Expeditors International of Washington Stock

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.

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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...

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

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

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

Interesting. Okay.

So covering duties and tariffs, but not the actual transportation responsibilities, very unusual. So not a typical Incoterms. So it's kind of like a modified Incoterm. So you could say it's Ex Works duty paid, right? And it's important to note that Incoterms are guidance. They can be legally binding, as Marek mentioned, when they're included in sales contracts. But the ICC, the international -- I think it's International Chamber of Commerce that writes the literal book on Incoterms has made it clear that you can modify them within the scope of your agreement.

So as long as you define who's responsible for what and both parties mutually agree, perfectly acceptable. So David, what you guys are doing is fine. I would just be certain to list it out as detailed so that there's no gray area over who exactly is responsible for what. And from what it sounds like, it sounds like what you could call Ex Works duty paid, where the seller is taking responsibility for duties and taxes and perhaps customs clearance. So not a perfect box that fits in, but something that the Incoterms have taken into account over the years. I hope that helps.

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

Marek, can you answer that, if you wouldn't mind.

No, that's a great question. CIF, as we mentioned, is cargo clause C, so more limited in terms of what's covered under that. I always say it's better to have your own all-risk policy that protects you in case something does happen. So you don't necessarily need to change the Incoterm.

I guess that would be option one. If you wanted to discuss updating that CIF Incoterm to the other one that we talked about, that includes insurance CIP, which picks up the coverage a little bit into all risk. So that's option one, updating it to CIP. But if you have shipments moving under CIF, yes, I would definitely recommend getting a policy, all risk policy that includes ocean transit. And what is kind of nice about that is if you're still shipping under CIF and something happens to the shipment, that insurance, if it's one of those cargo clause C perils like the ship thinks or coll another ship or the general average thing, you -- that coverage -- that peril will still be covered under that limited coverage.

But if something else happens that is not covered under those cargo clause C like a fire or theft or something like that or water damage, most cargo insurance all risk policies have something called a difference in conditions clause, which if there is two or if there are two insurance policies at play covering the same portion of transit, your policy, the all-risk policy will take the difference in conditions there, and we'll respond to that. So more than one way to address that. But yes, there's, if you want to update the CIP to make it nice and clean and easy, it's all risk all the way up until your responsibility, that's probably the cleanest way to do it. But I always recommend having your own all-risk policy anyways just to take over, especially once the risk ends there, once the insurance ends on that, too. So it's good to be safe and sorry.

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

Sure. Rebecca asked, how does export creating -- or how do export creating and Incoterms align?

Great question. If you're paying attention, you might have noticed we only briefly mentioned things like loading and unloading. Loading and unloading actually are defined by Incoterms. Crating and packaging are not. In fact, the only real mention you'll see is under Ex Works, where it states the seller is only responsible for having the goods packed made available at the seller's premises. So the Incoterms really don't control for a scenario where the cost of packaging is passed along in the transaction. I mean perhaps that could be included in your normal sales, right?

It's not uncommon to see that included on a commercial invoice. But there's really no Incoterms that dictates as a standard definition, which party is responsible for packaging because it's always assumed that the seller is responsible for packaging in the way that these were written. Great question, though.

Thank you, Chris. The next one is, will this recording be shared from [indiscernible]? Yes, this recording is happening right now. Once we send out our survey, please take about 30 seconds to complete that survey. Once you do that, you'll be sent to a landing page that will have the slide deck itself, a recording of the presentation and some additional useful information for your use.

Next question under the Q&A comes in from Courtney. Under DEP, who is responsible for ensuring import documentation accuracy? And how does the buyer verify compliance? Again, this is in the Q&A box. Chris or Marek, do you want to read it?

I'll take a stab at this.

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

Courtney, that's a tough one. That's a really, really tricky question. Forgive me for geeking out on you folks for a moment. In the United States, we have this thing called the Customs Modernization Act of 1993, the Customs Mod Act, which basically states, ultimately, the importer of record is responsible for the accuracy of their customs entries, not their broker, not the seller, it's the importer. So the answer to your question depends on who is going to be listed as the importer of record. So under BDP, it is possible that the seller perhaps has U.S. representation and that, that party is going to be the importer of record.

Perhaps they have a foreign importer of record number, and they're going to act as the foreign importer of record here in the United States or perhaps their customs broker is the kind of broker that will act as the importer of record, which is kind of uncommon in our world because of what I just highlighted with the Customs Mod Act.

It doesn't make sense to take on that extra liability. So in all those scenarios, whoever is going to act as the importer of record is ultimately responsible for the accuracy of what is presented to customs. So if you're buying under DDP Incoterms and you find out that their assigned broker contacts your organization and says, "Hey, what's your EIN number? I need to clear customs and I'm going to do it in your name. That's when you need a pump the brakes and say, well, hold on a second, if you're clearing it in our name, how do I know that you guys are going to do this in a compliant fashion. I didn't realize that I was agreeing to act as importer of record.

DDP means customs duties and taxes. So that would be a scenario where perhaps a more robust conversation needed to be had at the time of sales. In any scenario, right, you expect that all parties are going to contribute as needed to come to a consensus on accuracy. The broker can help classify, but they tend to know the least about the product itself.

So it needs to be a combination of the manufacturer or the seller, the broker and the U.S. party at the end of the day, whoever is the importer of record is the party we should be addressing and saying, do you believe that these are the classifications that apply to this entry, right? Because the buck stops with the importer. So another pitfall of DDP, right? You are beholden to how their chosen broker is going to conduct themselves. So if you're buying under DDP, it would make sense to have those conversations to make sure that you're not going to be exposed more than you anticipate. Worth pointing out, in order for somebody to clear customs on your behalf, they have to have a power of attorney. So unless you're signing power of attorney willy-nilly, you won't accidentally find yourself in this situation. Hope that helps, Courtney.

Thank you, Chris. Great answer. The next one comes in from Marianne Andradi.

She says, for example, in CIF, per OETAL, the cost for unloading the containers from vessel to the yard at destination port, not part of the DTHC should be included with the ocean freight paid by the seller or should it be collected from buyer. That doesn't translate well saying out loud. So Chris, can you see it in the Q&A box?

I can see it. So let's see, CIF, [indiscernible] I did not say that right. So don't quote me folks. Unloading containers from the vessel, the cost for unloading containers should be included in the ocean freight paid by seller. So if we were to consult back to our Incoterms chart, you'll note that the CIF bars actually end at the point between main transport and onboard vessel point of discharge or unloaded at port of discharge. So technically, CIF does not include unloading at destination. Now it's possible that the seller works with a carrier that does include that cost in the ocean freight, and it will be customary at that destination point for the cost of freight to be inclusive of unloading.

But that's just one other detail, one other fine little detail that you may want to bang out in, beyond the just acronym of the Incoterm to ensure there's no confusion because it does depend on where you're operating in the world and what is customary there. But on paper, CIF would typically mean that the buyer is on the hook for the terminal charges at the unloading port. Hope that helps.

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

And we have one last question here I'd like to tackle from Heather. Which terms are available for domestic shipments? And it's almost like Heather has a plan for my purposes here. I love this question because what is the 'In' and Incoterms stand for international? Incoterms are meant for international transactions. They're really not meant for domestic shipments. But with that said, boy, I see people use FOB, my warehouse domestic all the time. It's a domestic shipment. There's no ship. There's no boat, right? What are you putting it on board, right? It's a water-only term. You can't use that for trucking from Virginia to Kentucky. That makes zero sense. So we see it used improperly all the time. Incoterms do not apply to domestic shipments. But with that said, you can do what you want.

As long as everybody understands their responsibilities and that they're defined somewhere in writing in a sales contract or a sales agreement, whatever it may be, and everyone mutually agrees, all parties understand the responsibilities, that could go off without a hitch 99 out of 100 times. But best practice is to use things as they are intended, do it properly so that way, you don't create any gray areas or any ambiguity that could result in any unexpected risk. I hope that answers your question, Heather.

And just to add to that a little bit before we wrap up, there are a specific list of terms that are specific for domestic.

They're called the UCC. And so probably have a whole another webinar about the UCC. But as Chris said, we see this all the time where Incoterms, international ones are used on domestic shipments. And I see them like on the insurance side coming in, in terms of claims and that sort of thing.

Just understand, it just comes down to understanding make sure that the seller and the buyer understand what the intent is. So I've seen it used both ways, but there is a specific list of codes for domestic shipping called the UCC that would be better suited for that. And they're very similar to Incoterms, but they're different for sure.

Okay. Going once, going twice for questions, we are right up against it, folks. Okay. We'll wrap up, take the last 30 seconds or so and let you know that the Contact information for these thought leaders will indeed be included in the deck that you receive upon completion of that survey. And again, we thank you for taking the literally 30 seconds to fill that out. These QR codes will take you to their LinkedIn profile. Feel free to reach out. e-mail addresses, phone numbers. You can connect with any of us for any reason.

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Hello, everyone, and welcome to our U.S. Customs Market Update webinar. Thank you for joining us today. We are going to go through a U.S. customs market update with our team. And before we start, we're going to go through a few ground rules and just how the webinar will run and cover some questions that we often get, and then we'll hand it over to our experts to go through the content.

And then finally, end if we have some time with some question and answer, normally, we go right to the end. So if we don't cover your question today, we will certainly follow up after the webinar. My name is Nicole Gallanis. I'm new or I'm covering for Samantha, who you normally see on these webinars today.

So she is out on vacation. So if you do have any questions or don't receive the survey after the webinar, that's usually how we will distribute the content to you. So if you don't receive that, you can certainly reach out to me, and I will make sure that you get a copy of the materials that we shared. If you are hearing an echo, you might have -- you might be joined on multiple devices.

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So without further ado, I will introduce our presenters today. We are fortunate enough to have our experts here with us from Expeditors. We have Brenda Smith, Global Director for Government Outreach; Stephanie Holloway, Director of Customs Operations for the Americas; Ted Henderson, Senior Advisor for Customs and [ Jared Crockwell ] , Systems Development Analyst for Customs. So without further ado, I will pass it over to Stephanie to get us started.

Thank you, Nicole. And I think for some of you, you're not going to be able to see my video. My apologies for that. You're just going to have to channel your 2010 version of yourself when you would sit around listening to a video or not a video phone.

No video phones, just the audio phone in the middle of the conference room. So with that, though, we have a lot going on. Over the last 2 weeks when items were coming out. My head, of course, always goes to what is -- how are we going to present this? How are we going to talk about this on the webinar. And the material just kept coming, and I kept thinking, oh, gosh, we have so much to cover.

And when I was sorting through everything that we needed to look at, I just kind of kept being drawn to understanding that we needed to step back and look at, make sure we're looking at all this holistically, not just going down a rabbit hole and just talking about one Section 301 case or just talking about a 232 change.

So we're going to try to do that throughout this webinar, just make sure we put our heads up, make sure that we see the whole picture and not just be distracted by one little bit that's coming out. I'm going to cover the tariff and trade developments, and I have [ Jared ] coming on to talk a little bit about the metals that I'm very excited about. Ted is going to talk a little bit about the tariffs and the legal system. So the judicial system is really supporting that check and balance right now on tariffs.

So it's very important to follow closely as to what's happening over there. Brenda, as always, our favorite is going to do what's on the horizon. So looking at what we're seeing for Section 301, there was so much activity for 301. We are getting very close to July 1 for USMCA. What does that actually mean? So we have a really nice just condensed slide and then getting a little bit beefier on this executive order.

So we as the whole trade community were issued quite a loaded executive order, I'll say, on June 3 called Strengthening Customs Enforcement. And if you haven't looked at that or thought about that, Brenda is going to do some high-level themes of what we're seeing and thinking about at this exact moment. I'm going to wrap up with Ted talking a little bit about a force labor document that came out. That doesn't seem like, hey, how is this important, but it's really tying into the overall theme of where customs is going with supply chain traceability. So with that said, let's get rolling.

This is a crazy time line. And it was crazy when I put it together, but I think sometimes it almost validates all the feelings that we have with how much stuff is coming at us as trade professionals. It's been a lot. So we, I think, did this last webinar mid-May.

Just where we've been in 4 weeks and what's come out is intense, especially in the month of July. So a couple of things I want to highlight. Many of these dates will be rehighlighted back or during our webinar.

So don't worry, and of course, you always get this material. But a couple of things on here that we might not touch on in this webinar or not might. We won't. I made the content. I know it's not in there is the Section 232 pharma.

So all of you in the pharma world, you're well aware, we've spoken about this the last 2 months, but we have our first date coming up July 31. And then another one, September 29. So those are extremely important dates to call out.

So with that said, the rest will unpack as we go. So what has been happening or what is about to happen in the trade world operationally. So CPSC. So CPSC is, of course, Consumer Product Safety Commission, well often call the PGAs. PGAs means partner government agency, participating government agency, but essentially, it's a government agency that has jurisdiction over imports, which, of course, all of us know CPSC has.

So they are moving from their form just being required at time of import, but they didn't have to be filed anywhere. It just had to be presented upon request. That is now going to be part of the import process. So the CPSC has been doing pilots for a long time. It was actually announced a year ago that this was going to become mandatory in July. And we all blinked and here we are almost to July 8, 2026, and that is when CPSC is going to become mandatory.

So as part of our filing process as your customs broker or if you have a different broker, we are going to have to provide CPSC data that aligns with your imports, okay, or that import that's happening.

The tricky part with all of this, as we've mentioned before, is that none of this data is new. This is all stuff that your company has been collecting. What is new is that we have to get it into our import process. So a big thing that we've been seeing as we're talking to importers is the need for UA to make sure, and hopefully, you know now, who manages this. Where is your product safety folks? What are they testing? Because the other kind of tricky part to this is that this data for this PGA it's not kind of set it and forget it like we see for other PGAs. It's constantly changing. You're constantly retesting products. Even if it's the same product, there's different requirements for how often you need to test it.

The other twist if there isn't enough twist is that CPSC has provided an online registry. You don't have to use it, but you can. And what that essentially is, is like a product library where you can store it. And then as part of your entry, you're just doing a smaller data set to reference what they already have in their library.

So figuring out, a, what products there are, how does it correlate to your imports, how does it get pulled in? And then where are you going to store that data. That's a lot of kind of pivot points to solve. So hopefully, you are in the thick of that right now because we are very close to going live on that. And CPSC, as you likely know, that you just cover such a huge arrays, yes, that's the right word in this. A huge range of products, and they did attempt to flag some of you guys know us, they'll put flags on the HTS numbers, but it's just not a reliable way.

This agency just covers so many things and it's very, very difficult to flag for them. So those are evolving.

We can give CPSC feedback to flag them, but it is just kind of a little bit of a finger in the air for you to pay attention to. So more to come, please, if we're a broker, make sure that we're talking to you, we're all learning because this, as I said, is really a new process and a new way to do PGAs.

So we'll be successful, but we all need to make sure that we're having those conversations right now. The next thing that has come out since we did our last webinar is that medium and heavy-duty truck. The offset program has opened for application. So this is bearing what we had already seen for the auto industry.

And that is your ability, if you produce trucks in the United States, you can apply to commerce application that says, this is how much I produce. I can show you that I produce these in the U.S. and you essentially get assigned a credit and then that credit can be used to import auto parts or truck parts, okay? So that's really important.

The whole -- I mean, seeing between the lines here stepping back, right? The U.S. government wants more production to happen in the U.S. They understand not all auto parts or truck parts can come here. So they give you a credit to use on these parts, okay? So this just opened.

What we also see are a lot of conversations is not just the major truck or auto manufacturers asking about this. Your downstream suppliers also get asked because are asking questions because the automakers or the truck U.S. manufacturers can give portions of their credit to their downstream suppliers or upstream, whatever way you're streaming.

And then that reduces their costs. And of course, then the manufacturer says now, please give me a reduction in price. So there's a lot that goes into this. But I just want to highlight right now that it's open. I don't think any truck manufacturers have been issued credits yet. This literally just opened not even exactly 1 month ago.

The auto one last year opened about this time in 2025, and we didn't get it until December. I don't know what the time line for the trucks will be.

Maybe somebody on this call has some insider knowledge and wants to share, but we will see this. So we're just going to be mirroring and we figure operationally, it will be very similar to autos. But it's really on the manufacturers right now to submit to commerce to get this credit.

And for those of you who are in that boat, I'm sure you're well aware, but I just want to bring more awareness to the folks who might be in those down or upstream supplier relationships and are trying to figure out how this is going to work.

Once again, though, at the very bottom, I have a little thing here, this really points to a broader shift, right, which is where the administration is using tariff programs to try to drive behavior and that behavior that they want to drive is U.S. manufacturing.

So the last topic I'm going to talk about in this section is metals. So I think we all remember when did metals change into metals. Beginning of April, yes, deals like a lifetime ago yet, it was only new weeks ago. We had the 232 steel aluminum and copper, right? So those all got rehoused under one metals program back in April, and we all had to kind of readjust our brains.

At the beginning of June, June 1, maybe don't quote me on that. We have another twist. So the metals saga just keeps evolving. So I'm going to hit on some of the high points of this and then I'm going to have [ Jared ] come on and just talk about what are we learning? What are we thinking about as we continue to see this metals Section 232 evolve? And how do we look at this a little more holistically.

So first of all, there was 5 major things that happened with this, and they are very nuanced okay? So first of all, we have just overall list changes.

Some HTS numbers were added, some were removed yada yada. And I think this speaks to the fact that these lists are going to continue to shift and move, okay? Another big thing that happened was that USMCA got a content split, but they put a cap in.

So previously, Section 232 for metals, there was no way to accommodate if your product qualified for USMCA. You now can do this but there's a twist with. It's not the metal breakout. It's on the total product value. So once again, getting a little bit crazy in how you look at this. They also changed the U.S. processing threshold from 95 to 85.

But of course, to take advantage of this, you still have to understand all your different components that are going into the imported product.

We got another interesting one to try to understand and put into practice, but it's looking at end use rate reductions. So for this line, you have to be on one specific list for the part that's imported, and then you have to be on another list as the end-use product.

And if you are on both of those lists then you're able to bring your duty rate down maybe 10% or 15%, okay? Same thing with these trade agreements, these are not formal trade agreements. It's those kind of like handshake deals, trade deals that the Trump administration has been working on.

They have a list of those countries and have certain rates renegotiated if you're on certain list at lower rates.

The twist being -- well, there's a couple of twist on this one, but one of the main ones being that there's still countries being listed there that we actually don't have ways to implement those trade deals yet. So it is just kind of a mashing of a lot of things here.

So with that said, [ Jared ], do you want to come on? So [ Jared ], I'll introduce him real quick. [ Jared ] is -- I'm fortunate, fortunate and fortunate to have him on our team. He's one of kind of our master minds when we get this trade remedies in both for interpreting, but then figuring out what we're going to do with them systematically. So with that said, [ Jared ], I'll hand it over to you to give us all of your metals wisdom.

All right. Thanks, Stephanie. So yes, great to meet everybody. Obviously, I'm not quite a frequent flyer on these things like Stephanie is. So the big thing that -- one of the big things that I do on our side some of you may not know, but Expeditors, we actually build our own entry system.

And so all the time that we're doing our entries, that's something that we're building and we're iterating on. And I'm one of the folks that's helping to try and keep that short up through all of the very many twists and turns over the last 2 years.

I think like a lot of you guys, I have had to learn new and exciting skills such as reading the future and trying to guess which direction things are going so that we can try to keep up with it, right? If we're constantly waiting for the changes to come, we're going to be late for everything.

And so we're really trying to look through each of the trigger remedies and figure out what are the common threads, where is this actually going so we can try and stay ahead of it as best we can. So there's a couple of main things that I wanted to highlight here. With 232 metals, but trade remedies in general, right? Everything starts with tariff lists. It's the most fundamental thing.

I think as importers, you guys are all very used to the idea of having to understand the classification of your product, having to understand the origin of your product, right, and using those things to determine trade remedy eligibility. That's been the pattern that we've known for years and years. And I think everyone's gotten really good at understanding that, being able to keep up with tariff shifts and all of these things and understand some of the more basic things, let's say, that go into trade remedy eligibility like USMCA applicability, other duty reduction programs, et cetera.

The thing that we're seeing with this, with trade remedies in general, though, over the last 2 years, right, is that you really need to learn your product in depth and you need to be able to prove all these things that you learn about your product, right? So you start with the HTS in the country of origin, that's great.

Maybe you expand to some of these free trade agreements or duty reduction programs, that's great, too. But increasingly, you have to know more, right? So you have to start to understand what's the content in your product, where -- what's the origin split of the content in your product? Okay, cool, your product contains steel. Now you have to know where is that steel actually coming from? Where was it smelted? Where was it cast. All these things, I think, if you had asked us collectively as a community 3 years ago, we couldn't even imagine trying to get to the bottom of, right? And so I think it's just highlighting that more and more and more customs expects you all to be true, true experts in everything that you guys are importing.

And for right now and for some of the trade remedies that we've gotten so far, it's really down to can you get a little bit of duty savings, right? That's what we're seeing. We're seeing if you know your product super well, maybe you fall into this U.S. process exemption or rate reduction, you get to save a little bit of duty. That's great.

I think all of us collectively know a lot more about our prospects today than we did 2 years ago. But again, trying to exercise that skill that we've all developed over the last few years and figure out how do we look into the future, what does this look like long term. I think we all need to kind of keep our eye on the prize, right? Right now, that knowledge is giving you rate reductions.

But I think we can all see that this is a really important focus area from customs. We've seen a lot of the messaging coming out of customs. We've seen a lot of the piloting coming out of customs with some of the programs we've been working on with our partners. And all of it is increasingly coming back to supply chain traceability. You need to know your product in, out, left, right, up, down every direction.

You need to know everything about it. And more to the point, you need to be able to back that stuff up, you need to be able to prove those things, right, because if customs comes asking questions, they are going to want the documentation. They're going to want specs sheets, they're going to want bill certificates and all this backup that you guys have to put together to understand your product.

They are going to want those things to make sure that you've done the due diligence, you know where your product is actually coming from and you know everything that's going into it. So obviously, I think all of this is a little bit we're guessing at the future, right? But increasingly, that seems like a really important direction for all of us to go to have any shot of trying to keep up with what's coming and what we think we'll keep implemented tomorrow, retroactive 3 weeks. So anyway, just a couple of things there, but I think that's where we will leave it for now.

Thank you so much, [ Jared ]. Yes, I think you spot on. We had a fun [indiscernible] not fun. But really, you can get so bogged down in all of these crazy details of this, but really the bigger picture is that right now, you get a nice benefit if you truly understand it all, and you can back it up with some rate reduction.

But as we'll continue to point to throughout this presentation, customs expectation is very, very clear. And it will be -- it's pretty interesting to see how that's evolving, maybe not on this call, but a later call. I also want [ Jared ] to chat with us a little bit more about how do you -- how are we fundamentally going to get that information from you all to make those determinations in the future so that we can actually apply the stuff more automated to our entry process.

So we'll chat about that later, but that's a big problem and thing that we're thinking about because it's not just an easy if then statement, like if it's country origin and this, then apply this. We're like 18 steps deep to try to get to the right trade of e-mail. So we will chat about that more at a future date. So with that said, let's talk about the legal system. Ted, I will hand it over to you.

All right. Thank you, Stephanie and [ Jared ]. So let's spend some time reviewing some tariff actions and the U.S. judicial system as a whole. I think court cases related to international trade and compliance really are nothing new.

The Court of International Trade that we know today actually traces its roots back to 1890 when Congress created a Board of General appraisers that was supposed to settle questions related to tariffs applied to imported goods.

And over the years, that Board morphed into a more formal judicial mechanism. And ultimately, it was reorganized by Congress in 1980 as the U.S. Court of International Trade.

And I'll just say as a side note, I know that many of us on this call are big fans of Congress' action in 1980 to create the CIT because we're getting IEEPA refunds, and that's cool. But I do want to point out that 1980 was also the same year that Rupert Holmes hit #1 on the charts with the Pina Colada song.

So not everything in 1980 was good. What we want to talk about today for a few moments is the Court of International Trade, the largely judicial system and the role it seems to be playing around tariffs. It just seems like legal challenges are becoming the new norm with respect to tariff actions. First, it is absolutely clear that U.S. importers have become emboldened, if you will, to take on the administration, particularly given the recent decision on Supreme Courts and the IEEPA tariffs. So we're seeing more action in that respect.

But second, it does not appear that Congress is emboldened sufficiently to take back their constitutional authority over tariffs and attempt to manage the actions of the administration and the President. So importers really are having to go to the third branch of the U.S. government, the judicial branch in an attempt to get interpretations, evaluations of the executive actions related to tariffs. I think, honestly, given the current environment, we're going to continue to see these legal challenges, and we're going to talk about them on our custom market dates in the future.

Quick look at a couple of 3 recent court actions just to kind of illustrate this. First, IEEPA. We're certainly going to talk a little bit more about the IEEPA case and tariff refunds in a minute. But the bottom line here is we have a Supreme Court ruling in place that found that IEEPA didn't confer authority to the President to impose tariffs following that Supreme Court ruling, the Court of International Trade, where Judge Eaton ruled that as a result of the Supreme Court action, guess what, IEEPA tariffs get to be refunded by CBP.

With the IEEPA litigation, we saw a successful litigation there around the core issue of whether a specific law granted authority to the President to levy tariffs in total. And ultimately, the full U.S. court system has come back and determined the law did not grant that authority and ultimately ruled that somewhere around $166 billion in duties should be refunded.

Second, let's look at Section 122 legal actions. These tariffs, as we know, they were implemented kind of an emergency temporary measure by the administration, got to backfill the IEEPA tariffs that went away. And once again, the administration's tariff actions have been challenged in the judicial system in the Court of International Trade and moving up through Court of Appeals.

In this case, the issue is whether certain conditions as required in the law exists for the President to impose tariffs. So first, we've talked about IEEPA that does the law allow for tariffs. In this case, the law allows for tariffs, but are the conditions being met by the administration in order for that to happen. We're going to dig into 122 also a little bit deeper in a moment.

But again, the core question is, does the statutory language have -- in this case, have certain conditions that the President has to meet in order to move forward with tariffs. And then finally, we have an example here of Section 232 legal action. In this case, it's Express Fasteners, the U.S., and we're seeing a variation where importers are using the judicial branch to evaluate tariff actions by the government.

But the issue is not whether the authority exists to impose tariffs in the law or whether the conditions have been met in the law. Here, we're seeing an example of the judicial system being asked to determine whether tariffs are being calculated appropriately, both in the context of Section 232 and the valuation statutes. So this certainly will have an impact on potential duty refunds, but how we manage our compliance programs as well.

So there's a lot -- there are other litigation examples we can certainly speak to. But our point here is really just to call out how the judicial branch is being brought into an area that really might otherwise fall into the legislative branch under their constitutional authority. So with that, let's dig into IEEPA and talk about that for a little bit. We're all knee deep in the refund process.

I think most of us are familiar with CBP's consolidation, administration and processing of entries program, the CAPE process. And we're thinking in terms of the CBP's lingo, CAPE Phase 1, CAPE Phase 2, Phase 3. Today, we thought we'd look at entries and refunds in terms of the actual liquidation process and group them a little bit in that context as opposed to CBP's Phase I, II, III.

Remember, liquidation refers to the finalization of the life cycle of a customs entry. And there are several phases of -- certainly of the life cycle, but also of the actual liquidation process. So first, let's talk about unliquidated entries. These are entries that have not been finalized and are available for action by either the trade or CBP.

CBP is currently processing many of these unliquidated entries that have been submitted by importers through CAPE and refunds are being issued.

This is CBP's Phase 1 CAPE processing. Good news is CBP recently stated that they're going to add an additional group of entries into this phase and or into processing under CAPE and that will be under Phase 2, and that's going to include reconciliation entries and certain antidumping countervailing duty entries.

And the target date is actually supposed to be in 2 weeks or so on the 29th of June. So generally speaking, things seem to be going okay for the processing and refunds of unliquidated entries. I know there have been questions. It seems like there have been some pauses. Refunds are going a little slower lately.

But again, CBP for what it's worth, seems to be processing these unliquidated entries. The next group we need to look at are entries that were recently liquidated in the last 80 days or so. Technically, the statute runs to 90 days, but for processing purposes, CBP is looking at 80. So those entries based on law can potentially be actioned by CBP or an importer as long as they're in that window of 80 to 90 days prior to liquidation. They're eligible for refund processing in CAPE now, ironically are not under Phase 1.

This is a different group of entries, but they're still under Phase 1. And as long as that liquidation date, 80 days or less and the Phase 2 component of adding antidumping countervailing duties, recon entries, that's going to jump in also with this group of entries. The third group of entries that we have are those that have finally liquidated.

And in the context of the law, that's basically 90 days past liquidation date. And that's a point where really the CBP doesn't have an authority to automatically go in and reliquidate entries or act on them unless there's criminal actions that they deal with. So as of right now, CBP has stated they do not believe they have the statutory authority to action those entries as they don't -- they can't just automatically offer refunds on them.

The administration also has a similar interpretation on this, and that's based on both statute and some Supreme Court decisions. So both the administration and CBP basically believe that an importer must file a lawsuit in the Court of International Trade in order to be eligible for a refund process on entries that are past that 90-day plus liquidation date.

However, the Court of International Trade has explicitly ruled that all importers should have their duties refunded regardless of having to file a lawsuit, regardless of liquidation status, et cetera. So right now, we have this group of entries, liquidated entries that are in limbo. Very likely, we're going to see this group of entries have to be managed through lawsuits and perhaps ultimate review by the Supreme Court on whether or not the government is required to refund duties without a lawsuit by the actual importer.

So keep your eye on this section if you have entries that fall in this bucket. The good news is CBP has stated they are building the CAPE system to process those entries if and when the time comes for them to deal with them. They're calling this Phase III. They estimate this covers somewhere around 27 million entries that are out there.

People ask us all the time, what's our recommendation on how we should be managing our entries, Certainly, monitor, pay attention to your liquidation dates on top of that for this group of entries that are in that finally liquidated bucket post 90 days, if you will, after liquidation, we do recommend that you're filing protests on them.

You may also certainly want to speak to competent customs legal counsel and see if you should be proactively filing lawsuits to get ahead of things. That's up to you and your legal counsel. Bare minimum, definitely file protests as it goes. So this one, we thought we had a pretty clear understanding based on the ruling of Judge Eaton that customs would ultimately be refunding duties.

But based on actions by the administration and statements by customs, it appears this finally liquidated group of entries may end up back in the court system. So let's pay attention to that as we keep moving forward. And let's go to Section 122. Really, my update on 122 is pretty much what we talked about as last month. It's business as usual. We're continuing to pay Section 122 tariffs.

As we've talked about, the Court of International Trade agreed with 2 importers and some states that filed lawsuits and that sued the government. And the CIT, the Court of International Trade ruled that the President did not meet the conditions of Section 122 with regards to the balance of payment imbalance, if you will, that therefore, the tariffs were not appropriate.

However, that the CIT limited their decision specifically to the plaintiffs in that case. The government is in the process of appealing that decision up to the Federal Circuit. The tariffs basically remain in place for now. So we certainly expect that we're going to see business as usual for the tariffs up through the anticipated expiration date. So remember, these are scheduled to terminate the last day to collect the tariffs would be the 23rd of July. They should be terminated by 24 July because the requirement under Section 122 says these are temporary tariffs.

They can only be in place for 150 days without congressional action. It doesn't appear that Congress is going to act on this. So again, tariffs likely remain in place. The court actions will continue, but we just don't see them being concluded prior to the 23rd of July. That's just weeks away, if you will, relatively speaking.

So there a stop gap. We know that. The government is taking other actions in Section 301 that Brenda is going to talk about here in a second. The only caveat that we really want to throw out here is a recent comment by the U.S. Trade Representative, Jamieson Greer. Last month, Ambassador Greer was speaking publicly, and he acknowledged that Section 122 tariffs are indeed temporary. They're time bound.

But he also suggested that doesn't mean that we can't interpret Section 122 to mean that it's a one-and-done deal that perhaps they could be reused by the administration. So we have to think about this. Does this mean the administration is considering a new round of Section 122 tariffs as soon as the current round expires? It's possible. We know, again, we have 301 tariffs on the horizon. We've got other stuff, but it is possible that the administration is thinking that they can, if you will, reuse Section 122 tariffs and implement them once again. So we may be talking about future legal actions on that. All right. With that, enough of me previewing Section 301 tariffs, and let's have Brenda actually give us the main feature and talk about them. So Brenda, off to you, please.

Great. Thanks so much, Ted. As we talked about last month, the month of July is going to be a very busy one. So depending on how engaged you are, you either may want to take your summer vacation or not. What we wanted to focus on in terms of what's on the horizon were a couple of issues, starting with the Section 301 activity at the United States Trade Representative.

So looking back to Trump 1.0, we saw that there was really a new and very broad use of the Section 301 tariff authority. That is still playing out in the courts, though the Supreme Court has just declined to take a look at the final list for the initial China tariffs. However, what we saw from that is that, that is a tool that the Trump administration is likely to use to address a broad range of issues that it sees.

There is an ongoing comment request from the United States Trade Representative, which basically focuses initially on whether -- if you are a domestic industry, whether you have been impacted by these tariffs, whether they've helped you or not. And that will be an evaluation that USTR conducts over the next few months in order to make a final determination or a determination in this phase of those initial China 301 tariffs. We've also seen in Trump 2.0, a pretty significant expansion of the use of 301.

And some of this has been to address specific trade issues, and I'm referring to things like the logistics and shipbuilding China 301 tariffs. But we've also seen more recently as a replacement or a complement to the IEEPA court decision, new remedies that are being explored by United States Trade Representative.

The first, we actually have seen an announced remedy of between 10% and 12.5% on those countries that do not have a forced labor prohibition in place or they are not enforcing a forced labor prohibition. We've also seen, though we haven't gotten the initial round of rates on excess capacity, but 16 very large economies that we trade with has been announced, and we are waiting for that. The remedies coming out of that investigation to be announced, though we expect that it will be before the July 24 expiration of the Section 122 dates. We've also seen a very large case investigating Brazil for a variety of different practices and most recently, a case on Vietnam for their intellectual property protection and market access issues.

The bottom line is that the negotiations coming out of -- or being impacted by the Section 301s are really the Trump administration's attempt to rebalance the trading relationships between the United States and its partners.

The most significant, of course, is the one between the U.S. and China. President Trump's recent visit to Beijing resulted in the announcement of several possibilities around tariff relief that will be discussed either separately in advance of further visits, which are scheduled to happen this year between the 2 leaders or as part of the agenda of the proposed Board of Trade.

So stay tuned on those, but just don't forget that the Section 301 cases are really a pretty significant underpinning not only to the ongoing negotiations, but also to the Trump trade -- America First Trade strategy at large. So let's dive a little bit deeper into those 301 cases. We wanted to be sure that you all were tracking what was going on with the specific cases underway. So the first one we just mentioned was the one on forced labor, 60 economies, a very broad swath of our global trading partners. There are some key deadlines if you want to make comments or if you are looking for where this goes next. So June 22, if you'd like to appear at a hearing, which the trade rep will be holding in July, written comments on the proposed remedies of between 10% and 12.5% are accepted until July 6, and then the actual hearing discussing this will happen on July 7.

If you are a watcher of 301 cases, you know that these time lines are very fast for a 301 investigation. Our assumption is that this means that the USTR is trying to act or the President is trying to make a decision on what these remedies will be before July 24, so that they can be implemented as Section 122 remedies or Section 122 duties are headed out the door.

The Brazil investigation is also underway, and there are comments that can be made if you do a lot of trade with Brazil and you have insights or advocacy that you want to do on behalf of your organization. Those comments are due by June 22. I'm sorry, the request for the hearing are due by June 22. Written comments on the Brazil investigation due by July 1 and the public hearing starting July 6. That's going to be a very busy week for USTR and the trade community.

And finally, as we talked about in last month's webinar, there is the second review of the Trump 1.0 China 301 tariffs underway. The initial phase is just to take input on whether there has been an impact on domestic industry by those 301 tariffs. There will be a more extensive phase if the answer is yes, that there has been an impact, where there will be a much deeper dive on specific products and specific impacts.

So that's something that's going to roll out over the next 6 to 9 months. So 301, a key thing that should be on your radar for this summer. The next thing that should be on your radar is the USMCA negotiations. And unfortunately, we don't have a significant amount of new information to share with you. Stephanie, can we move on to the USMCA slide? Thank you. But we thought it helpful if we could walk through the potential options for what is likely to happen on or around July 1.

We either could get full agreement in the next 2 weeks, very optimistic that, yes, the 3 countries want to move forward with USMCA as written, no changes, and the duty rates will essentially stay in place. That is highly unlikely. The next thing that is potentially likely is that the agreement will continue, but there will be renegotiation over specific provisions. There is a lot of discussion around rules of origin, around labor issues, around managing China inputs into goods made in the U.S., Canada and Mexico, as well as energy issues.

And I would add to this list a number of agricultural issues. If the countries agree that there will be continued negotiation around these issues and they are on a good path, it is likely that there won't be significant changes otherwise other than these targeted areas and that we are likely to see those changes roll through probably a regulatory process in the next 6 to 24 months. The next option that is a lot less predictable is the no extension option, which is when at least one of the countries in my book, it's probably the United States, determines that they do not want an extension of the current agreement.

No agreement is reached on July 1. And in fact, we enter into an annual review and renegotiation cycle. It is possible at some point that the 3 countries will come to an agreement, and there will be a full bore extension of USMCA. But I think it's most likely that we are going to have this continuing conversation. The downside of that is that the predictability for the trade community and for businesses interested in investing in any of the 3 countries is going to be a lot less predictable. So stay tuned. We should hear more in the next 2 weeks on exactly what option the Trump administration is going to go with. Because of the vast amount of business support for the agreement and the supply chains that are in place, it is highly unlikely in our thinking that there will be a full withdrawal from the agreement.

But even if that happens, that needs a pretty significant process in place and will happen over a couple of years if it happens at all. All right. And finally, the last thing we want to be sure is on your radar screen is the President's executive order on Customs Enforcement. That was issued about 2 weeks ago. It has a lot of meat on the bones. And it is very consistent with what we have seen coming out of this administration around an America-first trade policy. What this executive order is attempting to do is to really ensure that not only the laws that are already in place are enforced to the full extent of U.S. government authority, but also that where tweaks can be made either through legislation or more likely a regulatory change that, that will be done to do a better job of carrying out the intent of current U.S. trade law or future U.S. trade law.

The basics of this are pretty clear, and we'll talk about those details in just a minute. But what we wanted to highlight for you is that this really sets out a framework for how the U.S. will treat the importation process and those businesses that participate as U.S. importers, whether they are located here in the United States or whether they are what is known as a foreign importer of record.

CBP is on a very short time line. They've been given approximately 180 days to, as far as we can tell, complete a regulatory process, which is a very, very fast regulatory time line. It is unclear at this point whether these regulations will be issued with the opportunity for notice and comment from interested parties or whether they will be issued as an interim final rule, which the Trump administration has been using more regularly with notice and comment after the IFR has been issued.

So let's look at a few of the details that we have pulled out from the executive order. For me, one of the most significant is that importing becomes permission-based. In other words, in CBP's words, importation becomes a -- importation is not a right, it is a privilege. And so what CBP will be doing in order to convey that privilege is a significant amount of vetting into future importers' financial strength, their transparency around their supply chains and business arrangements and their overall compliance approach.

For me, that gives CBP a huge tool to do their vetting upfront. And while there are current provisions on the books to allow CBP to disallow importers from bringing goods into the United States because of bad behavior or because of instability or lack of transparency, this really, as I mentioned earlier, puts meat on the bones.

It is not clear yet what that will mean in our world, but the regulation should provide a lot of additional detail. There is also a significant amount of pushback on foreign importer of records and kind of those low friction, in other words, informal entry models. The details of those are not specified, but there's enough indication to know that if you are a foreign importer of record and you use either the formal or informal entry process that there will be a significant amount of change coming at you. We've talked about traceability already a couple of times.

And in a minute, we'll do some more on the forced labor front. Traceability is the watchword for CBP and it is moving upstream. If you don't have -- provide that level of transparency or you're not able to, CBP's ability to take really strong enforcement action is going to be increased. There's guidance here, which says that CBP's usual mitigation approach for a first violation, taking it down to essentially a parking ticket and not moving forward on that enforcement spectrum until later on in the game is going to be cut out.

So mitigation is only allowed at the 50% level. So there's a lot in here. There's also a lot of speculation from law firms in the United States that are focused on these issues. It is something you should have on your radar screen and be ready to comment when the opportunity presents itself. So with that, let me turn it over to Stephanie, and she will give us a little bit of input on one more thing that's hit our radar lately.

Thank you, Brenda. So a lot of themes about traceability. Customs has been not so subtle in really expecting that you know the depth of your product, and I know many of you are taking action. A lot of that came honestly, from the metals and trying to figure out your content percentages or if you're importing a sector that has been more targeted with forced labor. Customs put out an update, I think, just last week on this manual they have. And I have a link here, and of course, you will all get it. But it's called CBP Forced Labor Enforcement Operational Guide for importers. Really makes you want to get in here and dig around.

But one of the things I put on the screen is the appendix. Because the appendix, of course, feel free to read all 100 pages. But the appendix is really interesting because it really gets into the heart of what CBP is truly expecting and giving good examples of how to practically fulfill this traceability concept.

So you can see in here when you're submitting documentation, what are the best practices for doing that, how do you reduce risk, lots of different things, very specific examples on certain commodities as well as giving detention notices, okay? So this is really where CBP is going and really an area for all of us to truly understand, so right around the right there.

Before, it was really supplier certifications, high-level due diligence. And now it's really getting into full supply chain mapping, many tiers, many layers, where all those components coming from, where were those components made? That's where all of this is headed. So I just wanted to put in here a tangible thing. First of all, please look at this guide. But secondly, where do you start with all of this? And many of you are already on this journey. But at a minimum, please read this and start looking for your gaps.

But then the next thing we're seeing because a lot of this traceability stuff is also coming through the request that we're seeing in current CF-28, CF-29. So that's when customs send you a formal request.

So really looking at that and saying, "Hey, if I conducted a mock audit, could I get these documents?" And these documents are referenced in this guide. Could I go out to my top supplier for my top product and do that. Don't like overwhelm yourself to start with one item and try to trace it from raw material all the way to finished good.

Where do things break? Who do you mean to be talking to? And as you're doing this activity, can you be building yourself a playbook because this is what it's all going towards. And then best, what customs is clearly getting to is how do you do this on a regular basis? How is it repeatable? How could you pull together one of these, which is honestly what importers are being asked to do with their CF-28 and CF-29 now. Can you do that within 30 days? Can you put together a good response? And a good response is appendix C. They're telling you, you have to tell the story. Just sending over bankers' boxes worth of documents is not the way to solve this problem. It's really can you tell customs a cohesive story about your product, where it was sourced from, how did it move and how did it eventually get here, okay?

So please look at that in all of your spare time. So we tried to put together and we kind of recleaned up all of this in terms of what are your actual takeaways from this whole [indiscernible] . First of all, many of you, I'm sure, are very excited for IEEPA Phase 2. So as Ted said, that's coming very soon at the end of June.

So do you have those queued up? Do you know which entries those are? And are you ready to go on those? Section 122, we don't know how that's going to sort out, but keeping your eye on that and watching it move through the legal system, I think, is very important.

Please read what Brenda talked about, the executive order for strengthening customs enforcement. I do this as well. Please use AI to analyze that document and help give you tangible examples, but nothing takes the place of just reading and really trying to see what customs is doing and what they're moving towards, not customs, what the administration is doing and what they're attacking customs with. So much of this still comes back to find compliance fundamentals, right? If you don't have the right HTS, the right origin, the right valuation, you're really building, of course, this whole trade remedy trade change on a very shaky foundation.

So is there a way that you can continue to strengthen those and feel really good about those for your company? Making sure that you have some basic auditing or hopefully very cool audits in place to make sure what your broker is declaring is correct. And then as this guide I just mentioned, please look through the appendix, see the examples, see the documents that customs is expecting you to collect, okay?

Bonds, there were some questions in the question and answer, and bonds are just going to become a bigger and bigger conversation. Many of you are being faced with really trying to dig deep to get collateral and even fulfill your bonds. That's a major risk or a thing that many of your companies have not maybe had to talk about so explicitly. With the strength in customs enforcement, bonds are even more front and center. So really thinking that through understanding, a, do you know how saturated your bond is, but then what does that look like from a contingency plan? Do the right people at your company know that that's even a risk factor? And when is your bond coming up? And will your bond provider potentially require more collateral than you've ever had to provide before.

Over on the right is all of those USTR comment periods Brenda highlighted, there are so many. And I encourage you, even if you're like, I'm a company that doesn't comment, that's fine. Go be a company that reads and pays attention to the comments because there's a lot out there. And it is an opportunity. It's not just to make comments, you can also comment on comments. So it's almost like its own social media out there, and you can see what people are thinking about and what's being presented.

We, as a trade community, don't have an opportunity to have a very loud voice, it feels like sometimes. This is one of the ways that you can exercise that. To whatever extent it works out is a different story, but this is where that engagement is honestly happening right now on a large sense. Of course, there's government affairs and lots of other things behind the scenes, but this is probably the most public forum that we're seeing. So with that said, of course, this is accredited. We reached to the end. All of you now deserve one whole credit for LCB credits. So Nicole, any final words from you?

No. I just want to thank everyone for joining us. I know we're right at the hour here, so we'll be respectful of time. And if you have any questions or have any trouble getting the material, expect that to come out in about 2 hours from now, reach out to any of us, and we will follow up with the questions that came in that we were not able to answer. Thanks again, and take care. See you next time.

Thank you, everybody.

Bye-bye.

Bye.

[Audio Gap]

Now I am excited to introduce the speaker who will be presenting today, Melissa Taylor. So Melissa is Onyx's Director of Geopolitical Research. She oversees the delivery of geopolitical and policy analysis at Onyx, so providing clients with actionable insights to navigate changing world. Her work in risk advisory and analysis for multinationals at the intersection of geopolitics and supply chains has spanned over 15 years, and she holds a Masters in supply chain, transportation and logistics from the University of Washington.

So with that, over to you, Melissa.

[Audio Gap] a little bit of an update on the energy crisis, but I'm really going to zoom in on two of the key issues that we discussed really in our larger outlook. So this is the January 2026 outlook. And essentially, what it's highlighting is that EU-Russia is likely to continue to escalate and there's a rising risk of clashes. Now that's absolutely kind of played out. We are seeing escalation in the Ukraine-Russia engagement, we're seeing Europe more directly involved. And we are seeing the risk to Russia continue to grow. And at this point, there's kind of -- it's in a must get worse to get better kind of place. There's some real risk to the Russian position, particularly in Crimea, and there is increasingly signs that we may see some de-escalation on the horizon.

When we look at the EU and U.S., now this one is a little less clear. So we had a very high risk for the EU-U.S. relationship. We've seen the U.S. really engaged in Venezuela and Iran. And that's really kind of kept much of this down to a minimum. We are seeing the United States focus on the EU a little bit more in the last few weeks as we see, for example, a threat of 25% on EU autos coming out of the attempt to pass the legislation to actually pursue the U.S.-EU trade agreement. And we also have seen more recently, the U.S. threatening to put, I believe it was 100% tariffs on some French goods just yesterday.

And so we're seeing a lot more pressure from the U.S. just even in the last month or so. But so far, this has been a relatively calm period for the relationship since Trump entered office. I do believe that the EU and U.S. are likely to continue to see escalation. And I do think that by the end of the year, this kind of high-risk outlook will come to fruition.

When we look at the EU and China, we had risk as relatively low, medium, I suppose. Ultimately, the issue for the EU is that China is simply a third front that it must face and nothing has really changed there. So we're going to talk today about really focusing in on our outlook for EU-China. Some of the reasons we think that the EU is not in a very good position to pursue the kind of trade policies that have been discussed in the last few weeks within Europe.

And then we see the EU emerging markets. The EU is continuing to pursue a diversification strategy. Again, this is -- so we've had a couple of different discussions around this, but really, the key takeaway is that this is a really important and a significant trend for the EU, and it's something that they must pursue in order to grow their export markets, but it is a long-term trend, and it's not something that is going to really move the bottom line of economies, right? So this is, at a macro level, not something that's going to really do what the EU is hoping to do in the short term.

We have the U.S.-China relationship, and we had this at about a medium risk. And so far, that's kind of played out. We've seen the United States and China and a bit of a detente, and essentially, both sides, trying to take a step back and create leverage against each other and find those ways that they can continue the competitive struggle more quietly.

And then we didn't have on our bingo card the energy crisis. We saw the United States take action on Iran and the Strait of Hormuz close. Now we did see on Sunday that the U.S. President has announced that an agreement has been reached and that signature should be Friday, and we will see exactly how that plays out. Our base forecast is simply that these -- reaching a truly substantive deal that handles all of the various issues and allows the Strait to remain open permanently from here is low likelihood. So it's not impossible, but we do continue to see the Strait of Hormuz at risk and energy infrastructure in the region at risk. So this continues to be a key risk for the EU.

So that's kind of the overall landscape. I think I want to talk a little bit about the energy crisis in particular and its impacts on the EU, and then we'll turn to EU-China.

So when we think about what we're seeing in terms of impacts coming out of the energy crisis, Europe is really of the three main economic groupings, the U.S., China, Europe. Europe is really facing the greatest pressure from the energy crisis. This is for a couple of reasons. The U.S. has a lot less energy exposure than Europe does. China has built up significant reserves in order to deploy for this particular situation. Europe, on the other hand, has, in many ways, not been able to build those types of reserves and is still very much open to the global marketplace, and so is buying much of what it needs on the spot market and absolutely has some key risks in its ability to particularly get refined fuels that traditionally brings from the Middle East.

So what we see is that the EU is particularly impacted by the energy crisis and its likely impact on global growth. Whereas the United States sees a 2-point potential loss, we see more like a 7-point out of Europe. So this is something that Europe can attempt to counter with fiscal expansion. So Germany has definitely discussed expanding its investment. If we think about kind of how you think about macroeconomics, there's trade, there's investment and consumption. And really, Europe has found itself in a position of really needing to expand its investment at a time when it can't really expand its trade, it can't necessarily expand its consumption. So we see Europe really turning to this kind of investment-focused concern.

One of the things that we highlighted in the previous webinar that I just wanted to update everyone on as we're thinking about the energy crisis and potential impacts on Europe, I think it's important to keep in mind that natural gas storage is really a central operating concern for a lot of companies in Europe. So when we think about what could drive up costs in the already difficult environment that is Europe where we have really rising wages, rising overall cost to companies operating in the region. This kind of concern about natural gas storage is one of the top issues in terms of potential impacts on the European economy.

What we've seen is actually we've seen a little bit more ability to store natural gas than we were concerned about even just a month ago, which is great news. We're seeing that Europe is now at about its historic average for where it's kind of delta between what it draws, it's maximum during the year and it's minimum. And so we see that there's less likelihood of severe crunch, but Europe continues to be at risk, especially as we see this Hormuz crisis potentially continue to draw out as is our base case.

Now I want to spend the majority of time on kind of this EU-China trade confrontation, and place it within the broader look that we have and give a sense for what our outlook is, what some of the risks are, and keeping in mind that we may see we have a very large potential impact if we do see EU continue down the road that it's on for a trade confrontation.

So what we have is the EU essentially creating a series of tools that may be relevant to Chinese investment and it might impact overall ability of Chinese firms to operate within the EU. So the Industrial Accelerator Act. It's really meant to boost demand for EU goods and -- but at the same time, really places a lot more burdens on companies to understand their supply chains and to not necessarily rely on China as much. It's really -- while it doesn't name China, it is fairly significantly and clearly geared towards China. But this is a tool that wouldn't be ready until mid-2027, much like the Cybersecurity Act, which would not be ready until early 2027. So we have a gap here in terms of timing. We have a lot of interest from the EU. There are meetings going on this week about how to approach the Chinese issue of essentially what some call, overcapacity essentially of Chinese goods entering the European market at an even greater pace than we've seen in the past.

So as they're trying to deal with this, we do have some potential tools, but they take real time to develop. We do have the Foreign Subsidies Regulation, which is in effect and the first investigations are underway, but this is just one of many. There are also the traditional tools that Europe has brought to the table like safeguards that are absolutely can be deployed, but have faced a lot of criticism simply because they are kind of a whack-a-mole game, right? The EU will take a few months to identify something that's coming in and potentially causing issues that's maybe underpriced and then build the evidence and take action. It's still risk retaliation from China. And ultimately, there's still significant damage to companies within the EU.

And so there's a lot of criticism essentially of what's currently in place, and there's also this time gap that we have for the new tools that are kind of coming online. We do have also the -- a series of tools that is often referred to as European bazooka, the anticompetitive tools. These are a possibility, but again, these very much risk retaliation from China.

What we've seen so far is the EU really focus on these surgical tools rather than blunt tools in order to keep that retaliation to a minimum. And so the question now is, does the EU take the chance? Does the EU take a chance on protectionist policies, broader policies, more politically driven policies, rather than necessarily data-driven policies, which always happens at a lag, or does the EU potentially risk degradation of its industrial base as the European Council is currently warning and continues to kind of push the EU to a more focused effort to prevent Chinese companies and goods from entering the EU.

Right now, what we see is the EU is very much engaged in this conversation. And China is very much engaged in the conversation, essentially pushing back and saying, as long as the EU -- if the EU takes these actions, there will be a response, and they've been highly specific about what they actually plan to do and what that could look like. So we're seeing the EU essentially come to a very important crossroads as it's trying to make decisions about how it treats its industries.

And so when we think about what this might look like moving ahead, I think we have a best case, a moderate case and a worst case for the EU. The EU could see a rebalancing, right? So let's say that the EU uses these tools. We see some true protection of European industry. There's not significant transshipment to other locations that is able to kind of penetrate the European market, and the EU maintains its industries and moderately grows those domestic industries, but at the cost of near-term inflation. And with the hope that the industries become more efficient over time, which would kind of return them to more normal levels of inflation.

This is, unfortunately, a low likelihood outcome, just simply because of the labor and energy costs that are already quite high within Europe. We have about a 5% to 10% premium on goods produced in Europe versus the U.S., and that's before you take tariffs into account just because of the labor, energy costs, things along those lines. So there's that key risk, there's also this concern about Chinese inputs. So while the EU is continuing to try and build levers, it can use vis-a-vis China. China already has significant levers. And importantly, these are levers that operate pretty quickly. So we've seen with rare earth restrictions that China has been able to prevent imports within -- really start impacting companies within weeks. And we would expect the same thing should we see Europe try and bring some of these tools to bear.

And so then there's this kind of question of, if China doesn't respond, right? If we don't necessarily see a reaction of Chinese instruments like in try and see the rare earth exports restricted, see companies put into kind of this conflict of laws position, right? We see China is likely to be able to find ways to transship its products. It's unlikely that the EU could fully prevent that even with its kind of efforts to adjust how much data it's getting and how much information it's receiving from companies. For one thing, that will take some time for most companies to kind of be prepared to do that, but we also, in the short, medium term, expect transshipment to increase should we see these tools go into place.

So even without retaliation from China, we see the EU really in a position where it endangers its push to maintain the global trading order, right? The EU, in many ways, sees the global trading order as -- well, there's a debate within the EU. But the EU -- many within the EU see the global trading order as the key to kind of diversifying and derisking and continuing to maintain some of the export relationships that are so important to the EU, especially as the U.S. and China become less aligned on what the global trade system is all about.

So we see this risk of if we see Europe need to put up additional protections, it really puts that strategy at risk. Now some within the EU, don't want to see that strategy. They want to see -- we even had the trade chief essentially call for an adjustment to most favored nation rules, for example This would, in the way he envisions it essentially say, not everyone receives MFN, it's not a given, and we would say maybe countries like China don't necessarily receive MFN. Now this action would also face Chinese retaliation likely. But such discussions are kind of at the center of the future of the EU and its approach to trade.

Then we have a worst-case scenario. This is where we see full retaliation. We see high likelihood that China would be successful in kind of choking off key domestic manufacturers of key inputs. It would cause the EU to lose competitiveness. It would cause exports to fall. We would continue to expect to see even European exports to be impacted in all three of these scenarios, right? And so we see like some pretty significant impacts on the European economy in general, and there's still this risk of transshipment.

There is a wildcard here. The U.S. does decide to kind of add its heft to this grouping, we could potentially see more pressure exerted on China, but the U.S. would then open itself up as well to some of these retaliations, namely the rare earth, which, at the end of the day, again, really can hit these economies within mere weeks.

And so we see a U.S. that hasn't yet built out the tools that it wants to build out in order to face China. Now whether that will happen during the Trump administration or not is unclear, but it does seem to be the aim of the Trump administration. And there is an effort to really set up the United States to be able to take on China, and I don't think it's ready yet. Ultimately, even if the U.S. was ready, we would definitely see an attempt to extract some significant concessions from the EU.

So this just lays out kind of the strategic thought, right? I think it's important to remember that what I'm arguing here is that there's not much possibility that the EU comes away and fully wins a conflict with China, a trade conflict. And what that means ultimately is, it could mean that we don't see, for example, Germany, give its blessing for the EU to move ahead with this type of action. It could mean that we see European Union really giving a -- essentially trying to escalate to negotiate and seek that moment where they can bring China to the table. So far, if that's the goal, it's been unfortunately quite unsuccessful. We've seen China essentially reject efforts by the EU to have these discussions. China has been quite assertive in what it plans to do -- what the country plans to do in response should these measures go into place. And there's not much evidence that the EU can successfully escalate to negotiate where, for example, the United States has failed to do the same thing.

And so we see -- another possibility, though, is that we see the EU possibly nonetheless, going all-in on this approach. And as you can see here, some of the real risks are to the European economy, and we'll see responses from China that will absolutely impact the European economy. And the reason we might see that is essentially the strategic trap that EU has found itself in. As the EU is really struggling to make its way between the U.S. and Russia and China and now an energy crisis, there aren't many options that the EU simply has, can't engage all of everything that it needs in order to quickly resolve this crisis, this competitive crisis that it finds itself in. And we really need many years in order to even begin to think through or to even begin to make progress on this kind of Gordian knot of a problem.

Now it can, but it will take time. And unfortunately, I think what we're seeing right now, and again, this is my analytical opinion, I think what we're seeing right now is Europe that's eager to do something, but unfortunately, it just doesn't have many options on the table. So I continue to believe that we aren't going to see a true trade war between the two, but I'm not sure that we're going to see much come out of this that's beneficial for the EU either way.

I do want to just quickly point to what some of the key goods that may be impacted are within such a scenario if we did see the U.S. and EU -- or I'm sorry, the EU and China essentially kind of going tit-for-tat. When we think about Chinese exports, I think, for a long time, these were considered kind of low value added. I'm sure you've all heard the narrative that we are seeing -- over the last few years, we've seen a lot more finished goods, but also just higher value-added intermediate goods as well entering the European market. Now this remains a fairly small part of kind of European overall exports. So Europe imports, goods, intermediate goods from China. It builds it into its own goods and then exports those out. It remains a fairly small portion of that. But it is increasingly important that we see competition on kind of that intermediate good range. And that's one of the places where I think we're seeing the most kind of political response, right?

However, we're also seeing China move up the value chain in consumer goods. So we have automotives, which are absolutely threatened in this current round of exports from the Chinese. Essentially, what we're seeing is German companies trapped in this difficult position of relying heavily on the Chinese market while also knowing that the more that we see Chinese goods enter the European market, the less likely the EU is going to be able to respond effectively.

And so we have companies like VW essentially coming out and saying, there's no better -- it's not going to get better. There's not going to be a better time for the EU to take action. So again, we have this really divided look at the best way to approach this and a sense that whatever tools are available now are the tools that we should use. And so we see a lot of consumer goods producers really coming out and some of them pushing strongly for this, others urging extreme caution. And we also have this capital goods reliance. So when we think about where really these economies are entwined, particularly Germany and China, we see a really heavy trade in capital goods, which, again, is really at the heart of the manufacturing economy.

So that's an area where, should we see escalation, we will see pretty significant risk for companies operating and requiring those goods within the EU and even within China.

All right. So that was a very quick overview. Suryo, how is it going?

Yes. Well, thanks a lot, Melissa. So this -- I mean, those are excellent insights, especially for companies operating in Europe and also for those that are thinking about expanding to Europe as well, it's better to understand the current landscape of Europe at the moment, right? So we received a couple of different questions from the audience here. And then the first one is about the tightening import quotas. So how will the EU's tightening import quotas and higher tariffs impact non-EU steel exporters? So this is specifically related to steel exports.

Absolutely. So I would say that, don't take my word on this as expert opinion. But as I understand it, the EU is trying to find ways to really prioritize goods from countries that it is -- it considers playing by the market rules. And so we do see Europe making that effort and attempting to increase goods coming from those economies. But when we think about many of the places that the EU is importing from, whether we're thinking about kind of the larger economies, right, which may be prioritized or the smaller economies like Indonesia, that type of economy maybe is at more of a risk, right, because it is kind of in this middle ground where the United States, for instance, claims that Indonesia is dumping its steel production into the United States.

So we have countries like that at much higher risk, in my opinion.

Okay. That's -- yes, that's totally understandable. I think the next one is with respect to the trade diversification effort that the EU is currently undertaking, right? So as we know that the trade with the U.S. is disrupted at the moment. So now the EU is trying to expand their export market to the other countries by signing more free trade agreements, right? So what's the progress on this? Are they signing more FTAs with more countries? And also, I want to ask about this, as you -- as we know -- we also know that the EU has like a slew of strict regulations, right, like CBAM or -- and CSRD, or Corporate Sustainability Reporting Directives. How those strict regulations affect this trade diversification effort?

Yes, absolutely. So I think what we're seeing is primarily successful efforts to sign free trade agreements, right? And there's a degree to which just as you're kind of pointing to, there are these issues that have traditionally delayed a lot of those free trade agreements in the past. And I think we're seeing some sidestepping around many of those, right? If we think about the EU and India, there are, at heart, some serious domestic political issues that have prevented that agreement until now. And largely, what we're seeing is a sidestepping at least from what I've seen, Suryo. I'd be curious if you have another opinion on that, though.

Yes. I mean, some Southeast Asian countries, for example, right, because right now, it's been quite a surprising progress. I can say, the previous time when I was still working with ASEAN, it was really difficult to conclude the agreement with the EU, but right now, they're willing to move things forward really quickly. But the problem is not -- I mean, yes, having a 0 tariff is one thing. But another challenge, key challenge is to comply with those strict regulations, right?

Yes.

Because, yes, I mean, complaints are coming from, especially small and medium enterprises, that want to export, I mean, from Southeast Asian countries that want export to the EU, they're having difficulties complying with those regulations while the EU companies exporting to Southeast Asian markets, they're having easier time exporting their goods, right? So those small and medium enterprises are asking about the fairness, kind of the "fairness" of this free trade agreement, right?

And I think ultimately, what we're seeing is some pullback from the EU on regulation, right? We've seen a really pretty concerted effort in these omnibus bills to pull back on EU regulation. I'm seeing pretty mixed reviews of the likely success of this. And I would certainly say that, that doesn't eliminate the fact that the EU is going to remain a highly regulated market, right? And it doesn't necessarily change those barriers to entry. And I do think that the EU, in many ways, view those as -- well, it could view those as existing protections that don't necessarily face the same kind of retaliation that you see if you bring in other types of trade policy.

Yes. Yes. That's -- yes, that's really true, though. So another question I got is about remilitarization. So does the remilitarization have a significant impact in the EU's -- in reindustrialization efforts and trade policy decisions?

So I think the answer is yes. But my sense of the scale is that this is something that starts quite slowly, and it takes quite a bit of time. So as with most of the other supply chains in the EU, it's closely intertwined with one of the major other powers that's trying to derisk from.

So when you talk about the United States, defense system, right? The EU is actively trying to create an alternative and actively trying to build that out with fits and starts, but is absolutely running into barriers because it simply can't fully move away from the United States defense system. That's both due to the supply chain and the large dependence that Europe has had for some time. It's also due to pressure from the United States, which brings to bear this focus on exports of U.S. goods, right? And U.S. military goods are absolutely one of those. And it's also a matter of the way they operate together. So when you're in the NATO operating system, it is simply easier to all be using similar equipment. That's not exactly how it works in practice, but it takes quite a bit of effort to be both a part of the NATO system and not necessarily use U.S. goods.

Follow-up question on that, Melissa, how about the fiscal space though? Do they have enough fiscal space to do both remilitarization and reindustrialization at the same time?

So I think that's ultimately the question. So like the key issue here is, again, there's disagreement about how to -- what to pursue here. But for those who want to essentially really focus on competition, there is an effort to -- I think they're actually having the budget discussion today, right? So there are those who want to continue the basic functioning of the EU. The EU has always sought to be more cohesive by subsidizing certain industries, right? There's a lot of money that goes to agriculture and that essentially goes into cohesion, right? This idea of you need to bring in the periphery and ensure that everyone is on a reasonably even playing field.

We're seeing this play out kind of live right now as Cyprus is pushing for less competition funding and maintaining much of that current funding that goes towards cohesion. And we're seeing some of the foundational players essentially saying, no, we need to turn to competition and investment. And that really has to be our key driver because when we look at this trade diversification, that's a long-term trend, right? And we have -- that's a long-term trend and ultimately doesn't necessarily -- there's not necessarily a clear export market to go to, right? There's no clear consumer. It's just kind of a diverse set of countries.

And then we have internal consumption, which isn't really driving growth in the EU. And then we turn to investment. And investment is really, it's where the EU could potentially kind of break out of this. And it's really focusing on like tech for a lot of that investment and hoping that will kind of push it along and push it out of this -- its current -- some of its current debt and some of its current malaise. But ultimately, it's not clear that the EU is all going to get kind of behind this kind of push. We're continuing to see some countries really push for multitracks. So that's having different approaches kind of outside of the EU system in many ways, which is a danger to coherence in the EU.

So we have a host of different abilities to fund that investment, a host of different views on whether they should. And I think ultimately, what we're seeing is a question of what is the future of the EU really look like? Is it -- does it take on some of those traditional ways in which it approached the movement of funds, right, from the center to the periphery that fundamentally kind of many people believe keep the EU together? Or does it take on some of these more competitive approaches? And it also has these defense issues at the same time, it also has fundamental questions about its energy security and critical minerals. And so we have -- we just have a litany of things that the EU has to take on. And I don't have an answer to, can the EU fully do it, I'm so sorry with that, but I mean, it's clear that it's an incredible challenge. And it's not -- there's not agreement within the EU about how to do it.

Okay. So that was the last question for today. So thank you, Melissa, for the excellent insights on the EU policy landscape. And then for everyone, the presentation will be available to be downloaded once you completed the brief survey that we are going to send in a brief moment. Thank you very much for attending this webinar and then enjoy your day.

Thanks, Suryo. Thanks, everybody.

Hello, and welcome, everyone, to Onyx Webinar today. My name is Suryo Nugroho, and I'm a Senior Geopolitical Analyst here at Onyx.

So we offer a different webinar topic each month. And for today's webinar, we will unpack how the EU is navigating a convergence of geopolitical pressures ranging from escalating, Russia-Ukraine and Iran conflicts to rising tensions with China and policy volatility in the U.S. And also what this means for Europe's rapidly deteriorating operating environment.

Before we begin with the content there are a few administrative details to cover. So we will have about 30 minutes of content to share, and we will save the last 15 minutes for the Q&A session. You can submit your questions in the Q&A box, and we will do our best to address your questions during the Q&A session. A copy of the presentation will be available later. So to receive a copy of the presentation, please fill out the brief survey that will be e-mailed to you shortly after this webinar. Please also visit our website and subscribe to receive information on Onyx future webinars.

We would also like to invite you to explore our latest insights on LinkedIn and the Vantage Point Blog, featuring a mix of short updates and in-depth articles. Please use the QR codes at the top to follow us on LinkedIn as well as to subscribe to our Vantage Point Blog.

So a brief introduction for those of you who are not familiar with Onyx. So Onyx is a consulting division of Expeditors who helps clients build more efficient and resilient supply chains. So we are uniquely positioned to help our clients in identifying geopolitical, regulatory, economic and operational disruptors, which then can be translated into a more forward-looking and resilient supply chain strategy. All of these are done through advisory engagements and insights and projects are tailored to individual client needs, either as one-off projects or ongoing retainers.

These are Onyx service lines. So in a nutshell, our service offerings cover various areas within supply chain. The first one is planning and strategy, trade and compliance, sourcing and manufacturing, and we also cover transportation, logistics and distribution. So please contact us if you have any project or need where our advisory expertise can assist.

Now I am excited to introduce the speaker who will be presenting today, Melissa Taylor. So Melissa is Onyx's Director of Geopolitical Research. She oversees the delivery of geopolitical and policy analysis at Onyx, so providing clients with actionable insights to navigate changing world. Her work in risk advisory and analysis for multinationals at the intersection of geopolitics and supply chains has spanned over 15 years, and she holds a Masters in supply chain, transportation and logistics from the University of Washington.

So with that, over to you, Melissa.

All right. Thank you, Suryo. I appreciate it. Let's dive right in. So today, we're going to be talking about Europe and basically its position in the global system. So we've had a few updates on Europe in the last 6 months. So we had a Europe-specific outlook that we had beginning in January. And then we've recently done an update that you can go back and watch that goes through some of the risk to Europe in the energy crisis.

I'm going to give a little bit of an update on the energy crisis, but I'm really going to zoom in on two of the key issues that we discussed really in our larger outlook. So this is the January 2026 outlook. And essentially, what it's highlighting is that EU-Russia is likely to continue to escalate and there's a rising risk of clashes. Now that's absolutely kind of played out. We are seeing escalation in the Ukraine-Russia engagement, we're seeing Europe more directly involved. And we are seeing the risk to Russia continue to grow. And at this point, there's kind of -- it's in a must get worse to get better kind of place. There's some real risk to the Russian position, particularly in Crimea, and there is increasingly signs that we may see some de-escalation on the horizon.

When we look at the EU and U.S., now this one is a little less clear. So we had a very high risk for the EU-U.S. relationship. We've seen the U.S. really engaged in Venezuela and Iran. And that's really kind of kept much of this down to a minimum. We are seeing the United States focus on the EU a little bit more in the last few weeks as we see, for example, a threat of 25% on EU autos coming out of the attempt to pass the legislation to actually pursue the U.S.-EU trade agreement. And we also have seen more recently, the U.S. threatening to put, I believe it was 100% tariffs on some French goods just yesterday.

And so we're seeing a lot more pressure from the U.S. just even in the last month or so. But so far, this has been a relatively calm period for the relationship since Trump entered office. I do believe that the EU and U.S. are likely to continue to see escalation. And I do think that by the end of the year, this kind of high-risk outlook will come to fruition.

When we look at the EU and China, we had risk as relatively low, medium, I suppose. Ultimately, the issue for the EU is that China is simply a third front that it must face and nothing has really changed there. So we're going to talk today about really focusing in on our outlook for EU-China. Some of the reasons we think that the EU is not in a very good position to pursue the kind of trade policies that have been discussed in the last few weeks within Europe.

And then we see the EU emerging markets. The EU is continuing to pursue a diversification strategy. Again, this is -- so we've had a couple of different discussions around this, but really, the key takeaway is that this is a really important and a significant trend for the EU, and it's something that they must pursue in order to grow their export markets, but it is a long-term trend, and it's not something that is going to really move the bottom line of economies, right? So this is, at a macro level, not something that's going to really do what the EU is hoping to do in the short term.

We have the U.S.-China relationship, and we had this at about a medium risk. And so far, that's kind of played out. We've seen the United States and China and a bit of a détente, and essentially, both sides, trying to take a step back and create leverage against each other and find those ways that they can continue the competitive struggle more quietly.

And then we didn't have on our bingo card the energy crisis. We saw the United States take action on Iran and the Strait of Hormuz close. Now we did see on Sunday that the U.S. President has announced that an agreement has been reached and that signature should be Friday, and we will see exactly how that plays out. Our base forecast is simply that these -- reaching a truly substantive deal that handles all of the various issues and allows the Strait to remain open permanently from here is low likelihood. So it's not impossible, but we do continue to see the Strait of Hormuz at risk and energy infrastructure in the region at risk. So this continues to be a key risk for the EU.

So that's kind of the overall landscape. I think I want to talk a little bit about the energy crisis in particular and its impacts on the EU, and then we'll turn to EU-China.

So when we think about what we're seeing in terms of impacts coming out of the energy crisis, Europe is really of the three main economic groupings, the U.S., China, Europe. Europe is really facing the greatest pressure from the energy crisis. This is for a couple of reasons. The U.S. has a lot less energy exposure than Europe does. China has built up significant reserves in order to deploy for this particular situation. Europe, on the other hand, has, in many ways, not been able to build those types of reserves and is still very much open to the global marketplace, and so is buying much of what it needs on the spot market and absolutely has some key risks in its ability to particularly get refined fuels that traditionally brings from the Middle East.

So what we see is that the EU is particularly impacted by the energy crisis and its likely impact on global growth. Whereas the United States sees a 2-point potential loss, we see more like a 7-point out of Europe. So this is something that Europe can attempt to counter with fiscal expansion. So Germany has definitely discussed expanding its investment. If we think about kind of how you think about macroeconomics, there's trade, there's investment and consumption. And really, Europe has found itself in a position of really needing to expand its investment at a time when it can't really expand its trade, it can't necessarily expand its consumption. So we see Europe really turning to this kind of investment-focused concern.

One of the things that we highlighted in the previous webinar that I just wanted to update everyone on as we're thinking about the energy crisis and potential impacts on Europe, I think it's important to keep in mind that natural gas storage is really a central operating concern for a lot of companies in Europe. So when we think about what could drive up costs in the already difficult environment that is Europe where we have really rising wages, rising overall cost to companies operating in the region. This kind of concern about natural gas storage is one of the top issues in terms of potential impacts on the European economy.

What we've seen is actually we've seen a little bit more ability to store natural gas than we were concerned about even just a month ago, which is great news. We're seeing that Europe is now at about its historic average for where it's kind of delta between what it draws, it's maximum during the year and it's minimum. And so we see that there's less likelihood of severe crunch, but Europe continues to be at risk, especially as we see this Hormuz crisis potentially continue to draw out as is our base case.

Now I want to spend the majority of time on kind of this EU-China trade confrontation, and place it within the broader look that we have and give a sense for what our outlook is, what some of the risks are, and keeping in mind that we may see we have a very large potential impact if we do see EU continue down the road that it's on for a trade confrontation.

So what we have is the EU essentially creating a series of tools that may be relevant to Chinese investment and it might impact overall ability of Chinese firms to operate within the EU. So the Industrial Accelerator Act. It's really meant to boost demand for EU goods and -- but at the same time, really places a lot more burdens on companies to understand their supply chains and to not necessarily rely on China as much. It's really -- while it doesn't name China, it is fairly significantly and clearly geared towards China. But this is a tool that wouldn't be ready until mid-2027, much like the Cybersecurity Act, which would not be ready until early 2027. So we have a gap here in terms of timing. We have a lot of interest from the EU. There are meetings going on this week about how to approach the Chinese issue of essentially what some call, overcapacity essentially of Chinese goods entering the European market at an even greater pace than we've seen in the past.

So as they're trying to deal with this, we do have some potential tools, but they take real time to develop. We do have the Foreign Subsidies Regulation, which is in effect and the first investigations are underway, but this is just one of many. There are also the traditional tools that Europe has brought to the table like safeguards that are absolutely can be deployed, but have faced a lot of criticism simply because they are kind of a whack-a-mole game, right? The EU will take a few months to identify something that's coming in and potentially causing issues that's maybe underpriced and then build the evidence and take action. It's still risk retaliation from China. And ultimately, there's still significant damage to companies within the EU.

And so there's a lot of criticism essentially of what's currently in place, and there's also this time gap that we have for the new tools that are kind of coming online. We do have also the -- a series of tools that is often referred to as European bazooka, the anticompetitive tools. These are a possibility, but again, these very much risk retaliation from China.

What we've seen so far is the EU really focus on these surgical tools rather than blunt tools in order to keep that retaliation to a minimum. And so the question now is, does the EU take the chance? Does the EU take a chance on protectionist policies, broader policies, more politically driven policies, rather than necessarily data-driven policies, which always happens at a lag, or does the EU potentially risk degradation of its industrial base as the European Council is currently warning and continues to kind of push the EU to a more focused effort to prevent Chinese companies and goods from entering the EU.

Right now, what we see is the EU is very much engaged in this conversation. And China is very much engaged in the conversation, essentially pushing back and saying, as long as the EU -- if the EU takes these actions, there will be a response, and they've been highly specific about what they actually plan to do and what that could look like. So we're seeing the EU essentially come to a very important crossroads as it's trying to make decisions about how it treats its industries.

And so when we think about what this might look like moving ahead, I think we have a best case, a moderate case and a worst case for the EU. The EU could see a rebalancing, right? So let's say that the EU uses these tools. We see some true protection of European industry. There's not significant transshipment to other locations that is able to kind of penetrate the European market, and the EU maintains its industries and moderately grows those domestic industries, but at the cost of near-term inflation. And with the hope that the industries become more efficient over time, which would kind of return them to more normal levels of inflation.

This is, unfortunately, a low likelihood outcome, just simply because of the labor and energy costs that are already quite high within Europe. We have about a 5% to 10% premium on goods produced in Europe versus the U.S., and that's before you take tariffs into account just because of the labor, energy costs, things along those lines. So there's that key risk, there's also this concern about Chinese inputs. So while the EU is continuing to try and build levers, it can use vis-a-vis China. China already has significant levers. And importantly, these are levers that operate pretty quickly. So we've seen with rare earth restrictions that China has been able to prevent imports within -- really start impacting companies within weeks. And we would expect the same thing should we see Europe try and bring some of these tools to bear.

And so then there's this kind of question of, if China doesn't respond, right? If we don't necessarily see a reaction of Chinese instruments like in try and see the rare earth exports restricted, see companies put into kind of this conflict of laws position, right? We see China is likely to be able to find ways to transship its products. It's unlikely that the EU could fully prevent that even with its kind of efforts to adjust how much data it's getting and how much information it's receiving from companies. For one thing, that will take some time for most companies to kind of be prepared to do that, but we also, in the short, medium term, expect transshipment to increase should we see these tools go into place.

So even without retaliation from China, we see the EU really in a position where it endangers its push to maintain the global trading order, right? The EU, in many ways, sees the global trading order as -- well, there's a debate within the EU. But the EU -- many within the EU see the global trading order as the key to kind of diversifying and derisking and continuing to maintain some of the export relationships that are so important to the EU, especially as the U.S. and China become less aligned on what the global trade system is all about.

So we see this risk of if we see Europe need to put up additional protections, it really puts that strategy at risk. Now some within the EU, don't want to see that strategy. They want to see -- we even had the trade chief essentially call for an adjustment to most favored nation rules, for example This would, in the way he envisions it essentially say, not everyone receives MFN, it's not a given, and we would say maybe countries like China don't necessarily receive MFN. Now this action would also face Chinese retaliation likely. But such discussions are kind of at the center of the future of the EU and its approach to trade.

Then we have a worst-case scenario. This is where we see full retaliation. We see high likelihood that China would be successful in kind of choking off key domestic manufacturers of key inputs. It would cause the EU to lose competitiveness. It would cause exports to fall. We would continue to expect to see even European exports to be impacted in all three of these scenarios, right? And so we see like some pretty significant impacts on the European economy in general, and there's still this risk of transshipment.

There is a wildcard here. The U.S. does decide to kind of add its heft to this grouping, we could potentially see more pressure exerted on China, but the U.S. would then open itself up as well to some of these retaliations, namely the rare earth, which, at the end of the day, again, really can hit these economies within mere weeks.

And so we see a U.S. that hasn't yet built out the tools that it wants to build out in order to face China. Now whether that will happen during the Trump administration or not is unclear, but it does seem to be the aim of the Trump administration. And there is an effort to really set up the United States to be able to take on China, and I don't think it's ready yet. Ultimately, even if the U.S. was ready, we would definitely see an attempt to extract some significant concessions from the EU.

So this just lays out kind of the strategic thought, right? I think it's important to remember that what I'm arguing here is that there's not much possibility that the EU comes away and fully wins a conflict with China, a trade conflict. And what that means ultimately is, it could mean that we don't see, for example, Germany, give its blessing for the EU to move ahead with this type of action. It could mean that we see European Union really giving a -- essentially trying to escalate to negotiate and seek that moment where they can bring China to the table. So far, if that's the goal, it's been unfortunately quite unsuccessful. We've seen China essentially reject efforts by the EU to have these discussions. China has been quite assertive in what it plans to do -- what the country plans to do in response should these measures go into place. And there's not much evidence that the EU can successfully escalate to negotiate where, for example, the United States has failed to do the same thing.

And so we see -- another possibility, though, is that we see the EU possibly nonetheless, going all-in on this approach. And as you can see here, some of the real risks are to the European economy, and we'll see responses from China that will absolutely impact the European economy. And the reason we might see that is essentially the strategic trap that EU has found itself in. As the EU is really struggling to make its way between the U.S. and Russia and China and now an energy crisis, there aren't many options that the EU simply has, can't engage all of everything that it needs in order to quickly resolve this crisis, this competitive crisis that it finds itself in. And we really need many years in order to even begin to think through or to even begin to make progress on this kind of Gordian knot of a problem.

Now it can, but it will take time. And unfortunately, I think what we're seeing right now, and again, this is my analytical opinion, I think what we're seeing right now is Europe that's eager to do something, but unfortunately, it just doesn't have many options on the table. So I continue to believe that we aren't going to see a true trade war between the two, but I'm not sure that we're going to see much come out of this that's beneficial for the EU either way.

I do want to just quickly point to what some of the key goods that may be impacted are within such a scenario if we did see the U.S. and EU -- or I'm sorry, the EU and China essentially kind of going tit-for-tat. When we think about Chinese exports, I think, for a long time, these were considered kind of low value added. I'm sure you've all heard the narrative that we are seeing -- over the last few years, we've seen a lot more finished goods, but also just higher value-added intermediate goods as well entering the European market. Now this remains a fairly small part of kind of European overall exports. So Europe imports, goods, intermediate goods from China. It builds it into its own goods and then exports those out. It remains a fairly small portion of that. But it is increasingly important that we see competition on kind of that intermediate good range. And that's one of the places where I think we're seeing the most kind of political response, right?

However, we're also seeing China move up the value chain in consumer goods. So we have automotives, which are absolutely threatened in this current round of exports from the Chinese. Essentially, what we're seeing is German companies trapped in this difficult position of relying heavily on the Chinese market while also knowing that the more that we see Chinese goods enter the European market, the less likely the EU is going to be able to respond effectively.

And so we have companies like VW essentially coming out and saying, there's no better -- it's not going to get better. There's not going to be a better time for the EU to take action. So again, we have this really divided look at the best way to approach this and a sense that whatever tools are available now are the tools that we should use. And so we see a lot of consumer goods producers really coming out and some of them pushing strongly for this, others urging extreme caution. And we also have this capital goods reliance. So when we think about where really these economies are entwined, particularly Germany and China, we see a really heavy trade in capital goods, which, again, is really at the heart of the manufacturing economy.

So that's an area where, should we see escalation, we will see pretty significant risk for companies operating and requiring those goods within the EU and even within China.

All right. So that was a very quick overview. Suryo, how is it going?

Yes. Well, thanks a lot, Melissa. So this -- I mean, those are excellent insights, especially for companies operating in Europe and also for those that are thinking about expanding to Europe as well, it's better to understand the current landscape of Europe at the moment, right? So we received a couple of different questions from the audience here. And then the first one is about the tightening import quotas. So how will the EU's tightening import quotas and higher tariffs impact non-EU steel exporters? So this is specifically related to steel exports.

Absolutely. So I would say that, don't take my word on this as expert opinion. But as I understand it, the EU is trying to find ways to really prioritize goods from countries that it is -- it considers playing by the market rules. And so we do see Europe making that effort and attempting to increase goods coming from those economies. But when we think about many of the places that the EU is importing from, whether we're thinking about kind of the larger economies, right, which may be prioritized or the smaller economies like Indonesia, that type of economy maybe is at more of a risk, right, because it is kind of in this middle ground where the United States, for instance, claims that Indonesia is dumping its steel production into the United States.

So we have countries like that at much higher risk, in my opinion.

Okay. That's -- yes, that's totally understandable. I think the next one is with respect to the trade diversification effort that the EU is currently undertaking, right? So as we know that the trade with the U.S. is disrupted at the moment. So now the EU is trying to expand their export market to the other countries by signing more free trade agreements, right? So what's the progress on this? Are they signing more FTAs with more countries? And also, I want to ask about this, as you -- as we know -- we also know that the EU has like a slew of strict regulations, right, like CBAM or -- and CSRD, or Corporate Sustainability Reporting Directives. How those strict regulations affect this trade diversification effort?

Yes, absolutely. So I think what we're seeing is primarily successful efforts to sign free trade agreements, right? And there's a degree to which just as you're kind of pointing to, there are these issues that have traditionally delayed a lot of those free trade agreements in the past. And I think we're seeing some sidestepping around many of those, right? If we think about the EU and India, there are, at heart, some serious domestic political issues that have prevented that agreement until now. And largely, what we're seeing is a sidestepping at least from what I've seen, Suryo. I'd be curious if you have another opinion on that, though.

Yes. I mean, some Southeast Asian countries, for example, right, because right now, it's been quite a surprising progress. I can say, the previous time when I was still working with ASEAN, it was really difficult to conclude the agreement with the EU, but right now, they're willing to move things forward really quickly. But the problem is not -- I mean, yes, having a 0 tariff is one thing. But another challenge, key challenge is to comply with those strict regulations, right?

Yes.

Because, yes, I mean, complaints are coming from, especially small and medium enterprises, that want to export, I mean, from Southeast Asian countries that want export to the EU, they're having difficulties complying with those regulations while the EU companies exporting to Southeast Asian markets, they're having easier time exporting their goods, right? So those small and medium enterprises are asking about the fairness, kind of the "fairness" of this free trade agreement, right?

And I think ultimately, what we're seeing is some pullback from the EU on regulation, right? We've seen a really pretty concerted effort in these omnibus bills to pull back on EU regulation. I'm seeing pretty mixed reviews of the likely success of this. And I would certainly say that, that doesn't eliminate the fact that the EU is going to remain a highly regulated market, right? And it doesn't necessarily change those barriers to entry. And I do think that the EU, in many ways, view those as -- well, it could view those as existing protections that don't necessarily face the same kind of retaliation that you see if you bring in other types of trade policy.

Yes. Yes. That's -- yes, that's really true, though. So another question I got is about remilitarization. So does the remilitarization have a significant impact in the EU's -- in reindustrialization efforts and trade policy decisions?

So I think the answer is yes. But my sense of the scale is that this is something that starts quite slowly, and it takes quite a bit of time. So as with most of the other supply chains in the EU, it's closely intertwined with one of the major other powers that's trying to derisk from.

So when you talk about the United States, defense system, right? The EU is actively trying to create an alternative and actively trying to build that out with fits and starts, but is absolutely running into barriers because it simply can't fully move away from the United States defense system. That's both due to the supply chain and the large dependence that Europe has had for some time. It's also due to pressure from the United States, which brings to bear this focus on exports of U.S. goods, right? And U.S. military goods are absolutely one of those. And it's also a matter of the way they operate together. So when you're in the NATO operating system, it is simply easier to all be using similar equipment. That's not exactly how it works in practice, but it takes quite a bit of effort to be both a part of the NATO system and not necessarily use U.S. goods.

Follow-up question on that, Melissa, how about the fiscal space though? Do they have enough fiscal space to do both remilitarization and reindustrialization at the same time?

So I think that's ultimately the question. So like the key issue here is, again, there's disagreement about how to -- what to pursue here. But for those who want to essentially really focus on competition, there is an effort to -- I think they're actually having the budget discussion today, right? So there are those who want to continue the basic functioning of the EU. The EU has always sought to be more cohesive by subsidizing certain industries, right? There's a lot of money that goes to agriculture and that essentially goes into cohesion, right? This idea of you need to bring in the periphery and ensure that everyone is on a reasonably even playing field.

We're seeing this play out kind of live right now as Cyprus is pushing for less competition funding and maintaining much of that current funding that goes towards cohesion. And we're seeing some of the foundational players essentially saying, no, we need to turn to competition and investment. And that really has to be our key driver because when we look at this trade diversification, that's a long-term trend, right? And we have -- that's a long-term trend and ultimately doesn't necessarily -- there's not necessarily a clear export market to go to, right? There's no clear consumer. It's just kind of a diverse set of countries.

And then we have internal consumption, which isn't really driving growth in the EU. And then we turn to investment. And investment is really, it's where the EU could potentially kind of break out of this. And it's really focusing on like tech for a lot of that investment and hoping that will kind of push it along and push it out of this -- its current -- some of its current debt and some of its current malaise. But ultimately, it's not clear that the EU is all going to get kind of behind this kind of push. We're continuing to see some countries really push for multitracks. So that's having different approaches kind of outside of the EU system in many ways, which is a danger to coherence in the EU.

So we have a host of different abilities to fund that investment, a host of different views on whether they should. And I think ultimately, what we're seeing is a question of what is the future of the EU really look like? Is it -- does it take on some of those traditional ways in which it approached the movement of funds, right, from the center to the periphery that fundamentally kind of many people believe keep the EU together? Or does it take on some of these more competitive approaches? And it also has these defense issues at the same time, it also has fundamental questions about its energy security and critical minerals. And so we have -- we just have a litany of things that the EU has to take on. And I don't have an answer to, can the EU fully do it, I'm so sorry with that, but I mean, it's clear that it's an incredible challenge. And it's not -- there's not agreement within the EU about how to do it.

Okay. So that was the last question for today. So thank you, Melissa, for the excellent insights on the EU policy landscape. And then for everyone, the presentation will be available to be downloaded once you completed the brief survey that we are going to send in a brief moment. Thank you very much for attending this webinar and then enjoy your day.

Thanks, Suryo. Thanks, everybody.

Hello. Good afternoon, everyone. Thank you so much for joining us. We are just hitting the top of the hour. So we are going to get started because if you've ever joined one of these Expeditors events before, you know we typically have quite a bit of content to cover, and today is no exception. So you are joining us for our trucking and transition webinar. We're going to focus today on what's changing in the U.S. trucking and honestly, North America market and why that matters to you and your business. So we're going to go into a little bit of housekeeping today.

My name, by the way, is Samantha Hurst. I'm the one you get the e-mails reminding you that you have signed up for this event. And if you have any questions in the background or technical difficulties, we're going to drop a few hints here in the chat in just a moment on some things we know people commonly have issues with like echoes of my voice, if you're hearing that, I'm very sorry. But we'll give you some hint on how to fix that.

And then we will go into introductions of our speakers. So Angie, you were right to go to that disclaimer. That's the first thing I want to talk about for everyone. Understand we are not legal experts. We cannot give you advice that should be relied upon from a legal business or financial decisions. We are here to give you information that will hopefully help you as you do make your own decisions about your supply chain and in that process. But we just ask you to understand that this is what it is. It's for informational purposes based on what we see both in public domain and just what we see in the market ourselves.

So now to the fun, if you've not joined one of our webinars before, first of all, welcome when we're so glad to have you here. These events will typically go about 45 to 50 minutes worth of content. As I mentioned we have a lot to cover. And then we're going to try to leave some time for questions at the end. Please understand that we are not going to be able to cover something that's hyper specific to your business or industry, but we're going to do our best to get your questions answered. So if you have a question that's more related to your specific business, please do drop that into the Q&A and just understand that we will connect you separately with the right Expeditors experts.

One of the questions we do always get, and we understand that hopefully, you'll want access to this content is how do I get the slides. So we will ask that you fill out a short feedback survey, and you will receive that via e-mail from myself within about 2 hours of today's event wrapping up. If you don't get the survey, we know sometimes people scan filters to block those because they come from a survey tool. If you don't get it, have no fear. We're going to get you the content. We want you to have that. We hope that you find it so valuable that you're itching to get it within an hour or 2. So -- that's how that works for us today.

I'm going to introduce our speakers, and then we will get started. So with us today, we have Angi Varga, she's our Director of Transcon for the Americas. A lot of times, I speed right through these introductions because on our other webinars, we've seen some of those people a lot. So in case you don't know Angie, she is a seasoned transportation expert, and she's been within the industry for about 30 years across all modes of domestic transportation. And she's had about 18 years with Expiors, where she's built honestly a great reputation for developing strategic initiatives and high-impact customer programs.

John Butler is our Senior Director of Ground Network Services, and he's going to explain a little bit about what that means in just a bit, if you don't already know. And he leads that ground transportation strategies as well as network operations. and has decades of experience with multiple logistics companies. We are fortunate enough to have had him on our team for some time now where he focuses on transcontinental transportation, network management and integrated logistics solutions.

And we also have with us [ Ty Goodin, ] and Ty is our Director of Security, Health and Safety also for the Americas. She also has 20 years of experience. She's been driving safety, security and operational excellence in this role. She leads regional programs that protect both our people, our assets and our operations. You will also learn that she oversees our CTPAP program as she has known for translating those complex security frameworks into scalable systems.

Finally, we have Gary Ernest, our Regional Manager of -- cross-border Solutions. So Gary is also about 30 years of industry. We've got a lot of expertise here in our panel today. He has been working for 25 years specializing in U.S., Canada cross-border operations and working through customs and border compliance as well as supply chain optimization. So you are in very good hands.

I'm going to go over the quick agenda and then pass it on to John to get started. So today, we're going to talk about market insights, those impacts on rates, regulation enforcement because there's certainly been a lot of regulation changes in the U.S. and North American trucking industry, freight security, cross-border and domestic air updates and then honestly, wrap it all up. What does this all mean for you all? And what can you take away from today's webinar? John, I hand it to you to get started.

Okay. Thanks, Samantha. Good morning or good afternoon, everybody, wherever you're at. As Samantha mentioned, I'm John Butler, Senior Director of Ground Network Services. So first place I'd just like to start is what is Ground Network Services. So you're looking at our map that internally, we have our own Expeditors. We have our own LTL network. It's an expedited time-definite network that supports cross-product consolidations coast-to-coast into Canada as well as into Mexico.

So our -- a lot of the areas that we'll focus on and touch on have to do with the activity and issues in the industry that we're seeing as it comes to impacting running our own operation, our own scheduled LTL network. and as well as the pickup and delivery components bolted on all of the ends of our operations vis-a-vis our different branches and hubs. And then finally, one other area that we focus on is trucking services. Just some high-level notes on our ground network and the map you're looking at behind the map, we're running about 12,000 to 15,000 truckloads a month in this network, servicing about 80 points on a daily basis and reaching to about 100 points through our pickup and delivery services every day. That is a very large network. It is -- we have 11 hubs.

We probably run, I would say, 60% of this is solo, probably about 40% of it is teams, but covering all aspects and all different types of equipment and modes, we certainly see all of the impacts -- all of the industry changes going on impacting our network somewhere. I'll skip a little bit pickup and delivery and just get into the truckload services.

For truckload services beyond, say, LTL, we support that here too, thousands of truckloads a month of all modes and all equipment types. So quite the experience and quite the exposure to what's going on in the marketplace. All right. Speaking of the marketplace, first place I kind of wanted to start talking about is what we've been seeing probably over the last year in terms of some of the macroeconomic or key performance indicators saying what way the market is going.

I think we all, as we sit here in June, know that things have gotten very, very tight. But why have they got tight and what to expect next? Well, let's go back some months ago. I pull out some of the like 9 or 10 here, the key performance indicators, and we'll go into a little bit of a detail on a couple of them. But I color coded these earlier and literally 4 or 5 of these things have been trending up for some months now. What it is, is, I think we've seen pretty good economic performance in the economy. Freight is either an industrial, a consumer or a government initiated. And on the industrial sectors, things have been very hot for several, several months.

If any of you are out there trying to buy flatbeds, you probably notice that market is tighter than any other market, and it's been tight for quite some time. I think from my point of view, flat beds, when they get busy, it isn't too long after that, where finished goods come out of it and vans get very, very busy. So -- but if we go into -- well, let's just take a look at some of these KPIs here. I'm not going to touch on all of them, but I do want to touch on -- let's go to the next one, Angie. The LMI, which is a Logistics Managers Index. The key take -- this is one of the leading economic indicators of the strength of the freight market.

When you look at this right now, when you can just see the last -- I put my glasses on, year-to-date, when things really started to take an uptick on the trend. And when you start getting numbers above 50, it basically means economic expansion and everybody is a lot of cargo moving. The next one, KPI, just want to look at just one more, I promise. An the ISM -- this is Purchasing Managers Index. Same deal, this is kind of showing all the same trends, if you will. But literally since the beginning of the year, January, February, you'll start to notice there's a little bit of a sizable uptick.

Now if you take that back to the left and go back to '24 and '23, you can kind of see that things have been kind of stagnant going back 4 years. I'm going to touch about that a little bit later on truck cycles. But from what we're seeing, obviously, there's been some inertia to move up the industrials and start to move more truck tonnages, and we see that across all indexes and all reports where things have been kind of hot, not on fire, but things have been improving almost noticeably since the beginning of the year and all those KPIs tend to indicate that. Let's go on to the next slide.

All right. So we'll take a look at some of the market insights, and I want to focus on I said earlier, truck cycles. That last chart we just looked at kind of shows 4 years of sort of modest or stable operations. Typically, in the truck cycles, you go through periods where it's either undercapacity, in which case capacity will come into the marketplace because the rates support it. And then that operates in an equilibrium for perhaps a very short period of time until it starts to be overcapacity and then it starts to contract.

The typical truck cycle is going to be 2 to 3 years, and that's historically what it's been. I've listed the cycles down here over since 2020. And you probably remember some of the stuff in 2000, most notably like in '07, '08, the financial crisis, that was a pretty tough year for all trucking companies. A lot of capacity exited the market. And then obviously, in 2010, things started to recover. And then you had some other, what I would say, regulation impacted cycles changes, the hour service changes in 2013 and most notably, the E cycles in 2016, '17 really led to a change in capacity.

But those cycles lasted about a year -- 2 years to about 3 years on tops. Go over to COVID, I think we all remember capacity got very, very tight and trucking got very expensive right when COVID hit and through COVID. But that sort of came to an end in 2022. So here we are in 2026, 4 years later, we've still been in the same cycle where rates have not fully returned and we haven't seen a lot of capacity exiting the marketplace. If you -- I didn't list them on here, but if you look at the financial returns of the publicly traded trucking companies, they all got -- they've all had some pretty tough years.

Even the best of the peers aren't making a whole lot of money. It's been a very tough 4 years in terms of finding good freight, getting rate increases and seeing expansion. I think most carriers would think that you would have gone through the cycle in '23 or maybe '24 and start to have capacity exit the marketplace, and that would lead to some yield improvement. But that hasn't happened. I think it's left a lot of people, including myself, scratching their heads going like, wow, this is an incredibly long down cycle. What's going on? Well, from my point of view, that started to turn around.

I think anybody who writes about it, talks about it is kind of saying the same thing that we appear to be heading into a new cycle where the -- excuse me, the undercapacity right now is really showing signs in the marketplace. But why? -- why did it change? So I think I'm going to go to the next slide and start to get into some of the data that tells us is changing, and then we'll just discuss why some of the reasons. This chart right here and from Freightways just shows the load acceptance. The blue line is the current one there at the bottom. And if you'll notice, it's pretty stable. Not a lot of swings up and down. So that tells you kind of have the same number of trucks on the road today as you did a little bit ago.

But let's go to the next slide and look at tender rejection rates. This one is absolutely a leading indicator. What this is, is the current tender -- excuse me, tender rejection rates are about, I think is 15.8 here. And that turns to numbers that approaching 20 in terms of the tender rejection rate. What that means is for every 100 loads tendered to a carrier, 20 of them you picked up or shippers have 100 loads, they can't cover 20 of the loads. That's a problem because they can go down the route guides, they can switch modes. They can get cargo moving with anything, but you've got route guide disruption every time you have high tender rates.

Historically, the tender rates, and if you go back and look at the prior years, they're in the 5%, 6%, pretty normal. But you look at the yellow line there, which is 2025, you're going to see right toward the end of the year, November, December, things really jumped. And if you go back and you look at the gray data to the left, you're going to see that the tender rejection rates are absolutely through the roof. In fact, they're setting record highs. And this kind of matches some of the economic data on the other KPIs that we looked at before.

So as we're heading into the busiest time of the year for shipping, which is June, that's when you got food and beverage moving, that's when you've got a lot of agricultural business moving. June is historically a very, very, very heavy month for trucking. And you can see that the tender rejection rates are already at all-time highs. So I guess we'll see what they go for the next few weeks, but we definitely got some stress in the marketplace.

Let's go on to the next slide. All right. Just another view. This is from that. This just looks at the van to load ratios out there for dry vans. I didn't put reefers up here. We talked about flatbeds being incredibly tight, but this is just the dry vans, but all the equipment types are pretty tight. And all I'm trying to show here is basically things are pretty stable in the last couple of years and all of a sudden this year, since January, things have definitely tightened up. Now there's 12, 13 trucks out there for anyone -- loads out there for any one truck available. I think I looked at origin yesterday.

I think it was like in kind of outbound Charleston or Savannah, had 10,000 loads available and 500 trucks. So odds of getting your loads covered are pretty low in that situation. And if I looked across the map of all the U.S. for all the different zones, I think there was only 1 or 2 what we call zones that were kind of like neutral. Everything was oversold, which means more loads than trucks. So when that happens, it's pretty obvious. Freight is not going to move, rates are going to go up and some freight gets left behind.

So let's go on and look at the next slide, and we start to look at -- I think we start to get into what's happening in the rates. So when capacity gets really, really tight, well, typically on a spot market rate, people who purchased truck on the spot market basically book a load when it's available through a broker or perhaps through a carrier are going to typically pay a few percentage points lower than those contract rates. It's subject to availability, but shippers take advantage of that.

But when capacity gets tight and shippers start to lock in their capacity, the amount of trucks available to cover loads don't match up, just like we talked about Charleston just a second ago. When that happens, the shippers start outbidding each other and it forces up the spot rates. When the spot rates leapfrog contract rates, that kind of signals that you're heading into a new truck cycle of growth and expansion. And that's what the data tends to indicate. Right now, as a comparative, if you're going to go down the road at, say, $2.50 a mile in a lane on a contract rate, the spot rate might come in about $2.40 -- but what's happening now is that spot rate is $260, $270, $280 and the spot rate is actually also -- I talked about tender rejection rates setting some record highs, but the spot rates in the marketplace have also setting some record highs.

I think they're right up there with the all-time record high in COVID. I should have looked at that before this, but the 2 are both at all-time record highs, which shows enormous tightness in the marketplace. Let's go on to the next slide. So how is that impacting rates? Well I already kind of said it's going to go up. These 2 charts side-by-side kind of demonstrate that the amount of freight loads available is not strikingly changed. We talked a little bit about economic expansion. I start to look at other indexes. I didn't put the CA index up here, but there's any number of other indexes that kind of look at the amount of loads in the marketplace. And while they've been growing, it's been pretty modest and a little bit under control.

But when you look at what's happening to the rates, it's a little bit of a phenomenon because the load count is staying about the same, but the rates are going through the roof. Market rates have gone up here by -- I think the all-in broker posted loads, the rates are like almost 50% higher than they were a year ago. That's blowing up budget, pretty bad. So there's a reason the spot rates are going up. And the spot rates, by the way, it doesn't take long before the spot rates start to pull up contract rates. You'll start seeing those in the form of GRIs from LTL carriers. We've already started to see some come a little bit earlier this year.

Certainly, truckload carriers are probably knocking on your door or will be knocking on your door that contract rates because there is tremendous upward rate pressure in the marketplace. The next slide, we're going to get into why that is. Basically -- well, actually, a couple more slides. This kind of shows you some of the same data. The red line is current. You can kind of see what's happening to the dry van rates. This is the Morgan Stanley Index. You can see the years prior to that, '25, '24, '23, '22, stable, flat. Once again, the prolonged cycle, 4 years of basically a stagnant truck cycle. But you can see very much at the end of last year and through May 5, this last index, things are up higher than ever.

The next slide is also going to show you some of the spot rates. Let's look at the national spot rates there on the left. The red chart once again is 2026, and you can see that is heads and tails above where things were for the last 4 years. So there's definitely some upward momentum going on -- it matches all the KPI, matches all the industry data, matches all the truck reporting. The national contract rates, you can kind of see to the right, while those are trending up, they're not going up as fast as the contract rates are, but that will probably continue to evolve over the next few months and the contract rates inevitably will start coming up as shippers -- excuse me, as carriers renegotiate rates with shippers, that's going to have tremendous upward potential. So rates are going up.

Capacity has exited the marketplace, which is leading to basically spot rates going up and contract rates soon to follow. So let's go on to the next and say, why is capacity leaving the marketplace? This is kind of something that you would have had a conference call on trucking a year ago or 4 years ago, would probably have not come up. We had the ELD changes some years ago, and that was a bit of a game changer. But what's really happening right now is about 6 different or 7 different areas where there's tremendous regulation enforcement. And what it is, it's forcing trucks off or out of the marketplace. They're idling them, their park.

There's just simply less trucks hauling for the. There's more freight out there today than it was 6 months ago, and there's far less trucks out there than there was 6 months ago, and that's why it's tight. I just clipped a few headlines here from some truck periodicles, but you don't have to go to some of the transportation magazines and resources. If you just turn on the network news or front page headlines, you'll see trucking in the news and particularly around -- some of the issues, 60 minutes, if you guys watch that, they had a terrific expos on Cameleion carriers. Talk about that in a second. But some of the issues in the trucking world are making headline news this day, so I don't think anybody is unfamiliar with it. But these are really the 6 areas right here that are really tremendously impacting capacity.

There's literally tens of thousands of trucks coming out of the marketplace, both contract and the spot market. And obviously, that number is expected to grow. I'm hearing numbers anywhere -- I guess give different ex, anywhere between 250,000 trucks and 450,000 trucks. It could be higher. I don't think anybody ever really knows, but that is a tremendous amount of capacity that's being pulled out of the marketplace. 10% to 20% of trucks are kind of fall into this category. ELDs, we mentioned that they came online what 2017, '18 that's electronic tracking of the trucks -- electronic logging of trucks, excuse me.

But here we are many years later, and I didn't know this relatively recently, there's over 1,000 ELD companies out there selling their services. And it's not regulated by the FMSCA. It's self-certified that if you have an EDL that you're -- it's effective and that it's accurate. But I think everybody is kind of finding out the hard way that many of these companies are not really doing what they're supposed to be doing and many carriers can actually have their electronic logs reset, allowing some drivers to drive well over the legal limits in terms of their hours that they can drive. So that's an issue. So there -- I think I just mentioned, if you go on some of like the DOT websites and you start to search some of the stuff, you'll see every month and almost every week, -- the DOT is decertifying a dozen here. I think I just read 8 more got decertified.

Basically, the ones that are not providing the services that ELDs are supposed to be providing are being pulled from the available list of services. B1 drivers, these are drivers that they service -- excuse me, Mexico and Canada, but they allow us -- Mexico, excuse me, but they allow Mexican fleets to come into the U.S. Well, what's happening -- what's happened for years, and I don't think it's a bit of a surprise, the drivers are supposed to come up from Mexico, deliver a load, say, in Dallas, Texas or Phoenix, Arizona, and it's supposed to take another load back to Mexico. But that doesn't always happen.

A lot of times they come up here, maybe they cross the border on June 1, they put themselves available for hire, take a few loads intra-U.S. and then go back in Mexico. So they're cracking down on that. And as they do that, that just pulls trucks that were for hire on the spot market out of the marketplace. I think -- there's been -- I got 3,200 licenses have been renewed. But I think -- excuse me, pulled from people violating that. But there's also the impact of people know that the regulation enforcement is in place. So if you were participating in pulling freight in the U.S. and now you know that there's a bit of a crackdown, far less people are attempting to skirt the loss.

Nonresident crackdown. This is an area that's made tremendous headlines. There was a -- perhaps you've seen some pictures where we got people come to the U.S. The Visa may have expired 2 years ago, but they got a CDL, certain states issued CELs and the CDL might be good for 5 years. So the visa expired, but the CDL is still good, and that's about 200,000 right now that they estimate drivers who are not really should not really be driving a truck or at least should not have a CDL, but they do. You've seen -- if you had the news, there's a lot of states, Florida, Oklahoma doing a lot of road checks and the number of nonresident CDLs that they're stopping and pulling off the road is absolutely phenomenal.

And once again, if you follow -- if you're a driver and you fall into this category, you may or may not wait until you actually get caught, you may just park your truck and decide it's time to go on to something different. So that's impacting capacity. English language mandate, this has always been a federal motor carrier safety regulation. It just wasn't enforced and it's being enforced right now. I'll just say this, the DOT and the FMSA, when we talk about -- there's been a lot of news headlines about fatal crashes and some of them made a lot of national news.

The DOT is absolutely committed to getting rid of minimizing these fatal accidents that can happen with an 80,000-ton tractor. So there's tremendous regulation enforcement. We just came off a road check week. I forgot the capacity was pretty definitely impacted, double digits in terms of percentage of trucks pulled themselves off the road. But for the ones that remained on the road, and it's -- I think about 20% -- I may have that number wrong. I think it's about 20% of the trucks that got pulled over, they found issues with and they shut down. So they are really cracking down on this regulation is impacting capacity. CDL mills. That's where basically a driver can go -- well, a person can go get a CDL driver license literally in 1 day.

Some of them don't even have any tractors. They just go in there and they just take a test and they issue a CDL. Obviously, that's a public safety issue and a number of -- let's say, 3, CDO offices or driver training schools, excuse me, have been shut down and 4,000 under investigation. I had no idea until recently that there are that many places that you can go out there and get your CDLs, but they popped up post-COVID. If you guys go back to '20 and '21, trucking was pretty hot, rates were pretty good. You had a lot of capacity coming in the marketplace. You had a lot of drivers come from all over the place join the marketplace. And obviously, the CDO mills popped up then.

Finally, last one, I'll just talk about. This is what the 60-minute expose was on the 2 million carriers. Once again, this is a bit of an eye-opener for me some years ago. it doesn't take much to get a federal motor carrier to get a DOT number, literally a few hundred bucks and some applications. And there are many trucking companies out there that have 5, 10, 20, maybe more different motor carrier numbers. And what it is, is they go down the road and when there's an accident or a safety issue or insurance issue, they literally just take the MC number off of their side of their truck and put another one for a company that they operate on the truck. GenLogs is where they can do some electronic monitoring on the highways and any number of reports where the same tractors will have work for 8 different carriers in a short amount of time.

Every time they pick up a load or every other week, they're changing -- they don't change companies. They just change the MC number and the name of the trucking company on the side of the truck. So there's many thousands of trucking companies out there. I think I was reading about one town and I think it was Wyoming. I'm not going to say the name because I might have to get the name in the town right. But they had literally they had more trucking companies than they had residents in the town. -- multiple trucking companies are being registered as a little bit of a fraud to facilitate this Cillion carrier strategy.

In 60 minutes, if you haven't seen that video, I encourage everybody to go watch it. It was a fabulous job kind of explaining what that's all about. But as the crackdown begins, hundreds of thousands of trucks are coming out of the marketplace. Good news, and this -- you're starting to see that. So rates are going to go up, but behind the rates going up when capacity gets tight, carriers have to backfill drivers -- seat the trucks. So wages are going up. And this is, once again, if the COVID, I think we went through about 2 or 3 cycles of driver wage increases in '20 and '21, and things have been very flat and stagnant since then. But if you start to read some of the headlines, you'll see the trucking companies are starting to get driver wages again.

So when that happens, drivers will jump from company to company who's ever offering sign-on bonuses or maybe better pay, and we're starting to see that. So that's turnover within the driver ranks, but also increases that they have to pay to seat the trucks or fill the trucks. And obviously, those are going to get passed on to shippers as well. Let's go on to the next slide. This is -- so I just recap that the regulation enforcement. That is absolutely impacting capacity. That is absolutely going to push up wages for the carriers -- for the drivers who are still good to run.

And obviously, it's going to hopefully push up wages enough that you can attract new entrants to drive a truck because if hundreds of thousands of truck drivers become disqualified or exit the marketplace, they've got to be replaced to handle the same volumes, you have to bring literally hundreds of thousands of truck drivers into the marketplace who may not drive a truck today. So hopefully, if the wages go up, that will attract entrants to the market. And that will have to do that as the cycle moves along and deals with the tightness.

Finally, there's one other issue that I couldn't have a presentation and speak about without mentioning because it's once again in the headline news every day. It's always been assumed that if you're a truck broker, you basically didn't have some of the liabilities about who you were -- third-party motor carriers that you hire. That been a bit of a debate. But nonetheless, there was a case that went to the Supreme Court 2 weeks ago, I believe it was. There was a Supreme Court ruling. And basically, what the rule said is the brokers now can have financial responsibility for the -- where they hired a negligent carrier or they should have known that, that carrier was negligent. So they've now got a little skin in the game.

Obviously, that's impacting brokers and carriers and therefore, shippers alike. And this is pretty fresh to new is only on a few weeks. Some of the brokers that I've talked to, they're absolutely going through every one of the carriers. And some of these brokers have thousands or tens of thousands of carriers and they're trying to basically remove or identify the ones that they might have some -- might not be able to demonstrate that they are a safe carrier. It's a problem for brokers. It's a problem for other carriers, too, because 80-plus percent of the trucking fleets out there do not have a safety rating. So absent of firsthand knowledge or public knowledge where you should have known that maybe somebody's safety is sufficient, it's very hard for carriers and brokers to understand who can be identified as a negligent or subpar carrier and who is good.

I think the conventional wisdom is this is absolutely going to benefit large companies, large trucking companies who have a demonstrated and documented safety history and the same deal would probably benefit large brokers. It's probably going to have a negative impact that will be much more difficult for the small brokers and even the small carriers because they simply won't be able to demonstrate that they are safe carriers because there isn't enough information out there for brokers or shippers to make that decision. So this obviously is going to have a tremendous impact, both on freight availability as well as who are the preferred carriers for shippers and brokers alike. So stay tuned to this because this is still making its way, I guess, to shippers to be impacted by that.

Finally, one last article, one last topic, and then I'm going to turn it over to Tai,he's going to go on this thing. Cargo theft. Every carrier is dealing with this more than ever before. Just in a nutshell, organized crime is involved in cargo and a lot of them have figured out that it's much easier to say lobs and freight than it is maybe rob a store or bank in cargo thefts of all types. Pilridge, deception, you name it, some of the scams going on out there are just absolutely phenomenal. I don't know a shipper that's probably not been impacted by this. Ty is going to go into greater detail on this. But with these issues, I guess I'll wrap it up here and hand it over. These are the issues that you're seeing and we're dealing with every single day. At least shippers out there, some of them are dealing with every single day, some phenomenal issues in theft. So that, I'll leave it there, pass it over to Ty, and thank you.

All right. Well, good -- good morning, afternoon, everyone. Thank you for allowing me to jump on my security self-action speak about security. And my goal is just raise awareness with you all -- as John stated earlier, Cargo Beth is at an all-time high. It's been pretty much lining since really around cold at time is when we started seeing a lot of the schemes that we're seeing. -- terminal organizations have gotten more sophisticated, and they found something network. And so while we may not see growth year-over-year anymore, we see that it's flat hold at these record highs.

The alarming back related to these record highs is that cargo that still goes significantly underreported. So it could be double of what you see out there, but most times, we're not seeing it as much being reported. And what criminal organizations are starting to use like we are, anything that makes our lives more efficient like the big thing now is artificial intelligence and using chat GPT and different things like that, like people are using that.

Well, criminals are starting to leverage those things to make their room be more convincing, so in addition to their fishing schemes or their social engineering, they're also using voice over IP phone line, so you can't track them. They leverage AI to make sure that documents look at legitimate as possible in relation to freight details. As they continue to focus on what the industry is caustic [indiscernible] pickup as their tactic of use. That's primarily because they've been successful at it.

Historically, we've had the main like cargo beth happens pretty much anywhere, especially in the U.S., but the main state for cargoes have been Illinois, California and Texas. But recently, what we've seen New Jersey has been overtaking Illinois with a lot of focus on the sort of commodities like the metals and copper that are being moved out of that market. even some food and beverage related items.

And so we're starting to see an uptick in that New Jersey market. still the top targeted locations are related to warehouse and distribution centers. That's primarily in relation to the pickup being fictitious that we see often. So it's just related to that where it occurred. You still have crimes of opportunities coming up truck stops, people we freight somewhere that's not in the most secure area. So you do see that.

Again, food and beverage gets targeted a lot because it's something that criminals can bake a buck of and that can't really be tracked. So they target those items. I will say I think some of them may be many economists because what they'll do is they watch the trend supply and demand and things that are with great demand and minimal supply, they will target those items because they know that they, on the black market can get a lot of money for those things, right?

The tariffs up and down, we've seen differences with those, and so that's been impacting those trends as well. I'll talk more on the Cora. I do have a slide related to that because not something that is just noticed in the industry of people that move freight, but it's starting to get the attention of our lawmakers.

Okay. I'm not going to speak too much on Canada because I know that Gary has some information to share there. I will say in the greater Toronto area, they have a really great pill levers that really focuses on mitigating those cargo crimes in that area. And then Mexico focused is generally on in-transit attacks as well as freight is left in an unsecured area.

Next slide, please. But what we see as the emerging threats I stated before, it's really a focus on distraction a lot of time. So I will say people till to people's nature to be that good to Meriton, and they distract them and say, "Hey, I need help. Can you support me? Can you help me find certain things can you help me move a car while their crew is focusing on reaching the cargo areas of truck.

Very recently, we heard the scenario where we had a truck in transit and the distraction was to have another vehicle cause a collision with the export vehicle. The export vehicle, of course, flowed over. They were in an accident. And it was actually terminals probably part of both million carrier forces that were actually the drivers behind the truck and so they sell the freight while the export was addressing the accident. -- we see these things happen in the market.

And so these are things to be aware of. That particular shipment, my knowledge didn't have any additional tracking on it to be able to see where it went after it left the accident team. For those that do intermodal great, we have been made aware that criminals are sabotaging trains while they're out in the middle of nowhere, cutting break lines and things of that sort to get the train to force to stop in the middle of nowhere and then they're breaching different containers to pull freight office there.

And then again, the strategic step is the biggest, biggest influx that we're seeing. We've also heard of may have seen a story written about that, where they've turned it as Trojan drivers, who was really this some online and waiting, working for a company, handling a couple of runs, and then once they get a load that they think is enough value than they take it. So we also term that as internal conspiracy. So these are things that we face, and it can be daunting, right? We long of the days straight stuff where people are hoping they don't get caught has become more sophisticated with strategic to where it is continuing to dose just continued pain point in the industry at March.

What I will say is that on the next slide, I do want to talk about some of the things that we can to change our mentality as it relates. And so I always tell people about this when I go and say, "Hey, what are the things that we can do. " So many people always start off just from an area of trust, right? They want to see themselves and other people and you yourself, you're like, "Hey, I'm trustworthy, so I think that what this person is telling me is going to be top of mind. However, a 0 trust mentality really is an approach to always validating information, just because they've gotten a door, does it mean that we accept them like that Trojan driver aspect, right?

We could have protected or that company could have been protected had that driver not done will move on their truck, right? So looking at who needs to know the information, why they need to know the information, will it impact their ability to do their job, right? The methodology of Zero Trust is operating off of a different model of never trust and always verify. So it evaluates the mindset from thinking people our trucks were to be inherently that everyone is a criminal that is looking to still my freight unless proven otherwise.

So when you go to that mentality, that's when you determine what cargo the mitigation strategies that you can put in place. And I'm going to go through these very quickly from down the left and then down the right. So only work with vetted service providers that you've approved Gary mentioned that we use better service providers in our market. What I'll say is just using electronic means with betting a service provider at sufficient and that's because you have a million carriers out here that are going in and they're leveraging both items.

You need to know who you're working with. -- the days of picking up of telephone and speaking with people, it's extremely important. No amount of technology can replace just that human interaction, so know who you're working with and make sure that you only share information within your operational control with people based on what they need to complete their work assignment. -- keep the lift as concise as possible, everyone doesn't need to know those details. In cybersecurity, many terminal organizations are using cybersecurity teams really to infiltrate physical security, right? So having a well-trained and resilient workforce helps to mitigate that. Just don't click that link or don't share that information because it looks familiar. Right?

For us, it's always good to monitor any intelligence that's out there. You all are taking a great step in joining this webinar. I know you're looking at market trends and things of that sort, but even learning about how you can secure your freight is a good step. There's also many industry publications that are released on a periodic basis that will help you stay on top of understanding what those key risk indicators are as it comes to security your freight and transit.

Starting on the right, driver and carrier verification, 1 of the most critical elements that any supply chain security resiliency is making sure that you early that driver. You look at their truck, you make sure that their truck look legitimate to make sure that there is missing plates or fireplace or anything of that sort, once you release the freight, it becomes more difficult to get your hands back on it, right? You also want to make sure you have proper security controls in place, physical security of cargo areas, facilities and yards -- and then any freight in transit, you want to make sure you have GPS monitoring and real-time active monitoring is going to be the best in any situation to know where your freight is and if something is happening while it's in transit to increase your possibility of recovery, -- our preferred provider is cargo signal.

So if you any questions on that, feel free to reach out, and we'll get you some information on that. And then just say and align with compliance partnerships. So expediters ourselves, we participate in the custom trade partnership against terrorism and many other security certifications around the globe. We also collaborate with law enforcement. Those are going to be some of the things that are going to help you mitigate the risk.

And then you may be wondering what are some of the things that lawmakers are doing -- so the combating organized retail Prime Act is legislation that's currently going through Congress. It was recently passed by the House this past May, and it's with the Senate.

The great thing about this is if it passes, it is bipartisan legislation. And if it passes, it will provide more support with multiple law enforcement agencies that are to be able to collaborate and share information and be able to address these carbo prime closer in real time and be able to get the support that they need to prosecute via center.

So Gary is going to come on next talk about cross-border and then Angie will also jump on to talk about domestic RP.

Thanks, Samantha. Hi, everybody. So I just wanted to point out, I know you saw really great detail from John and teams regarding capacity driver impact, et cetera, how that impacts us. So I wanted to just kind of point out a few things as it related to the cross-border market, Canada specifically. So one of the things that you might or might not know is there's an impact difference between southbound and northbound. And by that, I mean freight coming from Canada into the U.S. or the other way around U.S. into Canada. So if we look at Canada, freight coming from Canada into the U.S. We've seen rates that are up nearly 30% and for multiple reasons, some of which are the same or similar to what John went over as well.

It relates to carrier capacity, companies reducing headcounts and drivers not in the marketplace, right? So you see that. There's also actually more freight. A lot of people don't know this going what I like to call northbound from Canada into the U.S., then the other way around. Normally, we see -- we think of that the other way. it's about a 60-40 difference from a percentage standpoint. So what we also see from obviously, supply and demand, you actually can pay more going from Canada into the U.S. than U.S. to Canada. -- it's also a good time from that perspective.

There's capacity available to move freight U.S. into Canada. So from that, why is the supply decline, and that is many of the things like John talked about as well, right? There's -- although we're seeing more bankruptcies on the Canada side, there were a ton of small providers. some of which we're working in those formats that we talked about and have been stopped. So some of them are out of business.

The -- obviously, the drivers licensing enforcement is also something that the Canadian government and legislation is doing some things about, and that's starting to take play. Also some of those CDL mills, et cetera. So -- the other piece was market concentration. There's actually fewer of the really large carriers. Some of them have merged, some of them have gone out and bankrupt, et cetera. And because of that, prices have been hit.

There is a reciprocity agreement between U.S. and Canada. So CDLs from a Canadian driver worked fantastically going into the U.S., no issue, vice versa, U.S. into Canada. However, that is not the case with Mexican drivers. -- so Mexico CDL drivers. But from that perspective, the -- if you've heard a little bit about the nondomiciled and I think John had talked about those as well, those are exemptions for U.S. and Canada CDL holders.

Go to the next one. So again, on the capacity, about 78% of cross-border freight is actually moving with Canadian drivers and carriers -- so again, you kind of think about what you heard today, less impact because of that on those drivers. So the Canadian market is really still attractive from that perspective. Fuel remains high. I know like you haven't heard that before, every time we go to the pump, right? -- but Canadian fuel is actually more expensive significantly than in the United States. I kind of always has been. A lot of it is tax related. And they're seeing a slower decline in that price per gallon versus the U.S.

If you think about it, I put a chart there on the right. I won't go through all that, but you can see a lot of it is tax input -- and between $90 and $1.40, if you do the conversion between Canadian dollars and U.S. dollars of US per gallon and you think of a normal tractor trailer or tractor has 250 300-gallon capacity. Significant difference from just in that difference in price of fuel in Canada and fuel in U.S.

The good news, sustained market demand. We continue to see Canadians buying from from the other countries, from U.S. specifically, still a $4 billion a day market in freight between U.S., Canada and Mexican borders. I don't have anything on it in this slide. Maybe I do. Actually, I do have one on it next. But one of the things that we're really seeing is how to do some tariff mitigation from a standpoint of example, freight coming out of Mexico going into Canada, and we can just go to that next slide, show a graph of that.

So this is a process. And again, this is expeditors related, but it's a way to move your freight, for example, from Mexico, can be from other countries as well, different modes work as well into Canada through the U.S. And I think John put up a map of what we call our ground network services, our D&S -- this is actually a slide of it using the GNS in bond, which is unique for an LTL environment or less than truckload environment and the ability to move that freight in bond all the way to the Canadian border, cancel the bond par clear into the Canadian marketplace and then blast out from there. And we've seen this being one of the real strategic hot buttons. We've seen a lot of attraction and activity for this particular program. You can also add your e-commerce orders.

So remember, De minimus and all those things that impact you, these programs help mitigate that as well cost savings from international and domestic shipments, et cetera, I think you get the point.

Last slide, just kind of on fact. So some of you may or may not know, Obviously, Detroit Windsor, Detroit, Michigan, Windsor, Ontario, Canada's busiest infrastructure from Canada into U.S. and U.S. into Canada traffic.

There is a new bridge that's been being built for the last few years. They named it after a famous hockey player Gordihal. Gordihal International Bridge. So another international bridge costing just down the river, I'll say, from the Ambassador Bridge. That has just been completed a few months ago, infrastructure in place, a lot of benefits, 6 lines instead of 4, direct connections to the major arteries or freeways in Canada, a lot of different benefits. However, the Trump and Carne administration are in a lot of negotiations, like John says, you guys see the news.

There's a temporary hold on the opening of that bridge, and I believe it will be -- we won't see anything until after like the July 1 USMCA renegotiations, et cetera. So looked that up, a lot of cool stuff going on from that period. That's going to be really cool when it opens. And that's it for me.

Thank you, Gary. All right. Just want to close with a couple of items relevant to U.S. shipping. So knowing that we've got a lot of commerce that goes from Canada to Mexico and U.S. to Canada. -- wanted to share what's going on with Mexico and customs as it relates to the importer of record for the southbound shipments.

So Mexico has what they call the value manifest, and that's what's used to process and assess the duty amount. So what's changing coming up. It's an ongoing -- ongoing date of the effectiveness is this is not going to go from a hard copy submission to electronic submission of this. So what actually I can do now is actually put in -- this is in place for 6 months to a hard copy, and they can renew it every 6 months going forward when this goes electronic, this will be required for every pedamento that goes through the border. -- work across.

So the date, like I said, has been a moving target. It was June 1, the effectiveness now is pushed back to August 1. And I think that's just due to making sure the system is in place and control, but also the imported records have a lot to do here. So if you look at this list here, I'm not going to go through all of this. Your compliance folks are aware of this or probably are should be. But this is more for operations people as well because this -- if this isn't a place or if you guys don't have all this information available, it could absolutely delay shipments at the border and they'll just sit in the yard.

So the 2 items in blue, those are new. So that's as part of the electronic submission that's going to be new as part of this. So again, it's more so for awareness that there could be delays at the border once this does officially go live. There's usually a learning curve of this stuff, right, which we've seen from the compliance side of it.

I did want to -- since we're talking about capacity, another capacity alternative that you can exercise in the states is U.S. domestic air freight. So I'm not talking about the all-cargo aircraft from the integrators, but more so the airlines that we all fly for business or leisure purposes, American Airlines Southwest, Delta, and the others, but that's actually a great place to put freight.

Obviously, you've got to have freight that fits on an airplane, if you will, but they do have balanced capacity right now. And they've also kind of rightsized their networks in conjunction with the fuel increases. So flight schedules have already been realigned to amend to the fuel prices. But that being said, just a couple of things to mention with freight characteristics.

So if you think -- I want to put -- in the U.S., it's mostly wants, standard aircraft, which also put narrowbodies in there versus widebodies, you see on international. We've got not as many widebodies, but the standard type aircraft is typical. You can get anywhere from 100 to 3,000 pounds on those aircraft. And with that, if you're tendering boxes on pallets, are almost always going to go loose.

So we do ask the customers you do label each of those cartons. We personally label them as well. They'll go loose in the body of the aircraft. Then ship and then they get repelletized by your carrier at the delivery point. So they do get delivered back on the pallets not just lose boxes. So -- and then two, there are some wide-body options, wide-body aircraft that can take anywhere from 8,000 to 10,000 pounds on a shipment. So that's a great benefit there.

Also, if you think about scheduling, so they're scheduling flexibility because there's usually a couple of flights that are going in and out on those routes today, sometimes many depends on the lane and then speed, obviously, speed to get there.

And then as an example, if you've got let's say you've got a shipment of 10 pallets. And the end user really just needs one of those pilots right now just to maintain current operations. We've also done maybe a split we shipped that 1 pallet via airfreight and then got the other 9 on the road. -- and that 1 pilot maintains operations. So a lot of different ways you can use best today.

So that being said, I just want to close out with some of the advice we've got based off all of our percentages here. So as we go to the second half, so early and accurate forecasting, I'm sure you guys have heard this all the time, but that's huge because it allows carriers to lock in capacity for your volume? And speaking of blocking capacity, especially as it relates to truckload, we started to lock in those contract rates and prepare your budgets for spot rates because as we see those spot rates are going up. And we have customer flexibility.

So the shipper flexibility, you have control of that from your dock, but that -- if you got end customers that you're delivering to or maybe vendors that you're managing the freight you're picking up from flexibility is really if you can avoid the strict appointment times or limited facility access, I think you have the flexibility you can bring in is significant. And in that partnership mindset, so really becoming that shipper of choice, the big 1 here, that's the big red flag for all drivers.

And I'm not talking about companies, the excellent drivers because drivers can't pick the loads they want even if they work for larger organizations is waiting time. Winning time eats into their hours of service and tell you what drivers they'll actually just decline loads going to your facility if they have to wait excess amount of time for loading or for offloading.

And then Moteshift, we just talked about airfreight. We have gone from full truckload LTL, I know you do have to watch that because with some of the common carriers if you're shipping over 5 pallets, you may get to a linear foot or capacity surcharge and expeditors that work we do not charge for that. So there's no excess fees? And then we've also felt too if you've got maybe that -- I keep going back to my 10-pole example, but then on a 24-foot straight truck and run that. So usually, that's equally as fast and sometimes it can be a lower cost.

And then closing out to what -- that shared the vet and Verify. So in your shipping facilities for anything that's coming out, making sure that the drivers, you got drivers name, driver shipment bill leading, you've got maybe a trailer number or if you're managing transportation or managing a pickup or the transportation from your vendors. Also, make sure you're sharing that information with them. It is very, very normal to ask for a driver's name, a trailer number, what not. And obviously, the traditional stuff we do is verify seals. So with that, I'm going to turn it over to Samantha to close this out.

Angie, great job digging us right in at the wire there. We always like to leave time for questions, but we have not because we had a lot to cover. But if you do have questions, you are welcome to e-mail me directly, I'll be sure to get them to the speakers. And we will get your questions answered. There are 2, I see in the Q&A that we haven't gotten to yet. We will get you answers on those as well.

Finally, if you're still hanging on with us in the last minute, these are the upcoming events that we have from our other products and services. So we do have Onyx, which is our geopolitical arm, and they will be talking about Europe and impact to that country from the wars and other crisis that are going on around that region. With U.S. Customs market update coming up next week and Americas Ocean market update the week following.

So thank you all so much for joining us today. We hope we found a lot of value out of this event. Please fill out the survey that we'll come to you in about an hour, and we'll get the materials sent your way. Thank you all. Thank you, speakers.

Hello, everyone. So I think we are good to start. We can see, yes, people still growing, let's see while people are joining. Let me just present myself. So thank you for joining today for this webinar. This new webinar we are presenting today about Sustainability in Motion: From strategy to Supply Chain Execution. So I'm Julia Sabatery, I'm Operations and Marketing for Europe, Southwest and I'll be your facilitator today for this session. So we're really pleased to have you on this specific session, talking about stability in logistics and supply chain because we know it's been clearly reached a turning point today as an important topic for many companies. So the conversation in terms of stability has been moving beyond why decarbonization matters and even beyond reporting to a much more practical question. So how do we actually make it work day-to-day at scale and in a commercially viable way.

So during Smart Freight Week, we hosted in Amsterdam last month. Early insight from the event showed a clear shift from ambition to execution and real-world impact. So that's what we will be talking today. So before we begin with the topic of the day, just some ground rule here. So we'll be having 45 minutes of content following with a Q&A session at the end.

[Operator Instructions] So how you will receive this presentation? After the webinar, you will receive an e-mail with a survey link and this survey will allow you after the completion to download the presentation of today. And also how you can get more information about our future events market updates information that we are communicating. You can scan the record and also subscribe to our newsletter news flash and upcoming events.

Just around that, let me go through first our speakers of today. So we have Elmar and Juan today with us. So just going through a quick introduction. So Elmar is our Director of Service Provider Management and Sustainability for Europe at Expeditors. So he leads development and execution of the company's sustainability strategy for Europe and also the development of our service provider management program. Before taking on his current role, Elmar has several senior leadership positions across program management and service provider management in Europe. So giving him a very hands-on and end-to-end view on how sustainability initiatives must integrate with daily logistics operation to be successful.

And our second speaker today that will be also here to support a specific question about sustainability topic is Juan Posada with us today, our Senior Director of Sustainability at Expeditors Seattle Corporate Office, where he focuses on building new capabilities and solution across the supply chain and logistics scape with experience ranging from digital business to enterprise-level transformation, Juan brings a strong perspective on how data, technology and smarter decision-making enable sustainability to move from vision into everyday execution. So with this intro, I'll be handing over to Elmar.

Thank you very much. [indiscernible] thank you. It's my pleasure to be here and to talk with you about the Smart Freight Week, the Smart Freight Center and what we have learned from them. But let's first talk about what is actually the Smart Freight week before we go into the agenda. So it's -- this was, by the way, the fifth time that the Smart Freight Week happened. It was organized by the Smart Freight Center and association that brings together all the industry participants that are -- have an impact to decarbonizing logistics and the entire supply chain. So we see shippers, we see carriers, we see expeditors, forwarders, the transporting companies.

And together, there are many discussions over the years on what would be the way forward, what could be done for insetting, what fuels would be most likely, what -- how is the calculation done in the most -- in the best way. I mean also the software providers on how to transport -- how to calculate CO3 impact and all of this, they are also there as well. And I think this year, we have about 1,000 participants there over 3 days and wholeheartedly recommend you to join one day. It's -- if you haven't been there yourself. But as part of this webinar, we're going to give you a quick recap on that.

So I'm going to first deep dive a little bit into the European side of things. And so there was a lot of discussion about zero emission trucking. And then we're going to talk a little bit about HVO and diesel, and then I'm going to hand over to my colleague about marine fuel and sustainable air fuel before we close out on this. So as you can see here on the agenda, it's also a little bit of a sneak preview about some later slides.

We see a lot of conversation and have seen a lot of conversation about the European key corridors going all the way from Poland, Germany, Belgium, France down to Iberia. This is but the network for Milence, but also Nordics, enabling the electric transition. And this is pretty much also this is where the trend was where in previous years, there was still a discussion about Will it be hydrogen? Will it be biofuel? But actually, in this one, actually everything zeroed in on zero emission trucking and there is a reason for that. So there was the key panel, I would think, for the entire Smart Freight Week was when actually representative of the European Union and European Commission for Transport and Energy have been in the room talking with a representative of the [ ACEA ], which are the representatives of the European equipment manufacturers about the future. So with this, I'm going to give you a little bit of a sneak peek into how this is going to develop in terms of impact to our transportation requirements.

So this starts and the key factor here is with the Regulation 1610, which is also known as the EU CO2 emission standard for truck producers. And this will impact us as a transporter and you as a shipper in regards that as of 2030, Mercedes, Daimler, Benz, Chrysler, all the big stuff, all the big companies, they will have to pay a fine of EUR 4,250 per gram of CO2 that the trucks -- the diesel trucks that they produce and put out there on the road would not hit this emission target that has been set by the European Union.

And so there also were talks about that how they have been improving the trucks since 2019 baseline going forward till today, and then they have forecasted it. And based on this forecast, if everything stays the same, which the European Commission has said they would do so, then by 2030, a truck -- a diesel truck that costs nowadays EUR 120,000 to buy EUR 100,000 would at that point cost EUR 200,000. So -- and this would have a massive impact on the total cost of ownership, but also be a massive enabler for zero emission trucking. And I'll show you more about this in the next 2, 3 slides. Then another regulation that is an enabler that was talked about was AFIR, the 1804 EU Regulation, which mandates that by between 2025 and 2030, there will be truck charging stations every 60 kilometer on the Trans European highway. Remember the slide that I showed already on the previous -- the map there. We need a higher density of truck chargers because they need 150 kilowatt 450 kilowatts. They can't just go with what we need for our electric cars. So this is the big challenge to get even the capacity out of the grid. Now this could be a solution enabler so that more people can even provide the zero emission trucking.

Then another enabler that is happening right now. So if you have not been made aware of, maybe you will be soon, for instance, a new roads toll is starting in Europe in July in the Netherlands. But the good news there for electric trucks is that they exempt just like there is a zero emission tracking exemptions for the European -- for the European Union that they should be in every country. And -- so this is being applied in Germany as well, and this would make electric trucking much more cheaper than diesel already today.

There will be also further air pollution surcharges coming in, in regards to Euro 7, ETS2 and is going to also be supportive in regards to that, which will impact the fuel price, which I'll show you a little bit later.

And let's not forget, there are these enablers like cities of Paris, Amsterdam, Copenhagen that have plans to even ban diesel trucks altogether to go into the city center. So the only way to even get freight there will be electric. So it is the time. And this gives the business case. So like there were many conversations on the Smart Freight Week about how can we make a positive business case to go from all the way from Poland with companies like PragmaCharge, enabling their fast charging for trucks over Milence down to Iberia.

So in the past, this was more about market analysis and then there was about the feasibility studies. But now it's about getting commitments and to actually get trucks on the road. So they're even going so far to say if service providers feel a fear of committing to buying electric truck, they even make the commitment to say, if you don't need this electric truck anymore, we promise to buy it back from you as long as you charge with our charging stations.

So there are those European key corridors and they looked at the data there in terms of the total cost of ownership. And now remember this conversation about the cost of an ICE truck doubling. So we have here the cost of a diesel truck -- and right now, it costs about EUR 100,000 to EUR 120,000 if you buy them. Now if you have a battery electric truck, then this could cost around EUR 285,000, EUR 300,000 depending on how many trucks you take and how well you negotiate. But this -- if the moment you remove the toll, the road toll or there is a road toll like it will come in the Netherlands, and there's an exemption for battery trucks, then cost parity, then there's a business case, and this can help us to get our service providers, hopefully, in the next year or so to transform more and more of the diesel trucks into electric trucks and talk with them about how can we get them charged at the depot one [indiscernible].

So they made calculations that even today, thanks to certain impacts, they see that 38% of all the transport done between these key corridors, in these Western key corridor, if you look at information from Eurostat, where transport start [ over ] the end, could theoretically drive already at parity with what diesel transport cost. And so plus 16% would only be -- it's only 5% more expensive to drive green. So there's still a little bit of a surcharge to driving green. But more than half already for the first time. It's already technically possible to get there. So their forecast is that we will see almost 7,600 heavy-duty trucks to be rolled out on the road very soon. And more than half of them should operate at cost parity. And key focus of investment this year is in Germany and Belgium because the infrastructure is there.

And let's talk now about infrastructure. So there were many discussions about port drayage at Smart Freight Week. And that right now is a good time to get your drayage transformed into electric if this is something that you want to think of. So because right now, there is still a bit of capacity for the grid in the ports. But they also made the case that if more and more and more trucks want to fast charge, they mostly do all want to charge at the same time. That's in the night, during the day to drive at night, they want to charge. So this could increase the electricity demand so much that then also if continuous demand from electrified vessels and all of this comes together that there might not be enough electricity anymore.

So if -- we have access to electric trucks in Hamburg, Rotterdam or Long Beach, U.S., Europe, we already have secured some service providers that can work with us on that. So feel free to reach out. What I'm saying is that if you want to secure this electricity for yourself and you have warehouses in those areas, then this would be a time to secure electricity. Electricity is becoming a bit of an asset at this point. And that by 2030, it might take between 3 to 7 years lead time just to get another megawatt or 2 into your facility. So that was here a warning and forecast in regards to that. Now another Yes, please.

Sorry to interrupt you. We've got a question from Celine in the chat. He's asking whether everything you've discussed will also apply to LTL services?

You mean like in terms of...

Less than truckload.

Less than truckload, if you have part load electric trucking. I mean, right now, obviously, the easy one is, of course, dedicated. But the moment that there will be a strong enough highway network to charge on the highway at a reasonable cost, we will also see part load to become possible. Right now, the range of a truck is 500 kilometers. So you will need actually -- you will need to be able to charge this truck with at least a 450 kilowatt charger to have it back full within 45 minutes at a reasonable distance and then you can make distance.

So will path load trucking with unfixed routes become feasible? I would say, yes, soon, especially if you see the range of trucks increase. I mean, like we got our first electric truck in 2021, and that had a range of 200 kilometers. Nowadays, to drive 500 to 600 kilometers. So my hope is that in a year or 2 battery technology has gone up enough to make LTL possible. And this leads also right into this slide here, where we say this is another part of the total cost of ownership. Remember those 2 bars, but diesel versus electric trucking. So highway fast charging can cost us nowadays with everybody around EUR 0.80 per kilowatt hour. This obviously drives up the total cost in order to get this run. Where we or anybody else has depot charging and we have solar roof panels on the roof, you can get those costs down to like EUR 0.39, EUR 0.30 per kilowatt hour, if not cheaper. And this is here now a chart where they have done some research together with the Smart Freight Center and Prologis, where in Europe, they see the highest density of not only highway chargers, but also chargers for trucks that are at random warehouses.

So for instance, your warehouse has a truck charger, you become part of the solution and you make it easier for those truck owners to come to your warehouse because then they can get a couple of extra distance into the -- every kilometer counts. So -- and especially if you can make it cheaper for the transport, you make it cheaper for yourself as well. So there are -- also there were presentations about CapEx and OpEx options to that. So which means, hey, if you would invest a lot of money, then this is often not a feasible solution. We are talking here just upgrading to 3, 4 electro chargers, you might have to get permission. Getting a permission in Germany or Netherlands or France can sometimes take a year or 1.5 years, then the cost of the wires alone to -- for the charging equipment, but then also the cable canals and all the other wiring, the copper alone could cost you EUR 100,000 or EUR 200,000 if the transformator is at the wrong side of the warehouse. You might have to go all the way underneath. You might have to tear up roads. The fuse box needs to be upgraded. So even just for getting a 50-kilowatt charger, this could cost EUR 50,000 -- could cost EUR 10,000 to upgrade to a strong enough fuse box.

So -- now there's the alternative options. Shell is one of them. There's VSB, there's Milence in the U.S., there's Terawatt, Greenlane, again, Shell, where they come and say, if there's enough -- if you as a shipper or as a forwarder commit to having enough pickup and delivery trucks or line haul trucks that run on electric, then they will make this heavy CapEx investment as long as there are enough electric trucks charging. And then it's your choice on whether you want to open this up to the road or not. Then if you open it up so that also other trucks can come and charge on your depot, then they make it cheaper. If you close it down that only trucks that load in regards to your business would be allowed to charge there. And obviously, more commitments would have to be made.

So there are ways on how you can secure yourself a little bit resilience here. So Think about the current global energy crisis and how this has impacted our cost of going to the fuel stations. I have a hybrid car and I feel it myself whenever I'm running out of electricity. And so driving with a heavy-duty truck in Germany did cost in March 2026 around EUR 0.45 per kilometer with an electric truck. If you mix on highway charging and depot charging, remember, EUR 0.80, EUR 0.30, then you could have already in March been cheaper off to go electric and because of the highway toll exemptions.

And also here, you can see some impact there, what the impact was on those who drove diesel versus those who drove electric. So sustainability in this regard is now not only a question of saving CO2. At this point, it can also become a topic of resilience because what if the diesel keeps on rising. And it will so by design. So we don't foresee the HVO or diesel to come back down. So let's talk about that.

So first, let's talk about the positive side of things. So HVO, so sustainable trucking fuel is becoming more available. So as you can see there from 2024 to 2025 and now '26, it is now possible to safely go with electric trucks on biofuel -- sorry, to go with diesel trucks on HVO in Italy, Spain, Netherlands, Germany, Sweden, Finland, you can easily go from anywhere to anywhere and ensuring that you will always find biofuel to fuel up with. And this can reduce the impact by 90%. It costs more. So it costs are about 10% to 15% more and not foreseen to come down, even not if the scale is going to go up, which is being produced because of this effect.

There is another legislation called RED III and this one demands that countries require their fuel producers to blend in more and more of this biofuel into the standard diesel. So which means that even if you own a diesel car and you go to the fuel station and you just pump up with normal diesel, you will still get 10% or 20% or 30% of biofuel into your car. You cannot claim the cost -- the CO2 reduction for it. If you want to claim it for your freight, we can get you the connection and we can get you this [indiscernible] called CO2 certificates for this fuel that has been put into this pump. But this also means in terms of price impact that we now then see things like HVO fuel price to jump up in things like that because here the blend was, for instance, mandated to be higher.

So even if you say like, okay, zero-emission trucking maybe still a little bit too early but we can do something about biofuel, the answer is yes. But I would rather say it's a transition, not ongoing solution, but it's a very feasible low investment from a CapEx side solution that we can do straight out very quickly.

Now there is also another thing if you still think about diesel. ETS 2 is coming. It was postponed by 1 year, but it wasn't canceled. So as per global economics, the diesel rates have gone up this year already, and should have gone up more if ETS 2 would not have been postponed but they will next year. So just think about this chart and offset it by 1 year and by definition and by design, fuel will get more and more and more expensive. Now think back at the total cost of ownership comparison that I showed you between an ICE and a battery electric truck, this is the level, this is the leverage on together with this CO2 emission standard that truck producers will have to pay. Electric trucking is the future. So without any wonder, nobody is talking hydrogen anymore. Nobody was talking CNG on the Smart Freight Week. Everybody was talking either HVO as it becomes more available and is a great solution right here right now to reduce the impact that you and me as a shipment forwarder can make together, and diesel price increases are going to come by design. This is what the Europe Commission's out to bring to the European market, not only from diesel price but also truck costs that impact us and then the future is electric. So that's my takeaway from the Smart Freight Week. And with that, I'll hand over to Juan.

Thank you, Elmar. Good evening or afternoon, everybody. A pleasure to be here. I'm in the Seattle office. So a little early for me. So I'm speaking to you from the past. You guys are in the future.

I want to share the perspectives that we've learned on sustainable aviation fuel -- or on sustainable fuels in general. However, the main focus is on the aviation side because the intensity of aviation transportation is just so much higher.

The truth is sustainable aviation fuel is the strongest lever we have in order to impact transportation emissions at this time, but sustainable aviation fuel alone cannot really carry our goals related to Scope 3 decarbonization in the near term. And this slide explains why.

This is a practical example based on about 30 large global fashion companies. And we're using it to illustrate why what I'm sharing with you is true, that SAF on its own cannot carry our decarbonization goals. If you look across these 30 companies, their total Scope 3 emissions are estimated to be around 90 million tons of CO2e. Of that, the transportation and distribution accounts for roughly 8 million tons. That's about 9% to 10% of their Scope 3 emissions. That's probably similar to what it is for many of you and your businesses. What we find is generally category 4, so upstream transportation and distribution emissions, might account for between 9% and 12% of your overall Scope 3 footprint. And of those emissions, a large percentage are driven by aviation for air cargo. So if you assume a modest goal, let's say that you wanted to mitigate 10% of those transportation and distribution emissions using sustainable aviation fuel, that would mean that you're looking to mitigate about 800,000 tons of CO2e. To achieve that reduction, you would require about 320 million liters of jet fuel per year, assuming about an 80% lifestyle emissions reduction -- life cycle emissions reduction compared to conventional jet fuel and that's about average.

But here's the quirk. The production of SAF has been doubling year-over-year for the last 3 years. It's expected to slow down a little bit in 2026. In 2025, it doubled over 2024 and reached about 1.9 million tons of fuel. And that's equivalent to about 2.4 billion liters. And remember, we're talking about it takes 320 million liters to offset 10% of the emissions by 30 companies. And the overall production of jet fuel is 2,400 million liters. There's simply not enough SAF to go around to get us to where we need to be in terms of keeping to within 1.5 degrees Celsius. As an interesting kind of factoid, the entire jet fuel -- sustainable jet fuel production for 2025 was equivalent to 0.6% of the entire jet fuel consumption for the year. So it's literally a drop in the bucket. And it's the best lever that we have at this point.

Elmar, if you can move to the next slide, please. And then if you look at a sustainable trucking fuels, HVO, Elmar addressed it a little bit, sustainable marine fuels, similar situation. This slide kind of highlights the role of these other types of sustainable fuels. As part of our strategy stock to help us achieve our kind of near-term decarbonization goals, both are very, very important because asset turnover and solar electrification will take a lot more time than we can -- than we have time for, frankly. So sustainable fuels have to be a part of your decarbonization portfolio in the near term.

Next slide. So let's talk about kind of book and claim. This slide explains the market conditions that make book and claim not only useful but necessary in today's decarbonization landscape. These conditions show up repeatedly across fuels, freight and heavy transport. The first one is the supply of the green commodity, whether we're talking about aviation, marine or low emissions trucking fuels, including electric, availability remains very constrained. The production capacity, the feedstocks and the infrastructure are still scaling, which means that physical matching isn't always possible even when the demand exists.

In second place, there's the cost burden aspect of it. Decarbonizing heavy industry and transport requires significant upfront investments, new vessels, vehicles, new infrastructure and new fuel production facilities. What book and claim does is it allows these higher costs to be shared across the value chain because instead of forcing matching one-to-one and every participant to absorb them individually or wait for full physical availability, it can be shared. Book and claim systems decouple the actual production or consumption of a commodity from the environmental benefits of that commodity. So it enables us to trade separately on them both, which means that we can find the reductions without necessarily having to find the actual consumption of the commodity directly in our conveyances. What this means is that it results in disaggregating the demand. Early markets frequently suffer from geographic mismatch, meaning you might have aviation fuel, but not in the origins where you ship out of. Or we may have EV incentives in certain parts of the world, but not in others. So a book and claim system enables us to kind of spread out and take advantage of the demand where it is and the supply where it is and matching those 2 together, even if those 2 locations don't match. So this is critical to getting these new markets off of the ground and getting to the point where they can scale individually on a global basis.

Next slide, Elmar. The last thing that I'd like to share is we recently released our 2025 sustainability report. It talks about our efforts to decarbonize our own operations, our efforts to work with customers as well as our service providers to decarbonize or reduce the emissions associated with transportation and the value chain. And it talks about the impact that we try to bring to the communities that we operate in as well as a lot of detail around our governance and ethics framework. I strongly encourage you to take a look at it. The link will be in the slides that will get distributed to you shortly after we wrap here today. And if there's any questions that can come up after you review it, you can reach out to me personally or through your account manager. Get in touch, let us know what you're thinking. Let us know what your priorities are and how we can support your own efforts on decarbonizing your supply chain.

With that, I think we can open it up to Q&A.

Yes, let's open it here. I don't see a specific question in the Q&A box, but just posing here is you want to address any question in the Q&A box now, we can take a couple of minutes to enter them. Otherwise, on the survey link that you would receive just after, you will be also able to add any comments, any questions, and as also Juan mentioned, feel free to reach out to your Expeditors contact or us in the audience now.

I don't know if we are getting some questions. I don't see them dropping in the chat in any case. If there is no specific question or I can see maybe people raising hands, but feel free to drop the question, if you have, in the Q&A or the chat if you are not able to do it in the Q&A, but I was seeing...

Otherwise, thank you, everybody, for joining. And it would be a pleasure to meet you in person at the next Smart Freight Week when it comes around. I wholeheartedly recommend going. This is something for everybody, for the shippers, for the transporters, for the importers and the goods receivers and then we can meet out in person there. If you have questions, feel free to reach out to also myself directly. I'm happy to help with enabling this transition.

Great. Thank you, everyone. Have a good day.

Good morning, everyone. We are going to get started. We just hit over the little bit past actually the 1,200 mark of participants. So we are going to get things growing as we have a lot of content as usual to cover. We know plenty of people will still be coming in, and we're going to go over some housekeeping first. So many of you know this probably by heart at this point if you listen to many of our webinars. But for those of you that haven't, my name is Samantha Hurst, and I'm the host for this webinar supporting in the background for all of our very knowledgeable speakers who will come on here in just a moment. And if you have any questions or technical issues, questions about technical issues, you're welcome to e-mail me directly. You can find my e-mail address on the confirmation that you received when you signed up for today's webinar.

We will go over about 55 full minutes of content today, again, these U.S. Customs Market Update, we've got a lot to cover. Every time we think we don't, we do. So we will have efforts in the background that are going to be answering your questions as we go through. I do encourage you, as always, if you have something, a question that's just really specific to your business, your industry or how you're set up in [indiscernible], please understand we may not be able to address that. We can really only hit those questions that are more applicable to a wider audience. So do not discourage you from asking us questions, but we just encourage you to understand that. We will get to everything we can today and then anything that cannot be addressed on today's webinar, we will connect you with an Expeditors representative, whether that's someone with our customs team or with your account management team to make sure you get supported.

So do drop your questions into the Q&A box. One of the questions we get very frequently is, can we get access to the slides, the recording, the links that are in the presentation, the certification for customs credit, continuing education, yes. We will make sure that you get that content. You can get that by completing the survey that you will receive from myself via e-mail in about 2 hours after today's webinar. We know some of you, your sand filters for whatever reason, block those e-mails, please give it about 24 hours to 48 because we will send out the material as well, anyone who registered for today's webinar. And if you still for some reason, do not get that e-mail of the survey or materials, then we absolutely will get that back to you or get those to you as soon as possible. And then finally, to stay informed, you can subscribe to future webinar invites and market updates via the QR code or will also drop a link in the chat here in just a moment.

So now we are going to go over an introduction of our speakers, although they don't need too much introduction for those of you that have joined us in the past, at this point, they've sort of become compliant customs influencers as we joke because you all have come to rely on information that they provide, which we think is just fantastic. We have with us Madeleine Veigel, she's our Vice President of Customs for the Americas; Brenda Smith is our Global Director for Government Outreach; Ted Henderson is our Senior Adviser for Customs; and Stephanie Holloway is our Director for Customs Operations here in the Americas region.

So Stephanie is going to get us started off today. I'll let you take it away.

Thank you, Samantha. Okay. So every good webinar, as I say, starts with the disclaimer. So here is ours. We are just going to give you the best information we have and it's not through the lens of a trade lawyer, it is through the lens of a whole bunch of U.S. licensed customs brokers doing the best they can in 2026.

So with that said, we actually have a really good agenda. You may think it's only going to be IEEPA refunds in CAPE, and we are going to cover that. That is what we're going to hit. That's, of course, our headliner. But there's a lot of other stuff going on that we didn't want to lose sight of. And frank -- and luckily, I would say, CAPE and IEEPA, is kind of not as exciting or thrilling this week as maybe we may have anticipated. So Ted is going to touch on the changes with metals and what we have coming with pharma. Brenda, of course, is going to use her crystal ball to see into the future; and then Madeleine is going to walk through really related to CAPE and IEEPA, some of the common questions we're getting in terms of how to do some practical management and things like that. So that is -- we're kind of starting and ending with CAPE and IEEPA refunds and then have some other stuff that's going on that we can't lose sight of.

So this is a rock and time line, I'll tell you that. But it really is trying to capture how much bigger and how our world is not quiet. Occasionally, I think we get kind of honed in on stuff right now. We're very honed in on IEEPA duty refunds, but really stepping back, there's still so much going on. So I want to highlight just a couple of things here that I want to make sure that people know about and call attention to.

So Brenda will be talking about some new Section 301 cases that opened. Unfortunately, the comment period opened and closed while we were between webinars, but there's still more to happen on that. So we have -- you see here on April 28 and May 5, there's going to be public hearings on those 2 Section 301 cases that we want to call attention to.

Also, if you look at the bottom of the time line, there was somewhat, I won't say quiet, but it didn't get a lot of press in the midst of all the IEEPA refunds. They -- we actually had an auto, auto parts, so that's a Section 232 case. HTS inclusion process starts. So this is kind of what I'll call the suggestion box. We saw this with steel and aluminum. We went through this 1 -- 2 times -- yes, 2 times. This is now starting on auto and auto parts. We haven't seen this, but essentially, what happens is commerce goes out and says, "Hey, would anybody like to add any HTS numbers to the auto and auto part list?" And if they do, it gets put into a public comment period.

So the submission to kind of put your request in ended on April 14, but now we're in a 2-week cycle that ends on April 29, where your HTS number that you use might end up in this Section 232 case. So this is really important. It can cause a lot of disruption. It can change the amount of duties that you pay. So if you're even tangentially involved with auto and auto parts, it is worth clicking on this link and seeing which HTS numbers are being requested to be included, and you can make comments on that, okay? So outside of that, you can see some other things in the future, but that's really the most pressing stuff outside of other items we'll be covering.

Okay. Now the part that you all came for, let's talk about IEEPA. What a pleasant surprise as I alluded to this week. So where are we at? What's important about this week? So I think most people know, back in February, the Supreme Court found the use of IEEPA, right? So the President using this legal statute to apply tariffs was illegal, you can't do it. So during the month of March, we saw some -- I won't say cool that might be a little [indiscernible] word, but we saw some back and forth between the Court of International Trade and U.S. Customs in terms of how are they actually going to get all of the money paid back to importers, okay? So we covered that in other webinars. But through that kind of back and forth that you could see with the court, customs had this plan. And their plan was to deploy an automated refund process, and I'll say automated, not automatic. But to kind of do these mass refunds, and they were building a system called CAPE, okay? And they said that they were going to deploy CAPE, what was it? I don't remember the exact time line, but it was essentially April 20, this week was April 20, and customs absolutely delivered on that date.

What they said they were going to deliver, which is pretty cool. Most of us know, especially if you're in the software world, hitting a date like that is really hard to do. So that was really impressive. You, like I said, aren't going to just get automatic refunds, you got to go and request them. And it's either you as an importer or the customs broker who did that original filing are the ones that are allowed to go into CAPE and request it, okay?

So a couple of things to call out. The way that they're rolling this out and the way that we saw back in March during the court filings was that customs was going to have to deliver in phases, okay? So Phase 1 is happening now, and it will do any entries that are unliquidated or up to 80 days post liquidation, okay? So if you're beyond that, then the CAPE Phase 1 doesn't capture those entries. It also doesn't allow you to file it if you have a protest open, if it's flagged for reconciliation, if it's already been included on drawback, some other types of scenarios like that, okay?

So really, what we're seeing is that customs is going to -- is expecting that we're going to have multiple CAPE filings, okay? Per importer, that's okay. That's not strange or weird. That's kind of how this process is going to work. We're going to have a bit of a long tail. Some of you might capture 100% of your entries on Phase 1 and some of you might just capture 5%. If you flag everything for reconciliation, Phase 1 is not for you. You're going to have to wait for a future phase.

CBP, we haven't seen money come yet, but they're saying 60 to 90 days after CAPE acceptance, okay? So that puts us somewhere in the June time line, maybe to start seeing that come. So let's look at some actual examples of what we're seeing this week and piece some of this together because it's kind of cool to see what we can tell, both as a broker and then, of course, you as an importer.

So this flow really shows what customs laid out and what we pieced together during those court filings. So the first thing they said was they were going to build a portal within their -- are they going to build a module within their ACE portal system. That's their online platform. And to that, here it is, this is a screenshot from this week, Monday morning, you were able to go into ACE. And you can see here, this is our Expeditors account. But there's this tab at the end, that has that little blue underneath. It says, CAPE is very exciting, and there's this upload button, okay? So on the upload, customs made it pretty simple. You just have to upload a list of entry numbers, okay? So no other data is needed.

There's a little bit of an art to this, obviously, because of the phases and some other kind of order of operations that matter. Likely you should not just be throwing all of your entries in there. There is kind of a thought process that needs to go into this. But you load it up here. And you can see there's 2 different tabs. This is a screen shot from file uploads, which is here in the underlying in red. And you can see Expeditors has been loading files up and you get claim numbers. And then essentially, your file tells you whether it's accepted or not.

So that leads us into the second bucket of what customs said they were going to do and definitely delivered on. We're seeing this play out. So layer 1, it checks to make sure that you have the authority to request this. So is that imported record tied to your ACE account. And then as a broker, is that entry that I'm requesting part of our filer code. So at Expeditors, we use 231, that's our filer code. Of course, I can only request things that start with the 231.

Then the second layer, and we were a little nervous about this. I'm going to be honest, it was going to look for entry validations. And we've seen that play out as well. So here's an example. Once it makes it through that first step saying, is it good -- am I good to ask for this. It gives me back a claim status. So you can see here the claim number once it gets accepted, there's a claim status. So it's accepted or accepted with errors and then you can see how many were successful and how many errors occurred, okay? And then this is a copy of the spreadsheet. So for this claim number, you can see here by entry, I wiped out the full entry number, but you can see what the status is.

And this particular spreadsheet is showing really the one status that is going to probably be the thorn in all of our sites, which is unable to calculate duty, okay? So there's other status is coming back. One of them is like not paid on statement that's because there's still some stragglers and those probably got paid this week on periodic monthly. But otherwise, what we'll be doing and what a challenge will be for all of us over the next couple of weeks is kind of picking apart and trying to understand what this message means, which is unable to calculate duty.

So this is one of the things a customs broker when you hire us to do your entries. We're not only submitting data, understanding what's required and what. You also start to learn and a big part of a customs brokers job is to understand how the data needs to be sent to customs. And this is kind of that pulling apart, as I say, similar to what we've done with every trade remedy trying to figure out what customs is programmed? What they expect. Is it something we need to change on our side? Is it something that they need to change? And so we're doing that. We're starting all that work. I think it's going to take us a little bit of time.

Our general acceptance rate right now is extremely high. We're getting unable to calculate duty on less than 1% of the entries we've submitted. So this is not huge amounts, but it is going to take a lot of work. And I'll say all of us are going to have to have patience with that as we figure out what's going on with those entries and how to get them fixed.

I think some will end up with an adjustment. Customs will need to adjust some of their tables. And some of them might end up with a post-summer correction, we'll have to see how those sort out. So we're at the beginning of this process, just have patience with it. This is not alarming to a customs broker. We deal with this all the time. But I know it's a little annoying when you want to check the box, right, which is what we're all trying to work towards.

With that said, customs then said we're going to move it to a mass processing state. They're going to remove IEEPA HTS numbers, and then it's going to approve. So we don't have complete kind of proof of this yet. But if you use ACE, you can start to pull some of this apart. So this is a screenshot of some ACE reporting. I'll make sure Samantha includes, if you've never used ACE reporting, it is worth your time to watch a little tutorial so you don't lose your mind. We did a webinar about a month ago, and we'll share that link. But there are some tips and tricks that will make your life easier. However, if you are familiar with ACE reporting, know that customs added 2 data elements regarding CAPE to the entry summer universe, and they are well worth your time to understand. So one is CAPE indicator, meaning, "Hey, was it submitted to CAPE?" And then secondly, there's this CAPE decision. And right now, it's just showing CAPE approved. So that -- it feels like there'll be other milestones, I don't know what they will be, but this is where it currently stands, okay?

One thing we piece together too on the CAPE indicator, we're seeing Ps and Ys. The P seems to be ones that had already liquidated and need to be reliquidated, and then Y means it was pending liquidation.

One other report that customs put together, that would be worth looking at is this ES022-CAPE entry summer report. And this showed kind of more of an overall view of the different claim numbers, let's say, your entry summary numbers. And then what it looks like is all the refund information is going to go to the far right. This one, even though it's accepted, it doesn't look like that refund, of course, it doesn't look like it's all blank. It looks like this is going to be populating over time, okay? So this is going to help us pull this portion apart.

One other thing I forgot to mention on this, you can actually see here, this is kind of cool, this HTS number here, the 9903, you can see that in custom systems now under line tariff duty amount, it's been zeroed out. So you can see that this step, right, where it's going to go in and zero out, has been done on custom side. This is going to get a little bit tricky for many of us because what's now reflected in your broker system or maybe other entries is not the same as what customs has. So this is going to be kind of this topsy to every world to know how do you get your data right, and what are you using as your source data.

So more to come as we discover all of this together. Once it makes it out of mass processing will be over in this review and liquidation as well as refund issuance. So this step, even though we've made it through these 3 milestones, this next part, we do anticipate it's going to take 60 to 90 days, and we're going to keep an eye on it and see what happens. I think the thing many of us in the trade are really paying attention to is that customs in their court filings really alluded to the fact that they're going to allow CBP to manually review things and look for compliance concerns. So we don't know what that means. We don't know how many things will get caught up here. So there's a lot here that will be kind of interesting to see play out, and it's going to take a few months to see that play out and see what happens along the way, okay?

One other thing about this playout period, the 60 to 90 days is that -- customs -- the U.S. government has until the beginning of June to file an appeal. So that kind of lines up and allows them not to issue refunds until we make it past that beginning of June time frame where they potentially could appeal and say that the judge in the international court doesn't have the authority to make the choice that he did essentially saying that Atmus filtration gets their money back and this extends to all importers. So we'll have to see we're going to be in this holding period now for a while.

The last thing I'll highlight, and this is something that my teams really wanted me to make sure that we share is CAPE is really intended to be end of the road, okay? So we need to make sure all of our post-summary corrections or other things that you want to do with the entry are done before we do CAPE submission. I kind of like that order of operations that we learned in math in elementary school. So really making sure that this is -- we're not just loading up entry numbers and pushing send and then sitting and waiting for 60 to 90 days. But we really need to make sure that the entries are done in the correct order because if we don't, once we do CAPE and there needs to be a change.

We think it will then need to be a protest, and we hope that we don't have a reason to think that legally, you can't do a protest, but the way that customs has built it is really intended to make sure all post-summary corrections are done and then CAPE happens, okay? So please be working with your brokers and making sure that everyone is communicating as to who is doing what.

Okay. I think I have covered CAPE extensively. Ted, take us into our latest 232 changes.

All right. Thank you so much. Yes, millions of questions still piling in about IEEPA tariff refunds, CAPE refunds and all that, but we will take a brief break, I promise you we will come back and folks are trying to answer your questions as we go, as always, and we will talk a little bit more about CAPE at the back end of this discussion.

But let's talk about our good old fashioned tariffs that are not being refunded, I guess, for a little bit. So let's start with the latest proclamation related to Section 232 tariffs on metal imports and -- those of us who've been in the import business for a bit, you can remember back all the way to 2018 and Trump 1.0 and suddenly, companies who imported aluminum and steel articles started to struggle, I guess, with 232 tariffs on those -- on that. We originally saw a 25% tariff on steel, 10% tariffs on aluminum. And then we got -- we got to know this idea of derivative articles, articles that contain steel or aluminum. And then we had that whole wonderful challenging exclusion path where everyone was filing for exclusions and hoping to get their articles removed from the tariffs.

Under Trump 2.0, we saw probably a new and maybe even more challenging approach with higher tariffs coming in for steel, aluminum articles, a process to continuously add derivative articles and add more things that should be tariffed under these 232s. And really incredibly complex calculations to identify the value of the steel or aluminum on derivatives and how do we calculate that and CBP didn't give us the best of guidance really on how we should be doing it. And then we saw copper get added to the mix of metals that are subject to Section 232 tariffs. So metal imports, for those of you who are involved in this, I'm not telling you anything you don't know, became incredibly challenging to deal with and manage with multiple tariffs being stacked on a single HS line.

So at the beginning of April, right, around the 2nd of April, we saw the Trump administration issue a new proclamation that really honestly seem to recognize that the whole Section 232 tariff structure on metals have gotten way too complex, too costly to manage, and they really significantly modified how Section 232 tariffs on imports and metals are going to be managed. And as we say on this slide, think of the modification proclamation really as kind of a new fresh framework on how we manage duties on metal imports.

This -- you really have to throw out a lot of the past assumptions and the methodologies from the former actions, either Trump 1.0 or 2.0. But unfortunately, do keep in mind, the key thing that did remain in place are indeed the tariffs. So really, the first thing to think about is that the administration and CBP are now applying the Section 232 metal tariffs in a unified manner on steel, aluminum and copper and looking at them singularly as metal, if you will, as imports. So that makes things a little bit easier. We don't have to pile up goods that imported. You had a goods that included some metals and steel and God forbid maybe copper, too. And the duty was accessed back on top of each other. Now we look at it as an aggregate as metal in total.

The second thing is, and this is important, we no longer have the opportunity, the option, however you want to look at it, to calculate duty on the partial value of the metal in articles depending on that content. We only consider the full value of the article. So the full entered value of the article regardless of metal content is how duties are assessed on that. So these changes are good in some ways. Some of you, as we've seen over the last couple of weeks, you've been favorably impacted by the changes in the tariff structure, and some of you are unfortunately negatively impact because of this idea of the full entered value.

So let's look at some of the specific takeaways of the modification and see what happens. So first, key point, the effective date for the new Section 232 tariffs for metals in total went into effect for imports coming in on the 6th of April. And second, there's something of a tiered structure, and there is some complexity to this in all honesty. And we're not going to have time because they're literally 10 subdivisions into proclamation if you look at the annexes and the things that have laid out. And the duty rates are going to vary depending on where your article fits in those different subdivisions. So there's a 50% tariff rate for -- there's a list of goods that was subject to that. There's a list of goods that would be subject to a 25% tariff rate.

There's also a list of goods that would be subject to a 15% all-in duty rate depending on the HTS and that would last through 2027. Some of that's based on trade frameworks, agreements that have been negotiated with certain countries. Again, we don't have time to go through all of that today. If you do have questions, as Samantha pointed out at the beginning of this webinar, if you've got specific questions about articles that you're importing or planning to import under this metal structure, then please make sure and reach out to your Expeditors contact. I got to be honest, I'm sure they'll be happy to talk about something other than IEEPA refunds and CAPE. So check with them to see where that 232 action may impact you as we've done.

Another interesting point is there was a whole list of HTS numbers that were removed from the Section 232 duties. So there's a good thing about that to some other odds and ends on this is that the column on the right talks about. The U.S. U.K. framework agreement does impact goods that are wholly entirely of U.K. some odd things. There hasn't been a breakout for U.S. goods. So U.S. goods, wholly melt ports, smelt cast, whatever, in the U.S. would be subject to a duty rate. We're waiting to see if there's a modification about that. Russia aluminum still is under 200%. And then there is an allowance for a de minimis content, so less than 15% that can get you excluded from the duty rates. So again, lots going on with this area. Please reach out to us if you have specific questions as it goes.

So let's go to pharmaceuticals now, please, and we'll take a view towards how the Trump administration is managing the tariff actions specific to pharmaceuticals. And as we know, the Trump administration utilizes tariffs for several reasons, to certainly bring in revenue, to try to guide behavior either directly related to imports or completely unrelated to imports. And in this case, this is really one of the notable objectives of the Trump administration as they've stated and that's to convince companies to reshore here in the United States. And here with the pharmaceutical tariffs and the actions that are going into effect, we actually see a good strategic approach, if you will, to accomplish that goal of reshoring for pharmaceutical companies.

As we call out on this slide, there are some interesting facets to the approach on this. There's some interesting things about pricing leverage and what have been called most favorite nation pricing agreements. For those of us who are actively involved in imports, we think most favored nation in terms of duty rates, column 1, duty rates don't think that way. It's we would appreciate probably if the administration use a different term, but at any rate, they talk about pricing commitments that certain companies have made with respect to their pharmaceutical imports. So that's something.

There are several tiered incentives. We'll go through a latter of that in just a moment that speak to agreements that the companies have made, the country of origin, things along that line. As we know, they're under the IEEPA tariffs, a number of agreements were made with certain countries, EU, U.K., Switzerland, et cetera, to offer lower duty rates for goods from those countries. And so that prevails in the Section 232 agreements. And then the other thing is there's a long time line for this to go into effect ultimately up to 2030. So there's an allowance of 4-plus years for actions to go into effect by certain companies before the 100% tariff might actually come on to them.

So we'll take a look at the latter that I mentioned earlier on how these incentives might work for companies. First, the important thing to note is that the tariff actions for pharmaceutical imports for now, they only apply to patented pharmaceuticals and the associated ingredients and not generics. So that's really one of the first questions that we asked when we look at imports, are we talking about generics. For now, they're excluded from any action. There's a 1-year period where there'll be a reassessment and the administration will figure out what to do with generics. But for now, again, we're focused on whether it's a patented pharmaceutical or ingredient.

From there, we want to see if the manufacturer is one of the companies that have negotiated an agreement or in the process of that negotiating agreement with the U.S. administration and maybe have agreed to an MFN pricing protocol. At the time of the announcement on 2nd of April, there were 17 companies, and they're listed on an annex to the proclamation from the White House that the 17 companies had already engaged with the administration. They've made commitments to reshore and potentially will receive reduced duties on their imports.

So if you look at the question 3, there are 3 scenarios. Did a company agree to MFN pricing and onshoring, then it's a 0%. If they only for now have agreed to onshoring, then it's a 20%, which will bump up to 100% as we note in 2030. And if there's no commitment for now, it's the 100% baseline tariff. And then again, as we talked about, there were countries that also came to the framework agreements with the U.S. about imports in total and pharmaceuticals were covered in that. And so some of those products from those countries may be subject to that 15% pathway that things will go or U.K. is 10%.

So really, this is -- I'll just close with the idea that this is an interesting approach, if you will, to tariff action, certainly different than the -- I hate to say that to use this the blunt force trauma approach of just hammering people with tariffs. There's clearly been some thought about how to engage with private sector players and work together towards the goal of reshoring in this case. And maybe this is the framework for future actions that we'll see. So speaking of future actions, I see my friend Brenda is on screen and ready to go. And so I will turn the discussion over to her and talk about things that are -- we're looking at in our windshield as we move forward.

So Brenda, it's all yours, please.

Great. Thanks very much, Ted, and hello, everyone. So lots of things to keep an eye on. I know we have all been heads down focusing on refunds and the new metal structure and the new pharma structure, but a couple more things for your radar screen. After the Supreme Court decision on IEEPA was issued, the Trump administration came back quickly and said, "We have a strategy." And the conventional wisdom as well as statements from the Trump administration was that the IEEPA tariffs would be replaced with a combination of Section 301 investigations and Section 232 investigations.

As you probably recall, those two types of investigations do require a process, in some cases, public notice and comment, conversation with the public taking an input. But Section 122 does not. That was something that could be effected very quickly and was. But it is only good for up to 15% duty rate and only good until July 24, unless the Congress intends to extend it. And so what we have seen over the last couple of months is a variety of announcements on new 301 cases as well as new 232 cases. And the two that I really wanted to call out now were the new 301 cases. So we have two new investigations that were announced within the last month.

The first one is focusing on the issue of excess capacity. And for those of you that have gotten into kind of the policy or economic side of the Trump administration's trade strategy, you know that this issue of overcapacity. In other words, when a country produces more than it can use domestically, that is a real concern for the Trump administration. And what they are saying with this new investigation is that they believe there are a number of countries, 15 have been called out specifically plus the European Union, which is 27 more countries are actually producing more than they can use domestically and the sectors that, that overcapacity or overproduction is being targeted in, are things ranging from steel and aluminum to machinery and robotics.

The call for comments in that investigation was issued fairly quickly and actually is already closed. It was on a fast track, closed on the 15th of April, and USTR's public hearing will be held on May 5. There will be an opportunity for rebuttal comments. So if you are very interested or you have a stake in one of these issues or one of these countries, your company may want to issue comments after the public hearing has been held.

The other case that was announced the day after the overcapacity case, is actually focused on forced labor. This is a very broad case. 59 countries plus the 27 in the European Union were called out for investigation. And the principle that the Trump administration is investigating here is whether these countries have a mechanism to prohibit the importation of goods made with forced labor.

Now if this sounds familiar to you, it means that you are actually familiar with the U.S. framework, which under Section 1307 requires the prohibition of any goods made with forced labor from coming into the United States. And essentially, what the administration is looking for are similar framework, similar legal framework in other countries. That is an interesting use of forced labor, legal and statutory frameworks. Comments on that were also due by April 15, and the USTR hearing will be held on April 28. So that's coming up pretty quickly.

A couple of interesting observations, if we can go to the next slide. The scope of these two investigations is very broad. We've indicated on this map those countries that are involved in one of those two investigations or possibly both. And as you can see from the red on the map, it is very extensive. In fact, calculations are that imports from these countries cover 99% of U.S. trade, making it the most extensive geographic expansion of Section 301 authority ever. What the United States trade representative has described these cases as doing at a system-wide distortion so in the past, we've seen the use of 301 on China or on a particular industry.

In this case, the scope of these two orders is very broad, and seeks to address a system-wide distortion, meaning that we believe the remedies that will be coming out of the USTR's investigation will be system-wide as opposed to country specific. It also changes sort of the burden of proof for the government from a country-specific set of evidence to an overarching system. And we believe that the remedy will be a system-wide or more global measure, which for you all who are involved in sourcing decisions for your companies where you may have been able to manage the duty rates in one country versus another country, these duty rates are going to be much more similar to those levied under IEEPA, where it really is difficult to source your way out of an increased duty rate.

So stay tuned on that, lots of activity. This is really a new way of applying the 301 authority. There was no new legislation, no new court case giving new authority to the administration, and it will be interesting to see how this plays out.

Let's go on and also talk about other active 301 investigations, just so you don't forget that we have several ongoing investigations related to China. Several of those have been suspended until the November 2026 time frame, as many of you know, the President is planning to visit Beijing in May, and there have been ongoing kind of behind-the-scenes negotiations going on between the U.S. and China to achieve what seems to me to be essentially a XXXXXXXXXXXXXXX between our two countries and hopefully, some additional predictability in the trade between China and the United States.

There is also an ongoing investigation on Brazil on a number of issues. The actions due on that investigation will be sometime this summer. There are a couple of others, digital services taxes as well as currency practices and timber issues in Vietnam, we believe that those are essentially in the monitoring phase, we don't expect major new activity on those cases. It's always though in the administration's back pocket, so never say never.

We also wanted to remind you of cases that the Commerce Department is investigating under their Section 232 authority. There's a number of those cases, if we can go on to the next slide, that really focus on a range of different sectors. We have already talked about copper and pharmaceuticals. We know that action has been taken on things like trucks and auto parts. But there are a couple out there that are still active, still in the investigation phase. Even those cases where actions have been taken, such as copper, the investigations have not formally been closed. And from my perspective, that means that the Trump administration is keeping their options open and allowing themselves sort of maximum flexibility that if they don't get the response either in negotiated agreements or in a change in the trade in these particular sectors, they can always take more action under these particular investigations.

We have seen things like semiconductors and autos are actually not just having action taken to increase the duty rates, but we are seeing other new agreements and other new mechanisms that are looking to change and how trade is done in these particular sectors. We do expect that as a couple of these cases are coming up on their 270-day plus the presidential activity requirement deadlines that we will get new announcements in these areas. So keep an eye out if your company does business in these particular areas.

Well, the statutory trade remedies, the 301 and the 232 are not the only thing that we are watching. There has actually been a pretty significant level of activity in the legal arena. And we've already talked about, both Ted and Stephanie have already talked about the IEEPA appeal which is due by June 6, if the administration does intend to bring a case on the scope of the IEEPA remedy. So just in plain language, what that really means is, does the Court of International Trade have the authority to order refunds nationwide for all importers without those importers having to file separate cases. It is not clear whether the government will question the CIT as authority or not, we should know by early June, whether that's going to happen. There have been a couple of questions in the chat about, well, what does that mean for the refund process.

It is likely, though, don't hold me to this, that, that is going to mean a pause in refunds. And of course, if the government appeals at the CIT, as many of you know, there are further appeal levels at the Court of Appeals for the Federal Circuit as well as the Supreme Court on that. So we're hoping that things in the refund process move along as expeditiously as they have done this week, but there is still an opportunity for more XXXXXXXXXXXXXXX in the refund space. That's a technical term.

The other thing that we wanted to remind you of is that there are currently ongoing cases related to the action taken by the President related to de minimis. But the expected change in that arena is not major because there already has been executive order on de minimis changes as well as a change in the statute that will end up as a full scale repeal of de minimis by July of 2027.

The final case that we are watching is related to a challenge to the administration's use of their Section 122 authority, and that is underway as we speak.

The last area I wanted to focus on was congressional action. There have been two major pieces of legislation proposed by Senator Cassidy, one related to the use of first sale, which would switch valuation only to the last sale before export as well as changes proposed for the use of the importer of record privilege by foreign entities. I've laid out some detail there. Our expectation is that there will not be activity on this in the very near future, but stay tuned on that either after the midterm elections or in Congress. We do not anticipate that we will be an extension of the Section 122 authority, but we will know that before July 24.

So Madeleine, I know you've got a lot to talk about, and we'll let you dive back into the refund process.

Okay. Thanks so much, Brenda. Only a couple FAQs, everybody, and we're circling back to CAPE on this. These are just some questions we've been seeing and wanted to hopefully help clarify at least our understanding and our feedback on these questions. So one of the questions that we have seen that's been raised is, hey, should I file CAPE if I filed a lawsuit in the Court of International Trade?

And it is our understanding that these two CAPEs and a lawsuit are really completely separate. CBP's CAPE system is really the operational system through which you're able to get your refund. And CAPE will not waive or undermine your lawsuit. So really, those are separate. And even if you have filed a lawsuit, you should be able to go into CAPE and request a refund for all of those entries that are subject to CAPE Phase 1. So you should not have to worry, "Hey, should I hold off in filing CAPE because I filed a lawsuit." You should just be able to still file CAPE regardless of the lawsuit.

If you still are worried about that, of course, talk to your internal counsel, I'm obviously not a lawyer or your trade attorney, but you should just be able to file CAPE even if you have a lawsuit file.

So on to the next question, which has to do with protests. So -- and I even saw some questions in the Q&A. Some of you asking about, hey, should I still file a protest. And we do believe you should still file a protest if your entry is reaching that 180-day mark. So again, remember, entries that are plus the 80 days, kind of the in between the 80 days and 180 days are not part of Phase 1 for CAPE. So if you have entries in that bucket, and you are approaching, I would wait until you approach the 180-day mark, then we recommend still filing a protest to preserve your right to a refund. However, if you file the protest to reserve your right for a refund. And it's between that 314-day and 80-day mark. So technically, you can file CAPE, then customs have said you can withdraw that protest and then put that entry on your CAPE filing. So again, only file a protest, if you're reaching that or getting very close to that 180-day mark.

So anyway. And then on our third, rejects. Third question is just on rejects in CAPE. So especially for those of you that are filing directly in CAPE, you're doing this on your own. Obviously, you have to go in there on a continuous basis and look to see if there are any reject messages. And there are some reject messages that are listed on CBP's website. Some of the messages, and Stephanie talked about this earlier, are fairly easy to understand. And some of them, it may not mean that you -- that entry is just flat out, you're not going to get a refund for that entry. It depends on the message. So for example, there's the statement processing not complete message.

So obviously, that means you haven't paid duties yet on statements. So it's too early to put that entry in on a CAPE file. But as soon as you've paid your duties, you can take that entry and put it on a CAPE file. So that's one that if you get that reject, you can wait until you pay the duties and then put it on a CAPE file. There are, however, messages, like the one that Stephanie highlighted earlier where the message is unable to calculate duty, those, we are still investigating. We're still trying to figure out what that means exactly. That message is not clear. And so we're still trying to do more investigation. But as I said, most of the messages are fairly straightforward. And based on the message, you potentially could still rectify and make the amended changes or do -- and add that file to a CAPE file -- subsequent CAPE file. So anyway, important thing, track those messages and really look at those, and you can see them in the -- on the CAPE tab.

All right. And then lastly, I think this whole process of filing in CAPE, you have to really treat it more as a program versus just a onetime filing. You have to be somewhat, we think, somewhat strategic basically looking at the list of entries that are eligible for you under CAPE Phase 1, you probably want to prioritize those entries that are getting closest to liquidation deadlines, closest to that 80-day deadline and make sure those get submitted. You also want to make sure you've got really clean data. As Stephanie mentioned before, it's really important to file if there are issues to file a PSC, you should do that before filing CAPE. So make sure that you're filing clean data.

And last week, I was at the seminar. And I still believe, even though we're only in day 3 of CAPE, I still believe this now you may not want to upload 9,999 or all your entries in one CAPE file, you may want to batch and sequence them. So in other words, taking a handful, starting with a smaller number, making sure those are maybe the closest to liquidation date, and that you've got clean data, start with those first. And then you can do subsequent CAPE filings. Just to see how everything works and making sure you're getting it uploaded.

And then like anything, when you're treating this as a program, make sure you've got good ownership assigned to the different groups within your organization. compliance, finance, your customs brokers, making sure they're -- you're pulling in all the right parties and you have clear ownership. But in general, I would say filing too fast may slow down your refund. So it's fine to take a little bit of time, get organized and make sure you have kind of a plan of action on how you're going to approach the filings in CAPE.

So anyway, those are some of the biggest questions we've gotten lately. If we can go to the next slide, Stephanie. And I actually, I think I'm handing it off right now to -- yes, our key point was just to -- with the last thing I mentioned, the stay organized, and you don't have to rush to file CAPE, you can take a little bit of time and be strategic.

So anyway, Ted, I'm going to hand it off to you for our key takeaways.

All right. Thank you so much. Yes, I think I have one bullet here, just to again talk about CAPE. We've obviously spent quite a bit of time. There are many, many, many questions about CAPE and actions you've tried to take, things didn't happen, didn't happen the way you thought. You can't figure this out. We're all in this boat together, bottom line. We're trying to sort through how this works. Relatively speaking, it's working well. But there are certainly questions we all have. So this is not one of a file and forget it kind of thing. Please stay involved, stay involved with us if we're your broker and managing this. Pay attention to what CBP is talking about. We know we have to be ready to adjust and maybe pivot a little bit as we learn from each step that Stephanie talked about, the phases. So again, stay engaged and make sure and pay attention to what's going on.

Customs and Border Protection, CBP hosts CAPE calls. There's a link on this slide when you get the slide or you can also go to cbp.gov to check their website about this. They have a whole page on what's going on with CAPE. So -- and they also have question points and ways that you can send in, understand that they are being inundated as this is happening. So it may take some time to get answers from them as well.

As Brenda pointed out, there are legal actions on Section 122 tariffs right now. It is very possible that courts may find the Section 122 tariffs are not appropriate under the statute, and we may see a similar exercise as we're seeing with IEEPA tariffs, a refund possibility on Section 122 tariffs. So -- just as you've been trying to manage your IEEPA tariff collection of entries, make sure you're doing the same thing now for your Section 122 entries. I know we're all overwhelmed in XXXXXXXXXXXXXXX as we're trying to deal with IEEPA refund processing, but also keep in mind the Section 122 declarations and hang on to them and make sure you're kind of keeping track and starting to take a look at those and be prepared for a possible refund. I'm not saying it will happen. I'm just saying let's be aware of this.

The other thing that you need to be cognizant of is many of you under the IEEPA process, you were facing issues with your custom bond, custom bond saturation, we're trying to ascertain, and I know the surety providers are trying to understand clear guidance from customs as you start to get refunds on IEEPA that's going to impact that 12-month view of the tariffs that you pay for your imported goods. So keep an eye, it's not a negative. It's actually going to be a positive about your bond, but it's -- certainly, our management team here who takes care of customs bonds, we'll be watching this as well. And hopefully, we'll see some positive things here.

Brenda talked about the Section 301 actions that current investigations. We know that the administration is looking for more durable tariffs, things that would stand up in court. So watch for those 301. Those two key ones are, as Brenda pointed out, basically covering potentially 99% of U.S. imports. We talked about the other 232 actions that are still out there. It's clear, and the administration has stated this that they are looking for alternatives to the IEEPA tariffs, and they're counting on the Section 301 actions to pick up the slack, if you will, for the IEEPA tariffs that went by the wayside. So be aware of those. We will see more actions coming.

As we pointed out, there are ways to engage on both the 301 actions, the 232 auto. And again, bottom line, we always say this, hang on as well as you can, get relax and recover when you can and just be ready to pivot and get ready for the next action as it comes. With that, we will wind down, all my colleagues and I will come back. Any -- I know we had a million questions, 158. We're trying to get through 20-some-odd now. Any key point we want to leave before we turn over to Samantha to say goodbye.

Steph, anything someone is seeing?

No, just I mean so many CAPE question. So I think we all just need to remember, we're on day 3, and we will figure it out. CBP seems very committed to getting money back. But if you've ever worked and programmed any system, what they've pulled off is absolutely incredible, but there will be bumps in the road. So I know some people are saying, "Hey, I loaded it, and it got accepted, but now it's not showing on ACE reporting." There's going to be a lot of things like that. So let's just kind of let some of it fall out. Nobody is getting refunds for 60 to 90 days anyways. So I think that this will sort itself out and we will see it all kind of get shored up. But I absolutely believe there will be some bumps here, especially because -- I mean, imagine how many spreadsheets CBP loaded on Monday, it is mind boggling.

So just everyone hang in there, we got a long ways to go.

Was that the pep talk you were looking for, Ted?

This is good enough for me, bring us on, Samantha.

I cannot add too much to what you all have provided other than I let the emojis go because you all answered 160 questions in the chat. So big round of applause for our team who did that. Thank you all for sticking with us and asking these good questions. We will be working feverishly to get those of you who had remaining questions connected with the right people. And again, please look out for the survey that will come to you within about 2 hours. So do not fear if you do not get it, we're going to get these materials to you just as fast as we can. So they will be in your hands within the next 24 hours. We can assure you on that. And if not, you can reach out to me and I'll make sure you get them.

Thank you all for joining. We appreciate all of your support and your business, and we will be back in a couple of weeks.

Thank you, everyone. Thanks for being a part of our community. Talk to you soon.

Bye-bye.

Good morning, everyone. I see people starting to join. We'll give it a few moments before we start. But first of all, I'd just like to welcome you all to today's webinar with Expeditors. Just a few more people trickle in. We'll probably get started at about 1 minute past 10. I'll just run through a few housekeeping rules, and then I'll obviously hand over to our speakers to get us into today's content.

I am seeing some echo. I don't know if that's the case at this moment in time. Marcus Stoneham. [Operator Instructions].

First of all, I'd like to just welcome you all to today's webinar from Risk to Resilience, your 2026 Supply Chain. And first of all, I'd just like to thank you for joining and your continued support of Expeditors webinars. We hope you find today's session valuable and useful.

Just a quick disclaimer before we start. Just to say that the contents that are presented today are for informational purposes only and should not be relied upon for legal business or financial decisions. The rest of the disclaimer is there. This will also be distributed when we distribute the slides afterwards. But yes, just as an opening point.

Just a little bit about today and a few housekeeping rules. So we're hoping for between 45 minutes and hour's worth of content with Q&A to follow-up. And the Q&A, I know Marc, who is supporting me on today's webinar has put in about how to put the Q&A into the Q&A box.

Please make sure you use the Q&A box for any questions that you wish to be answered. Only use the chatbox for the for any technical difficulty that you might have. And do please remember that when you do submit questions, these are visible to anyone. So any sensitive information will be available to be viewed just with the nature of how webinars are conducted.

So just be careful when you do that. And if some of the questions are very specific, we will take them away, but we will make sure that all of them do get answered. One of the questions we do get asked a lot, will the slides be shared? They will be. After this session, we will send out a short survey upon the completion of which you can then download the slides and then use slides as you need to sort of reference back to.

And then a little bit more on the screen there, there's a QR code, but we'll come back to this at the end on future webinars because we've got a very active program at this moment in time. I think we've got another -- we had a webinar yesterday, and we've got another 3 over the next 3 weeks, which is really good to see.

So before I kick into this, just to give a little bit about risk management at Expeditors. Obviously, we have our risk management teams within the organization, but we do also have 2 wholly owned subsidiaries, which are Cargo Signal and ETIB. We will be utilizing and having -- utilizing some of the content from those guys today just to make you guys aware with that. So just to come to today's speakers, I am joined by Marc Edwards, who is helping facilitate this webinar. Marc's District Sales Operations from our Bristol office. And I'd like to thank him for his support in putting this session together today.

We were meant to be joined by 3 of our risk and security experts. Unfortunately, Aaron has been ill the last few days, and he just sent his apologies so he is unable to join, but he was really excited to be with us, and he's going to make sure that he'll be on any future sessions that we do hold.

But just quickly, I'd like to introduce Marcus Stoneham, the Director of Security, Health and Safety for Europe here at Expeditors. He joined us in 1999 as an account manager, but moved to security in 2008. He took on additional responsibility in 2018 for risk management and insurance across all of Europe. We're also joined by Viktor Uri.

Viktor has been working with Expeditors for 11 years. He's worked across multiple departments, sales, sales management, Transcon and the operational department. But he is now the regional risk and insurance manager across Europe, and that's been since 2021. I think for myself, I'd just like to thank the guys for taking the time out of the day to present to you guys. And what I'll do now is just hand over to Marcus to start today's session. But yes, no, that's great. I hope you all enjoyed.

Thank you very much, David. Good morning, everyone, from a very sunny here at Birmingham. We've got quite a packed agenda. Hopefully, we'll get through it all -- get through all within the allotted time. So just briefly, what are we going to go through this morning? What is risk management, some examples of bad things that happen to cargo, current state of cargo insurance market, security threats, loss control techniques.

The age of technology and smart cargo evolution. And hopefully, we might have some time at the end to take any questions that you may have. So just on that initial question of what is -- what is risk management. Simple definition, on to the slide. So risk management is focused on anticipating what might not go to plan and putting into place actions to reduce the uncertainty to a tolerable level.

Well, there's always risk and there's always been risk in the supply chain and there always will be. And we are living in very uncertain times. There's all sorts of crazy stuff going on. I think you would have to live under a rock to not know all the economic and geopolitical activities going on.

But what we're trying to do is discuss those issues, those hazards that could cause your organization financial loss. And when we talk about financial loss, we're really focused on 3 key hazards, yes, 3 key hazards. And we're going to look at those within this presentation. So damage, security threats and a significant business disruption.

So I'm going to hand over to Viktor, who's going to just highlight some of the most recent sort of 2005, 2006 events just to show that there's always something going on, and there is a loss out there. And yes, so I'll hand over to yourself. I think we have a quick pop quin just to break the ice for the audience.

I'm just going to pop on screen for you guys now. You should be able to see that. So how many containers are on average lost Over's board annually across the last 10 years.

So I would say it's a very small percentage of the 250 million containers that every year plow across our oceans, but still not -- even a small number is not a great number if it's one of your containers. So interested to see what people think the answer is. So that's an annual number based on the average over the last 10 years because it isn't -- it's not the exact number.

Right. I will close now the results.

The answer is correct. I think most of the colleagues, participants got the correct answer is 1,274 approximately is a rough estimate.

Right. Should we look at some examples?

Yes. Thanks, David. Should we close that out.

So yes, we just wanted to present you now a couple of live examples. We particularly were looking for some recent ones where there was any kind of damage linked to a shipping process. So on the picture right here, you can see some recent maritime losses. The first [indiscernible] [ Tiga ] and the [ Sunflower ] basically were linked to some severe weather conditions, one of them in the coastal [indiscernible] and the other one in the North Pacific. In both of the cases, approximately 60 containers got dropped in the ocean. I want to highlight this fact because it is a kind of an issue when the containers fell overboard, but the ship itself wasn't affected. So based on the previous question, yes, it is just to highlight that containers can really due to the severe weather conditions drop in the ocean.

Very importantly, due to the fact that there are some things going on worldwide in the Middle East due to the Middle East crisis, these containers have to take different routings than before. And therefore, due to going around Africa, there are some more severe weather conditions that contribute to these losses overboard linked to these issues.

Now on the other slide, I would like to present that it's not only the bad weather conditions, the other kind of damages when the commodity gets damage due to some case happening with the container ship where the container ship is also affected in the cause damage. So when last year, the container vessel went high, just basically gotten fire. There was an explosion.

There was over 1,300 containers damaged. Some of them were totally damaged, declared a total loss. Some of them were just actually affected by smoke losses. So therefore -- and some of the commodities were also affected by the fire extinguishing of firefighting water. Very, very sad story, MSV also when the container vessel got capsize and sent basically on the water, all of the commodities stored on the vessel was gone into the ocean. So it was a total loss.

And maybe the most spectacular one in terms of how it looks like when 2 ships have basically crushed into each other and due to the collision, there was fire in the deck. So this is just a couple of highlights just to present what can happen to commodities on the -- while they are in transit, it can be dropped in the ocean or there can be any kind of [ disruption ]. Moving on. If we...

So I think we've got another quiz. So first, the Waihi 1,300 containers damage. Just to give some sort of perspective, David, we got interesting [ pop ] quiz to the audience. What is the capacity of the largest container ship in current service.

Yes. Just by that live. We'll give it roughly 30 seconds or so just for you to answer.

I don't have my notes in front of me, David, but we were looking at the largest vessel, I think, was 2006 was 6,500.

I think that was about right, yes.

These ships are getting huge. How large are they?

Share the results on that one?

Yes. 24,000 that is [indiscernible]

It is the correct answer.

Thanks, David. So if we move on, it's not just ocean though, some of those still. So yes, on this picture here, you can see like it was a trucking event actually linked to some very, very small tiny issue that has contributed to such a high loss. Basically, one of the tires got on fire.

Therefore, the commodity and the truck itself got totally demolished and on the other picture, this is actually an interesting picture has been taken by one of our colleagues over the U.S. This is not of our commodity, of course, but yes, so there has been a drop of container and this truck has blocked 4 lines on the highway.

So as you can see, the damage or an event can -- or this kind of events can happen not only on ocean, but it can happen on road or any mode of transport.

David, we've got one more pop quiz on this before we move on to the next example. So which location creates the largest single accumulation risk in logistics?

I'll give this one 30 seconds or so to run.

Interesting, interesting, right. So if we -- I will let Viktor continue with some more examples and the answer hopefully will become apparent, right? So this is what we would call a catastrophic event.

Yes. So basically, this is a catastrophic event without spoiling the answer. So as you can see on this picture, one of the containers or one of the pallets were containing some lithium batteries, which just by themselves cut and fire in the warehouse. As you all know, like this extinguishing this kind of damages in the warehouse, it's not just a simple activity.

So we see a gentleman trying with a fire extinguisher, but these kind of commodities should be covered just to reduce the oxygen from the fire. And you can see like such a small disaster can contribute to the bigger ones. So if we just move on, yes, -- it's getting bigger and bigger and the effects of such proper such -- if the commodity catches on fire, just for a simple fact like this, it can contribute to such a huge loss, as you can see the whole warehouse burned down by just the simple pallet.

So -- and we think by this, you could be having the answer to the question. We just popped out before this couple of slides. Yes. So most of the damages are happening during the commodities and transit and warehouses and [indiscernible].