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Our flagship series will propel you to the forefront of the global ecommerce revolution. From analyses of breaking current events to the intricacies of navigating cross-border sales and regulations, Business over Borders entertains and informs any audience who wants to learn more about how international ecommerce works.
Welcome back to Business Over Borders. Again, I'm your host, Leo Tucker, I'm joined by Matt Cannon here, CRO at Reach. Welcome back.
Matthew Cannon:Glad to be back.
Leo Tucker:I think it's time to talk about tariffs. What do you say?
Matthew Cannon:I I've heard a little something in the news about tariffs.
Leo Tucker:Yeah. Same. Let's talk about the landscape right now. There's there's been tariffs said they're gonna come. They've gone away.
Leo Tucker:They've come back. It's kind of chaotic right now. Let's let's give a snapshot of what's happening right now and what's coming.
Matthew Cannon:I don't think there's any benefit giving you a snapshot. We've been trying to follow it making some announcement, make some plans. How do you strategize? How do you adjust to it? And it changes.
Matthew Cannon:So I think it's beyond of like any update I give you now is going to be changed tomorrow. So I think and this is what we're seeing. A lot of people have just they're frozen and they're deciding before I invest, before I do anything, I'm waiting to actually see what happens.
Leo Tucker:Yeah, so you'll see what the landscape looks like tomorrow.
Matthew Cannon:But there's a lot of danger in doing that. So a lot of times the retailers that we're working with that have products that have been manufactured within China, it's very clear that if you have products manufactured in China and you're going sell into The US, there will something stick. Now exactly what it is, if it stays over 100 and something percent tariffs, what happens with the de minimis, how it gets through the border, your business model is going to change. If you are shipping into The US, from outside The US into The US, and your products manufactured in China, your business model is going to change.
Leo Tucker:It will be affected.
Matthew Cannon:And you will have to find it. Not knowing exactly how much it will change and what to do. We've been working with a lot our retailers of like, what are the best ways that you can set this up?
Leo Tucker:And what have we been seeing? What have the sort of proactive merchants been doing to position themselves or whatever's coming?
Matthew Cannon:Well, a lot of our retailers have always had the plan eventually, if they're not already doing it, to set up a local 3PL.
Leo Tucker:Okay, third party logistics.
Matthew Cannon:Locally in The US, so that basically they can import the products. They're still subject to the duty, but being subject to the duty on the wholesale value is something that you can probably pass on to the customer or the retailer can eat it and still survive.
Leo Tucker:It's a much smaller cost.
Matthew Cannon:But the business model of importing the goods at the commercial value in The US, even if it stays 100%, there's no way. But even if it goes down to 20% or something there, they'll still probably break most retailers' commercial value and it's going to really hurt it. So a lot of the retailers that are larger, that were already looking and planning on doing this, they're just expediting their plans to set that up.
Leo Tucker:Okay.
Matthew Cannon:But there is it's a lot of work. It's a heavy investment to get that up and set up. But that's so that's one option. The other option is looking at which is also like, look at options, what's a viable solution, regardless of what happens with the duties. Right.
Matthew Cannon:So a lot of other ones are looking at doing what that's called direct injection, which is one step below setting up the local 3PL. So what a typical, like a lot of our retailers are doing in today's model right now is they have a warehouse, local warehouse, say in Australia, Japan, UK, and they have an order, then they ship every order individually.
Leo Tucker:Okay. Yeah, you buy something, it ships over.
Matthew Cannon:You ship it individually, it goes directly to the customer, and it's imported at the commercial value. And in today's model, whether you have the $800 de minimis to The US, that works perfect. That's the most efficient, the best model.
Leo Tucker:Yeah, because right now, if the value of the product is under $800 it goes right through customs. No custom agent is taking it and inspection, sure the duties are paid. It just goes right through.
Matthew Cannon:Goes right through and there's no duty actually applied.
Leo Tucker:Yeah.
Matthew Cannon:Right? So it doesn't your commercial value in that sense, when you import it, doesn't matter.
Leo Tucker:Right.
Matthew Cannon:What they're now doing with direct injection is say you do a hundred orders a day to The US and you're shipping them individually. What you do is you're going to combine all those hundred orders for that day, combine them into one commercial package, ship it into there with a direct injection provider, which will then usually have some facility that's like a cross dock facility, for They come in, they bring it in, and then at that cross dock facility, they're going to then take all the packages individually, and then send them directly to the customer.
Leo Tucker:And it gets distributed from that point in country versus one at a time, a la carte, across the bond.
Matthew Cannon:And the only reason you'll do that is to basically get the value of the import at the wholesale rate.
Leo Tucker:Right. So if you're at a 125% tariff on something that costs $2 you know, that's $4 and change versus the selling cost, the retail cost. That could be a $20 item, and all of a sudden you're at $40 something for the same product. 10x. So interesting.
Leo Tucker:Okay.
Matthew Cannon:So there are some private writers that we're looking at that. Now, in order to do that, you have to be able to it's what you call a B2B to B2C. Okay. That's a lot of letters there.
Leo Tucker:Yeah, talk me through that a little
Matthew Cannon:So that means it has to be when you import it in at the wholesale rate or the fair market rate or the B2B rate, where there's a lot of different terms, it basically means like what the actual goods, not the retail value, but the wholesale value. You're only going to be able to do that within the customs if it's a B2B transaction. So that you have to have some of who is the importer of record. Is it that direct injection provider? Is it a third party customs broker?
Matthew Cannon:And a lot of times with Reach, we're looking to really help our retailers and become that importer of record, that B2B. So you import it at the lower value, but then you still sell it to the customer at the higher end.
Leo Tucker:Right.
Matthew Cannon:So you still pay duties, but it's at a much lower duty rate, which is something that you can either it's low enough that you can either pass on to the customer, or you can the retailer can possibly eat.
Leo Tucker:Yeah, to get lower profit margin on the item.
Matthew Cannon:Lower profit margin, but you will still have a successful business to The US, because the companies that aren't doing that, the competition will go down a lot. And the ones that were doing this, a lot of times US customers are aware, like I live in The US, everyone's very aware that and very upset that costs are gonna go up. And there's there's no solution. It's not like there's they can buy something lower.
Matthew Cannon:Even the local retailers in The US are getting hit. Because even if they're coming in, they're still importing their goods. If you're selling clothing or toys or whatever, it doesn't matter where you're based, majority of it is manufactured in China. And even if you're in Vietnam, you're aware of the other things, they're still going to get some type of tariff, some type of So no matter what, costs are going up for everyone. But if you are selling a hundred dollar product commercial value into The US and the tariffs are 125%, not one customer is going to buy it for $225
Leo Tucker:No shot.
Matthew Cannon:But if you're able to import it at the there is a possibility depending on that they're going to pay 110- 115
Leo Tucker:Yeah,
Matthew Cannon:that's something that's some that that
Leo Tucker:it's a nominal markup.
Matthew Cannon:It's a markup and it's things. But this is happening across the board. So they still can be competitive because people will still buy. So this is the way that we're looking at it, this type of model, it is a change to it, but even if the tariffs go away, there's a ninety day extension, By doing this work, it's still in a very effective model, and it's a commercial model that a very advanced retailers have done, and just a lot of retailers haven't had the need to do it because they haven't had the scale. We're now making this investment, regardless of all the chaos, is still a pretty vital one that can actually be successful no matter what the outcome.
Leo Tucker:Yeah. So it's a viable move, not just because everything's chaotic and up in the air right now.
Matthew Cannon:Right. Yeah. And and it doesn't what you don't want to do. I have some retailers that are looking at this is I do think going in The investing in The US and setting up a 3PL and holding your inventory there is the best like long term solution, but that's a lot of investment and maybe some retailers just don't have that ability. And also, I mean, we could be in a recession right now in the US
Matthew Cannon:This could be some of the stuff that could be irreversible, so then investing all that stuff and going big into a market that could be low, that's also very scary.
Leo Tucker:So yeah, it's a risky
Matthew Cannon:looking at working someone like with Reach or other third parties as being the import of record and getting the solution, which it's not an additional cost. It's a way that can really optimize and be valuable.
Leo Tucker:Excellent. Yeah, well, it's good that retailers have options here. So you're not stuck with 125% increase across the board. So thanks for coming on and sharing the options with us.
Matthew Cannon:Absolutely.
Leo Tucker:Till next time. If you found this useful, we put a bunch more information down in the notes in the description. So feel free to go check them out. And if you like this video, give us a thumbs up, subscribe or click the bell if you want to see more of what we got coming. Thanks.
Voice Over:Brought to you by the Reach Network. Visit withreach.com/network for more.