#670 – How To Deal With Tariffs

Learn how to protect your Amazon and E-commerce business from tariff risks as top experts share strategies for long-term success in tariffs, sourcing, and shipping on this episode.

What if navigating the complex world of tariffs could become your competitive advantage? Join Carrie Miller as she hosts industry veterans Steve Simonson, Chad Rubin of Profasee, Burak Yolga of Forceget, and Rob Hahn from Pattern share invaluable strategies for Amazon businesses grappling with the ongoing challenges of tariffs. We tackle the pressing issues of adapting sourcing practices, ensuring supply chain visibility, and building resilient operations amidst political and economic changes. Whether it’s mitigating tariff impacts or exploring new sourcing opportunities, our experts equip you with the tools to thrive in an ever-shifting global market.

This conversation takes a deep dive into the art of negotiation with suppliers. Discover the power of clarity and specificity in agreements, and learn how persistence can lead to advantageous deals. We also explore the concept of Delivered Duty Paid (DDP) importing, weighing its convenience against potential risks. Building long-term, cooperative relationships with suppliers is crucial, and our discussion highlights strategies to ensure mutual benefits in dynamic environments. Additionally, we delve into the intricacies of international trade, examining the shift from China to other manufacturing hubs like Vietnam and Mexico.

As we explore global manufacturing diversification, we emphasize the need for strategic, long-term planning in response to geopolitical and economic disruptions. From the challenges of relocating production to understanding HTS codes and tariffs, we offer actionable insights for setting up your business for success. Our discussion also touches on the nuances of bonded warehouses and free trade zones, providing guidance on optimizing costs and cash flow. Tune in to gain practical advice on maneuvering through the complexities of the global trade landscape and ensuring your business remains resilient and future-ready.

In episode 670 of the Serious Sellers Podcast, Carrie, Burak, Chad, Rob and Steve discuss:

• 00:01 – Navigating Tariffs for Long-Term Success
• 05:23 – Brands’ Pricing and Supply Chain Strategies
• 09:06 – Amazon Pricing Strategy Considerations
• 11:09 – Negotiating Terms and DDP Importing
• 14:12 – Navigating Tariffs and Import Strategies
• 16:35 – Navigating Tariffs in E-Commerce Space
• 19:43 – Navigating Supplier Pricing and Taxes
• 23:36 – Understanding Bonded Warehouses and FTZs
• 25:15 – Importance of Shipping and Invoicing Carefully
• 30:03 – Global Manufacturing Diversification Trends
• 30:30 – Exploring Opportunities and Managing Volatility
• 33:12 – Trade-Offs and Market Targeting Strategy
• 35:24 – Global Manufacturing and Tariff Strategies
• 38:51 – Navigating Tariffs and Economic Trends

Transcript

Carrie Miller:

In this episode of the Serious Sellers Podcast, we are talking all things tariffs. Even though the tariffs have gone down quite substantially, they are still high and it’s important to set up your business in a way that these types of political issues won’t tank your business. That’s why we rounded up a group of four top experts in the industry to discuss how to set up your business for success long-term when it comes to tariffs, sourcing and shipping. You don’t want to miss this one.

Bradley Sutton:

How cool is that? Pretty cool, I think. Hello everybody, and welcome to another episode of the Serious Sellers Podcast by Helium 10. I’m your host, Bradley Sutton, and this is the show that’s completely BS-free, unscripted and unrehearsed organic conversation about serious strategies for serious sellers of any level in the e-commerce world.

Carrie Miller:

I’m very excited to bring this information to you because I think it’s very, very important and very, very timely right now. I wanted to just kind of preface about the content of the webinar, because some people might say, oh, the tariffs have gone down. They were really, really high. Now they’re still pretty high in terms of China. But this is gonna be an ongoing situation just as e-commerce sellers that we wanna make sure to deal with and be prepared, and so we’ve got experts on this panel that are going to give us best practices and just answer some questions that are really gonna help to make sure that you have the tools moving forward, no matter what the situation is with tariffs, that you’ll be able to continue on with that. I’m going to go ahead and bring on our experts. I’m very, very excited to have this panel. We’ve got a great group, so I’m going to just go ahead and bring them all on here and introduce them.

Carrie Miller:

Hey everyone, thanks guys for joining. All right, I’m going to have you guys just introduce yourselves, and so I’m just going to start with Chad and we’ll go around and everyone introduce yourselves. Just give a little bit of background and why you’re qualified for this tariff webinar.

Chad:

Yeah, Okay, well, I’ve been in this space for 17 years. That makes me an old school game boy filters coffee filters still have that business today. Then I co-founded the Prosper Show along with Skubana. An inventory management system sold those businesses and I today run Prophecy, which is a dynamic pricing system for Amazon brands. So I’m not a think tank economist or I’m not a policy expert here. I’m a seller, like everyone here, and I’ve lived through enough crises and I’m here to help and support in the way I can.

Carrie Miller:

Awesome, thank you. I’ll go to Burak next.

Burak:

Hello everyone. My name is Burak Yolga. I’m the founder of Forceget supply chain and logistics. I’m originally from Istanbul, Turkey. I lived in China from 2012 to 2019. I had my own sourcing company. I’ve attended over 100 trade shows, sourced thousands of products. I speak fluent Mandarin. Then I moved to miami, florida, six years ago. Then I started working with Amazon and Amazon sellers. I sold myself on Amazon and I exited right after COVID. It was a good time and now we are helping brands with supply chain visibility tariff craziness if we can. Hopefully we can.

Carrie Miller:

Yes, yes, thank you. All right, we’ll go to Steve next.

Steve:

Hey, everybody, everybody, it’s your old buddy, Steve Simonson. Hey, I’m just an old e-commerce guy. I started selling in 1998 on Amazon, in about 2001, and started importing from overseas into the US primarily, but further countries later, starting around 2001. So over the years bought a few things from overseas and so we’ve moved some containers and we feel your pain. So over the years bought a few things from overseas and so we’ve moved to some containers and we feel your pain. So here to help you give some of our ideas.

Carrie Miller:

Awesome and last but not least, Rob.

Rob:

Hello, thanks for having me. I think, Steve, you started selling in 1998. I was barely born, honestly, in 1998. So that’s not true. It’s like I look 15 at the blessing curse situation. But no, so I’m the CEO at pattern. We’re e-commerce accelerator. So we’re the largest seller on Amazon globally. We sell was public information. We did 1.8 billion in top line sales last year. Globally, across 65 marketplaces. We’re across the world on, you know, anywhere we can. So I started my career at Amazon. I was there for eight years. I started as an intern, left as an executive in the robotics space and then started a startup called White Box. We sold that fulfillment business to UPS in 2022, and I joined Pattern as the COO and moved to Salt Lake City. So that’s me.

Carrie Miller:

As you can see, this is a packed panel full of experts. I’m very excited about this, so I’m actually gonna go ahead and just start with you, Rob, and ask you the first question, cause I’m curious and you gave an amazing talk at Billion Dollar Seller Summit, so that’s why I was so excited to have you to just kind of share even more. But how are larger brands responding to the latest round of tariffs and how are they absorbing costs? You know raising prices. Are they shifting to another sourcing strategy? What are some things that you’re seeing?

Rob:

Yeah, I think you’ve kind of got two different problems that you need to solve. One is what’s the I’m going to use the term long-term and we’re going to say 90 days is kind of a longer term. Like, what’s going to happen with the tariffs over time? Right, we don’t. I wouldn’t expect them to massively jump back up again, et cetera, et cetera. But that is a question of you know what’s the pricing going to be affected, right? What are my costs? How much am I going to be able to offset? And there’s another acute problem. That is the current supply chain. Right, like we actually have a problem with. You’re going to have massive increases in cost for ocean freight which are already starting to get in. We already know that’s happening in the next six weeks and it’s going to take months to recover from.

Rob:

So you see brands kind of having two different problem sets. One is what does my long-term strategy need to look like? They’re assuming that things stay the same from, like at that 30% or somewhere in that range. And then you’ve got a. What do I do in the next six weeks, eight weeks, when I’ve got either there’s no room where it’s extremely expensive to get things before it kind of recovers here, right?

Rob:

So I think that what bigger brands are doing is that I think, as I said, at BDSS as well, and it’s like they are pausing they’re responding to what is happening versus trying to go, but nobody wants to be the first one to raise prices. Actually, Walmart just came out and I was actually quite shocked that they came out very explicitly and said we are going to raise prices on some things. Everyone’s been really, really quite apprehensive to be like that’s going to happen. So in some categories where there’s more exposure, you’re seeing brands already start to say hey, here’s my price increases, we’re going to step up over X number of months.

Rob:

In more exposed categories, like electronics, et cetera, and where they can avoid it, brands are looking to not raise price, right, I mean, you don’t want to be the first one to do that thing. So it’s extremely variable, which is an annoying answer, but the reality is every single brand is going to be affected differently. But that’s where they’re starting is, how was the least amount I can raise prices? And then, how do I solve the short-term supply chain problem that I have in front of me?

Carrie Miller:

Good, all right with that, I’m going to go to Chad next. Just about pricing. It’s just kind of leading into. The next thing is how should Amazon sellers adjust their pricing strategy with the tariffs? You know voting margins, how can we adjust them basically?

Chad:

Yeah, I think it’s using data. So I think if you’re listening to any gurus out there telling you to just do one thing and do it blindly, I think that’s incorrect advice. So to me, I would say the risk-adjusted approach to pricing is using data and letting data drive the decisions. What you do is you create a spreadsheet for every ASIN that you have and you’d really start understanding what’s your intention. So, if the intention is to increase price, start making small, smart and price conscious decisions around increasing price and seeing how your competition reacts, seeing how Amazon reacts and seeing how your customers react, and start logging those decisions and doing it super slow, because Amazon doesn’t like big increases, and so you’re going to start understanding how the market reacts to when you make price changes and certainly you can see if your competitors are increasing price simultaneously while you’re starting to like slowly increase the price so you can actually retain more earnings and protect your rank.

Carrie Miller:

Awesome.

Rob:

Okay I had a quick follow-up question. Like Chad, actually, one of the a couple of brands that we’re working with are not just on Amazon, right, they’re on other platforms as well and obviously, like you know, suppression’s a real thing. Are you seeing? I’m sorry, I’m taking your job here are you seeing are you seeing how are different brands navigating that if they’ve got a retail presence and also an e-commerce presence.

Chad:

I love it. I love it. Okay. So a couple of things. Amazon has two reasons why they would suppress their price right. The first reason is they don’t like the high price. It’s a high price threshold that’s been hit. The second reason would be that they don’t a competitive threshold is hit. They don’t like that. Your price off Amazon is a lower price.

Chad:

So there’s a couple of ways to slice this. Number one is most brands I talked to most, not all, but most brands where Amazon is running the show. They get 80% of the revenue let’s just say maybe sometimes even more from Amazon, and the rest of the other channels are much smaller part of the rev share of the business. And so what, what? There’s a few ways to dice this, but the first step is like you can adjust your prices off Amazon. First make them higher because those, those marketplaces are a little bit less relevant, and then you can adjust your price on Amazon and have more exploration room around your min and max price that you set up.

Chad:

That’s one great approach with Prophecy specifically, like we know where the price is going the week before. So if we know where the price is going, we can update the other channels price before we make those changes, we can update the other channel’s price before we make those changes, and so you’re not going to be violating any issues.

Chad:

Secondly is like knowing what the threshold is on Amazon. So a lot of brands say, hey, you know what Amazon doesn’t like it when your price is not the right price off Amazon. The question is, is Amazon actually scraping off traffic listings? And to realize that you have to make changes to price and understand that, and so understanding what the pricing threshold is, that Amazon likes or what they don’t like, is part of this testing, and so I think it all goes back to this framework around really smart and consciously making changes to price so you can understand how Amazon, from your ranking position, your BSR as a proxy for your rank, how competitors and how customers react to price changes is very, very important, but it’s gradual price changes to make sure you protect margin but also you protect your discoverability, because pricing on Amazon is super sensitive, and so you need to balance it all together and make small incremental decisions that are going to pay off in the long run.

Carrie Miller:

Very good, thank you. All right, I’m going to go to Steve next because he’s been sourcing from China for quite a long time. So I wanted to know, just because we’re talking about margins, what is the best way that people that are dealing with manufacturers in China how can they negotiate, maybe pricing or terms, or what is your recommendation to help protect their margins?

Steve:

I guarantee you right now, for example, China will be doing a ton of subsidization like that. 30% has a lot of, let’s just say, China side flexibility. Many suppliers that we canceled or paused POs with at the so-called liberation day they were like we’ll just ship it to you Our cost, our DDP, whatever. Now we don’t like to do that stuff.

Steve:

Any hijinks remotely connected to us, even if we’re not imported record, has some risk, and so I don’t recommend anything that you know has tomfoolery behind it. But I think the easiest thing to do is ask China, for you know what I need to get as close as I can to the old price. You have to look at currency as well, because currency is a reasonable thing to consider on both sides of the argument. And then you go all right, now I need some terms. You know terms are easier to get than people think.

Steve:

If your supplier’s told you no 20 times in a row, you think the answer is no for everybody for all times. The moment you get a yes and you go to the supplier hey, it’s been great, but I got another guy who’s going to give me terms, he’ll go oh yeah, I’ll give you terms, right. So terms are really important, especially in this dynamic environment. So I would, you know, talk with the supplier. I don’t beat people down, we try to work together. It doesn’t mean we’re not rigid in our positioning, but we’re polite about it, and I think you’ll find a much, much better chance of working with suppliers. If you say what can you help me on? And you know, let’s do this long-term and I’m going to need terms, because the guy in the back room has been yelling at me about terms and I would start there.

Carrie Miller:

And do you think, even if you’ve already started manufacturing and everything that you can say, like in the mid process, hey, can we negotiate terms? Or is this really only at the beginning?

Steve:

On an individual PO. You kind of strike your deal early on. Your PO is kind of like hey, this is the terms of our thing. They send a PI back. It’s like that’s the handshake. So in midstream I generally don’t like to make changes. It’s almost like you try to pull a fast one. So in general I try to do things upfront and the PO is kind of like my, you know everything in there specifications, terms, conditions everything is going to be spelled on that PO. Their specifications, terms, conditions, everything is going to be spelled on that PO. By the way, if you’re just sending a PO in the form of an email, like, send me 500 of this picture, that’s not good enough. Right, you got to get better. Let’s tighten it up everybody. And context matters. If you’re only doing one order a year, then do it however you want, but the more you do, the better you need to get.

Carrie Miller:

Awesome. I actually get this, even just in our Elite round tables, a lot of questions about DDP. Since you said stay away from the funny business, can you go into more details about what that is and what DDP entails?

Steve:

Yeah, the quick version is DDP means Delivered Duty Paid. This is something called an INCO term, I-N-C-O. These are commercially defined terms. Anybody can find out what these various terms are. But deliver duty paid means the importer of record is going to bring that product in clear customs, deal with duties and get it to your door. So it’s really you place an order and whoever is responsible for that DDP assuming it’s a factory sometimes it’s freight forwarders, other people but whoever’s responsible, they’re the importer of record and they get it to your delivery destination and that’s you know.

Steve:

Some people go oh, my supplier will just do DDP and so I don’t have to worry about it. I do think that there is a conscious area inside of Customs and Border Patrol that knows what’s happening with the tomfoolery, and the amount of DDP cheating, HTC code kind of violations is massively on the rise. So I just want to make sure everybody understands that there are times I use DDP well before all the tariff stuff, and it has its place, for sure. But if you think that people are basically cheating the tariff codes or whatever and you’re not on terms, you have the entire risk, by the way, because if that shipment is seized and you paid in advance. It doesn’t matter what your terms are. That stuff’s gone and I suspect the supplier will be too.

Burak:

And you know what, sir, to interrupt. But a lot more containers now go into physical exams. So actually customs take in the container, VR, they open it, they check the quantity if it is made in China or not. While this tariff happened, like you know, 2nd of April, I was actually in China and I was in Canton Fair, Hong Kong Electronic Fair and Sourcing Fair like two weeks long. I started seeing a lot of factories from China start putting some signs. A factory in Cambodia, Vietnam, you know Thailand.

Burak:

Not only you guys are looking for alternative supplier and sourcing countries. Your suppliers are also looking for partners where they can source the products. But here’s where you need to be very careful because just because your suppliers say, hey, this is made in Vietnam, it really does it really matter? Does it really mean that if it is really made in Vietnam or not, you really be sure about that? I’m not saying all suppliers doing that, but I actually recorded a YouTube video about that.

Burak:

It was a phone holder which was like 44 RMB China, 49 RMB Vietnam and I was like, hey, Vietnam is supposed to be cheaper, like why is it so? One was like $6 and it’s $6.5, 50 cents and they’re like you know what yeah, some things are cheaper in Vietnam, like labor, but the boxes and other things or injection machines is more expensive. I was like you know what? Yeah, some things are cheaper in Vietnam, like labor, but the boxes and other things are, injection machines is more expensive. I was like, does it really? I did the breakdown and I see that actually that 50, 60 cent is the price. You can ship it to products in Vietnam, relabel it shipping out, it’s literally that cost is equal to that. I don’t know if that supplier was doing it or not, but there are a lot of questions that if someone offers you hey, this is our secondary factory in Vietnam, as Steve said, maybe you directly not connected with that shipment or with that product, but eventually you are the one who receive it, you sell it and definitely custom has a record on that.

Chad:

I’m going to chime in here a bit. So, right now, there’s two ways you can approach tariffs. Right, you can either adjust your costs or you can adjust your price. Those are two options, and so what I’m finding, though, is that a lot of people actually don’t know what’s dutiable and what’s not dutiable, and so what?

Chad:

I at least and I’m not a tariff expert, okay, all I am is I’m trying to navigate chaos, and I think a lot of us sellers, in the past five years, have become very good at navigating chaos and have lived through these crazy experiences like the pandemic and like everything else that’s followed subsequently. So I use ChatGPT okay, I use it all the time, I use it religiously, I pay for the 200 version, and I try to get ChatGPT to act as if they’re the CBP and to audit all the stuff that I give them. So I wanted to share two things right. One is because I have an e-commerce business that’s been attacked, and our category has been saturated and PPC has happened. Inflation has happened in our category. It’s just a bit absurd to operate in this category.

Chad:

However, just a few things I want to note about this ChatGPT that I’ve generated is that, for example, pre-production design, development and engineering is not tariffable. Most production services, like inspection, okay, which is they’re including in the DDP price right. All this stuff is included and I’m actually doing the reverse, where I’m actually separating it back out because I want to know what are they baking into my costs, and once I know that I can do more advanced cost engineering, okay, I’ll call it that. But we can do more advanced work to understand what is the condition of a sale and use it back by legitimate documentation.

Chad:

The second thing I just want to share that nobody is talking about really is this first, which I discovered by doing this in my own business is something called the first sale doctrine, the first sale doctrine. So I have somebody in China that’s sourcing product for me and I’ve been all along paying a percentage on whatever I bring in. Okay, so what, this first sale doctrine no one’s talking about this is that you, essentially, are supposed to be paying tariffs on the amount of the first company that produced it, not on the price that you pay for the importer, and so these things that I’ve discovered through this chaos is actually working out in my benefit right now, because I’m actually able to understand my costs and do advanced work on segregating those costs and understanding how I can actually keep more profit in my pocket.

Burak:

Actually, when you buy a product, you buy EXW, like when Steve basically mentioned about Incoterms. EXW means you pay, let’s say, $10 to a factory. You actually pay that for a finished product. Chad, I want to add something to the first thing you mentioned. So you guys also should deduct the version if you’ve been charged FOB, ask your factory not to give you a FOB price and put the extra price on the invoice.

Burak:

But when you talk about this like breaking down what is the top part, that it can be deductible or not deductible from the actual tax side, some people go way too much beyond. When it’s like $10 product, they’re like oh, actually it’s $2, the product that it’s taxable only. But don’t forget about you’re actually paying for a finished product. I’m not saying for you, but like generally. I agree. For example, if you manufacture, like if you pay for a mold fee, you manufacture something ODM or OEM, some special extra tooling branding, you spend money on that or they apply for you. We have a lot of customers. They import toys, so they get actually certification and break it down, add it to your unit per cost. Just be careful about those things.

Burak:

I think when it was 145%, people start talking about that more. I see that topic less, but it’s definitely worth to have a Zoom call. If you go to your factory FacePace, it’s great, or have a Zoom call and really talk about, because if you’re buying a simple t-shirt, you can’t really ask them to deduct like 50% just because you say it’s tooling. All these things are inspected and then they have the previous historical numbers that wanting people forget. When your supplier declares the value to the China side, China custom its export value and there’s also an import value. So if the difference is because when China is, when a factory in, they declare the export amount, they’re not going to deduct that because they want to get tax refund from the government, which is almost 18%. So if you go and declare one side $10, another side $2, there’s going to be a big discrepancy. So it’s something that you guys should be careful about.

Rob:

I know that the other three have talked already about this one, but I think there’s something that’s important Steve kind of said and everybody’s kind of talked about a little bit. There’s a lot of brands that are like and I think sellers are more susceptible than like bigger brands and they try to figure out, like how do I hack this situation and survive? And the reality is like all of those have expiration dates and if you do it wrong, it’s like massively impactful, it’s not like. Sometimes we’re like, oh, you do this thing and get PPC improvement, like this isn’t a, it’s not. You can’t try to get too cute here, it’ll end up burning you and so you need to be really careful.

Rob:

I think one of the biggest risks is between what Burak and Chad just said there’s a differentiation between this being an opportunity for everyone to examine what they should have been doing all along, and I think people are generally quite bad at differentiating between this is something that persists and this is a hack that brings risk, like DDP. In so many scenarios, if you’re not careful, you could get absolutely toasted on that. I think where brands are really struggling, and sellers even more so than like a brand that’s been doing this for a while is differentiating between this is something I should be doing in perpetuity and this is something that I shouldn’t trust this human who’s like a decision or giving advice on something that like, oh, I’ve solved it, I don’t have to pay any tariffs. I think people are really struggling with differentiating between a good long-term strategy, like Chad said, splitting out supplies and services versus the core product, and I think it’s something that brands will have to navigate and if you’re not careful, it will burn you.

Burak:

And I want to add one thing. I think that’s the biggest there’s a big difference between a brand and seller. The brands can actually forecast their inventory better. Mostly, if you’re a small seller like you’re just starting, it’s a little bit hard to know how many items you’re going to sell a year. Which marketplaces? Top two topics this year.

Burak:

People talk about selling globally, global expansion, as well as start selling omnichannel. These are big two topics that everybody wants to do it talk about but you need to really understand that this is not like a one-time import. That’s something that I’ve been recommending people what’s your annual goal, what’s your annual quantity and then, even if you unfortunately paid one time 145 or 30 percent rest of the year, how many items you actually imported beginning of the year without 30 percent some products still had 225 percent then actually do a total calculation and do a cumulative calculation. Break it down. So then you see your cost. That’s why, when Steve mentioned hey, don’t panic, start increasing the price at 50%, you gotta look at it not just like one time landing cost, but break it down. Think about it in a year or two or if you’ve been selling that for last two years, maybe add that additional cost to that unit lending cost from the previous imports or the next imports you’re going to do?

Carrie Miller:

Yeah, I think that this is all really good information because it is something we need to take a look at the business and make sure we’re doing the right things all the time.

Bradley Sutton:

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Carrie Miller:

I just want to go back to Burak and just see if you have any more you know, because I’ve had some suggestions from our suppliers just kind of doing kind of shady things. What kinds of things have you been seeing that people should really avoid, or have we talked about everything?

Burak:

Actually it’s never wrong I mean it’s not wrong to look at your HDS code, because the HDS code defines the product name, the material, what is it used for? So we have different successful cases that we look into and we could find like alternative HDS code. For some of our customers, if you manufacture like a doormat versus bathroom mat, the difference is 25%. It’s all about the way it uses. It depends on what’s the product material. So actually, if you start looking at these details, you can maybe start discussing about changing your product from wood to bamboo or from, let’s say, from polyester to cotton, so you can actually make strategic decisions to change the product, the size. You can look at the different things. You know DDP has been always there, but again recently it’s a little bit more popular.

Burak:

I would really recommend you to be careful eventually. I’ve heard so many different people reach out to me hey, our product shipped back to China. Can we do anything about that? Unfortunately, like you know, there’s nothing really you can do and I know that with Amazon global logistics, most of the time when you send an invoice they might use like a wrong HTS code and then the money withdraw from your account directly. I heard us a lot. So there’s really no going back.

Burak:

So you should be very careful with who you are shipping the products with. What is the invoice, what’s the HTS code, what’s the invoice value you’re declaring? And, again, there’s a lot of historical data in the customs hand. So you got to be careful. It depends on where is it made of, what is it made of and then how you ship it. Eventually, a lot of people they’re trying to save a couple of thousand dollars maybe in the shipping for the landing cost, but don’t forget that you might be actually losing a lot of time or actual product, that you spend even much more money to that you know.

Carrie Miller:

Okay, and then let’s go ahead into the next topic for you, Burak. I wanted to, because we’ve gotten a lot of questions about bonded warehouses and FTZ warehouses. Can you kind of talk about the differences between the two and what you kind of recommend and how to use these basically?

Burak:

Bonded warehouse become like one of the top, like a top topic, that everybody start talking about. I started talking about that when I was in China and the difference is FTZ free trade zone. The product is still, even if it’s in the. If it is, it landed in the US, but it’s technically it’s not under CBP’s control. It’s another location. So the product hasn’t been technically imported to the United States or any free trades around the world.

Burak:

The bond warehouse it’s already under CBP’s protection observation, so you basically ship the product to the US. It’s in the warehouse, but part of the warehouse is bonded means that it’s tax-free. We have some customers actually use that and when the shipment arrived to the bone the warehouse, they can partially import and whatever the part they import, they pay the tariff and duty according to that day’s regulation. So we had some customers. They shipped a couple of containers to Bondi warehouse so it was a very smart decision. Whenever they import the products, they only pay the 30% instead of 145%. So if it is a big brand because bonded warehouses, they’re expensive, we have a partner, bonded warehouses.

Burak:

But it’s a good strategy in this period of time. Instead of paying everything once. It can also help with your cash flow when you import products partially, instead of paying everything once 145% you could pay 30%, 40%, whatever you import, according to your customers purchase order, according to your sales velocity, but also a lot of customer brands. They already had landed products from the past. So not too many companies like panic. Most of our customers, they post the shipments, but not everybody is trying to race to ship out. But a lot of space is sold out. It’s very hard to find space. The price is going higher. So definitely keep some inventory manufactured in your factory, wherever it’s made of. Don’t ship out immediately. Keep it as a buffer stock, both in the, let’s say, your main market is US or in China, or your factory, wherever it is.

Rob:

And Burak can you correct me if I’m wrong. I think one of the practical things to what he was talking about too, it’s timing. One of the biggest things is timing. You’re going to pay the tariff. It’s a question of when right, so you can bleed it in an FTZ. It’s a locked rate, but you don’t pay it until it leaves that warehouse in a bonded warehouse. You pay whatever it is at that moment. So the difference between an FTZ and the bonded warehouse is literally like you difference between an FTZ and the bonded warehouse is literally like you can bring it into an FTZ. You’re still going to pay the $145 because it’s dependent on when it entered that, but you don’t have to pay it until it’s used. That’s a cashflow thing, whereas a bonded warehouse, literally if it was $145 when it came in but it’s $30 now, I get the $30 that I sent out and that’s, I think, the major on Amazon and in the world. It always depends.

Chad:

So, based on what I’ve read specifically around the FTZs, is that the loophole was closed on February 1st and when you look at bonded warehouses, bonded warehouses have their costs have skyrocketed. So the most really scrappy margin sensitive sellers on Amazon just bonded warehouses isn’t even an option. We can’t even get into them. Now there’s a wait list. I mean, Burak, maybe you know of other warehouses perhaps that are open. But this is just based on what I’ve experienced and based on my reading, because I’ve been working with customers and with my own business to try to find opportunity, and so I’ve found these as dead ends to a degree.

Steve:

Look at Canada, Chad, Canada might have a little more opening at the moment, like Vancouver, but the reality is we have the bullwhip effect. Everything went dead and then everything went alive. This will continue. In my opinion, it just seems like all of you guys have had the right idea, which is take a beat and let’s see where it’s going. My number one rule, by the way, is I don’t want to go to jail. So if you’re an American citizen, don’t cheat the CBP, right, and whatever you do, just don’t play games there.

Chad:

By the way, I think we can. I love Jeff Bezos has this great quote around the one-way doors versus two-way doors. It’s a framework and you want two-way doors where you can make a call, you can step through it and you can see what happens and if it doesn’t work, you can walk it back. And I think, with opportunities on Amazon and with the way things are moving, exploring all options and all opportunities is important in understanding those things. Now you’re referring to illegal things that are one-way doors right, where you walk through you can’t walk it back.

Chad:

It’s like super high friction and there’s high consequences, and so for me, I’m all about like gathering as much data. I’ve actually read all the tariff information, all the trying to find and understand what I can gather that is interesting and important to my own business and lessons that I can learn from to help with this process. And I think, over time, for me specifically, and even during the pandemic, when we experienced high volatility right, and I think most people fear and, to your point, Simon, a lot of people have rash reactions to volatility and want stability, they want certainty and for me, I think volatility is super helpful and it’s where I’ve made the most money in my life right. High sigma events that are rare, where there’s big swings and where I can take asymmetric bets and those bets turn off and those bets are risk adjusted and where I can essentially capitalize on this and monopolize on it.

Carrie Miller:

Steve, I want to go back to you because you’ve had so much experience like 30 plus years of experience just in international sourcing, and so what are some of the things, like you know, just in terms of diversifying your manufacturing around the world so that you don’t have to, you know, have all your eggs in one basket? What are some things you recommend in terms of finding the countries? What are some countries maybe you recommend that are a little easier to work with? Or just kind of advice in just kind of diversification.

Steve:

Well, the first thing is, I highly recommend knowing which way the wind’s blowing. So for the last 10 years, we’ve tried to hedge out of China because we can see which way the wind’s blowing in our view. We’re not saying we’re right, but this is how what we believe that it’s China’s becoming increasingly difficult on the geopolitical front, not the manufacturing front. They’re experts and the best at manufacturing in so many ways. So if the wind’s blowing and it’s like that’s going to be a continued pain point and we’ve been continuously right about that pain point. Now, as smart as we thought we were, we hedged a bunch into Vietnam and then it’s like 46% in Vietnam and we’re like, oh right, so nobody really knows what’s going to happen, but Vietnam got on the you know 10% for 90 days and we’ll see what happens. I suppose the point is there are no perfect solutions, only trade-offs. So let’s start with that. Secondly, I would start as close as I can to my target market. So we were actually able in the last six months before, well before all this stuff broken, we had started in earnest to try to bring this brand to America, and they’re going to do you know $50 million, you know a purchasing in the next, let’s say, 12 to 18 months in America. So we were able to bring that back to America and the price is it’s about even with the 30% China tariff. So if China goes back to zero, they go. Oh, we’re paying too much, but I think with volume they can bring it down.

Steve:

The point being, if you can find it like, say, if you’re selling in Europe, Turkey is probably a good resource to take a look at. Right, it’s very good access to that market. There’s some economic headwinds there in terms of like, I would definitely be on terms there because people can disappear on you a little bit more. But I think if you’re hedging out of China, you know, look at Vietnam. I would stay away from Cambodia. I like Thailand, I like Taiwan, I like South Korea. And then on the European side, I think that Turkey’s a primary. India’s not bad. They’re just not super export oriented. So it’s much harder to get things done. We do some stuff in India, but it’s harder than yeah.

Burak:

I was gonna add like a couple of things. China has incredible knowledge. Last 30 years, China first 20 years. They learned. I went back to China five years. When I went back to China in April I haven’t been there like five years I was shocked the amount of electric cars that they produced last five years.

Burak:

Actually, in 2020, right after COVID, president Xi Jinping mentioned that China is not going to be any more cheap production country. They wanted to focus on the high-tech product. So the amount of drones they produce, amount of chips, whatever, whether you like it, you source product or not. So China actually don’t want to be any more that cheap manufacturing facility. But still, most of the business actually in Southeast Asia will go through the factories owned by Chinese companies. Like that’s a fact, and I went to Vietnam for the first time. I didn’t see that infrastructure yet as much as Shenzhen has it.

Burak:

Like all the industrial parts the government support, like China, have done this last 30 years. They became an export. Any company you go in a trade person, they became an export. Any company you go in Alibaba trade person they speak great English, they can import. They can export the product within 24 hours, versus you wait three, four days documents from India, Pakistan or some other countries. Unfortunately, this is a fact. We ship out a lot of containers. I’m not saying everyone is like that, but that’s the majority of it. So I think China still has the knowledge, technology, the raw materials that they want to manufacture some of the products, unfortunately depending heavily on China. But it’s hard to actually like move everything out of China. I don’t think it’s very realistic in the short term.

Steve:

It depends on the product category. I just want to say they have an industrial base that nobody can. Nobody can compress 30 years, yeah. So that’s fair enough, but the truth is, in some categories it is much more possible than people think. Right, and Vietnam, and even Mexico to an extent. You have to be again. No solutions, only trade-offs. So find your trade-off that you’re willing to live with. I certainly don’t want to be caught flat-footed the next time somebody hits the geopolitical panic button and you can assume like everybody just goes. You know, the day of liberation. It’s like 145, ah, the world’s end. That’s how it’s going to be forever. That’s not how it’s going to be forever. Today, everybody goes all right, 30%, we can live with. That, we’ll figure it out. That’s how it’s going to be forever, not how it’s going to be forever. There will be other dynamic situations happening and we just keep reacting and, like Chad said, you know the relentless approach of Bezos and the rest of us has to be just keep going and stay calm.

Rob:

I think the and, Steve, the stuff that you said is important. I don’t want to gloss over that. You were like I’ve been working on this over the last 10 years, I’m working over this over the last six months, like so many people have been like I’m going to switch to Vietnam, like that’s just not a thing. You can’t snap your fingers and make a change. This is and okay, Chad, that’s. There’s two Jeff Bezos quotes that I use. I don’t quote him very much, but one is the one-way door, two-way door, which I think is a fantastic like framework. The second one I actually talked about at BDSS, and that is he’s got this quote around, like everybody, what’s going to change in the next 10 years. But what’s more interesting is actually to focus on the things that are not going to change in the next 10 years and for Amazon, for example, it’s like people want selection, people want fast shipping, like customers, like the things that will not change, and then, like all the other stuff that’s going to change falls into the same like focus on the things. Build a business, build your structure, build what you’re going to, what’s not going to change in 10 years, or what you, where the wind’s blowing, Steve. It’s the same kind of concept, right?

Rob:

China is going to continue to have struggles over the next 10, 15, 20 years. What’s not going to change? You should be differentiated. Should you do that now, in the next five seconds? No, probably not. It’s not practical. And so I think that helps people like take a breath. What is going to be true five, ten years from now? That is still true today. And like it helps take away some of like take the air out of some of the panic I think.

Burak:

But you know what guys? I also see a lot of posts recently on LinkedIn I’m very active there. A lot of people. They start to edit their listings saying not made in China or made in the US, but the price is double 50%. So it’s really important to understand. I agree with Steve. Some products you can easily source from different countries.

Burak:

I’m from Turkey. You can buy great textile in Turkey. You can buy product from East Europe, even sometimes cheaper than Turkey. We have a customer buys wine glasses from Poland. It’s a great country, maybe, to do it. So you got to look at your alternatives. But then you need to understand your own strategy what makes it more sense and it’s not going to be from one day to another. We had these signals, like with the first Trump administration that he mentioned about the tariff. Now it’s harder. Four years ago we had a problem with the COVID. Two years ago, Red Sea. We had a lot of price hike. So this new tariff thing is not going to be the last one for sure. So you got to be ready like don’t wait till the last minute, start, break it down where you can actually save money in the operation cost landing cost, so you can understand where you can spend money on the influencer marketing or other.

Carrie Miller:

And Rob, do you have any other like what is Pattern doing just in general to kind of help brands, or just do you have any more advice?

Rob:

Patterns are a pretty cool spot because we’re not a manufacturer, right. We are a seller, where we partner directly with brands and we take them right. So we have to kind of understand the entire ecosystem as well and be able to navigate that with brands. I mean, our first thing is it sounds so simple and it’s really easy to be able to say and very hard to do, but, like, take a breath, let’s understand. I think one of the things that is such an important piece and two pieces I said at the beginning is pricing. And then how do we navigate the next six to eight weeks at minimum and then probably it probably takes three to six months for any regularity to happen around capacity? It takes months and it takes a lot of time to get capacity back for some of these companies from ocean freight standpoint. So the number one thing and Chad, when you’re talking about pricing, it was interesting some of the brands that we’re working with we’re talking about like, were you already planning, did you need to do a price hike anyway? And so, like, is this an opportunity for you to right size your pricing now? Should you do that? Cause you can do it where people are more understanding of that thing, your consumer’s like oh, of course it’s a little bit higher because of X, and so I think it really you have to go discreetly, brand by brand, and even category by category, SKU by SKU, to be able to say what is what flexibility. You know, some people are making a decision right now and it’s like my competitor is raising price and actually if I don’t raise price, I all of a sudden have an advantage that I didn’t have before. That means I might give up some margin, but it’s likely I’m going to get some rank and I’m going to get some transaction on my SKUs, and I want to do that for three months. And so it’s really going brand by brand.

Burak:

We work with hundreds and hundreds of brands, figuring out what’s the strategy for each of those in a way that makes sense both from a pricing standpoint, and then also what’s your stock you have today. How do you expect you know, we could see freight prices in the next few months triple? Like that is a very real possibility to have happen. How, like how the hell do you anticipate what’s going to happen there? None of us really know, but there’s actually it’s a pretty easy math problem the price is going to go up. If you don’t know that right like so, how do we account for that both from how much do you bring in? When do you bring it in? And you know, Steve is right, it’s not gonna be 30 forever. So let’s not try to go too fast and panic. Let’s talk about what the long-term strategy is and I think we’re about at time.

Carrie Miller:

So, if you guys could go around and say just how people can contact you or find you? After the session, if they want to ask more questions or find out more about your companies, we’ll go ahead and you can start with Chad.

Chad:

Sure. Well, I’m Chad. My personal email is [email protected], we change pricing in an intentional way to maximize either revenue, your discoverability velocity or profit. You can find me on LinkedIn, on Twitter, posting thoughts. I’m very open about it. If you have questions about what I shared today, feel free to email me. I’ll be happy to respond and it was a pleasure being part of this group.

Carrie Miller:

Thank you. How about Burak?

Burak:

I actually just dropped my contact information in the chat. [email protected] comes to me directly. Actually, I like to read all the sales emails or inquiries. And [email protected] comes to me directly. Actually, I like to read all the sales emails or inquiries. And you guys can also find me on LinkedIn or YouTube. I post a lot of different things about tariff and China, Vietnam, Hong Kong while I was there, so I think it could be interesting to get updates for the last four to five weeks’ time.

Carrie Miller:

All right, we’ll go to Steve.

Steve:

Hey, I think the best way to get input for me is the online resources. I don’t take calls usually. I like to help entrepreneurs when I don’t have time for calls. So mymentorsteve.com and some of the tarifftalktoday.com or tariffchat.org those are all free resources. There’s no lead gen. There’s no follow up. Knock yourself out and you can find me on social if you really want to hunt me down and make me do something.

Carrie Miller:

All right, and Rob.

Rob:

Yep. So Pattern does a couple of different things right. So pattern.com is a great place to kind of check out what we do. If it’s a brand with a great brand and a great product, we can accelerate either internationally or in the US on multiple marketplaces. That’s one. And then we’re also a 3PL where we have the fastest supply chain into marketplaces in the world. We do more volume into Amazon than anybody else, hundreds of millions of units a year into Amazon through our network globally. So we do that. We do reverse logistics direct to consumer fulfillment and then also into marketplaces. So that is something. So either LinkedIn through either us or the company or pattern.com is general, or, yeah, my own LinkedIn as well as an option. But that’s the best way to get ahold of us for any one of the ways that we can, either on the services side or kind of that wholesale buy-sell model.

Carrie Miller:

Awesome. Well, thank you guys so much for taking the time to just answer questions and just talk about the tariff situation and really appreciate that you came on. And again, we will have a sourcing guide that we’re going to send out to everyone. We’ll send out the replays. So I hope you all have a great rest of the day and thanks again for everyone joining. Bye everyone.

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