Trump’s Tariffs: Supply Chain Leaders Explain What It Means for Brands
I had the opportunity to moderate a conversation last week with four supply chain executives about the tariff situation in the U.S. and how brands can brace for the upcoming economic changes. I got valuable insight from Izzy Rosenzweig (Founder and CEO, Portless), Alex Yancher (CEO, Passport Global), Justin Sherlock (Co-founder and CEO, Caspian), and Brian Bourke (Chief Commercial Officer, SEKO Logistics).
From bonded warehouses and Free Trade Zones to nearshoring, the panel gave advice on what brands and companies in the supply chain world can do in the face of fluctuating policies from the White House and global responses to the U.S.’s tariffs.
Check out the transcript of our conversation below, or watch the full recording of the panel discussion here.
Tariff Webinar Transcript
Sarah Dotson (Parabola Community): I'm here with a really exciting panel. Hi everyone, welcome to the webinar today. My name is Sarah Dotson. I lead content and community at Parabola. I'm here with a really exciting panelist today to talk about Trump's tariffs and kind of the path forward. Obviously we are kind of joking before this call that the news could change and you know the hour that we're here all together today, but I think that this group has a lot of great insight in terms of how we should be thinking about how to be nimble, just kind of common sense advice, more complex advice.
We're going to cover a lot of different stuff here today. I'm really excited to hand it over to Matt Hertz, the CEO and founder of Third Person, to guide this conversation, act as the moderator. So Matt, over to you.
Matt Hertz (Founder and CEO, Third Person): Awesome, thanks Sarah and thanks to the Parabola team. Really excited to bring four of my friends here together for this webinar and we did it in really short notice. So I'm glad that you know we have almost 100 people that are already on the webinar today around lunchtime for most of us. So we only have 60 minutes, we have a lot to cover. I know there's a lot of questions so I won't, I'll try not to ramble too much, but yeah definitely wanted to start with, allow everyone to kind of share a little bit about who they are, you know the companies that they represent, that they've you know founded and or are leaders at those companies and then I have kind of a few questions that I want to you know dig into first, sort of segmenting the four of them into kind of two groups, kind of like the freight side and forwarding side as well as the kind of small parcel, more kind of e-commerce centric.
So maybe we'll kind of start with quick intros and then we can dig into the questions. So again, I'm Matt, Matt Hertz, the CEO and founder of Third Person. Third Person is really a platform to help e-commerce brands discover and connect with 3PLs. My background comes from the brand side, you know worked at a few kind of high growth e-commerce brands earlier in my career like Rent the Runway and Birchbox and today I spend most of my time kind of involved in the supply chain ecosystem, helping brands and 3PLs and other software companies alike. So handing off to Justin and then we'll go with Brian, Alex and Izzy with their introduction. So Justin, go ahead.
Justin Sherlock (Co-founder and CEO, Caspian): Awesome, thanks Matt and hello everybody. I'm Justin Sherlock. I'm the CEO and co-founder of Caspian. Caspian helps companies secure refunds on their customs duties. We started up about a year ago. We're a licensed customs broker based in San Francisco.
I started my career in banking and private equity and then went to Flexport for five years where I ran Flexport Capital and worked with the finance stakeholders of brands, helping them manage gross margins. So definitely excited to talk today and share what folks are thinking about in the current cost environment.
Brian Bourke (Chief Commercial Officer, SEKO Logistics): All right, I'm Brian Burke, Chief Commercial Officer at SEKO Logistics. We are a freight forwarder and a 3PL. We're in over 50 countries but we started in the U.S. almost 50 years ago. So we have 62 locations across the U.S. but we started with fulfillment about 15 years ago.
We've expanded that with the global network of facilities. So we're supporting our clients right now on navigating tariffs and tariff mitigation around all the different countries on all the freight flows, air, ocean, as well as helping them to understand where do they put fulfillment. And I started with Seco 20 years ago and very happy and excited to be with all of you today.
This is probably the most premier group that I could possibly assemble. So credit to Matt for you putting this all together. But we understand and recognize how challenging, absolutely challenging this is.
And it's challenging for us as well. But we're all, I think, together helping, trying to help out brands in any way that we can. So happy to spend time with everyone today.
Alex Yancher (CEO, Passport Global): Thanks, Brian. And thanks for putting this together, Matt. As Brian mentioned, I can't think of a better way to spend an hour talking to the market about this. I'm Alex Yancher. I'm the co-founder and CEO of Passport Global. We're an end-to-end internationalization solution for e-commerce brands. We help them localize their websites. We help them ship internationally. We help them set up local operations in market in Canada, UK, Australia, EU, and Mexico. Yeah, excited to be here.
Izzy Rosenzweig (Founder and CEO, Portless): Awesome. Thanks, Alex. My name is Izzy Rosenzweig. I'm the CEO of Portless. I first ran a brand for about 10 years. And during that 10-year period, I ran the whole thing as a cross-border, what we call direct supply chain model, so from China and Vietnam. And over the last three years, we fully leaned into really enabling other American brands to leverage the cross-border model. So essentially, we have two facilities in China, one in Vietnam.
We help brands instead of putting products on a boat and waiting two months to get your goods and then selling your goods. Rather, you could start with us near your factories, and we could deliver to your customers around the US in about six to seven days, fully local experience, has cash flow benefits, and in this world, also has tax deferment benefits. Yeah, that's what we do at Portless.
MH: Thanks, guys. Already ahead of schedule, which is great. I think I had budgeted 15 minutes for intro, so appreciate the brevity there. And yeah, such a great crew that we have here. I think, I don't know if Sarah or, you know, I can certainly put in the chat links to each of their websites. So you can kind of click on them after, you know, peruse them later. Yeah, Sarah's got it. Because I know, you know, them and their teams are eager and excited to chat with any of you, you know, offline to discuss their businesses in more detail.
So yeah, the first kind of topic of conversation, you know, very sort of high level, broad. I mean, I'm just seeking a State of the Union on what's going on. And, you know, I think some of us made the joke earlier that it sort of changes by the minute by the hour. Literally, I mean, if we were having this conversation yesterday, at this time, you know, we would have, you know, been in the midst of the news that tariffs, I believe, ex-China were going on pause for 90 days. So, you know, any of the other panelists would love for you to just kind of kick things off and share kind of what you're seeing, you know, what you're seeing within your business with your customers, you know, just at a high level.
BB: I'll jump in, you know, because this has been absolutely insane. This has been the closest in my 20 years in this business, this is as close to the global financial crisis, as well as the start of the global pandemic, as you can possibly get as far as disruption. Those are the only two events, not the Icelandic volcano, not the Fukushima tsunami and earthquake, not like, you know, not any blip or recession here or there. This is a monumental impact and I was not expecting this so soon after the global pandemic.
I thought this was like maybe every 10-year cycle of disruption like this, but here we are. It has been nothing short of absolutely disruptive for almost all of our clients. We've seen, you know, cancellations of bookings drop off a cliff. I saw a report that something like 60% of ocean bookings out of China have just disappeared out of thin air. You know, we are seeing companies do scenario planning and focusing on just scenario planning and doing it and having to revise those scenario planning scenarios that they just worked on the next day and the day after. Everyone knew the tariffs were going up.
Everyone knew de minimis was likely going away. Those two things probably aren't surprising for most of the people on the webinar. It's how this is being rolled out. It is the ambiguous nature of the rollouts. It is the volatility of the rollouts and the uncertainty of how much the amounts would be and on which country and when. And even with the executive orders this week, there's still lack of detail and even lack of clarity with follow-up questions that we're having to pay attention to social media to follow what's happening more than we can with CNN or BBC.
This is absolutely disruptive. And it's like trying to navigate through a haunted house while blindfolded, knowing that around any corner, something is going to come out and just, you know, absolutely scare you. So it's, it's, it's, I don't, I can't diminish at all how disruptive this has been for our customers and how still challenging it will be, despite the fact that yesterday was, I think, good news all around for probably all of us, despite the fact that there's some poison pills still yet that we have to all navigate. But, you know, at least we can all breathe a little bit easier. But we have clients that are shipping into the United States B2C parcels where 99% of their SKUs are country of origin China. And so those customers are actually worse off yesterday than they were the day before.
So it's, it's been an all around disruptive event. And we're going to see a combination now, unfortunately, more like the pandemic, the start of the pandemic and less like the global financial crisis, where we're going to see a combination of both supply and demand shocks. Because if everyone's going to start moving to Mexico or Vietnam or Cambodia, then, you know, you're going to see congestion, you're going to see rate transportation rates go up, you're going to see fulfillment rates in the US, you know, potentially start to inch upwards again, because now everyone's going to want to all the global brands are wanting to try to set up shop in the US.
So you're going to see like that bathtub effect of a, you know, of a bathtub filled with water in an earthquake where it's going to be topsy turvy. And, and again, yesterday, okay, we could all like breathe a little easier, maybe a few less heart palpitations. But, but no, this is still going to be a challenging environment for everyone to navigate through. Because even with the news yesterday, how long is that going to last? And, you know, like, so there's still so many questions. Is Mexico 25% or 10%? Question mark, question mark, question mark. So it's just, it's a, it's a challenge. That's what we're like, our clients are probably in the tone that I'm talking now, or more panicked or more frantic, or more just, you know, very, very uncertain and unknown what's going to happen. But at least we have a little bit more clarity, clarity yesterday.
JS: Yeah, I think to piggyback on that, Brian, it seems like we're in the makings of a website, like I saw one of the comments from Jamie in there about COVID and eCommerce, like the March was a great month for ocean rates and ocean bookings, because everyone was trying to stockpile inventory, consumer inventories were up in Q1. And that's going to completely pause and shipping is going to go on hold for the next month as everyone waits to see what's going to happen with their tariff rates. And, and then you know, there'll be a big rush again, once there's clarity. And so that whipsaw is really bad for supply chain planning and inventory planning. And, and obviously, you know, creates a lot of uncertainty. So we've talked about all the ways that that you can hopefully mitigate it, but it is is difficult. And yeah, keeping that duty matrix up to date is really, really hard.
So a lot of the calls that I have been getting have not been about duty drawback or tariff refunds that I want to implement immediately. It's been about what is the rate that I'm actually about to pay? And, and, you know, clients are asking multiple sources to get, and they're sometimes getting multiple answers. So it's, it's changing really, really rapidly.
AY: I'll, I'll try to talk through some of the things that we, we think that we might know. So we know that this administration is focused on tariffs as a revenue generating source. Lutnick and Besant have mentioned 300 to $600 billion of revenue that they're hoping to get because they have supposedly a greener plan. They want to cut taxes, do a stimulus, and they want to use this tariff revenue to pay for it. So while there's so much unknown, we do know a few things. We know that last year in 2024, the revenue was a hundred billion and they're trying to get 300 to $600 billion.
So we know that there, that tariff rates are going to go up somewhere in the order of magnitude three to six, three to six times. If you kind of do the math on the, the amount of imports that we had last year, so that's about 4 trillion. We know that the number baseline is going to be about 10% minimum, likely somewhere between 10 and 20%. And that's actually where it ended up. Even after Trump's announcement yesterday, he said that the baseline tariff is going to stay at 10% for all the reciprocal countries. So, you know, if you're one of those countries that got hit with 10%, nothing really changes for you.
If you're one of those countries like Vietnam that got hit with whatever their number was, 46%, it goes down to 10. It likely will rise from there, but not, it's not certain. And then the big wild card is China. I saw a couple of tweets today that I thought were pretty interesting. One from, I forget his name, but the guy who runs Marketplace Pulse, he basically called it, not a tariff, he called it an embargo, that we're at, you know, 145% on China right now. That's essentially an embargo on, on China. And there's also all these storylines coming out right now of the US administration trying to assemble a group of allies to start negotiating as a group against China. So we're clearly in a, in a trade war with China. So another tweet from Ryan, Ryan Peterson about companies going bankrupt because of this. So his point was, there's no way that 145 is going to last for a long time because that would just put a whole bunch of US businesses out of business. And that's not what Trump wants for his legacy. So that's, that's kind of where we're at.
One quick word. I find this really helpful. I'm going to share this in the comments here, but I've been looking at Polymarket. It's been actually fairly accurate with a lot of this trade prediction stuff. So I'm going to share a link. This one specifically is about whether or not Trump will lower tariffs on China in April. So I'm going to share this. But Izzy, onto you, if you want to add something. Yeah.
IR: So I think like everyone said here, all the customers, at this point, it's the uncertainty that is crazy. I spoke to one customer that is importing goods for their wholesale business by boat, and it was already on the water. And now they're about to get hit with a close to a million dollar tax bill. They don't have a million dollars put aside for that tax bill. And they plan not to claim it. They plan to not pay it and they plan to let it sit. And they're just, they don't know what to do. And to what Alex said, they might have to go bankrupt, which is the craziest thing for a big business, relatively mid-sized business. And it's just a wild idea.
And the people that didn't put on a boat yet, tons of POs are being cancelled or asked to be held at the factories until they know what to do. At Portles, we've had someone shift $400,000 worth of jewelry to us, cosmetic jewelry, just so they don't have to pay a $350,000 or $400,000 tax bill once it goes up the water. And then there's the other aspect to it. So people say, okay, it's inflationary. But raising prices isn't simple because very often customers are leveraging, let's say, Meta or Google or TikTok. Well, if you just raise prices by 30%, your conversion rate goes down, then your cap goes up.
So it's not always as simple as the consumer is going to pay the price. It also ties into your marketing efforts and your conversion rates. And if your cap doesn't work, you can't raise the price. So then you're back to dead inventory. So I think A, the uncertainty is brutal. And hopefully the direction that Trump is going, and we don't know, and I agree with Alex, is going to be, this is meant to be a revenue driver, but at what level? And the level is today, like they said, it's more of an embargo. You just can't do business. And that puts brands in a very tough spot.
MH: I think something that's kind of underlying with what everyone is sharing here. And again, I'm going to post something here in the chat. Another tweet I saw that I actually referenced in my newsletter that I sent out over the weekend, which I can follow up with a separate link. But this tweet was kind of referencing Shopify merchants over the last two days. And this was data as of last week, but April 2nd and 3rd saw the highest price change events of 2025. These are for Shopify merchants. Both days crossed 5 million plus price changes. And if you click on that link, you can kind of see the graph of how prices impacted. So all this volatility that we're seeing, all these announcements are already having an immediate impact on what Shopify merchants, of which I believe about 80%, at least three quarters of Shopify merchants are here in the United States. And this data actually, I believe is only United States. So it is shown quite clearly that merchants or sellers here in the United States are already reflecting soon-to-be or perceived price increases as a result of tariffs. Well, good. Well, let's... Thanks, Sarah, for popping in my newsletter there. So I want to appreciate everyone kind of sharing kind of what they're seeing out there. I do want to kind of dig in a little bit on kind of the freight side, the freight forwarding, the manufacturing side of the house.
This morning, I actually read something in the Journal of Commerce, jlc.com, which is a great industry publication. And it said something along the lines of cargo bookings on vessels leaving Asia bound for the US over the next few weeks have fallen 20 to 30% as retailers delay the receipt of non-critical freight. And that's staggering. 20 to 30% is a lot. I know, Brian, you were kind of touching on this a few moments ago, but yeah, maybe, Brian, you can kind of kick this one off and then maybe Justin could add some feedback to kind of what you're seeing, given that Seco does a lot of freight forwarding from all around the world. Yeah.
BB: So, you know, yes, we saw cancellation bookings, any bookings from Asia to the US just drop off the cliff. But equally as much yesterday, those bookings were back on with the exception of China. So, you know, the scenario that Izzy just described is being felt across every company with a board, with a P&L, with some desire to make money.
And it's not just the duties that they're going to pay for the goods on the container. And this is, I think, one of the most underreported and least talked about issues that, you know, I think should have been more forefront, but at least the bond market saved us apparently yesterday. So the bond market saved us, but this is when it comes to cash flow, when it comes to working capital, in order, like we have customers that were importing, you know, from Vietnam and the commodity was duty free, right? So now they all of a sudden had to go from zero to 46% overnight.
And even too, with our customers that are shipping, importing from Europe, where it was a big question mark a couple of months ago and where that's going to be, it's not like you just pay the duty to customs, like a toll booth, when the goods arrive. You have to have a bond and that bond is, you have to put up 10% of what the previous trailing 12 months of duties has been, while also covering the anticipated amount of the next 12 months. And by the way, you don't want to keep getting new bonds throughout the year, because that's going to suck up even more working capital for you.
You only want to do this once in a year. And, you know, during the, you know, again, CBP, they're the ones that calculate these, they issue these, they send letters out if you have insufficient bonds to cover the duties that you were to owe to the US government. And these insufficiency letters skyrocketed during 2018. But guess what? They haven't gone down. You know, it's not like the Biden administration got rid of these tariffs. No, in fact, he increased some of the tariffs.
So this is not a political issue. This is just a blocking and tackling cashflow issue that now with all of this ambiguity and uncertainty and complexity and frankly, confusion around the amounts and the timing, imagine companies trying to figure out what is my duty obligation going to be for the next 12 months. And now I have to, I have to put down 10% of that value in order to keep importing.
I mean, that in and of itself is, I think the biggest concern for every company. This is why our customers are having these emergency meetings. This is going, this is a big item on their scenario planning because it's not just that container on the water, which is a challenge. And Izzy's absolutely right. This is why the bookings are being canceled to point Matt. People do not want to pay even 125%, 140, 50, like, because to Alex, your point, that's another thing people aren't talking about. That's why I hated that chart when it came out last week, because it had a smaller amount for China. It did not have the cumulative tariff that is owed, which is, you know, just like that's, well, that's like nails on a chalkboard for me. And Justin, you probably know this from being a customs broker. Like, no, that is not the number. It is much higher than that. You have to take the 201 and the 232 and the 301 and the IEPA. These are all different provisions that have been deployed. And the base HGS too. And the base HGS, yes.
And then, you know, and the really interesting one is the steel and aluminum. And I think companies are still trying to figure out if you're importing a desk that has aluminum or steel parts in it, you're not paying steel and aluminum duties on the desk. You're paying it on the value of just the steel and aluminum content. How the hell is our company supposed to figure that out? You know? So it's just, this is a, it's a challenge and it's a big challenge on cashflow. So that is why these bookings are being canceled because these are scenarios that nobody planned for. This is why the stock market went down. Nobody priced in tariffs going this far, this fast, this high. And now companies are having to revisit all of their scenarios. And, you know, I'm cautiously optimistic that we're not, you know, this is not the new floor, it's the new ceiling, but who knows at this point? And that's the problem. Justin, I'll hand it over to you to kind of take it on.
JS: No, no, I'll get, I have a couple of things that I was thinking about as you were going there. I think there's, the first point is that if you look at consumer, the health of the American consumer right now and for the rest of the year, credit's kind of maxed out right now with charge-off rates on credit cards are at all-time highs. Interest rates on credit cards are at all-time highs. Mortgage originations are at all-time lows in Q1, or not all-time lows, lows in the last 10 years in Q1. So there's sort of like this soft consumer environment that we're already in. Now the base 10% tariff is going to add some inflation, that like 10% on all imports. That's definitely going to create, you know, I think the latest economic research I've seen is likely somewhere in the order of like a full point of inflation, which would be significant. And so you sort of have this like soft demand setting for consumer products through the rest of the year.
And then, of course, you have like the China trade war and all the uncertainty there. I think the thing about China is they actually are in a very weak economic setting themselves. They have a really high debt-to-GDP ratio right now. Their economy is not doing well. They're in a deflationary environment. And so Trump can stay belligerent longer than China can stay solvent is kind of my view.
And so I think like you're going to see the trade war is going to continue to escalate for that reason, because he really feels like he has a lot of leverage here. Now, what does this mean for planning and trying to navigate this as a brand? I think the thing this is, this is the year to find quarters in your couch cushions. This is not the year to take big risks and launch a bunch of new products is sort of how I think I'm advising folks to manage the uncertainty.
Of course, like talking my book here, like something like a duty drawback or, you know, there were some questions that were submitted beforehand about bonded warehouses or classifications, like doing these sorts of deeper looks at your landed costs appear to be, you know, a good strategy right now. And then, yeah, on the inventory ordering and shipping front, I've actually, we've had some customers ship from like STL down to LCL and it's longer lead times, but it's lower cost. Just finding ways to shave off pieces of your landed costs is kind of what I think folks are doing.
Sourcing, I think a week ago was very unclear how sourcing was going to play out. Now it seems like there's maybe some more clarity that yeah, the China plus one strategy is okay. A week ago, just to have China plus one strategy looked really like not a great call because everyone was getting the reciprocal tariffs. So yeah, that's, I guess I'll stop there. I think the, yeah, I'll stop there on the freight markets and broader economic setting.
MH: Yeah, I appreciate that. I want to kind of turn the topic a little bit to de minimis, because I know this is, this has been the hot topic for many years, but certainly over the last couple of months, it's really become hot. And it sort of feels like it's, it's been a bit of like the canary in the coal mine for, you know, some of these other tariff changes that the Trump administration have proposed. So maybe I'll pose this question to, to Alex or, or Izzy, or, you know, maybe, maybe both of you as well, you know, if you both want to share some context, but I guess my question is similar to one that was submitted beforehand.
You know, the question was around, you know, how US customs will handle the formal entry of the 1.3 billion packages that have, I believe in this past year in 2024, moved under De Minimis. Yeah, I mean, just in, in, in, in practice, like what's going to happen? Is it going to be seamless? You both, you know, both portless and, and passport businesses deal in small parcel. And I trust that you two have a, a good view on what's happening here. So yeah, either of you, maybe you can take this.
IR: It's a, it's a long subject. I would say that the first one, which is interesting is the guidance was May 2nd, and this has gone away from China and Hong Kong. All of the countries expect to go away when systems are ready. Don't know what that means. Is the systems ready? Are they not ready? Right.So the last time in February 5th, when it went away, there was an incredibly massive backlog, both on Type O1s and Type 11s. And Type O1s and Type 11s also affect any other method of entry, if it's shipping containers or it's freight, bulk freight. And, and they have to unpause it because it was clogging up everyone equally. So at least for now, what we do know is May 2nd, it is meant to go away from Hong Kong and China, and it will go away from the entire world whenever that time is. Does that mean they're ready May 2nd? I spoke to a trade lawyer that's very close to the VP. They're like, we're not any more ready than we were last time. So I don't know what that's supposed to mean. But either way, the guidance, at least from our perspective, started with the Biden administration in September. And of course, Trump ramped that up with IEPA and the Emergency Act.
So it's the model, the direct, let's call it supply chain model, at least for us, is definitely going to shift towards a T11 or a T01. When we've been testing it since September, we've seen great clearance times, as long as it's not, doesn't have crazy backlog, as long as the CP can handle the data coming at them. We've seen like six hour clearances in both those methods, sometimes a little bit longer, got to make sure your data is good and ready. But definitely we're expecting bumps, like no question about it in May, like expect delays, expect things to be funky. Over the long period of time, we're quite optimistic that it will get back to efficiency as long as the CP can handle it. You know, T01s and T11s are not new to them. This is what they could do as long as, I don't know if it's the manpower or the technology stack, as long as that can be handled. Over the long run, we feel very good about it. But definitely expect bumps coming in the beginning.
AY: I'll add a few things in regards to De Minimis. So one is reading the tea leaves here on some of the other announcements. It looks like the De Minimis for other countries is most likely going to go away by September. I don't think it's going to go away any sooner, although it's a little bit weird that the systems are ready for a Chinese country of origin, which is the biggest one, but they're not ready for other ones. So a little bit odd, but just some of the statements and some of the policy papers that have come out have mentioned NFQ3, so betting on September. That's number one. Number two, Justin, you posted this. It's actually really interesting. There's like four bills in Congress right now to remove the De Minimis. So everybody wants to have their hand on this. This is a bipartisan initiative, and people want to take credit for helping remove the De Minimis, which is the consensus that it's just, “unfair,” which is a fair point. So that's two.
And then the other thing that I thought was really interesting in the executive order around the De Minimis going away is that it was tied to fentanyl. So it wasn't tied to fair trade or jobs or whatever, or revenue. It was tied to fentanyl. And it makes sense. You don't need that much fentanyl. You could put a lot into a small parcel. So that has been a method for drug dealers and people wanting to import that. So I can see where they're kind of going from a legal standpoint, emergency acts and so forth. They're trying to tie this to fentanyl and not necessarily trying to tie this to the general trade war.
So that's just another interesting observation. I think one interesting topic around De Minimis, Izzy, would love to hear your opinion on it. Maybe others have it as well, is this kind of controversial question of can you declare the cost of goods sold, i.e. the manufacturer's cost, when you ship a direct-to-consumer parcel into the U.S.? Maybe I could give my opinion real quick and then if others have something to add. So obviously, if we're talking about the 145 percent tariffs, but frankly speaking, even 10 percent, that's still a lot. If you're paying that on an order value of a hundred dollars, I mean, there's essentially no business there. If you have to pay 145 percent on a hundred dollar order, that's it. There's no point. You might as well import at COGS, fulfill locally in the U.S. or whatever. Ten percent, you're severely going to hurt your business.
So everybody who has this model today, and it's a huge portion of e-commerce, 10 to 15 percent, something like that, for the impacted industries like apparel, maybe up to 30 percent, something very high. If you end up having to declare the cost of goods sold, it's not that bad. I mean, it's bad, but it's not necessarily going to end your business.
So can you do it? Can you declare the cost of goods sold or do you have to declare the retail cost? My team and I, we studied this like a final exam was coming up. When the de minimis first went away, we really went to work and we learned that there is this thing called the first sale rule here in the U.S. And unambiguously, the answer is yes, you can declare the manufacturer's cost, i.e. the cost of goods sold, but there's a big however. And that however is there's a certain set of criteria that you have to meet. And it's a very stringent set of criteria because the CBP obviously wants you to declare the transaction value. They get paid more. It's easier.
There's like an invoice that they can track back to. They could go on your website. They see the number. So the onus is on the importer to really prove that truly the manufacturer's cost is the correct value. And you have to follow a certain set of rules. But if you do that, if you actually can do that, then of course you should be declaring the COGS. So anyways, that's my big picture view on that question. Izzy, I don't know if you have anything else to add on that.
IR: Totally. So we speak to trailers a lot about this and we just did a full write up. Feel free to go deep in there. I'll give us a couple of high levels. So first say a lot, and it is quite complex, but I'll give you, I guess, our high level. Very often factories have a Chinese entity and a Hong Kong entity. The Hong Kong entity have it in order to reduce their net income taxes for business they do internationally. When that's the case, the first sale law is, are you able to use the invoice that the Chinese entity invoices into their Hong Kong entity and the Hong Kong entity sells it to the American brand? So transaction value is the baseline is what the brand buys from Hong Kong entity. That is, people don't like the word COG. What does COG mean? Raw materials. It's transaction value. What is the invoice from, let's say, in this scenario, a trade partner in Hong Kong sold you the t-shirt for $10, but the Chinese entity of this factory sold it to their sister company for $7. So the first sale law allows you, if you use a third party, usually an accounting firm or something like that, to separate some of those line item costs from the factory. So for example, marketing. Some of the profit of that t-shirt can live in the Hong Kong entity.
So there is a world where a third party is allowed to look at the cost from the China factory to the trade partner in Hong Kong and separate those costs. And in that scenario, you're able to use the first sale law where the first sale from the factory in China is the $7 t-shirt, not the $10 t-shirt. Transaction value is the $10 t-shirt. So as long as the import of record has a payment to the Hong Kong entity, $10 is the baseline. Could you go even further and get to $7? Yes, you're gonna need third party and it's very complex and very tricky. And very often factories don't wanna break out their cost and their margin and their marketing expenses, et cetera. But that is where a third party would come in, help break up those line items and potentially get you that $10, let's call it, transaction value to a first sale, which might even be $7. So it's not retail, not the way our trade lawyers tell us in the millions of times that we sliced it and diced it. First sale is extremely complex.
The accounting firms that we spoke to, you're looking at 25 to $35,000 per factory to do it properly. But if you're buying millions of dollars from that one factory, you could potentially lower to the first sale cost, not the $10, but the $7 one. And therefore the import tax is on the $7 one and at scale, that could save you a lot of money. But transaction value, if you don't do that, is what the import of record paid to their supplier, the buyer and the seller, doesn't make a difference what the ultimate consignee paid for that goods. So feel free to read our blog on that, but that's spending a lot of time with our trade lawyers. And we have a webinar on it as well, that talks all to this.
MH: Yeah, thanks guys. We have about 20 minutes left. So I wanna ask a couple of questions and then maybe open it up to anyone. I know we've had a few questions in the Q and A and maybe we can hit one or two of those, but if there's any other questions, put them in the chat or the Q and A. One thing that I am hearing a lot about in the last few days, which I knew very little about and still know very little about. And I posted something on LinkedIn yesterday and I referenced that, if you wanna become a mega millionaire overnight, do this. And it was set up a bonded warehouse or a free trade zone. I think Justin, you may have referenced a bonded facility earlier. So maybe I'll hand it to you. And I know, Brian also has experienced and I believe SEKO has a competency here.
What is a bonded warehouse? Is like a bonded where, like, it feels like it's kind of like the new de minimis, you know, of like seven or eight years ago or 10 years ago, kind of like the new loophole. Is it a loophole? Does it work? Who should use it? Is it a free lunch? Yeah, share a little bit about that.
JS: Yeah, I think I'll explain the high level and then I think Brian probably has specific examples of his clients that are using these. The bonded, so when you take, when you implement a bonded warehouse, basically you're not clearing products into the US until they're withdrawn for consumption into the US. So it's seen as like a duty deferral method. The foreign trade zone is where you take like a warehouse or a manufacturing facility or it could even be a bonded warehouse and you actually are allowed to do much more to transform the product within the FTZ. So you can manufacture a product inside of it and you're not paying duties on the good until it leaves the warehouse. I think the key thing to understand is that for some of the reciprocal tariffs, bonded warehouses, you don't get to defer your duties is my current understanding of this. So the like base tariffs, you do get to defer in the bonded warehouse, but the reciprocal tariffs, you do not.
I think that's true with FTZ as well, or maybe it's vice versa. And maybe Brian can keep me honest here, but basically, yeah, the duty deferral works on the base HTS and on the section 301 and these other duty classes, but the latest by the tariffs. I know that you're still paying duties when products are coming into the FTZ.
BB: Justin, I think this is part of the problem because there are so many provisions being used that have very complex downstream impacts that it adds even more confusion when executive orders are amended or they're updated. And even the most recent executive order included the word and instead of or when it relates to when the timing is effective for containers that are at port or on a vessel on their way. So it is on the first IEPA tariffs, there were some provisions that said no de minimis, no drawback, right? No bonded facilities, right? But then with this latest one, drawback was eligible. And I know that's something that people have asked about as well. So that's part of the confusion.
I do know that, yeah, with the bonded facility, you have less options, but there are options and it's better than just paying all the duties all at once when the good arrives. But if you're bringing in case packs, you got to ship them out as case packs. And once you start shipping them out as each is, then you're circumventing the regulations.
With a free trade zone, you have a lot more flexibility in that regard. And yeah, we have clients that have free trade zones. We don't, but we do have bonded facilities. So there's definitely nuances. And I think part of the problem is, is that going to be in effect tomorrow? That's the issue. So we had a lot of clients asking about bonded facilities on Monday, not todaySo that's part of the issue is the uncertainty still. And if you make a big, bold decision right now on changing your supply chain and the world changes tomorrow, then what? And I think that's where companies just want certainty. Again, everyone knew tariffs were going up. Everyone knew that De Minimis was likely going away in some form or capacity. Everyone was prepared for that. It's just the uncertainty right now is in very high numbers. And I think that's preventing a lot of companies from being able to implement tariff mitigation strategies. First sale is a very interesting one. It's been around for decades, especially fashion apparel companies have utilized it.
But there are some complications for B2C versus B2B. And this is again, navigating how much, how far do you want to go down this path if they're going to be moving targets for tariffs? And I think that's still the biggest challenge is uncertainty. I don't think anyone can argue the whys around what's happening. And I suggest anyone to listen to Lighthizer's segment on 60 Minutes earlier this year to kind of talk through more of the why around what's happening. But it's the uncertainty that is still the biggest challenge. There is still opportunity though.
It's not all dark clouds, right? Because the scenario that Alex described about, if I'm selling an address at a hundred dollars and the country of origin is China and I'm shipping from outside the United States, that address probably won't sell at $250 or whatever the amount is, right? So the US companies, what we've seen is US companies have successfully decoupled. They have implemented China plus one strategies since 2018 and even in some cases beforehand. And for the first time, US companies do have a leg up here in being able to weaponize your supply chain of a more diversified basket of countries to really go on offense too.
And so see this as an opportunity just as much as it is a threat and definitely look at countries expanding into new countries as well. This is what we're advising our customers, especially those that have 90% of their sales in the US. This is the time to go global right now. This is the time to diversify. Absolutely. And this is one, we don't help companies with all of that stuff. This is what some of the partners here like Passport and Portless help out with. But this is what we're telling our clients. You need to look at Argentina. Argentina is a great country with a great middle class has all of a sudden opened up shop. And it is fair game right now for you to go in and really go hard. Go hard after Europe, go hard after Australia because these brands have been selling into the US market for 15 years. It's not just the big marketplaces out of China. These are big brands that have been selling into the US market for years. They've been leveraging their supply chain. Use this as a tables are turning opportunity. And this could be a growth opportunity for a lot of brands.
AY: I had one thing to add on bonded warehouses. I think I saw some 3PL operators in the list of people here. We work with about 123 PLs. I've already heard 15, something like that. Looking to set up a bonded section of their warehouse. Just a couple of considerations just for everybody to be aware. Whatever fulfillment fees you have right now, they're just gonna be way higher in a bonded section of a warehouse because you have to have special certified employees that work in that section.
And the other consideration is CBP is gonna be showing up unannounced every week, checking on staff and a lot of 3PLs for better or worse hire undocumented workers. So it just becomes a complete non-starter for 3PLs that may or may not hire undocumented workers. You can never have CBP showing up. And so bonded, unfortunately, I think it might be, it looks good on paper and it's definitely something to consider, but it's just gonna increase your costs and may net out from the savings that you have.
IR: I'll just add on our perspective, at least in the Portless model for brands that do make sense to use our model. You don't need, goods aren't entering the country. So when they enter the country, you'll pay the import tax. But as long as you're not entering the country, your goods will stay either in Vietnam or China until they're ready to ship to the end consumer. And this bucket, I think this conversation was super interesting. It's all still balance sheet efficiency. There's a world of P&L efficiency that brands also have to lean into. And one of the brands I was talking to, like as I think Brian was mentioning, there's opportunity in the chaos.
If you are a strong entrepreneur and you're finding efficiency in every single angle, like Justin said, you gotta find those nickels and dimes and you're optimizing supply chain and logistics, you are gonna get market share over your competitor if they're not operating as efficient as you. And leaning into other countries, right? It is, I think we said this last time on the last webinar, it is easier to do business in Europe than it is to do business in United States. That is a crazy statement to make.
And we're seeing our brands lean into Europe right now. They're spending money in Europe and they're doing marketing in all these other countries, which is cheaper to spend CPMs and cost per clicks. So operators will operate and they'll find efficiencies. And if you in the chaos could find those efficiencies, you might need a market share over your competitors over the coming years.
MH: Thank you guys. We got a couple of questions that were related. And I know Izzy and Alex, at least the two of you have run or have started brands before, e-commerce brands. Can't remember Brian or Justin, if you have been too, although I know you work with a lot of brands over your careers, but the questions were kind of around, one person termed it bias towards action. That's been sort of like a mantra for many years.
I think it's one of Amazon's, there are seven or 12 principles that Bezos created way back when, this kind of notion of action over inaction. The question is like, does that still hold? Like, and similarly, there was a question around, given this environment is all changing, right? If you made a decision based on Tuesday's news, Tuesday night, you may look like a fool today. And maybe I'll use some air quotes here.
I've worked with many and am working with many brands, and I've seen some of them on this call who are currently fulfilling out of Mexico into the United States, via De Minimis. And they've been exploring kind of onshore and moving into the US or moving maybe into Canada, then into the US or moving to other countries that have better relationships with the United States, like the Dominican Republic or other countries in the Caribbean. So, I guess the question for all of us is, when do you make a big decision like this, right? I mean, we're all kind of talking about the environment and like change will need to happen.
I think, Izzy, you just made the point of like, the best businesses will be those that are really kind of tuning into their balance sheet and their economics. And it's milestones like this, it's events like this that require change to kind of stay ahead of the curve because the rules are changing is the point. Should brands be making those decisions today? Is there like a moment where on May 2nd or June 17th or at some point in the future where you're sort of past that point where it's like, okay, what are we doing? Or should we just kind of wait and see how the next few months of the administration and policies will shake out?
JS: It definitely seems like a wait and see setting, but the actions that you can take are things that preserve flexibility and give you paths to cost-cutting. I mean, like in our business, it takes several months to get a duty drawback program set up. These are things that you can do that don't change your operations. You can do things that you centralize and structure a broader set of your supply chain data in one place that allows you to take action in the future when there is clarity. Those are my quick notes.
IR: For the brands that we talked to, we see a lot of education and optimize in place for now. So for supply chain, like manufacturing hubs, optimizing whatever they can in their current hub, but educating themselves, like starting to test in Vietnam, starting to test in India. But any major shift of, let's say, manufacturing is a huge risk. To get your manufacturing right and manufacture ecosystems, it's, you know, people spent years building it up. And there was one brand I was talking to that was in the bike business. In 2016, when Trump's first 301 came out and the taxes, a lot of the competitors moved to other countries.
They decided to stay and slowly raise their prices. They ended up eating their market share and their business model because they had the best quality, right? And the ecosystem, let's say, building bikes in China is incredible versus the other countries that they went to. But if taxes stay as where they are today, it's like an embargo.
That's not gonna be sustainable. So we're seeing brands educate themselves of all the different scenarios, not making any massive moves yet, optimizing in place, but being ready once things settle, hopefully over the next 90 plus days, then moving a painful move if needed with their whole entire supply chain.
BB: I think the 90-day reprieve gives companies, I think, the opportunity and the luxury of time that is so sorely needed right now to be able to better plan out and look at what their options are. I think yesterday's news was huge. I do think that if your SKUs are predominantly country of origin China, you're not in that boat. But I think the next big tentpole that at least we know about, tariffs, there's a lot of uncertainty, but at least with De Minimis, there is certainty.
There's a bit of certainty around a date coming up May 2nd. And I think it will be interesting what happens then and what happens after May 2nd. And I think companies, depending on what you're selling and what ultimately who you're competing against, I think it would be interesting to wait and see what happens after May 2nd. So I do think that the reprieve yesterday gives companies a lot more time to not make rash decisions now and to really spend enough time to look at a couple of different scenarios that might happen after the 90 days is over.
AY: I'll add a few things. So one is the amount of tariffs you pay is based on two numbers, the value and the percentage. The percentage, we're not sure. It could move around, it could go up or down, right? So that's hard to predict. But the value is something that is, to a certain extent, in your control. If you were shipping under the De Minimis, you didn't really care what value. As long as it's under 800, it doesn't really matter. So you never really hired a consultant to figure out how to shift some of the cost elsewhere or play whatever legal games you can play to lower that number. This is the time to start looking into it. In fact, there were some questions, I think, that came through about this. I'm gonna drop in a graphic.
It's a link that basically shows everything that's included in the value and everything that's not included. And within the boundaries of what's legal, of course, it makes sense to try to lower that number as much as possible. So that's one area of engineering, financial engineering, that you can do to lower whatever that percentage ends up being, you wanna multiply it by as small of a number as possible.
And then there's this other concept around duty deferment. We talked about some of those options, bonded, FTZ, Izzy's company, shipping direct from manufacturer. There's also near-shoring. We didn't really talk about that too much, but this used to be a very popular strategy to get under the de minimis. That's fine, but now it's a great strategy for duty deferral. So it used to be mostly Mexico, a little bit of Canada. I would say Mexico's a risk now. They removed this thing called the MX license and really freaked out a lot of people. So now I would say Mexico's a risk.
And I would say that Canada is probably the safest bet if you wanna near shore your products and have some duty deferral strategies. So that's another approach. Justin had a great suggestion. Might as well go get started on your duty deferral program now. Whatever that number ends up being, it's gonna be something. So might as well kick that off. It's a long process. You gotta get all your docs in order. Luckily, we have AI to help us with a lot of that, but that's something that you can do. So let me drop that graphic in there, but that's what I got.
MH: While you're doing that, Alex, we only have probably about 30 seconds. So appreciate everyone for joining. Appreciate the four of you for joining and Sarah and the Parabola team for hosting and setting up. One thing I will drop in here is the link to Parabola's SOP community, which is a Slack-based community, which I know many of you are already in, but all of you should be in it. It is by invite only for operations leaders who work in e-commerce and logistics and freight. A really great community that today's webinar was sort of born out of. So join that community and reach out to any of these fine gentlemen.
