All right, it's 10:00. We'll get going. If you're here for brushing up on the basics, you're in the right spot. If you don't mind going to the next slide, Rachel, that'd be great. Thank you. All right, thank you, everybody, for joining us this morning for our webinar. The webinar is going to run about 50 minutes, and your cameras are off and your audio is muted. If you have any questions, please feel free to put them in the Q&A box, and we'll get those answered at the end of the webinar. Excuse me. My name is Crystal Woods, and I'm based out of the Seattle office, and I am the Sales Ops for the Northwest region. I will be emceeing.
If you have any questions, just put them in the Q&A, and I'll get to them and read them off for Rachel at the end. We are not going to be recording today, but do not worry, you will be getting the webinar presentation materials. About an hour after the webinar, you will get an email from me with a quick survey. We would love to hear your feedback on what other topics you would like to learn about. If you had any further questions, if you need the team to reach out to you, we would be happy to get those for you. If you fill out a quick survey, you will be linked to a landing page where you can download the presentation materials, an Incoterms chart, and any other reference materials that we have for you today.
All right, if you don't mind going to the next one, I am happy to introduce our speaker today. Rachel LeVee is our Northwest Regional Compliance Manager. She's based out of Seattle, but she actually runs the team for our Portland office, our Denver, San Francisco, as well as Seattle. Rachel started off—excuse me—she started off in our Seattle branch, but she was a brokerage supervisor, and then she moved on to and managed the brokerage team. She started in 1997. Excuse me. For the past 10 years, Rachel has led our compliance team for the Northwest region. We are all in experienced hands here. If you happen to join us for our last webinar or Imports 101 or Imports Compliance, you'll know that she has a breadth of knowledge. With that, I'm going to turn you over to Rachel. Thanks.
Thanks, Crystal. Hi, everybody. Thanks for joining us today. Like Crystal said, we're focusing on the basics of how to export compliantly. I've got a few objectives today. We're going to try to work on helping you gain a clear understanding of a basic shipment life cycle, so what happens in most typical shipments. We'll also talk about the differences between ocean versus air transportation services, why you would choose one or the other. We'll talk about shipper and buyer cost obligations in an international transaction, also known as Incoterms, for those who may already be familiar. We'll talk about standard export documentation. We'll try to give you some information on risk, carrier liability, and the role of insurance in an international transaction. We'll provide an open forum for questions and concerns at the end. Like Crystal said, I won't be taking questions during.
However, if you put any questions that you have in the chat, we will hopefully have time at the end to answer some, if not all of those questions. If we do not get to every single one, then we will definitely follow up with individuals afterwards. We will go ahead and get started. Like I said, we are first going to talk about the shipment life cycle. Starting first with who all the typical players are in an international transaction. This list is most of the main players, but be aware that there could be many, many other entities that are involved in an international transaction. In general, we will always have a buyer and a seller. Somebody who is interested in purchasing the goods from somebody who has manufactured or purchased them overseas and wants to sell them. There often is a consolidator as well.
A consolidator is a company who takes small shipments, consolidates them into a larger shipping container, and then helping with the movement in that larger container. There may also be a forwarder involved. A forwarder is typically working with the transportation companies to provide services to the companies that are working to manage that transportation. Also, in most international transactions, there will be a need for a customs declaration. Certainly, in the United States, if you are exporting something from the United States, you must declare it to U.S. Customs prior to export. In many scenarios, a customs broker would help with that process. There usually will then be a local trucking company that is involved, a local trucking company who is picking the goods up from the shipper's facility or from a distribution facility and moving them to the port at origin.
At that point, an origin stevedore or air cargo handling agent might get involved. One thing about this industry, it's been around for forever. Some of the language, some of the terminology is really old. I actually had to consult my dictionary quite a few times when I was a new person. One of those terms is stevedores. The stevedore is the person at the port who is receiving the full containers and loading them onto the vessels. The air cargo handling agents are similar to the stevedores, except that they're working at the airlines, loading the goods onto the planes. There is going to be a steam supply or an airline. Typically, when we're talking about an international transaction from the U.S., it could be rail or truck as well, going to Canada or Mexico, perhaps.
The steam supplies and the airlines are the ones that are getting the goods from origin to destination. On the destination side, we have many of the same entities who are handling those services just basically at destination. We have the destination stevedores and air cargo handling agents. The stevedores are receiving the vessels, unloading the containers from the vessels, making them available to the truckers at destination, same as with the air cargo handling agents, taking the goods off the plane, making them available. There typically will be a customs declaration at the destination side to import the goods into that country. Oftentimes, there will be a customs broker who is working on behalf of the importer in that country to provide the documentation necessary to clear the goods through customs.
There will be the customs agency at destination also who is involved in the transaction, reviewing the goods to determine whether or not they can enter that country, likely collecting duties and taxes on the goods as they are arriving. There also will likely be a destination local trucking company to pick up the goods from the port or from the airport and deliver them to the first delivery point. There may be also a warehouse or a distribution provider that is involved at destination. Sometimes goods may be going instead of to the final destination to a warehouse for distribution services. In many transactions, there is also a bank or a financier involved. If money needs to change hands and there is not something direct set up between the seller and the buyer, sometimes the finances will be handled by a bank.
As you can see, lots of different parties who are involved. There may be some others, as I said before, but these are the basic ones that we see in most transactions. Once we understand who all the players are, we can talk about what the basic shipment life cycle is. In most shipments, the first thing that happens is that there is a negotiation for a price of a product. We have a seller who wants to sell something, and a buyer who wants to buy it. They talk, and they figure out what an appropriate price for that product is. Once the price has been negotiated, a pro forma invoice is created stipulating the terms of sale. We will talk a little bit more about terms of sale later when we get to Incoterms.
Those terms of sale are pretty important at the beginning to determine who's going to be responsible for what. Once they come to an agreement, the buyer places the order, and the product is made ready for export. That can mean that the seller, who is also the manufacturer, then sources all of the materials to make the product. They have their employees make the goods. They make them ready for export. In other cases, it may be that the goods have already been manufactured, and it's simply a matter of making the goods ready for export. Once the buyer places the order and the product is made ready for export, that process could be very fast, maybe a couple of days to a couple of weeks.
It could be a much longer process if the materials need to be sourced and the product actually needs to be made from scratch. Once those goods are ready for export, a booking is made with a forwarder or a carrier. Like I said earlier, sometimes there will be a forwarder involved who's working on behalf of the seller or the buyer to negotiate with the carrier, either the airline or the steam ship line. In other cases, the seller may be managing that negotiation themselves. Once the booking is made and it gets close to when the goods are going to actually move, a trucker is dispatched to go and pick up the goods from the seller's facility or from their warehouse or distribution facility. The goods are then delivered to the terminal. Shipping documents are processed.
In a typical export transaction, there would be a shipper's letter of instruction. We'll talk more about what those documents are a bit later. Typically, customs is then notified of the export. Certainly, in the U.S., if you are exporting from the U.S., we would file an export declaration, or an export declaration would be filed, giving customs an opportunity to review the documentation and perhaps also review the physical goods if they wanted to. If the goods were going to move ocean, an empty would be positioned or freight delivered to the consolidator. What I mean by that is the carrier would make available an empty container. It would be positioned at the facility where the goods were and loaded into that container.
The freight would actually be delivered to a consolidator who would receive freight from multiple entities consolidated into that one container and then make it available for export. At that point, the cargo might be inspected. As I said, in the U.S., we file an export declaration. Customs has the right to physically examine your goods before they are exported. Once they have been delivered to the ocean port or the airport, customs might do that inspection. Once all of that is done and approval has been received to export the goods, the goods would export. They would be in transit for a period of time. They may pass through transshipment hubs, meaning if we are exporting something from Seattle and the final destination is China, it might go through Hong Kong first.
Maybe the vessel goes to Hong Kong, goods are unloaded from the vessel, put onto a transshipment vessel, and then make their final destination to China. Eventually, the shipment arrives at destination. The cargo is entered and cleared through customs, typically by a customs broker at destination. The entry is processed. Customs in that foreign country has the opportunity to review documents, to also examine the goods. Duties and taxes are typically paid at that point. Once the customs clearance is taken care of, the freight is actually released by the carrier. We'll talk a little bit more about freight release later. A trucker is dispatched. Trucker picks up the goods from the terminal, and cargo finally delivers to the buyer.
This next slide is a representation of what the typical supply chain, what a typical shipment goes through from factory to local delivery. You can see from this that there are multiple parties involved. There are multiple points in the process that the shipment has to pass through in order to get to the final destination. What I hope that you see from this diagram is that the process to get goods from factory to local delivery is long and circuitous, and there are many, many points along the way where you can find delays, where there might be problems, where goods are passing from one entity to another in the long journey to get to destination. There is a lot that happens, a lot of things that can go wrong, a lot of things that can go right, a lot of different parties that are involved.
Not a simple process, but that's a typical one. All right. Moving on, we're going to talk about freight and air versus ocean, speedy or cheap. When we're talking about ocean freight, usually what we mean is cheap. These days, maybe not quite cheap, but certainly not speedy. When we're talking about ocean freight, there are some terms, some things to be aware of. First of all, the acronyms LCL and FCL. In this industry, there are a ton of acronyms, and people throw them around as if everybody should know what they're talking about. One more thing to learn as we're trying to figure all this stuff out. LCL stands for less than container load. FCL stands for full container load.
What we mean by that is, do you have enough freight to fill an entire 20 ft container or a 40 ft container or a 45 ft container? If not, then maybe you need to consolidate your goods with other shipments and provide your goods as LCL, less than container load. When you're shipping something LCL, you are going to get a rate that is based on the amount of space that you take up in the container. Knowing how much freight you have, whether or not it will fill the container, will determine how you pay and how much space you need. Another thing about ocean shipments is carrier contracts. Typically, if you book direct with the ocean carrier, they will ask that you sign a contract. The contract is typically for a period of time and for an amount of containers.
For instance, I might sign a contract with a carrier to move 30 ft, 20 ft containers from Seattle to Mumbai in the 2026 carrier season. When I sign that contract, I'm going to obligate myself to pay, say, like $4,000 per container. That may be totally off. I really don't know what the cost would be for Seattle to Mumbai, but just go with me. 30 containers in 2026 at $4,000 per container. I am now obligated to ship all 30 of those containers in that period of time. If I only ship 25, the carrier has the right to bill me for those extra five that I didn't actually ship. With ocean freight, oftentimes you do need to sign a contract with the carrier for a specific quantity of goods that you will be shipping. Something to consider with ocean freight is the transit times.
Like I said, this is not speedy. I would say that standard Seattle to Shanghai these days is, I don't know, probably two to three weeks. If you're going further inland, we could be looking at multiple months of transit time. Making sure that you know when your goods need to get to market and that the ocean freight, sorry, that shipping at ocean will get it there in time. Another thing to be aware of is forwarders. When I was talking about contracts earlier, when you work with a forwarder, that forwarder is typically contracting with the carrier for those amounts of containers that I was talking about. If you are a shipper and you're working with a forwarder, typically you don't need to sign a contract with that forwarder.
The forwarder is actually signing the contracts themselves and then selling space to you without the need for a contract. Sometimes you decide that it makes more sense to work with a forwarder. They're going to manage that piece of the process for you. They likely will give you additional information about where your goods are in transit, maybe provide additional customer service that the carriers don't. Why would you ship ocean? For one, it's a cost savings. It is significantly cheaper to ship ocean than it is air. Also, space. There is way more space on the ocean than there is on the air. All the carriers with all of their ships that are moving goods back and forth, there's way more space on those vessels than there is on planes. Another thing to think about is your commodity value.
Typically, we don't see super, super expensive things shipping ocean. It just takes too long. It doesn't make any sense if you have really high-value goods to move them on ocean. However, if you have very low-value goods, it may make no sense to ship them air because air freight is so expensive. If you have low-value goods, it may make much more sense to ship them ocean. Something to be aware of with ocean is extra lead times. Like I said, it is significantly longer to ship things ocean than it is air. You need to be aware of what those extra lead times are. Things to look for with carriers: experience. Have they been in the business long enough? Can you trust them to get your goods from origin to destination? Competitive pricing.
For obvious reasons, you want to make sure that the pricing is good. Schedules. What sort of routing availability do they have? How often do they have vessels leaving from your origin to get to your destination? Do they have weekly sailings, monthly sailings, maybe a couple of sailings per week? What sort of volumes are they able to take? Carrier links. Do they belong to a carrier agreement where maybe it's multiple carriers that are sharing vessels? If one carrier only has one weekly sailing, but they are linked with other carriers, then maybe those other carriers have additional sailings those weeks. Can they provide the sailing availability that you need? Can they provide you with electronic data regarding timing of where your goods are? Can they tell you via electronic data interface? That's what that EDI stands for.
When your goods have been booked, when they have been confirmed on board, when they have actually left port of origin, where they are in the process, when they get to destination, all of those things. Can your carrier provide that information electronically to you? That is all the important ocean stuff. Moving on to air freight. Taking a step back, resetting. With air freight, one of the main differences is that you pay either by weight or by volume. Like I said before, with ocean, you pay based on the amount of space that you are taking, how much space you are taking in the container, or are you taking a whole container. With air freight, you are going to pay either by weight or by volume, whichever is higher.
What I mean by that is if you have something that is small but super heavy, the airline's going to charge you by weight. For instance, gold bars, pretty heavy. If you have one pallet of gold bars and it only takes one pallet's worth of space on the plane, it still is going to significantly impact how much additional freight can be loaded into the plane because of how much it weighs. They're going to charge you by weight because of how that impacts how much additional freight they can take on. If you have something that is super light but takes up a ton of space, like feathers, for instance, they're going to charge you by volume. Again, because it impacts the amount of additional freight that they can take onto the plane.
It may be very light, but it takes up so much space on the plane, they have to account for that. Another consideration with air freight, it's pretty fast. You can get things from origin to destination much faster than you can by ocean. Another consideration is hazardous materials. There are certain hazardous materials that actually can't go in a plane at all. There are also much smaller quantities of hazardous materials that can travel by plane because it's just much more dangerous. If you're shipping hazardous materials, that's an additional consideration. Why do you want to ship air? Because you've got time-sensitive cargo. Maybe you are shipping for the holidays, and you've only got two weeks to get your goods to destination. You can't put them on a ship, right?
They've got to get there within two weeks, or you're not going to be able to sell your product. Another consideration is the cost of your products. A lot of electronics, high-value goods are shipped air because it just doesn't make sense to leave them on a vessel for as long as it would take to get them via ocean. One other thing with air freight is that they have lower minimums than with ocean freight. There are some scenarios where air freight is actually cheaper than ocean. Depending on what the quantity is that you're shipping, it may actually be cheaper to ship air than ocean. Things to look for: good customer service, same as with ocean, competitive pricing, also those same carrier relationships, and then the airline's technology and tracking ability. Can they provide you with real-time data about where your cargo is?
All right. That's the transportation stuff. Now moving on to Incoterms. Crystal, we have a poll, right?
We do. I'm going to launch it right here so everybody can see it.
If you all wouldn't mind just answering our question, we're just curious, what is your main Incoterm used? If you're not familiar with what that term is at all, we'll get to that.
I need some Jeopardy music. I need to put that in here. All right. Give everybody a few more seconds. We're just a little over half. All right. Counting down. Three, two, one. All right. Share the results with you all. There you go.
It looks like FCA is the biggest one, just a couple with CIP. We've also got some ExWorks, some DAP, some FOB. Okay. Great. Thanks, everyone, for sharing.
Based on all those responses, it seems like everybody has heard of Incoterms before, which is good. We'll just talk briefly about what they actually are. I personally think that Incoterms are one of the most confusing things that I've had to learn in this industry. I've been around for a long time, and I've had to learn a lot of confusing things. This is tough for me. If it's tough for you as well, know that you're in good company. It can be hard to figure these things out. Incoterms stand for International Commercial Terms. They are 11 terms that were published or that continue to be published and copyrighted by the International Chamber of Commerce. They are published every 10 years. The most recent version was published in 2020. There were a few minor changes in 2020.
They were revised previously in 2010, and there were huge changes in 2010. Sometimes there are a few changes. Sometimes there are a lot of changes. Sometimes no changes at all, but they are revised every 10 years. The purpose of Incoterms is to avoid misunderstanding of international trading terms. Like I said, international trade has been around for forever, done in multiple languages and multiple cultures, multiple understandings of what things are and how they work. Incoterms are used simply to avoid misunderstanding of international trading terms. When we talk about Incoterms, it's really important to understand what they actually do define and what they don't do. Incoterms define three things, and it's only three things. Transport obligations, meaning who is responsible for figuring out the transport things that I was just talking about before.
They define cost, who is paying for what, when those charges are paid for, and risk, when risk transfers from seller to buyer in terms of insurance and loss of goods. Just those three things: transport obligations, cost, and risk. That is it. Incoterms are meant to avoid misunderstanding of who is responsible for transport obligations, cost, and when risk transfers. Oftentimes, when we talk about Incoterms, it's even more important to talk about what they don't do. They are not terms of payment. They don't define when the buyer is obligated to pay the seller for the goods. They are also not a contract of sale. If you need a contract, you should have a contract. Your Incoterms are not a contract of sale. They're also not a contract of carriage. They don't have anything to do with responsibilities by the carriers who are moving the goods.
They are not title transfer. They do not define when title transfers from seller to buyer. They only do those three things: transport obligations, cost, and risk. All right. We are going to talk about just two terms today, just to give you an idea of what these terms do. If you would like additional training on Incoterms, we do regularly offer a full seminar on Incoterms, and I would strongly recommend you look for when we have the next one of those. It will better define for you how these work. The first one we are talking about is ExWorks. Incoterms are a three-letter code along with a named place. In our example, we are ExWorks, Sellers Seattle Factory, and we are using Incoterms 2020. With ExWorks terms, the seller is responsible for preparing the goods for pickup. That is it.
The only thing that they are responsible for in an ExWorks scenario is sourcing the materials, making the goods, putting them in boxes, making them available for the buyer, who then is responsible for getting the goods from factory to final destination. The buyer is going to make all of the decisions for getting the goods from factory to final destination. As far as risk or loss or damage, the seller is responsible for all risk of loss or damage until the goods are picked up by the buyer, by the buyer's carrier. The buyer assumes risk once the goods are picked up from the carrier or, sorry, from the factory. The seller is also responsible solely for the goods, solely for cost until the goods are picked up. The buyer takes over once the goods are picked up from the factory. Okay?
With ExWorks terms, the seller is responsible for making the goods, making them available to the buyer at their facility, and then the buyer takes over for everything else after that point. With ExWorks terms, the seller has very few responsibilities. The buyer has many, many responsibilities. On the flip side, now we are going to talk about DDP, which is delivered duty paid. In this example, our terms are DDP, buyer's warehouse in Shanghai, Incoterms 2020. In this scenario, the seller is actually responsible for carriage all the way from their door to the buyer's facility, and they are also responsible for customs clearance at destination and payment of duties and delivery fees all the way to the buyer. The buyer has zero responsibilities as far as carriage is concerned.
Similarly, the seller takes on all risk of loss or damage all the way until the freight is delivered to the buyer at the named place at destination. Risk transfers to the buyer once the buyer has received the freight at the named place. All cost is for the seller all the way to destination. Buyer takes over once the freight has been received. The question that I usually get when we talk about Incoterms is, "What's the right one?" The reality is that it entirely depends on your scenario. If I am a buyer and actually, sorry, this is export. I always have to remember. I have to put on my export brain.
If I am a seller in this scenario and I have a team that I work with who manages transportation for my company, and we have invested in people who are experienced in shipping goods from origin to destination, we manage our own contracts, we work directly with the carriers, we want to get the best rates that we possibly can, we want to add in profit to the time that we are spending managing all of this, then maybe I want to have DDP because I want to be in charge of everything. I want to control it. I want to be responsible for getting my goods all the way to destination in my buyer's hands in a nice bow, sorry, in a nice packaged, wrapped with wrapping paper and a bow tied on top. I want to take care of all of that.
Maybe I want to use DDP terms because that gives me the opportunity to take charge of all of that. On the flip side, if I just want to make my goods and I don't want to have anything to do with the mess of figuring out all that transportation stuff, then as a seller, maybe it makes a heck of a lot more sense for me just to use ExWorks terms and let my buyer manage all of that themselves. It really depends on what you want to be responsible for, how you might be able to make additional revenue if that's what you want, how you want to staff your company. There are lots of different reasons that you might choose one term over another.
Just a quick, funny question for you.
In this example, we've got an airline ULD that has been sucked into an engine. Boy, would that be bad. In our example, it's a shipment headed to London. The agreed terms were DDP. Who is responsible?
In this case, because the terms are DDP, it's the seller. You don't want that to happen to you. All right. Next unit is on documentation. First thing that we're going to talk about is the shipper's letter of instruction. As somebody who works with shippers and is a forwarder and helps with export declarations and all that stuff, the shipper's letter of instruction is by far the most important document that we receive from our customers. The SLI instructs us on how and where to send the shipment.
It should provide us with information on, it should provide us with the information that's necessary for the export declaration and instructs us, gives us the information that we need in order to get the goods to the right place on your behalf. However, it's not a required document for exports. It's commonly used. We appreciate it, but it is not a required document. We also, in the U.S., have to file the electronic export information, also known as the EEI. It's used by various government agencies in the U.S. to control exports. Not just customs, but also the Department of Commerce, Department of State, as well as USDA, FDA, other agencies like that who are interested in controlling what is exported from the U.S. It's also the source document for official export statistics.
When we talk about GDP, when we talk about various commerce statistics, much of that information comes from the EEIs that are being filed prior to export. It is filed online with U.S. Customs. In addition to that, there is hopefully going to be a commercial invoice. That invoice is the bill for the goods from the seller to the buyer. It is used by foreign governments to determine the value of goods when assessing customs duties. If you're exporting from the U.S., the commercial invoice is not a super important document. However, it often has to be collected at export because you won't be able to import your goods into that foreign country without a commercial invoice. There also is likely going to be a packing list similar to the commercial invoice, except that it itemizes the material in each package.
It usually includes weights, measurements, not value, but quantity stuff. It is a document that's used by the foreign customs officials to verify cargo. They want to make sure that if they are receiving four cartons, that your packing list also demonstrates that it's four cartons' worth of cargo or that if they weigh it and it's 50 kg, then your packing list should show that it's 50 kg as well. There may be also a certificate of origin, which is required by certain foreign governments. In some cases, that certificate of origin is a requirement for import into that foreign country. It serves as a signed statement as to the origin of the goods. An additional thing to be aware of if you are exporting is that there is a requirement in regards to solid wood packing material.
If you are using solid wood packing material, that wood needs to be heat-treated or fumigated with methyl bromide. It needs to have a stamp similar to what you can see on this screen. It used to be that we could use a phytosanitary certificate to verify that the material had been properly treated, but that is no longer accepted. Any wood has to bear the IPPC mark. If it does not, it is likely that your goods will be refused. Just quickly on letters of credit. In some cases, there will be a letter of credit that is an additional document that goes through the bank and lists specific things that must be done correctly in order to arrange for payment from the buyer to the seller. Your LC lists various things that are required for the sale.
Once all of those things have been complied with, money will transfer from the bank to the bank to the seller of the goods. Sometimes a letter of credit is required depending on the country that the goods are going to. In other cases, you may want to use a letter of credit as a seller. If you have a new relationship with a buyer and you're not sure whether or not they're going to pay you, the letter of credit can ensure payment happens once the goods get there and all of the requirements of the letter of credit have been complied with. Lastly, we've got the bill of lading. A bill of lading is a contract between the owner of the goods and the carrier, meaning the forwarder, the airline, the steamship line, maybe the trucking company.
There are two basic types. We've got an original, also known as a negotiable bill of lading, which controls ownership of the cargo. There is a waybill. A waybill is a contract of carriage only. When we talk about a bill of lading, there are three basic questions that we need to keep in mind. What do you use them for? When do you need them? Why does the carrier need them back? With an original negotiable, that bill of lading controls ownership, like I said previously. Kind of similar to my LC example. If you are a seller and you are questioning whether or not you want to maintain control of your goods once you have delivered them to the ocean carrier, you can request an original or negotiable bill of lading.
What that means then is that the carrier is now liable to not release the goods to the buyer at destination until you tell them that they can. If they release the goods prior to you telling them that they can, they are obligated to the seller for the cost of goods. When I say tell them that you can, what I mean by that is an original is issued, that original is provided to the seller once the goods are delivered to the carrier. Until the carrier receives that original back properly endorsed by the seller, they are obligated to the seller for the value of the goods.
We see this with, like I said, if you're not quite sure that you're going to get paid, maybe you don't want to just deliver your goods to the carrier and hope that you're going to get paid, you might request an original in order to manage that. With a waybill, it is contract of carriage only with the carrier. That ownership piece with that bill of lading doesn't exist if a waybill is issued. We see waybills issued many, many more times than we see originals, especially in the last 10 or 15 years. It is much easier. It's a much more seamless process with a waybill if you don't have concern to whether or not you'll receive payment for your goods. What do you use them for? You use them to control ownership of your goods.
You might need them depending on the relationship between the exporter and the importer. The carrier needs them back because that is what releases the carrier of liability to the seller of the goods. Okay. That is everything with documentation. Now we are going to move into liability and insurance. This is by far where the most interesting pictures are in my presentation. That is an actual vessel on fire. You certainly would not want your cargo on that vessel if it looked like that. First, we are going to talk about liability. Liability exists only if two things are true. If there is a contract of carriage in place when the loss or damage occurs and all obligations under the contract of carriage have been met by the shipper and consignee. Liability exists only in a very small window.
Going into that a little bit more deeply, if there is a contract of carriage in place at the time that the loss occurs, then the carrier may be financially responsible for whatever that contract says. I'm on purpose saying may be because it's not guaranteed. With air liability, the carrier may be financially responsible per the Warsaw Convention for $20 per kilo or the value of the goods, whichever is less. The Warsaw Convention has been updated over the years. Now it's based on 35 standard drawing rates per kilo. Today, that's about $54 per kilo. With air liability, the carrier may be financially responsible for $54 per kilo or the value of the goods, whichever is less. With ocean liability, it's $500 per customary shipping unit. Customary shipping unit is not clearly defined. It could mean a carton. It could be a pallet.
It could also be a container. Ocean liability is subject to the COGSA 17 defenses, which are all on the back of your contract of carriage, your bill of lading with the ocean carrier. The 17 defenses cover pretty much anything you could possibly imagine and make the carrier not liable. At most, it's $500 per customary shipping unit, but probably they're not going to be liable because of the 17 defenses. With truck liability, it varies by country and by trucker, but typically, it's about $0.50 per pound or $50 per lot, whichever is less. Similar with warehouseman liability. It varies by a warehouse contract. It's usually $0.50 per pound or $50 per lot, whichever is less. Looking at that, you can see if the carrier is financially responsible, they're not responsible for very much.
Taking a look at one example, this is for liability. We've got two pieces, 100 kg, commercial value is $20,000. One piece is lost. Is the carrier financially responsible for the lost piece? If yes, why? And how much is the carrier actually responsible for? I haven't given you enough information to answer that question. Now we'll add in some additional information. Piece one weighs 99 kg and the value is $100. Piece two is 1 kg and the value is $19,900. Remember that with the standard drawing rights, it's going to be $50 per kg or the value of the goods, whichever is less. If we lose piece one, the weight is 99 kg, the value is $100. We're going to go with whatever's less.
If you lose piece one, sorry, which was valued at $100, 99 kg, the most you're going to get is $100. If piece two is lost, the weight is 1 kg, value is $19,900, you're going to get whatever's less, so it's $54. You're actually better off if you lose the one that's valued at $100 than if you lose the one that's valued at $19,900. Hopefully, you can see from my example, liability doesn't cover a whole lot. Here are some fun pictures, things that you don't want to happen to your cargo. That looks like a battery fire to me, maybe. Pretty much decimated the entire container. In this one, you've got a pretty damaged container. Not sure what those machines are, but I'm guessing that they probably were damaged when the container buckled like that. All right. When are carriers not liable?
Carriers are not responsible for things that occur outside of their control. For instance, an act of nature, if the vessel is hijacked, if there's terrorism, if there's an act of war. Carrier is not liable for any of those things. If any of those 17 things that I mentioned happened, carrier is not responsible for anything at all. Even that $54 per kilo or value of the goods, whichever's less, they're not liable even for that. Here's another example. This was an act of God. Carrier was not liable for any of that damage. Now we're going to talk just briefly about insurance. What is insurance? It's a risk transfer tool. With insurance, we transfer loss from the importer to the insurance company. It releases the importer from responsibility for loss. Anybody who would suffer financial loss can purchase it.
It covers property and transit. It covers all risks against direct physical loss or damage. There are some exclusions, but very few. It is geographical in scope. It covers from door to door. It covers international, domestic, and stock at locations while in transit. It covers pretty much everything. Why would you purchase insurance? It limits your liability. Limits are minimal. Compared to carrier liability, insurance liability limits are small. The carriers do limit their liability. It would be very easy to get angry at the carriers for doing that. However, they would never be able to take on the liability of everything that is on their vessels. We benefit from the limits of liability to the carriers. I know that that sounds strange, but they simply would go out of business if they had to take responsibility for all of that.
With insurance, we are willing to pay a known small loss, the premium that we pay for the insurance, to transfer to an unknown large loss. It's the same reason that we buy health insurance, that we buy car insurance. We're willing to pay those premiums in order to not have to pay for a catastrophic event. That's exactly why we would buy cargo insurance. All right. Just a last few fun pictures. This is the Arnold Maersk. It actually came into Seattle back in 2013. Those containers are definitely not supposed to be tilted that way. The vessel lost 18 containers overboard. 53 were damaged. This is a nice picture of how you don't want your cargo to look when we open the container. You can see lots of damage in there.
Then this ship, this is the MOL Comfort, also in 2013, was not a good year for these vessels, I guess. It split in half. One half of it immediately sunk. They thought that they were going to be able to save the other half. They were not able to. That entire vessel ended up on the bottom of the ocean. Definitely do not want that for your cargo. Okay. I know I went through that last part kind of fast, but we were running out of time. Crystal, are there any questions?
There are. There was a question. Does the purchase order need to mirror the commercial invoice for compliance purposes? That was around slide 8 or 9 during the shipment lifecycle.
Yeah. Not necessarily.
A purchase order can cover a large quantity of goods, whereas your commercial invoice is just specific to that particular transaction. You might issue a purchase order for 50,000 widgets that are valued at $1 per piece. Then you have a shipment where you're only going to ship 1,000 of them. That commercial invoice is going to cover the 1,000.
Perfect. Okay. This next one was around the document required slide 21 on the commercial invoice, packing list, certificate of origin. It said, "For AES filing, can you still use HS codes instead of Schedule B?"
Yes, except for just a few Schedule B codes. That hasn't changed.
Great. Okay. The last one was asked during the risk and liability section.
It said, "For all of the tariff challenges, what's been the most challenging process, exporting versus importing shipments?"
I've got to say it's importing. The challenge of figuring out the right tariff stacking and what your goods are subject to and what they're not subject to, by far, that outweighs the challenges on the export side. However, the things that we've seen recently with exporting, I'm not sure how long it's going to be that importing is significantly more difficult than exporting. It is only going to get more and more complicated. The amount of change that we have seen, I've been doing I just celebrated my 28th year at Expeditors. I've been doing this for a very long time.
It is seriously mind-blowing to me, the amount of change that we have seen in the second Trump administration and how quickly they have been able to implement change requirements. It really started on the import side, but it is really starting to kick in on the export side. I think there is just going to be more and more of it. Get ready. It is a wild ride.
I had dropped in the chat box earlier for all of those attending to see that we do have a couple of the customs webinars coming up, the US market updates that our corporate professionals will be hosting, one in November in a couple of weeks and then one again in December. I am sure that at the beginning of the year, we will probably see more of our customs export experts probably start presenting more on that as well.
If anybody's interested in those, I dropped them in the chat box. They'll also be in the reference materials. Okay, we have a couple more. What happens to the cargo when it goes into the ocean? It falls off the ship, but then the cargo is recovered.
I don't know that it really gets recovered. There are containers that have been floating around in the ocean for, I don't know, 50 years, 30 years, 100 years, who knows how long. I mean, maybe they wash up on shore, but nothing. They float around or they wash up on shore, and maybe they're completely destroyed. Maybe people use them. I don't know. They typically don't get recovered.
We used to have a photo, I think, in one, maybe it's in the risk and liability webinar, that shows a whole bunch of containers washed up on the shore and people just pilfering through.
Yes.
It's very sad, but yes, that happens.
Yes.
Okay. How about which is the refund value from insurance, retail or purchase price or FOB?
That's going to, it likely is going to depend on your insurance policy, but I think I don't want to answer that question because I'm afraid I'm going to answer it wrong. We'll take your name and we'll get back to you. Yes. Yes.
We will make sure the team can address that. All right. What is the general rule of thumb for value of returned goods and refurbished goods, goods with no sale value?
Okay. I think that this is an import question.
Typically, when you import refurbished goods, if you export something to be fixed overseas and you're bringing it back in, the value of the goods is the actual value of the goods, but you pay duties and taxes typically just on the repair value of the goods. If that wasn't your question, you will know how to find me after this seminar, and I would be happy to talk more about that.
Yes. I was going to say that was our last question. Thank you, everybody, for the great questions. If that wasn't the answer that you needed or you're looking for something different, just make sure when you fill out the survey, fill out the survey and just put in the question or that you need Rachel to reach out to you or anybody else on the team. We will be happy to address that with you.
If you don't mind flipping to the next slide for me, please. Thank you again, everybody, for attending. It was great to have you and for this education. Just want to let you know of the last quarter, the last few webinars that we have for the year, and we're starting to schedule for first quarter of 2026. Crazy to say. Once you fill out the survey that you should see here in just a couple of hours, you'll be directed to the reference materials, and this will be listed in there as well. You'll have Rachel's presentation as well as this information, an Incoterms chart, and a couple of other reference materials that you can use as well. With that, I think the next, there might be one more slide.
I think it's just a note letting you know that if you want to be kept up to date on any of our market changes, more webinars, in-person seminars that not only maybe the Northwest region, maybe another region is hosting, if you sign up for Horizon Brief, it's one of our communication channels, all that information will be pushed to you as well. You can view that information. All right. It's 11:01. We're going to give everybody that. Get everybody off the call so they can go and do all their things that they have to get done for the rest of the day. Thanks again, Rachel. Really appreciate your time. Thanks, everybody, for attending.
Thanks, everyone.
Have a great day.