with very active negotiations. We believe that the primary activity or the most likely significant activity will come around rules of origin, likely specifically with respect to the automotive sector. But we also believe that, as we've talked about before, that the enforcement focus by the U.S. on ensuring that either inputs or companies with that China connection do not get the preferential duty rate coming out of USMCA.

And so that may result in a pretty significant reform of rules of origin. Again, this may be limited to the automotive sector, but I think it will indicate where the U.S. is going with future negotiations, not just in North America, but really around the world. Of course, and Stephanie has already called this out, the other thing that we are really looking at or watching for is what is going to happen on August 19, just 6 days from now with respect to the relationship between the U.S. and Canada. The scuttlebutt here in Washington is that Canada wasn't coming to the negotiating table with good offers as Mexico had done. And this was an attempt to, really, insert some new negotiating leverage by the United States to try to get Canada to come to the table so that we do have resolution around the North America issues before the end of the year. So stay tuned on that.

The next major block that we want to talk about is Europe. And Europe -- so Stephanie, if you could move the slide forward. Here, we've talked about tariffs over the last 18 months, but there is so much regulatory activity going on, not only related to carbon, and environmental, and sustainability goals, but also in the digital framework. And a lot of times, we think, "Oh, we don't do digital, we do goods. We do physical goods." But the digital issues that the European Union is working to resolve, with respect to primarily large U.S.-based digital providers, is driving a lot of the conversation between the U.S. and the EU. Turnberry Agreement has been done and dusted. Full implementation is taking place as we speak. It is still possible by some of the associated tariff actions, 232s and 301s, that Europe will be hit by additional tariffs, but the primary focus really is on the regulatory activity that the U.S. businesses are facing when they go into the European trade environment.

The last thing of significant interest to us, and hopefully to you, is the European customs reform. UCC Uniform Customs Code, as it's often referred to, has already started with implementation. They're taking baby steps. Our main concern is that we don't know exactly, with any specificity, what that reform actually looks like, what it means to us as compliance professionals, what it means to us as software developers. And so we are keeping a very close eye on that because of the significance of the changes, a centralized data hub, a centralized customs authority and what is likely -- what is that likely to mean not only for the European Union as a whole, but the individual implementing member states where many of us do business. So I think there is a lot of opportunity for change, a lot of opportunity for progress if we can get these digital and regulatory issues kind of set and so that everybody knows what the predictable positions are.

So the next elephant in the room is China. A lot of activity there, but it's a very interesting activity, and it really revolves around the politics and the negotiating strategy of these 2 superpowers. Both President Trump and President Xi committed to meeting several times in 2026. We had the first meeting last spring. We saw things like the Board of Trade. Prior to that, what we saw was the 2 countries kind of pulling their punches. They were not taking action that would really irritate or really set the relationship on a bad course. We're seeing a similar approach now as we head into the next Trump-Xi meeting likely to happen in September or October. But we are also seeing kind of a low level of action around export controls, a little bit of critical minerals, some decrees that China has issued, which impact U.S. companies doing business in China. So it's a very complex time for this U.S.-China relationship, not unexpected.

But just as an indicator, there were many people commenting on when the forced labor 301 duty rates came out, that China was subject along with many other countries to a 12.5% rate. They expected a higher rate. However, if we're trying to keep the relationship warm, not hot, not cold, that was kind of a middle-of-the-road solution. The other thing that I would advise you to keep an eye on is November, when many of the previous suspensions will come off, technically. So we'll see if that actually happens. We'll see what the meeting schedule between the 2 presidents, how that impacts it. This continues to be an active space. My sense is that the U.S. has not settled on the exact strategy they want to take with China. So stay tuned.

And the last trading block that we wanted to touch on is one that many of us are doing business in, and that's the Asia Pacific. I know this is kind of a broad bucket of countries. The production capacity in Asia Pacific region continues to grow, which provides many U.S. businesses with an alternative to manufacturing in China. But we're also seeing China recognizes that. And so they've worked really hard on developing their relationships throughout the region, always strong relationships. What may be interesting is a new free trade agreement coming up or being negotiated now, which may drive additional integration between China and the ASEAN countries.

Vietnam, in particular, continues to be kind of the poster child for that increased manufacturing capacity and the integration. And it's something that the U.S. has really been all in on, but also takes it with a grain of salt because it knows the relationship between China and Vietnam is pretty strong, both geographically and politically.

And the last thing that I wanted to touch on was the ongoing trade negotiations. The intelligence that we heard from U.S. government officials was that until a trade agreement, one of those reciprocal trade agreements or agreement on reciprocal trades had been published that, that agreement was not final. And when we had published text, then things were locked down. Well, there's very, very few of those in the Asia Pacific region. And so there is still opportunity for tariff negotiations and other provisions to be negotiated between the U.S. and the Asia partners.

The next thing to watch on, the next date to watch on, is the big confab between the leaders of these -- the Asia Pacific economic community, which will happen in China in late November. So lots going on there, but we wanted you just to have, in the back of your head, where are we actually with these 4 major trading blocks and where are things likely to go.

So with that, I know, Madeleine, you're going to take us into the enforcement realm. So let me turn it over to you.

Right. Thank you so much, Brenda. And yes, everybody, I'm going to be talking about enforcement. Obviously, we have all seen a lot of enforcement with this administration. It's definitely ramping up. We, as Expeditors, have seen just a large number. And I think we've talked about this before on previous webinars, but we continue to see a huge number of CF-29s, CF-28s, which are the request for information and very, very -- and when those come out, CDP is asking for very, very detailed documentation. So in general, we've just seen a huge uptick on both CF29s and CF28s other document requests. And then I think recently, too, I'm sure all of you saw and we touched on this, I believe, last month, it were the 43 additional entities that were added to the Uyghur Forced Labor Prevention Act list.

So this administration is definitely looking at and pushing forward on enforcement. And so this is something that you see here on this slide that you should definitely be aware of and take a look at. And we may have mentioned it briefly last month. But remember everybody, there is a Trade Fraud Task Force that was up as part of the Department of Justice, the DOJ. And that was done back in August of 2025. And then last month, this Trade Fraud -- it's difficult to say. This Trade Fraud Task Force came out with a resource guide to trade fraud enforcement and definitely recommend that you take a look at this and just be aware that this is out there.

It's very -- it's an interesting read for us trader nerds. The introduction is heavily -- the enforcement is definitely the big hammer and that comes through very clearly in that introduction. It's also interesting that they define trade fraud as being a multi-faceted threat. There's 3 facets, one being fiscal health which they define as duty evasion, is effectively stealing from the public treasury. So that is one facet. The second facet is public safety. So then they're saying that fraudsters are not only bypassing duties, but they're bypassing -- or they're not only evading duties, but they're also bypassing health and safety screening. And then last is, of course, the aspect or the facet of human dignity, which they equate to forced labor and being very careful or basically fraudsters are not removing forced labor from the supply chain. So those are the 3 facets of trade fraud.

And the last chapter, the Chapter 5 there is very interesting because the DOJ talks about all of the very predominant fraudster schemes. And so you'll see listed there using false HTS classifications, false countries of origin. There's manifest fraud. There's these dual invoice schemes for anti-dumping countervailing duty. Anyway, it's an interesting read. But it's important to know that it's out there. And I think one thing I can say, too, is we have seen activity from this Trade Fraud Task Force. Unfortunately, we've seen a couple of importers that have received subpoenas where the Trade Fraud Task Force is asking those importers to justify the classification that they use on a number of entries. So they are active.

So we do have to -- anyway, you should be aware. Again, it's part of that whole umbrella of enforcement. And I think the main -- here are just the main points that we listed that you can take from this document. I think, again, for me, the most important probably is the fact that compliance and that we see here on the screen is not or is an enforcement issue, right? So classification, origin valuation, and we talk about that, I think, on almost all of our webinars. But based on this document, it's not just going to trigger a possible audit or a penalty, but in some cases, it could lead to a criminal investigation.

So again, those 3 basics of the declaration, classification, origin and valuation are super important, and they're sort of the cornerstones or keys of customs enforcement. So again, super important, everybody, to have the right backup documentation, right? The documentation that explains how did you arrive at your classification, how did you determine the origin, and how did you determine your valuation? Those are really the key points. And again, something that we echo on lots of webinars, making sure that you have that piece of your declaration in order.

So -- anyway, so what action can you take right now? So a couple of things. First is just make sure -- this is really important, to make sure that your data is really clean. So in regards to classification, origin, valuation, especially if you're sending that data to us or to your customs broker, make sure that data is really, really clean and solid. I know that there have been issues or we've encountered issues in the past, unfortunately, where customers had -- importers had a turnover in their department. They were sending data. It was very clean. And then unfortunately, when they turned over to new people, those folks maybe were not monitoring the data as closely. And that you can then run into all kinds of issues, as you can well imagine. So just make sure your data is clean, make sure you're really looking at your exposure to Section 232, Section 301. Of course, there's always enforcement around anti-dumping, countervailing duty, and understanding the entities in your supply chain, far upstream to make sure that you don't have any issues or red flags in regards to forced labor.

And you can do some testing yourself. You could take -- and this is something you can do right now, is look at your most high-risk products or maybe those products that you're importing in the biggest number, and look at the raw materials, look at -- can you trace those products and the components all the way upstream to where did those components come from? Where do they originate? Do you know those entities? And you can build in, on a regular basis, just an audit program, auditing for those upstream entities, auditing for classification, valuation, origin. So these are things I know not necessarily easy to implement, but things that you can look at right now and start doing even for those -- again, you don't have to boil the ocean, start with a couple of your highest risk products or those that you import in the greatest number. But again, I can't stress enough the importance of the classification, origin, and valuation. Okay.

We can go on to the next slide, Stephanie. So last but not least, everybody, we've definitely talked about this very, very important executive order on strengthening customs enforcement. It came out on June 3. I think of any document, this is, in my opinion, the most important document to read. This is as big, I think, as the 1993 Mod Act. So please, if you haven't had a chance to read it, I highly recommend that you read it. And we will be coming out with more information on this. We are doing specific webinars on the executive order starting at the very end of the month. You'll see the links here on this slide. We -- one here for the Americas and then for our colleagues and customers in Europe, Middle East, and Africa and Asia Pacific. This is such an important executive order. It affects everyone in the supply chain. So there will be more information shared at that time.

We hope that CBP will have released more information on the executive order by that time as well. But regardless, we will talk about the milestones, what we believe it means to you as an importer, and what you can do right now. So anyway, if you haven't done so already, well, you will get the links to sign up for these webinars. So anyway, I will now pass it on to my colleague and friend, Ted.

All right.

Ted, back to you.

Thank you very kindly. As a rehabilitated and former U.S. Customs Officer, I just started the shake with everything that Madeleine has just been talking about. That's why they don't let me talk about it. They let Madeleine talk about this stuff for you guys.

So let's close out with some key points that we do want to make sure you're left with after today. Obviously, we've discussed enforcement actions. We've talked about all the new tariffs and quotas, things that are going on around the globe. A lot of things coming at us. And this month, they just kind of -- like I said earlier, it just washed over a massive tsunami. More is coming.

So basically, bottom line, take a hard look at the things you're importing as well as you can and take a look at all those tariff actions and potential enforcement actions and how is it going to impact your supply chain in the immediate and in the future. I know that's easy to say as a former importer as well, we all don't have a ton of resources in our compliance and trade teams. So you've got to focus where it's most important. Look for the things that might be a bright spot.

Stephanie has talked a little bit -- and quite a bit actually, about exclusions and things like that. See if you can find a couple of things where you can save some money on duty as it goes. Pay attention not only to what we know, but as we've talked about, we have some anxiety of where 338 actions come for Canada. We know there are future 301 actions around excess capacity that are looming out there for certain countries. So again, we need to be thinking about, certainly, the actions that have been taken, but keeping an eye out ahead of us and on our front windshield to see what might be coming at us pretty quickly.

Madeleine spent a good wrap up talking about what was the enforcement thing. We -- I definitely want to reiterate, take a look at that DOJ trade fraud enforcement guide. You don't have to be in our side of the business. You really want to take a look at where the government is thinking. The engagement of DOJ in enforcement is huge. This is different than Department of Homeland Security CBP. For some of us, I get it, the U.S. government is one big amorphous thing. DOJ is a separate deal and their engagement is incredibly important for us to understand.

As Madeleine mentioned, Department of Homeland Security added 43 companies to the UFLPA entity list. So we now have 187 companies that the government has been -- has identified as potentially being tied to forced labor, make sure none of your sourcing is tied to those. We've spent quite a bit of time I did about the IEEPA refunds, make sure you're paying attention, particularly to those finally liquidated entries and what -- how that might impact you.

Back to those IEEPA duty refunds, they definitely impacted our bond sufficiency. We saw a drop in our financial obligation to the government as those refunds started coming back. But as we saw, 122, 301 duties are coming to backfill that. So keep an eye on your bonds, your sufficiency. We don't want to get involved, if at all possible, with stacking bonds one on top of another in order to meet the requirements. So again, watch how that's going as you're doing your financial planning into 2027.

There are a couple of opportunities that you can jump in and engage in right now and make your thoughts heard to the government. So let's take a look at that slide and see what's ahead of us for now. There are areas that you can comment to the government on, including the Section 301 China List 2. There are a possibility to make comments on the FCC proposals related to restrictions around uncrewed aircraft systems, i.e., drones. And then there's also a possibility to make comments on the proposed derivative list as it goes.

So with that, let's wind up with our usual slide. For those of us who are new to this webinar, welcome. But let me quickly explain about the Certificate of Completion slide that we can take a look at and what that means to you. If you don't know this, U.S. Customs and Border Protection has instituted a continuing education requirement. So we work to get these webinars accredited so that you can use this hour as credit for your customs broker licensing requirements, your continued education requirements. And then also, if you are part of the NCBFAA Educational Institute programs, you can use this as well. So again, if you are part of those programs and you are using the NCBFAA learning management system as a place where you store all the information where you keep your credits at, all you have to do is click the link down on the bottom of this slide, and it will lead you directly there for you to be able to input your data and keep track of it.

Other than that, we always recommend you keep a copy of this just in your files because we will be coming up on the first opportunity for CDP to audit those folks who are licensed brokers, and we do expect they will do some spot auditing to confirm that people are indeed meeting the requirements for the continuing education component. So with that, we have 1 minute left. Samantha, would you be so kind as to close this out and bring us home and away we go.

I'll be happy to do so. Thank you all, as always, for the great content. Really quick, you can see here, we -- this team continues to stay busy. So they've got a lot of events coming up. They are hosting, as I mentioned earlier, that breaking down the U.S. Customs Enforcement executive order. They are going to do this 3 times. So one for the U.S. If you have colleagues in Asia or the EU or more, then those options are also here in the center.

And then finally, if you've ever thought, it would be really great to grab drink or just have a conversation with any of this team. We are having our Expeditors cocktail reception at the CBP Trade and Cargo Security Summit on September 8. So that QR code -- you do need to be registered for that event. And obviously, you probably need to go to the summit. But then after you can come to our happy hour reception and actually meet these lovely people in person. They are just as much fun to actually talk to you as they are on the webinar.

So thank you all so much for joining us today. We hope you found a lot of valuable content. Again, we will provide the materials after you all complete a quick survey, which you will get about an hour from me via e-mail. Thank you all. Thank you, speakers.

Thanks, everybody. Have a good day.

Hello. Good morning to everyone. Thank you so much for joining us today. I am going to say a little bit of cheers to our friends on the West Coast. And as some of you have said these 8 a.m. webinars are a bit tough to get started in the morning. So I hope you've got a cup of caffeine or if you've stayed up and you're on the East Coast, if you stayed up watching a lot of World Cup soccer, like my family has, hopefully, you've got some caffeine too. So today, we are going to talk about the ocean market -- well, the ocean market, clearly, I'm stumbling there. We're going to talk about the ocean market update, what's happening with things going on in our industry and hopefully give you a bit of an update on all the changes that we have been seeing happening in that market. And my name is Samantha Hurst. You are likely to have gotten several e-mails from me reminding you about this webinar and getting you registered. If you have any technical difficulties, you may respond back to those e-mails, and I'll do my best to support you in the background today.

I'm going to talk first just a little bit about a quick disclaimer. If you've not joined one of our webinars before. These events are meant to be, of course, educational. They're not intended to give you any kind of financial advice, legal advice, et cetera. We are offering you what we understand to be happening based on the things we see in our day-to-day operations as well as what we've seen out in the news and many things you've read yourself, but we're trying to get a little bit of context to what you're probably seeing in the headlines. So please just understand that's the purpose of today purely for education basis and not necessarily to base any specific business decisions. Now as far as how things will flow today, we have about 45 minutes of content as usual with Q&A to follow. Now you are encouraged to drop your questions in the Q&A box throughout today's webinar. We do have a team of experts who I'll introduce here in a moment that will be supporting with those questions.

We do ask though if you have a question that's just hyper specific to your business or your industry, understand we may not be capable of answering that in today's webinar, but we are interested in trying to support you regardless, and we'll at least get someone back in touch with you here in the next week. One of the questions we get on every one of these webinars is how do I receive the slides and the recording. We're obviously flattered that you guys want to hopefully go back over this material, maybe even share it with people within your internal organization, and you are absolutely welcome to do that. We just ask that you fill out a quick survey that will allow us to understand how we did today and what other topics you would like to see in the near future. Now that survey will come to you via e-mail from myself within about an hour or two of today's webinar wrapping up. Have no fear, if you do not receive that survey, we know some of you do not because of your firewall security protections in your e-mail, we will get the content to you, typically send that out regardless via e-mail within about 24 hours.

So if you would like, you can also scan this QR code, and that will help you subscribe to any of our future invites for our events as well as get our market updates via e-mail. So now without further ado, let me introduce our speakers. So we have a great group as usual from our Ocean team. They've always been great supporters of our webinars. In fact, they really are the team that kicks things off with Expeditors webinars many years ago. So Scott Kelly is our Vice President of Ocean Services for the Americas. We have Blaine Steger, who's our Director of Ocean Business Development. We have Stephanie Mantz, who's one of our trade lane managers; and John Antista, who's also a trade lane manager.

Now I don't want to fail to mention the people that we actually also have working in the background at support today. They won't be jumping on to directly speak, but they can answer questions. We have Denise Rogers, who's our Director of Ocean Services for Canada; Lorena Rosani, who's our Regional Manager of Ocean for Mexico; and Gaby Romero, who's our Trade lane Manager for Latin America.

So now I'm going to hand it over to Scott to get started with our content. Thank you.

Okay. Good morning, everyone.

So we're going to talk a lot about what's driving the market today and why we're seeing what we're seeing. But when we look at the environment and we look at the shipping world and what's happening, the 5 key pillars are always what's driving behavior and driving the capacity and driving the investment and driving, of course, the rate levels that will follow. So when we look at the 5 pillars, we've got capacity, how much volume is there relative to the marketplace. What does the demand look like? Is it positive, negative, flat cost, financial performance and outside factors. And right now, we are at a crossroads. When we look at the capacity, it's somewhat balanced with demand, okay? The demand is up, but it's not robust, but it is up, okay? And the capacity that's come in has consumed all that additional business. But between those two things, there's some outside factors here that -- like the Suez Canal, which is consuming some of the -- a lot of the capacity that's going around Africa, okay? It takes 2 to 3 more ships to run a service now from Asia to Europe. And so we're seeing a lot of that excess capacity that people are expecting to see this year get consumed up or sucked up in those trade lanes. And of course, costs, fuel costs, we all saw what happened with fuel in May and June and July. We expect that to come back down. So that's affecting the carriers' behavior.

And the big one here is financial performance. So the first quarter was not good for the asset owners. And they're responding by really managing the steel, where does the ship go, what ships go where. And they are managing it very, very tightly. And so we're seeing now capacity squeezes in places like Asia to the United States, West Coast and East Coast, Asia to Mexico, very tight. Asia to Brazil and South America, very, very tight. And so because of that, the rates have responded and the carriers are responding very quickly to drive up the cost for the customers and the rates. And lastly, the outside factors, as we talked about Ukraine is one thing, but what's going on in the Strait of Hormuz and relative to fuel capacity and costs has been significant. And we talk about that, customers are like how much business actually goes into the Persian Gulf. It's not significant. It's a small market. But the fuel costs are the #1 cost for the carriers have gone up dramatically. And now they're starting to come back down, and we'll start to see those excess fuel -- excessive fuel costs and bunker costs come back down to reasonable levels, we think, in the next couple of months. So with that, I'm going to hand it over to Blaine, who's going to go into depth on some of these fundamentals, also with me. Sorry.

So with the supply and demand cycle, we happen to be in that bottom right-hand corner where you see where the carriers' rates fall, carriers reduce capacity until demand increases, and there's a capacity shortage and then they drive up the rates. And then when they drive up the rates, they all go to the shipyards at the same time, build ships and the ships come into the market and drive down the rates a little bit. And then there's a capacity surplus and the rates fall. So this cycle that we see in the business used to be about a 5-year cycle. Now we're seeing it, it's really a 15-month cycle, much faster than it ever was before. And that's why we see the volatility in the rates that we've seen in the last 6 years. So that cycle spins much faster than it used to.

I'll hand it over to Blaine.

Thank you, Scott. So continuing in that vein with what's going on with the global capacity in the fleet. You saw on the first slide there that the fleet continues to grow and what's on the order book is projected to be 1/3 growth over the next 5 or 6 years. That has slowed down in recent years as carriers worry about geopolitical events between the U.S. and China and how ship taxes and the trades to and from the North American marketplace could be taxed, but also as demand has curtailed following the pandemic. And what you see here on this slide is total capacity and global throughput growth, so container growth in the gray bar, how the carriers have grown the fleet year-over-year in the black line and then where demand has sort of followed that annualized capacity growth in the red line. And what we see is capacity grew dramatically coming out of the COVID years as they reinvested that money, peaking over 10% in 2024, whereas the actual used capacity and fleet demand is down at 4.5%. And so there's a mismatch there.

As those lines have gotten closer together, it's reinforced that volatility within the rates and caused the marketplace to be congested and to really become tight, not just on the headhaul trades, but globally and even on some of the smaller markets. Another major factor in what's going on with supply is consolidation in the marketplace. And coming out of the global recession in 2010, we saw this process begin as carriers began to merge at a country level and then really sort of peaked with the bankruptcy of Hanjin and their exit from the market and the 8% capacity flip that caused in 2017. What we're left with now is these 10 global carriers controlling upwards of 88% of all of the capacity. And you can see MSC is the largest carrier in the world, continues to grow their fleet. CMA with what they have on the order books will move to the #2 spot, and then Maersk, COSCO and Hapag will follow. One interesting note in the marketplace, Hapag-Lloyd is in an agreement to purchase a large majority of ZIM lines, which would further bolster their position, probably grow their market share by 7% to 8% globally, really put them firmly in that fifth spot.

And why this is important to you, the shipper is this creates less choice. This also gives the carriers more control over the market where they put their capacity and how that maneuvers your ability to get space and have consistency of service and rates. It's a lot like the domestic airline industry in the U.S. where you see it consolidate down and you have a few large players controlling the majority of markets and then a surrounding group of niche regional providers. Another major factor impacting capacity is there's been very few deletions. And there are not a lot of places left in the world where you can cut up ships. It is very environmentally destructive in terms of the amount of fiberglass and microplastics that end up in the ocean.

The scrap steel is in lower demand than it has been in previous years, and so there's less value for the carriers to sunset those vessels as well as the worry that they will miss out on the next black swan event. And so you see a lot more older ships in rotation that leads itself to some of the problems we see in the market as things have to go in and out of repair yards more often. But it also just means capacity will continue to grow and likely outpace demand for the foreseeable future. And then on the other side of that, the idle fleet is extremely low with 2% of all those ships being in repair yards and a lot of that is for engine updates to meet environmental guidelines, new propellers, normal things, paint, patch, things of that nature. And then less than 1% of the fleet is truly idle or out there available to be chartered. I would also tell you that it tends to run smaller container ships, things that are less in demand for long-haul, high-rate trades. And then this is also really important because with that Suez Canal closure that Scott mentioned from 2024, right, there's not a lot of elasticity in the market.

And so as we have these events and upticks in demand, whether it be a 5% upshot in demand on the Asia to Europe trade, the largest in the world or the peak season we see now in the Transpacific, there are less ships for carriers to push and pull, causing the rates to go up faster and also causing them to come down faster on the backside. And then in times where we see it get stretched globally, we talk a lot about canceled sailings. And during the pandemic, this was a byproduct of congestion and the inability to get the ships where they needed to go. Following the pandemic, it was a way to measurably control the supply-demand ratio and keep rates from falling too low. And now we're in another marketplace where there is a lot of congestion.

There's some ships trapped in the Strait of Hormuz and other things being positioned to overtake those. But most of the new capacity coming into the marketplace, some 38% of ship deliveries is going into the Asia to Europe trade, where longer transits around the Cape of Good Hope and congestion in North Europe, particularly Rotterdam are causing a supply-demand imbalance, causing ships to be out of loop and carriers needing extra vessels in those rotations. It is impacting all trades. We see it here on Asia to the West Coast. This is where there are the most sailings per week and also the most consistency within the percentage of blank sailings, sort of a rolling 10% to 15% average, the East Coast of the United States, less week-over-week, but more impactful to the market because there are less services. And so where you see these weeks that have a 12% or a 21% void rate, that causes a cascading roll pool that takes a number of weeks to digest. And the more full the market is, the longer that roll pool persists. The higher rates go, the worse the service is. Asia to North Europe, same problem, less services, much larger ships, ships in the 20,000 to 23,000 TEU range. And so when they have a blank sailing, it really starts to backlog ports in Asia and the Middle East and cause problems, cascade forward and then eventually ends up with congestion in North Europe that also slows the exports from bleeding over into the transatlantic market.

See here, that happened earlier in the year when Asia to Europe spiked up. It has settled a little bit. And then, of course, the Mediterranean to the U.S., any string that was connected to parts of the Middle East conflict had some problems earlier in the year. And as carriers have sorted that out and reshuffled their deployments, we see less of that in the recent weeks. And with that, I'm going to turn it over to John Antista, our Trade Manager for Americas imports, Asia, Middle East, India Subcon, to talk about what we're seeing with demand trends.

Thank you, Blaine. So as mentioned, we are seeing a roller coaster, right? The first quarter of demand was a bit of a roller coaster being down 2% and 1.5% in January, Feb and March, but an increase in February. The anticipation is we're going to continue to see this roller coaster. At the moment, right now, it's anticipated that we're going to be in a tight market at least through the end of August. And part of that is natural demand. Part of that is some of what you've heard previously in carriers manipulating services, maximizing the value of their vessels and really allocating vessels to certain areas of the world that really demand larger vessels. So moving on to the next slide. Yes. When we look at year-over-year containerized growth, if we're looking at Asia to North America, it's down. That's our largest trade. It's down, but kind of a mixed bag here, right? What we're seeing at the moment is it was always anticipated that it was going to be a lighter first half of the year with a bounce back heading into the second half. And right now, all indications based on the market is moving that way, where whether it be shippers are trying to push more cargo out in the event to minimize any type of tariff issues or looking to get cargo out ahead of the looming potential of Chinese vessel tax that was kicked down to August -- I'm sorry, October of this year.

So there's a lot of variables involved. But at the moment, what we're seeing is a hot market where -- it's very tight. Vessels are moving at near capacity, which is great. That means the economy is getting better. People are buying more. But the first half of the year kind of went as expected where it was going to be a little bit of a down market, granted, the situation in the Middle East was definitely a curveball for all of us. But we are still anticipating that we are going to be in this tight market, at least through August with a bounce back for the end of the year. When we look at industry, it's pretty impressive. It's almost all green where all industries were up with capital equipment leading the way, tech leading the way, consumer goods being down at least from March and relatively flat, but slightly up 1% for the year. So, again, it's going to be interesting to see how the rest of the year plays out, especially on that consumer goods, retail and fashion. Again, we anticipate we're going to see a little bit of a bounce back as we head into the second half of the year. When we look at region overall, for the most part, green for all of March aside from the Middle East and India subcon, no surprise there.

Again, we are seeing the carriers manipulate the market, whether it be canceled services, specifically right now, what we're dealing with in India, where we've had major services canceled that would head to North America, whether we have services that's being changed where Latin America freight is now moving over Europe. It's kind of a mixed bag right now. When we look at the Transpacific market, we are dealing with certain carriers canceling services, enhancing services, certain -- blank of certain services. Specifically, when we speak to the India subcon region, we did have two major services that were canceled. And that's really causing congestion within various points in India, where there's a backlog of cargo, empty equipment is becoming scarce. And it's -- the carriers right now are taking it as an opportunity to maximize the value of their vessel. They're limiting the amount of fixed rate contracted cargo, and they're really taking on that FAK and wanting to capitalize on the situation. You can go to the next slide, please. Thank you. When we look at cost, we've seen, obviously, the height when we were back in May of 2025. And then as we've gotten into 2026, rates really started to come down. Now we're kind of even with where we were in January.

When we look at the Asia to U.S. trade, Asia to Europe, significant spikes there where we're back into where we were in May of 2025. Europe is -- Europe to the United States is significantly high. Now that's a number of variables across the board, right? A lot of it has to do with what's going on in the Middle East. A lot of it has to do with artificial manipulation of the market, like we mentioned with carriers shifting services, creating that imbalance, creating that schedule imbalance and then causing natural congestions due to that imbalance. So again, we are in this situation, we believe, at least until the end of August with carriers passing along peak seasons, certain GRIs on FAK freight. And again, we're in it at least until the end of August. When we look at cost for fuel, this is staggering, where you could tell right when the situation in the Middle East began. We are in this situation, and this caused a lot of carriers to treat fuel differently where they implemented emergency fuel surcharges, some carriers decided to go to monthly bunker adjustments, which we were all familiar with the quarterly adjustments. And a lot of that was reactive to how high fuel went and continues to go.

We are hopeful that, hopefully, the situation in the strait resolves itself and at some point, and we start to see some reductions in fuel. But for the foreseeable future, this is where we are. The situation of fuel increases provided exponential additional costs that were unforeseen to any of us, specifically for the carriers. And when we get to the financial piece of the slides, you'll notice that some of the carriers really did not fare well in the first half -- in the first quarter of the year. A lot of that has to do with the additional cost that they needed to spend in a very short period of time. Some of those numbers are staggering. So the reaction to the market in fuel is strictly because of, obviously, the strait, and we anticipate this is going to be the new norm for the foreseeable future. When we look at carrier financial performance, that tip of a mountain that you see right in the middle of your screen back in 2021, that's all your COVID years, right? And then as we started to come out of it, a relatively normal market started to come about. And then you had the situation in the Suez Canal, which kind of threw everything upside down again and carriers started to make money simply because rates were getting back to COVID levels.

Now the market started to stabilize as we got into 2025 and started to get to the back end of 2025. But then the situation in the Strait of Hormuz went into effect and the carriers are not trying to go below that profitability line. So they've become experts in how to manipulate the market, whether it be void sailings, blank sailings, shifting capacity where it makes sense, to trades, where it makes sense and keeping rate levels up. But if you look at what I mentioned just a few moments ago, where carriers did not fare well, you see three carriers, in particular, that in Q1 of '26, they struggled. They went below that profitability line. And we know there's a strong emphasis for carriers not to go back to those years of 2018, even Q4 of '23, where they were below that line. And if we were to go further back beyond 2017, being below that profitability line was more consistent than inconsistent. So again, the carriers have gotten -- become experts in how to make sure that they remain profitable and the carriers will do what they need to, to make sure that they are allocating vessels where it makes sense to maximize the value of their vessels.

So with that, I'm going to turn it over to Stephanie.

Hello, everyone. Good morning.

So we talked a little bit about the supply and demand imbalance. We talked about fuel as a disruption. So just a couple of other disruptions that we're watching on the horizon. We have -- first is weather, so -- in the Panama Canal. So NOAA, which is a government agency that monitors weather, they came out two weeks ago, and they -- you can see on the left that a notice that an El Nino has formed. So what does that mean exactly? Basically, what it means in a nutshell is there's water in the Pacific Ocean on the West -- on the Eastern side, you can see the dark red here that becomes above a certain temperature for a prolonged period of time. And what that does is it creates some imbalances in the wind direction, temperature and can change up a lot of the weather patterns. And so if you remember from 2023, 2024, there was a drought in the Panama Canal, and they reduced the slots of vessels able to go through. It was, I think, down to 22 when normally it's about 38 to 40 slots a day. And so there were a lot of ships that were waiting outside the canal.

And as you can see, too, looking at North America, this might result in a little bit of a warmer winter in the Pacific Northwest and a little bit wetter when we look around the south here. This is a good infographic from the Economist. You can also find it on LinkedIn, just showing some of the impacts that an El Nino might have on South America as well. And so looking at the U.S., if it creates a lot of more rainfall, this could create more exports in agriculture. And then you look at the northern part of South America, could create some droughts, heat waves throughout the latter half of the year. And so if you look at the bottom, this is a quote from NOAA, there's a 63% chance of a very strong El Nino during November through January. And so if you saw in the news this morning, there's a heat wave going on in Europe, too. They're suffering some pretty high temperatures. And so this is definitely something that we're watching closely. More on the Panama Canal, they put out a notice late May that because of this high risk of an El Nino, the Canal authority, they've been implementing some water saving measures throughout earlier this year and in 2025. Gatun Lake, which is the primary water source for the Panama Canal and what has to feed the locks, they've tried to maintain it at a higher level. So that they could withstand a drought throughout the winter.

So right now, there's no impact to the canal, but it is something that we're watching. And just a couple of days ago, the bottom right, just as a reminder, there were a couple of questions we got the last couple of weeks, the canal, they just did some maintenance to some of the locks. And so I think it was from June 6 to the 15th, they had just reduced the amount of transits going through the locks. But right now, it's back to normal and operating as normal. This hasn't had too much press the last couple of weeks. But just as a reminder, earlier in the year, there was the CK Hutchison, Hong Kong subsidiary, they had -- there was a couple of geopolitical events going on where the Panama Canal or the Panamanian government, they annulled the contracts that they had with CK Hutchison and gave it back to MSC and Maersk to operate the Canal or two ports, I'm sorry. And so something that we haven't seen too much press in lately, but there were quite a bit of Panamanian flag vessels being detained in Chinese ports. So if you look to the right, the graph earlier on in the year, February, March, April, we saw about up to 130, 140 Panamanian flag vessels detained in Chinese ports and the Chinese government said that they were doing inspections on these vessels and detain them. And there are a lot of Panamanian flag vessels about 10%, 15% globally. So this did have a little bit of an impact, but not received too much press on it lately.

The Strait of Hormuz just continues to be a contested area. If you see all the red triangles are all the tanker vessels or vessels that are carrying hazardous cargo and the green vessels are -- the green triangles are all the container vessels, bulk carriers, any other cargo carrying vessels. And if you see where all the blue little dots are, those are all where ships are moored or tied up. So you see a little areas where all the ships are bunched up. And if you look, you see there's a lot of vessel bunching on the right side near Khor Fakkan and then also on the left side near Dubai for vessels that haven't gone through the strait. Over the weekend, U.S. Central Command, they put out a notice that I think about 55 ships passed through the strait because the strait was considered open again. And then come Sunday when Iran put out a notice that the strait was closed again, only about a dozen went through. So this continues to be an area of -- a contested area. And like Blaine mentioned, some of this has absorbed some capacity, created a little bit of congestion. And obviously, fuel is the #1 factor because a lot of tankers and fuel come out of the Persian Gulf. -- we go to the next slide. Talking about congestion as well, just looking globally at congestion. If you look out of China, Hong Kong and Japan, the dwell time is about a week on exports.

And so like John mentioned, the transpacific eastbound market is very elevated right now, and it's -- the ships are running full. And so we see a little bit of a delay here, about a week. And then if we go to the next slide, just also looking in Singapore, Vietnam and Southeast Asia, also about 3 to 5 days here of dwell time. Europe also, they continue to have a little bit of congestion, also about a week of dwell time. And as Blaine mentioned, the Asia-Europe trade where vessels of over 15,000 TEUs come in. And so if there's one vessel that's behind, this can cause some delays. Also, the rail lines in Germany have seen a little bit of congestion. About a couple of weeks ago, there was a fire on one of the rail lines, and that caused a little bit of a slowdown. So all over Germany, they're seeing a little bit of a slowdown on the rail and some of that's impacting the terminals. But give or take, about 3 to 5 days of dwell time. And then overall, bottom line, all of this is going to impact schedule reliability. And so COVID was a little bit of an outlier if you look to the left-hand side, the red line, in 2021 is pretty low, about 30% and all the other years are somewhere about 60% or so. So with that, the global average delay for the vessels is about 5 days. So we continue to see all those disruptions impact schedule reliability.

This is a schedule reliability by trade lane. So if we focus on North America, if you can see on the left-hand side, the transatlantic westbound all the way at the bottom, the black line, that schedule reliability has improved quite a bit because it has come up -- the rate levels have come up to healthier levels and the carriers have added a little bit more capacity to that trade lane. Before that, you could see it was hovering about 40%, 50%. And the Ocean Alliance had removed some capacity on that lane. And so now the carriers have stabilized capacity quite a bit. If you look at another one, North America to LatAm doing very well, 86% and over 80% pretty much across the board in the past year. So I mean, that schedule reliability has been really good. Asia to the North America West Coast, it's improving as the rate levels go up and the market strengthens on that trade, you start to see schedule reliability improve. So that's at about 73% now. And that's been sort of where it's been all year, see a little bit earlier in the year, about 60%, 65%. But yes, this is something that we continue to watch.

And with that, I am going to hand it back over to Scott to close us out for today. Thank you for your time.

Thanks, everybody. So just kind of wrapping all this activity that we see going on around the world, it really forms our strategy, right? So our strategy is an extensive carrier network. We have contracts with every carrier that has a ship on the water in every alliance. So our network is very large. We've got options for our customers as rotations change and as vessel sizes change constantly, which we're seeing in smaller markets. All the services that we have on both ends of the ocean services are integrated as well, everything from customs brokerage to order management and purchase order management to origin customs brokerage, carrier allocation, delivery management and cross-dock and warehousing. And of course, the capacity flexibility that we've got because we buy so much, we have the ability to shift to the left or to the right, depending on which vessel rotation is best for the customer. And of course, we're committed to having boots on the ground in every major market with an office with experts in that office in your local market.

So with that, I want to thank you very much for your time, and we're all here for questions if you've got Q&A. I'll leave that to Samantha to manage.

Absolutely. Thank you, Scott. Thank you, team. So if you all would, just remember, you can drop your questions into the Q&A box. I know we did have a couple of questions come through the registration process. One of those, I believe John kind of touched on a little earlier, focused on kind of an estimated time line on when GRIs and PSS should start to dwindle out. So I believe we covered that. John, correct me if I'm wrong, looking at potentially August for those to start calming down.

That is correct. That is correct. We'll be in it until at least the end of August. And it all depends on what happens with the trade and obviously, geopolitical issues for sure.

What's interesting is we've seen changes with all of that almost every time we turn around, it seems. Sorry, go ahead.

Yes. It's become our new norm, which seems like since the day COVID hit geopolitical -- well, we can even go further back when we talk about the tariffs back in, I believe it was 2016, '17-ish. I mean, since then, we're almost -- I mean, we're 9 years into these geopolitical situations that are directly having an impact on how carriers do business, how we do business, how importers, exporters do business. So it's here until it's not.

Speaking of one of those regular changes we've seen, someone did ask just now in the Q&A box about the tax on Chinese-owned ships. We know that was delayed. They're asking, do we -- can we clarify when that was delayed until and what impact do we think, if any, that will have on pricing at some point?

Yes. So that is delayed until October. Not to say that it's going to go into effect in October, but the discussions are going to be ongoing in terms of how the government is going to treat that regulation. And what that would mean, and Blaine or Scott can correct me if I'm wrong here, is essentially if it's a Chinese-built vessel, Chinese-flagged vessel coming into the United States, there would be a per-container tax on -- or surcharge rather on that container, on each container, just to be clear.

Thank you for addressing that. We had another question just asking if we can touch on shipments from India to the U.S. again? And what are those current delivery times?

Yes. So from an on-time performance perspective, we're still watching that shape up. And as carriers transition from routings in January, February that had returned to Suez Canal back to going around the Cape of Good Hope, we've seen those transit times, I guess, reelongate back to the plus 7 to 10 days they were throughout 2025. The shifts that we touched on earlier in the market from a capacity management standpoint and then from a demand side when John was speaking were some structural changes. So every carrier in that segment operates the vessel string independently. There are some VSAs, but they're non-alliance driven. And we saw MSC remove one string from the market and enhance another. So they took a vessel out, they upsized the other rotation, added some additional ports that does allow them to kind of offer the same amount of weekly capacity but hide the ships. And then CMA took a loop, which touched the south east coast of India and Colombo, Bangladesh, that was a pendulum loop, so Asia to the West Coast back to Asia through the Middle East to the U.S. East Coast and split that up. And so two services moved out, one enhanced and you have a net reduction of 10%, 12% capacity week-over-week. And so that's driving additional demand -- supply-demand imbalance in that market.

And then Samantha, I'll just take this next one. Because of the recent data center and infrastructure expansion in the U.S., do we see a correlation in import volume and an increase exacerbating the capacity issue? Yes. And where most of that, what I'll call the hyperscale space has been dominated by air freight and domestic truck for the last few years, as these customers expand and build out the data centers, more of that volume begins to touch the ocean, whether that's power generation, solar backup, the chillers required to air condition and water cooling these facilities, all of that moves to ocean. We also talked about in the demand portion, how much CapEx was up.

And at least from a U.S. marketplace, most of that CapEx expenditure is in and around the data center space. Those large projects move in short periods of time. There are two of those going on in the marketplace right now. We know from Central China to the U.S. Gulf that are going to exacerbate some of the capacity issues through the third quarter. And we expect that as those projects and that race to be dominant in the AI space grows, that more and more of that will touch the ocean freight as people look to control costs.

It looks like we have a few more that have come in, in the Q&A box. I see we have one that's talking about Section 122 expiration, how are carriers and BCOs prepared for that tariff cliff? What front-loading volume have you seen pulled in ahead of it? Can we speak to that a bit?

Yes, what we've seen recently is probably less of a front load and more of an inventory correction through the first quarter of the year. Sales to inventory ratios in the United States have fallen to right around 1.1, which is really low. And so there's a restock afoot. This is the traditional peak season. So it's hard to tell how much of that is tariff prep versus restock. And then the tariff things changed so dramatically that I'm not sure folks can plan far enough ahead. So where we saw people maybe get well out in front of the previous tariff cliff because they were overdoing it. I think we're seeing a more metered approach from the import community now.

What about the U.S. West Coast to Middle East capacity and routing? Do we have someone who can talk a little bit about that? Again, that's U.S. West Coast to the Middle East?

Yes. So traditionally, those services would route out on transpacific westbound ships. They would go to either Singapore or potentially Colombo if there was a vessel calling that part of the world and then transship on vessels to the Middle East. Prior to the conflict, there was a lot of investment and growth in the Asia, Middle East, India trade. We're starting to see ships be repositioned to that market now. But transit times have fallen off. They're very inconsistent, and we still see a lot of rerouting and adjustments needed in transit for certain destinations. And so from a capacity perspective, it really ebbs and flows with what's going on in the transpacific market because they share the same ships outbound. And then from a transship connection standpoint, it ebbs and flows on what's going on with that Asia, Southeast India to Middle East market. And so you sort of have some competing things there that cause rolls and delays.

I would buffer a two-week delay right now just based on what we're seeing with our limited volumes that move that way. And then I see one about has the general rate increase Asia, U.S.A. been finalized. I'm going to assume that means for July 1, what's going on in the market today because the carriers are chasing the rates where the demand is and repositioning ships to the hottest trades. It essentially creates a rolling rate increase filing. And so carriers have prefiled general rate adjustments every 15 days in their tariffs for the foreseeable future. And whenever demand curtails, we'll see that start to go the other direction.

We just had another drop in about indication of when the Strait of Hormuz is expected to fully reopen. Any thoughts on that from the team?

I can answer that. My video is a little bit slowed.

I think until war insurance premiums go down, it's always been an area, if you remember in history, the tanker wars in the '80s, it's always been an area that has been contested, like I said. And so until insurance premiums go down and it's safe for vessels to go through and the vessel crews to go through, I think that's when it's going to fully reopen because right now, we see a ton of ships going through. And then again, it's deemed closed and then not a lot of vessels going through.

Another question that we had come up through the registration process, and I know that we have Gaby on. So I was going to see -- Gaby, if you'd be able to address this one. We had some asking about getting freight out of Sao Paulo, Brazil and why that might be so difficult, and they also referenced reefer shortages in that area. So Gaby, I don't know if you're still with us if you're able to maybe touch on that.

Lorena, I can support on that. Gaby is having some technical issues. So specific to the exports out of Brazil. Well, it's somewhat more common since recent years that there are some congestions affecting not only the inbound but as well as the outbound. This is also in line with somewhat of infrastructures within Brazilian ports and also a high demand currently undergoing, specifically Brazil into the U.S. and also Brazil into Mexico. So overall, I mean, there are several factors affecting directly and indirectly, specifically out of Brazil ports and also some within Brazil itself.

A few more questions here, Blaine, in the chat, specifically regarding our GRIs and PSS rounds. I think, obviously, people have a lot of interest in the impact rates are having on the market and when that is going to change? Any further detail we want to cover there?

I think this probably ties back to the amount of control that the global carriers have in the marketplace and the commodity that space has become, right? And so much like any other commodity market, what we see with fuel today, the cost will increase as long as that demand is there and customers are willing to pay those numbers. The GRIs are going to be filed every 15 days, somewhere between $1,000 and $2,000 and carriers propose those. As bookings are made or slow down, they adjust that rate to, I guess, market tolerance. And then the higher those spot market rates go, the more PSS is needed to incentivize that contract space. And so carriers propose what is essentially a trailing PSS that allows you to maintain that long-term space. And then we're even seeing a little bit of that premium start to work its way back into the market as demand exceeds capacity through July that starts to roll back as the demand drops down.

And so whenever bookings begin to slow, carriers will reduce rates to try and keep their ship full and that self-defeating cycle works its way around until rates hit a floor. And if you go back -- if we went back to that very first wheel, right, when the rates get to the point that they hit the floor, the carriers start to pull that capacity back out, you transition from the yellow to the black segment again, right? And so that cycle, to Scott's point earlier, has gotten much faster. And so if the demand begins to really subside following what is traditional peak season, so looking at the month of September, you would start to see the rates come down through the fourth quarter and then potentially some sort of re-elevation cycle ahead of Chinese New Year.

And then as always, we always have to have that first question come in and then everybody starts feeling more comfortable with their question as well. A complicated market. So definitely no bad questions here. We thank you all for participating. A few things that we just want to remind you of as we close things out. We do have webinars happening being supported by our regions as well as our Americas CEO on a regular basis. Typically, we've got about two of these happening a month. We've been very busy in the month of June. We've had three. Coming up very soon, we just scheduled, if you are in the retail sector, we just scheduled a webinar July 1 for next week ahead of the CPSC e-filing requirement.

So when you get your landing page, you will see the ability to register for that event if you are interested, and you should also be getting invites from our team members coming out in just probably even as we speak. So encourage you to join that if you have questions about CPSC and that new e-filing requirement that's coming up July 8. So again, thank you all so much for joining us. If you do have questions, you didn't feel like that answered here, feel free to reach out to me, and I will be sure to connect you with one of our Expeditors Ocean experts to make sure you get those questions answered. We look forward to seeing you on one of our next webinars. Have a great day.

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 and 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 that are 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.

But 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 you complete your survey, you'll be directed to a landing page, which will have both this presentation and a recording of this webinar. And of course, our team will be talking and sharing images as we progress, understand that your microphone is muted and your cameras will remain off. As we proceed, of course, you'll probably have questions. feel free to let them drop them into the Q&A box, which you can find by hovering over your Zoom toolbar to 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, and 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.

Our 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 District Trade Compliance Manager for both Norfolk and Raleigh-Durham. He is based in 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 has 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 enjoys 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 ECIB, Expeditors' wholly owned insurance subsidiary. His previous roles in his 20 years with the company include various positions of increasing responsibility in surety, customs and corporate development. Pam is going to get us started. So Pam, over to you.

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

We're at 15% now.

I can go ahead and share those results Pam.

Okay. So we've got...

Looks like a good majority of you we have the wrong poll going. That's unfortunate, we have them flipped. This is the poll for 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 to -- we're going to get to the full Incoterm layout in just a moment, we'll 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?

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 container that the airline industry has used to ship 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 is two 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 a 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. 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 position. 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. If 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 are 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 testy little thing called carrier limit 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 amounts to $500 per customary shipping unit. And the ocean carriers typically consider one unit to be one container. So consider a fully loaded container that you typically see. Does $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 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 vessel 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 air freight. 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 could 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 in to 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 guess it because it's the name of our presentation, it's Incoterms. And that 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 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 a named place. So for example, the Incoterm we see that is 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 sort of thing. So they're not all encompassing. -- they're 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 a 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 two 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-letter abbreviation paired with a named place. So sometimes you'll see the year of the Incoterms listed as well, but that's much less common.

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 an Incoterms 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. So keep that in mind, 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. So here we go. All question #2, see who was paying attention. Actually, we've swapped these. So I guess put them in the chat.

It worked.

Round 2.

Put your votes into the pop up there.

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

Overwhelmingly, we have 11, which is correct. 7 omnimodal and 4 ocean specific. All right. So just kind of going into this further, these are the 7 Incoterms that are omnimodal, like I mentioned, it's a fun word that I discovered the first time I went through some of these Incoterms can be used for either ocean or air freight. 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, so kicking it off. So just as a as a precursor, we have Ex Works up 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. So from factory to documentation, export clearance, trucking, ocean freight, that 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 Ex Works, we'll kick it off. Under Ex Works 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 usually under Ex Works terms, you'll see an origin city or a port wherever the seller's facility is located, pretty straightforward. So the next one, we actually have 2 slides on this one that it's FCA, stand for free carrier. There was a clarification added to Incoterms 2020, explaining how FCA can be used in 2 ways. So we'll just have 2 slides to explain how the difference is on that one. The name place though is important here because it will determine how far the seller's 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 packing the goods, loading the collecting vehicles, the truck picking 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 packaged 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 buyer's 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 cost have all transitioned at the same point up at the origin. For the next 2 terms that we cover, CPT and CIP, the risk actually transitions earlier than the responsibilities of the carriage and cost. So with CPT, the seller is responsible for packaging export customs and contract of carriage to the named place of destination. This means the buyer is responsible for unloading at the 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 for the carrier, which they did not hire. And will be responsible for purchasing insurance if necessary. And 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 one of the two 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 clause A coverage is required.

So before the Incoterms updated in 2020, the minimum insurance needed to be purchased was cargo clause C, which is a limited coverage. So not to get too deep into the distinguishing factors of Cargo Clause A and Cargo Clause C. The main thing you just need to remember there is cargo Cause A stands for all risk. So everything is covered. The 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 wouldn't mind going back a slide. I just want to give a real-world example using the state Incoterms. To call back to our previous slide that featured the MOL comfort. Remember, that was the ship that split in half -- so if you bought goods and they were in a container on that vessel and your sales agreement was subject to one 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 the buyer, not the seller. 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 not really intended for containerized cargo because the seller is only required to deliver the cargo to the side of the ship. Usually containers loaded on board. Containers are usually tendered to a port terminal yard. So FAS is usually more so intended for break bulk 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.

FOB; FOB stands 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 loading. I would say that FOB is probably one of the most commonly used 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 cutoff from buyer and seller getting it on the ship. So a quick question. If the containers dropped during the loading and smashes on the deck of the vessel, whose problem is that? whose problem would that be?

You guys can drop your answers in the chat.

We got lots of sellers coming in, couple of buyers.

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 Sundai 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 smashsed up on the deck of the boat now. That would mean risk did not transfer, and this is the seller's problem to resolve.

Good stuff. Okay. CFR. CFR stands for cost and freight. With CFR, the seller arranges and pays for the freight services to the named destination port or place. However, the buyer is still at risk once the cargo is loaded onto 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 got CIF, which stands for cost, insurance and freight. CIF, just like 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 all 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 thinking or general average, which Chris kind of got into earlier as well if there's an emergency on board and the the ship has to be -- 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 the risk from the named place. So with DAP, the carriage cost and risk, they all line up again, nice and easy, much cleaner. But again, this is one of those terms that if agreed upon, the seller is more responsible for most of the heavy lift there. DPU. it's basically the same as DAP, but with DPU, the seller unloads 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. DDP, the seller is responsible for nearly everything. Back to you, Brendan or Chris, sorry.

Thanks, Marek. Thank you for the Incoterms lesson. So we've 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 hazardly. As we've demonstrated here today, the line between you're on the hook for the cost or the seller or the buyer is 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 probably heard there's no such thing as free shipping. Well, it's very true that some sellers had 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 in 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 your easy button. But in reality, what I find that people are most risk averse to when they sell and they opt for Ex Works, they don't want the export customs responsibilities.

Perhaps they're not familiar with filing an 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 with all of the U.S. regulations. So since you have to understand these things anyways, you may want to consider taking it a step further, so you can also increase your control and decrease your costs 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 of 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 customs.

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 in 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 to you on DDP, 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, sorry. So speaking of those tariffs in 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 are 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 a credit. And depending on your 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 with in 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 a ground from China to L.A., the buyer and the seller agreed to Ex Works terms. So in this scenario, when the ship runs a ground, 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 is taking on all the responsibility. So this stranded boat is going to be the problem for the buyer.

Second up here, we have another buyer or seller, a container dropped during loading, smashes on the deck of a vessel. Whose financial problem is this? Is it 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, 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 buyer's door. So in this situation, the seller's problem. I think 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. 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 Incoterms. So if I -- Brendan, if I have 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 main carriage and the actual clearance is going to be responsible for duties and taxes. So it sounds like -- 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...