June 19, 2025 • 38 mins
Our CEO Brett Curry sits with Jim Kennemer in this latest episode. Jim knows his stuff when it comes to tariffs, supply chain management and sourcing anything outside of China. Brett wanted to bring Jim on the pod to break down the opportunities and considerations of sourcing from Vietnam, Thailand, Indonesia, and Mexico, sharing real examples of how brands like Columbia Sportswear and Converse have legally engineered their products to slash tariff costs. From understanding country of origin rules to leveraging bonded warehouses for cash flow management, this conversation is packed with actionable insights for any brand looking to optimize their supply chain in today's volatile trade environment.
Key Takeaways
- The DDP trap that could destroy your business – Why "delivered duty paid" arrangements are legal but dangerous when suppliers falsify invoices (and why you're still liable even if it's their mistake)
- Tariff engineering strategies – How adding a simple pocket or felt liner can reclassify your products for lower tariff rates, plus when this optimization makes sense vs. when it backfires
- Vietnam vs. other manufacturing hubs – Where Vietnam excels (textiles, wood goods, furniture), what to expect for pricing and quality, and why MOQs are higher than China
- De minimis rules and bonded warehouses – How the $800 shipment exemption still works (except for China), and when custom bonded warehouses can turn a 30% tariff hit into manageable cash flow
- Country of origin compliance – The "substantial transformation" rule, why trans-shipment will get you caught with 50% more audits happening, and how to properly document manufacturing
Whether you're considering your first move away from China or optimizing an existing diversified supply chain, this episode provides the roadmap to do it right without the costly compliance mistakes that are tripping up other brands.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
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Well, hello and welcome to another editionof the E-Commerce Evolution podcast.
I'm your host, BrettCurry, CEO of OMG Commerce,
and today we are talking aboutoptimizing your supply chain outside of
(01:32):
China. How do we think about tariffs?
How do we think about supplychain optimization and what opportunities are there
for us outside of China? Obviously,
this is very timely and thisis a topic where the game is
changing on the field, daily,hourly, all of those things.
So we'll try to keep the conversationpretty high level and also make this
(01:55):
useful regardless of what the tariffnews is when you decide to hit play on
this. But my guest today is Jim Kiner,
and Jim is the founder managingpartner of Cosmo Sourcing.
I met Jim at Seller Summitin Fort Lauderdale last week,
I guess it was at Steve Choose Events.
Steve and Tony running a great eventdown there, one of my favorites.
(02:16):
And so Jim was a speaker, I was a speaker,
and he talked about tariffsand I was like, man,
I got to get you on the pod becauseeverybody's freaking out about this or at
least wondering about this. And so withthat, Jim, welcome to the show, man,
and how's it going?
Hey, it's great to be here and doinggreat. Yeah, thanks for having me here.
It's been a whirlwind for you.
You picked the right time tospecialize in sourcing outside of
(02:39):
China. I picked 10 years ago,
so to you saw the futureyears ago when you map
that out and you've had quitethe couple of weeks, man,
you were on stage before Lauderdale,
you got quoted in the WallStreet Journal about this topic.
And so tell us a little bit about that.
How did you end up getting mentionedin the Wall Street Journal?
(03:00):
Yeah, Hannah reachedout to me, Hannah Mao.
She's the reporter for Wall StreetJournal, and she obviously covers tariffs,
supply chain, manufacturing andVietnam. So yeah, reached out.
She's doing a six part storyactually about manufacturing Vietnam,
the whole on the ground and whatnot.But yeah, we helped for the first story,
(03:20):
she visited a couple of factories thatwe put her in touch with, and yeah,
she interviewed the factories andfeatured one of them pretty prominently in
their story. And then, yeah, the one Iwas featured in was the second of six,
I believe so, yeah. But yeah,it keeps changing with the news.
So.
Keeps changing. We werejust talking about,
so we kind a casual comment the presidentmade recently that who knows what
(03:43):
that's going to do to the markets,
but I think we're just all ourtolerance level for chaos is
just going to be prettyhigh here for the foresee.
Future, future, be adaptable right now.
You've got to be adaptable.
And so I think there's a fewthings we're looking at here.
I just record a podcastwith Andrew Ferris,
who's just a legend in terms ofmarketing and media buying and e-comm in
(04:03):
general. And he and I wereboth talking about, Hey,
in times this times of uncertainty,
there are always opportunities to growactually to get better than you were
before. And I think one of the things,
and this is somethingthat Andrew mentioned,
one of the potential benefits orsilver linings in this is going to
force brands to optimize theirsupply chain look for better,
(04:24):
more stable, more affordable waysto enhance their supply chain.
Every point or couple of points youcan save on your supply chain makes a
huge, huge difference as you canmake your supply chain more stable,
more reliable, thatmakes a huge difference.
You increase your quality of product,that makes a huge difference.
And so it's a time tolook at your supply chain.
And you've been doingthis a long time, Jim.
(04:44):
Oh, absolutely.
When did you first start lookingoutside of China and was it because you
were predicting something like thiscould happen or was there something else
that was driving that?
Yeah, I moved to Vietnamand started sourcing from Vietnam in 2014. At the time,
everybody was sourcing fromChina. I just felt like saturated,
(05:05):
there were plenty of people doingit. And then I visited Vietnam,
fell in love with country, and yeah,
2014 at the time I was trying to getahead of the transpacific partnership,
which was at the time the largestfree trade agreement in history.
It ended up not gettingratified in the past,
but I still had a lot of people reachout to me about finding manufacturers in
Vietnam. And at thattime, 10 years ago, 2014,
(05:26):
it was much less developed manufacturingwise than it's today. I mean,
we were doing industrial wood goods andsome really kind of basic cheap stuff,
to be honest at that time. But yeah,I mean there's still a demand for it.
And yeah,
definitely kind of saw Vietnam asbeing the future early and kind of got
lucky in a sense, but yeah. Yeah.
(05:47):
Love it. You were ahead of the time andman, it has really paid off for you,
especially now.
For sure.
And so there's a few thingsI want to talk about.
We'll talk about minimus with you. Wewant to talk about tariff engineering,
we want to bonded warehouses.We're talk about what not to do.
You really were dropping some bombs ofknowledge in the talk in Fort Lauderdale
that a lot of people were like, waita minute, wait, I can't do that.
Are you sure I can't dothat? And you're like.
Yeah, for sure. Yeah, I foundout some people were doing it.
(06:09):
I never named names, but I had awkwardconversations with some people.
I'm like.
Yeah. They're like,wait a minute. Careful.
So there's several thingsto talk about there,
so stay at tuned for that.
But I want to talk a littlebit about why Vietnam,
why did you go there?But more importantly,
why should we consider Vietnam rightnow? Because as I've learned from you,
(06:32):
and actually one of our topclients in ports from Vietnam,
their product is phenomenal.Why should we consider Vietnam?
And I know there are otherplaces to consider as well,
but you've got a special placein your heart for Vietnam.
Yeah, I mean for Vietnammean they definitely,
you have to pick what they specializein, but what they do specialize in,
they do excellent job.
And two biggest categories wedo are anything textile cut.
And so based that ranges from clothing,apparel to bags, luggage, tool belts,
(06:55):
our mutual client that we work with.
And then also we do a lot ofwooden good and furniture.
And they're definitely growingin several other industries.
We're starting to do electronicmore electronics, OEM, electronics,
but it's definitely, I don't want tosay hit and miss, but it's growing.
It's probably thefastest growing industry.
But when we're doing a lot more plasticejection molding, silicon parts,
(07:18):
we've been doing a lot of industrialmetal projects, St metal goods,
starting to do some car parts too.
And all those industries Ithink are definitely growing more developed industry,
but you really got to figure out whatVietnam can do and then target in on those
products.
That's great. And so I think it'salways important to understand, hey,
what are maybe the misconceptions abouta country or where are the stereotypes
(07:40):
true or not true?
So any misconceptions out thereabout Vietnam right now or
anything you like to setthe record straight on?
Yeah, for sure. I think a lot of peopledo private label manufacturing in China,
which is fine.
Just find a factory thatmakes a pre-existing products slap your logo on it and
sell it, which everybody'sbeen doing for years.
But Vietnam and honestly anywhereoutside of China just does not do that.
(08:03):
So the overall, I mean,
majority of what projects we do is goingto be contract manufacturing where you
supply the factory with your productspecs, sheets and tech packs,
and they'll make it to your specs,
but they're not going to haveexisting designs on hand.
Got it.
Got it. That's probably the biggestone. Other one too, Alibaba.
And those alternatives just aren'tgood or don't really exist there.
(08:24):
So when you find factories, youcan't just put an RFQ on a website,
have a dozen factories come to you.You have to do your own research,
really follow up with'em and chase 'em down.
I know a lot of peopleget turned off by that.
They expect factories to be trippingover fine or work with clients,
but it's not the case. Andthey're also higher MQs.
I know a lot of people say low MQs andthere are kind of boutique handmade
(08:49):
dress factories and whatnot. Theydo small, but for the most part,
I would say MOQs tend to be higherin Vietnam outside of China as well.
Interesting. So higher, MOQ isa little more legwork upfront.
You're going to have to supply thespecs, it's contract manufacturing,
that sort of thing. But thenwhat are some of the benefits?
Because I know in talking to our mutualclient who manufactures in Vietnam,
(09:11):
they actually moved from theUS to Vietnam a few years ago,
and they said their quality went up,
cut their cogs by 70%, qualitywent up, that sort of thing.
But speak to us about
how does it compare manufacturing Vietnamfor the things they're good at to the
rest of the world.
(09:32):
For what they're good at? I think theyexcel because yeah, the tool belt,
I'm not going to name who, but yeah,the tool belt is pretty high end.
And I mean they have a pretty good,
the quality they have inplace is pretty good. Yeah.
And then, yeah, I mean just overall,
I think the quality is quite goodfor a lot of what they excel in.
(09:53):
We do a lot of furniture too,
and we can do some very highend custom hardwood pieces that
they go for thousands,
thousands for a single piece and go inliterally multimillion dollar homes we're
doing.
Interesting.
The projects in Palm, PalmBeach, Florida right now.
And then another comes to home builder,custom home builder out Palm Beach.
So they're doing literally10 million plus they doing.
(10:13):
All that in Vietnam. Yeah.
They're doing a lot of it, not all of it.
So m OQs are a little higher, but prices,
and I know it's hard to compare pricestalking about it depends on the category,
depends on the good,depends on so many things.
But pricing general comments onpricing, how does it compare?
Yeah, pricing for apparel and textilestends to be cheaper in Vietnam than China
(10:33):
outright. And same with wooden goods.Because Vietnam is a tropical country,
there's lots of access to highquality tropical hardwoods.
And with Asia Associationof Southeast Asian nations,
which all the Southeast Asiannations have free-trade,
so it's pretty easy to move woodfrom one country to another.
So the quality of wood youget in Vietnam is excellent.
(10:55):
So for that is definitely oneof the big things they sell on.
And pricing for textiles, bags, backpacks,
even shoes we consistently find is beabout the same price and oftentimes
cheaper than China and theprice to quality ratio,
like you're buying a $5 sweatshirtfrom Vietnam versus $5 in China,
the quality is going to be higher.
China does have a lot of very cheap lowquality. So people are like, I can get,
(11:17):
we were talking to clientsgetting t-shirts for like 83 cents in China and ours
were coming in about one 30,
but the one 30 shirts weredecent versus very low quality
t-shirts for that 83 cents. Andthat was as cheap as we could find,
but it is definitely atthe price to quality ratio.
So the cost of quality ratio is reallygood there, which goes a long way.
(11:38):
So lots of opportunities in Vietnam andwe'll continue to talk about that as we
go and as we go through our othertopics, we weave that back in.
But what other countriesshould people think about?
I know basically you specializein anything outside of China,
so what other countries shouldwe consider and for what?
Yes, for sure. So yeah,
we've been in Vietnam for 10 years andwe've been expanding since last year to
(11:59):
all of Southeast Asia, Mexico, andlooking to expand even more this year.
I mean, Southeast Asia is great.Indonesia has a lot of great factories.
Thailand, we're doing a lot of higher endauto parts and appliances in Thailand,
some rubber goods, some naturalrubber. So pretty eco-friendly stuff.
Malaysia does appliances and some reallygood metal furniture and Mexico too.
(12:20):
A lot of interest in Mexico.
But I will say Mexico is alittle difficult to source from because they're very
limited in what they couldproduce. Much more limited.
People expect more people wantMexico work than it's suitable for.
What are those limitationsand why for Mexico?
So we're doing a lot of stampmetal and industrial goods,
some aftermarket car parts,some work wear denim,
(12:42):
so we can do stuff like that. Butwe get a lot of requests for scrubs,
which we do a lot of scrubs inVietnam, and the quality is great,
but then people specifically wantMexico just for the use of shipment,
but it's just not a goodquality scrub suppliers there.
And there's definitely a fewother products that people
really want to get fromVietnam, or sorry, from Mexico.
(13:03):
I really think Mexico is going to getmore and more investment over the coming
years just because thedemand is absolutely there.
It's just the supply has not caught up.
And I will say a lot of new factoriesare getting or have Chinese backed
investment to Mexico, but there's still a.
Portion of it. Interesting.Makes sense, right?
China's going to diversify themselves.
(13:23):
They want to avoid the tariffs and soprofit and from what they're really great.
I was just manufacturing.So makes a lot of sense.
One of the things that I knowhas caused some confusion,
you talked about thisduring a talk at seller.
Summit.
Is country of origin because I thinkthere's going to be some creative
things that people are going to try to do.
(13:45):
Oh, for sure.
Skirt around country of origin and stufflike that. But can you talk about that?
What constitutes country of originand what do we need to know there?
Yeah, I mean what's reallykind of annoying is it's very broadly written in the
law.
Basically the law states that a newarticle of commerce has to emerge in the
country. So it'd be, I import raw fabricsfrom China having made in t-shirt,
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that's a new article,commerce, and you actually do,
so the fabric making everythingin Vietnam, it's a new article.
Commerce cause T-shirts fundamentallydifferent from fabric. But yeah,
I mean broadly speaking, youhave to have substantial change.
And I try to advise peopleat least 50% of value,
but as long as it me as a newarticle of commerce is new,
(14:27):
but you can't simply put a new labelon something. If you get a mug,
you can't just put your logoon it and ship it from Vietnam,
from China or just addlogos or change colors or.
It was a mug. It is a mug.You added a logo that is not.
The same thing withcommerce. Same. And people,
I've gotten a request for people to dorepackaging multiple times and I either
turn 'em down or nor 'em. But yeah,
(14:48):
they think you can just havethis product shipped from China,
find a package supplier inVietnam, package it in Vietnam,
and then ship it to us is anew product. But it's not,
the product is still fundamentallythe same thing. So yeah,
I mean you have to havesubstantial transformation of the product and generally
if you get audited, you haveto document it. So I mean,
(15:08):
if you have a factory in Vietnam,
you just simply have the factory writea certified letter. Yeah, we made it,
here's the invoice, here's theletter we here's the factory.
You can maybe even take videos ofyour product being made in Vietnam.
That's some nice Vietnamese worker saying,yep, look, I making this. But yeah,
just document it. It'll go throughfine. But if you're just like we said,
doing the repackaging orpass through transshipment,
(15:30):
it's definitely something to get caught.
And they're definitely with CBP andCustoms of Border Protection who enforces
customs.
They're doing 50% more audits nowjust last month more in April,
50% more in April than they were,I don't know what the timeframe,
I guess probably duringthe Biden administration.
And they're planning on increasing thatmore and more and they're planted here
(15:51):
and whatnot,
have contracts with CBP now andcountries like Vietnam and most other
countries share import data.
So what's getting imported intoVietnam is getting shared with CBP,
so they know what's getting shipped inand then they can hypothetically use AI
or whatever to match it.So it's definitely, yeah,
don't do transgender just actuallymake the product in the country.
(16:14):
It's going get more about the fines arepretty steep. And once you get called.
Ones, yeah.
Yeah.
Once you get called once you're prettymuch red flagged for the rest for ever.
And they can look back onprevious shipments too,
so it's not like they get caught one time,
they're only looking backat your previous shipments.
Yeah, yeah. It's just oneof those things where,
and I think one of theanalogies you use is like, Hey,
(16:35):
we would never cheat on our taxes. Right?
Or not file our taxes or something likethat. We know, dude, you don't mess.
I mean, yes, I'm going totake every advantage, every deduction that I can take,
but I'm not going to screw aroundwith the IRS, right? Oh, absolutely.
And CCB P is the same,
maybe going to get more intense andit's going to be such a huge revenue
(16:56):
generator for the US government tariffsthat they're not going to be messing
around here. And so it makessense to do it by the book. Yes,
look for advantages,but do it by the book.
Yeah, absolutely. You do it by the book.So make sure everything's compliant.
You've got paperwork and documentationsupport, everything you made. Yeah,
I mean they'll look atpayments potentially to the factory and I mean they have
as much capability,
more or less than as the IRS tolook at your finances and why not?
(17:20):
Yeah, I mean Trump wants to have theexternal revenue service, which is,
I mean as far as I'm.
Concerned, basically cvp, right? I meanthey're going to be connected. Yeah.
Absolutely. So yeah, if you don't cheaton your taxes, don't cheat on shipments,
your taxes, period.
Love that. Love that comparison. I thinkthat sets the right frame for folks.
Let's talk about di minimis. This issomething that's talked about a lot.
(17:41):
It's come up a lot,
but explain that for folks thatare still maybe a little bit fuzzy,
how has that impacted and whatshould we know about that?
Yeah,
so minimis was a rule in place thatbasically shipments under $800 in
value, would not have a tariffduty rates applied to it.
Just at that point they were like $800.
(18:02):
That tax and duty collect is going tobe less than what or less than what the
actual cost administrator callsto get in and figure stuff out.
Was that rule's gone awayfor China and Hong Kong?
But it's still in effect for the restof the world. And I do want to get,
the big caveat is definitely somethingthe White House and the people in charge
have talked about getting rid of somepoint in the future, but as of today,
(18:24):
may probably about 10:00 AM a few hoursago, I'm checking news in a few hours,
it's still in effect.
Any single shipment under$800, no customs or no tariffs.
There does not apply to Chinaor Hong Kong. But right now.
But yeah,
you can ship from Vietnam and getunder that $800 value and that's each
individual shipment. So you have to do,I don't know, it's a lot of people just,
(18:49):
but there are companies like port listsand whatnot that does warehousing in
Vietnam. You can ship tothe warehouse in Vietnam.
Each time a customer plays itorder to the United States,
they ship each item out to the customer.
And it scripts around asof now the di minimus law,
assuming your product's lightweight,but I mean there is cost.
Cause when you ship each individualitem versus the container,
(19:11):
you want to have small lightweightstuff like t-shirts and small electronic
items. Cause once you getlarge heavyweight items,
let's just say flat pack furniture,
the shipping cost per item to doair shipping, it's going to get.
Prohibitively you worthto save on shipping costs.
It's worth the 10% tariff for whateverbecause you're saving more on shipping.
So you got to kind balance that out.Great. Well, speaking of warehouses,
(19:33):
I know something you've talked about andI've heard a few people talk about is
bonded warehouses.
And so explain that and then when shouldwe consider that versus when is that
maybe not advantageous to.
Us? Yeah, for sure.
So custom responded warehousesare warehouses that are more or less connected to
the port.
So what you can do is you can ship aproduct to the port and then from the port
(19:54):
will get shipped to the customresponded warehouse directly.
And then when it leaves thewarehouse, so each shipment,
that's when it gets to tariffrate applied to it. So yeah,
the sample I use.
So that way if you have a hundredthousand container with a hundred thousand
dollars worth of goods, I guess newtariff rate is 30% typically goes to port,
leaves the port through customs.
(20:15):
You pay 30,000 on tariffson that shipment at one time
before product sells.
But you can ship that shipmentstraight to a cost of bond warehouse.
And then each time a customerplaced an order on a product,
you get revenue from the customerand then it leaves the warehouse.
So let's just say as ahundred dollars items,
you pay $30 in tariffs each time theproduct leaves the warehouse and you get
(20:36):
cashflow in from your customer.So there's not that one big hit,
you're going to still paytariffs, but it splits it up.
So you pay the tariff as you get cashflowcoming in from the clients or your
customers.
Yeah, it makes a lot of sense.
I know especially when tariff were154% from China there for a hot minute,
people were like, whoa, bond warehouse,
I'm only going to pay that on a per itembasis as much as I can. That is 30%.
(20:58):
Maybe people are a little more flexible,
but it's so nice to have that flexibilityof it's there now you can absorb
the hit because you got cashflowcoming in from the customer.
So a lot of benefits there.
And if you shipped it in April, like lateApril, early May when it's still 145%,
you shifted customs on theirwarehouse, you can ship it out now,
pay the 30% tariffs instead ofpaying what would've been 145%.
(21:20):
And I know a lot of people are trying,30% is manageable for a lot of people,
so they just want to getit out and pay what they.
Need to at the time. It'sstill painful but manageable,
especially in comparison.But so the customs,
modern warehouses are close to a port.
I know there's some extracosts associated there too.
So what do we need to consider?When would we not want to do.
This? I mean, for the most part, I mean,
(21:42):
just kind look at your cashflowand how you want it managed. Yeah,
customs on a warehouse, they'redefinitely in demand right now.
So they're going to be more expensiveon a per square footage rate than a trip
to pull warehouse. But I mean,
if you're looking at the tariff ratesand it's more cost advantageous where you
just want to preserve yourcash flow for the time being,
(22:02):
it's definitely going tobe advantageous to do.
And I know a lot of people areprobably shipping out of customs,
modern warehouses likeI mentioned earlier,
just moving a traditional oneand just pay the tariff now.
But it gives you that flexibility to kindof adjust as the tariff rates changes.
Because right now, as everyday is a new announcement.
Every day, a new adventure for.
Sure, he's going to have new on.
(22:23):
Scores of country check tariffnews. It really is every day.
Totally makes sense. So thenlet's look at tariff engineering.
So tariffs, I believe we're here tostay at least for this administration,
and likely beyond. Just like anythingwith the government though, once
Democrats say they don't like tariffs,but then once they're in place,
if people are okay with it,it's hard to turn away revenue.
(22:46):
And that's true foreither party. So likely.
Tariffs.
Hearsay. Hearsay.
Yeah. Biden kept to 25% onChina. There is administration.
Exactly. Yeah. So it's like, oh, we'repretty, well, nobody's talking about it.
Let's just keep it. Yeah. Solet's talk tariff engineering.
How do you coach people or howdo you work with your clients to
(23:06):
engineer tariffs for the least?
Yeah, it a little tricky.
You really have to really dive in deepon what your product is, the HTS code,
and then look at similar HTS codes.
And what is the HTS code?
Yeah, HTS code. So HTS codefor those aren't familiar,
harmonized tariff schedule is the codethat assigned to pretty much 17,000
different product categories.
(23:27):
And that's going to be what thetariff rate is determined by.
So there's going to be a list.
So each product falls under adifferent HCS code. They're 10 digits.
But yeah,
what you do is you look at your HT Scode and then look at similar ones.
And then if you have asimilar HCS code nearby,
you can make changes to that,have a lower tariff rate.
(23:47):
You can fundamentally changeyour product to get in.
The example I used was ColumbiaSportswear for all their shirts.
They all started adding a littlepocket on the inside of their shirts,
credit card size pocket, I think.
And the difference is the shirt has ahigher tariff rate than a windbreaker.
And so since it has a pocket,
they can actually classifythe shirts as a windbreaker.
(24:09):
That meets the requirement forwindbreaker change, the HTS code,
lower tariff now.
Exactly.
And they engineer the product to meetthe requirements for a windbreaker.
And I'm sure everybody has a shirt.It's nice to have a little pocket.
Nice little benefit as well.
Yeah. So yeah,
they figure that out and they pay a lowertariff rate on their shirt shipments
because of that change.And Converse did that.
(24:31):
They put a felt in liner intheir Converse all stars.
Cause the slippers instead of shoes orsneakers and slippers have a lower tariff
rate than sneakers. That's probablyone of the most famous examples,
but a lot of people are kind of justexploring similar products that can
effectively sold the same justto get a different HDS code.
But this is a little tricky todo because not every product,
(24:55):
because most of the time products inthe same category get text at the same
array more or less. Soeven if you do change.
So not always a lot of opportunities here.
And is this kind of goingback to our IRS example,
this is sort of using deductions, right?
So then it's like do youfall under scrutiny here if you're getting too cute or
too creative? Or is this.
Relatively should would cause Yeah, Imean when you submit it through CVP,
(25:18):
you're going to say, Hey, it's this HTS code and there's going to be some guy,
literally somebody looking at theirdatabase, checking it, the product,
the materials and whatnot. And ifthey say it's something different,
they're like, Hey, we actuallythink it's this HTS code.
And then there's goingto be back and forth.
And then ultimately there'san arbitration court more,
I don't know the exact term,
(25:39):
but I know there's basically arbitratorwhere more or less a judge rules on what
the ultimate HS code is. Gotit. We were looking at not,
we didn't do the ruling,but we looked at a ruling.
We were doing baby carriers for a client.
It was trying to figure out which HT Scode. Yeah, I mean there was a court,
not court ruling, but customs rulingfrom 2013 said, is this HTS code,
(26:01):
which is surprising catchall HT S code.
It was all fabric babycarriers versus of course,
most baby carriers dot havesome sort of structure in it.
Those structured baby carriers areactually tax at a different rate or
classified as different than fabric.Yeah.
So I mean, you got to kind of figurethat out. But ultimately though,
(26:23):
it's going to be what the customsays the product is. And again,
if you get cute, it's not as bad asfines. It's just straight up lying to 'em.
But they're going to say it's theHCS code. There's going to be some.
Got to, you don't haveto pay the difference.
Everything they correct got to difference.
If it gets held up, there's some demure,
some storage charges too related to that.
And look,
we got to design our productfor a customer and it's got to meet our vision and
(26:47):
mission and what we're tryingto accomplish with the product.
But it's just another one ofthose things where it's like, Hey,
let me take a look because maybe thisis easy or maybe we have the wrong HT S
code, we need to switch it andit's going to work better for us.
It's something that take a look atbecause we could have a meaningful impact.
A lot of small things too, likesynthetic fabrics and natural fibers,
fabrics are sometimes taxed differently.
(27:08):
So you can look at just changing thefabric of your product, for instance, but.
Just maybe you can change it and getbetter performance and now you get a lower
turf. Right? Yeah. Yeah. Interesting.So let's talk about what not to do.
And I know there are several caveatshere. This is not legal advice.
You're not an attorney,I'm not an attorney,
but what are some things thatwe need to avoid right now?
(27:28):
Or at least need to bevery, very cautious of?
Yeah, for sure. Yeah, I think thefirst thing I mentioned was DDP and I.
If I were redo that talk,
I would say there's a right way todo DDP and a wrong way to do DDP.
Yeah. And what is DDP.
Delivery duty paid? So DDP is ANCO term,
which means you work with a manufacturer,
they'll give you an invoiceand the manufacturer will be in charge of making the
(27:49):
product, shipping the product,paying the dues and deliveries,
everything for you up until it reaches
the ultimate final destination. And
it's legal. It's been a thingfor a while the right way.
So in this case,
you just basically pay the manufacturerone and they handle everything. I mean,
(28:10):
there's a right way, and like I said,there's right way and wrong way.
The right way is trustby verify your supplier,
make sure you get copies of all themanufacturers, invoice the shipping,
who's shipping what HCS.
What they're classifying is becausewhat's happening a lot of times,
not all the time,
but a lot of times is the manufacturersknow that they have the lowest
price they're going to go with them.
(28:31):
So they're figuring out ways tofalsify manufacturing invoice so that
because what they use to the bill oflading or whatnot is what they use to
calculate the tariffs on. So we canpay 145,000 or 30%, 145, I dunno,
whatever it is today, 30% on10,000, there's 20 pay 3000.
But if they falsify it and say 5,000and we pay 30% is half the tariff
(28:54):
cost.
And so a lot of manufacturers doing that.
What's happened is ultimately the personthat is legally and liable for it is
the importer, the personbuying the product.
So if you verify thateverything they say is accurate,
the manufacturer's invoice is accurate,
the shipping bill ladings correctlylisted a CS code is correct, it's fine.
(29:16):
So no issue there, but they don'talways supply that information to you.
So a lot of people just turn the blindeye just accept what everything the
manufacturer is saying is correct.
And they have a lot of times thatthey have suspicious low bids.
This what they're probablydoing. Yeah, trust.
To verify.
But I think that's the piece a lot ofpeople don't dunno is they're like, oh,
no, no, no, it's my factor doing it.Right? So they're the ones are reliable.
(29:41):
The agent of record is the, or themanufacturer, and they assume, oh,
since they're agent of record, they'rethe one legally liable and responsible.
If anybody gets called, it's going to bethem, but it's not the case. And yeah,
I got a lot of pushback from it. I'mnot going to name names, but yeah,
there were people doing this and I hadto explain how to do it correctly and how
not to, and I was like, okay, probablygave a few people a heart attack,
(30:03):
so I want to apologize to those people.
And again, it's just sort of one ofthose things where it's like, oh, well,
my accountant screwed up mytax return, not my fault.
I don't have to pay those taxes. Well,no, you still do. They're your taxes.
Oh, absolutely.
And so you got to lookat it that way. Yeah,
you got to absolutely verifyeveryth to do, basically,
you've just got to look at, hey,
what I'm paying per unit ortotal to the manufacturer,
(30:25):
is that what they'reputting on the invoice?
And is that what the tariff is beingcharged to? And if all that looks good,
then you're fine.
Yeah, yeah. Just trust, verify everything.Yeah. If it gets caught up as held,
gets red flagged by customs,they're going ask for documentation,
ask you more or less. And if youdon't have that, you're just, I know,
I just thought they would do a goodjob. It's not going fly. They expect.
(30:46):
You to. Yeah, and I thinkyou mentioned this too,
then once something is flaggedfor you, probably future orders,
they're going to be paying attention you,
you're going to be scrutinized from there.
On. And again, they can lookback on passion ship too.
And if they find you weredoing that on passionist,
then you can also get paidfines for pass shipment.
So just know how to do it correctly.Yeah, work with customers, brokers,
(31:07):
make sure everything goes throughsmoothly. Yeah, I always mean just for me,
I always recommend FOB have your ownfreight forwarder and then they'll have
a custom broker and they'llhandle everything and tell you what to do and give
you advice for theshipment and all that. But.
I never, what does FOB.
Free on board?
So it means the manufacturer's responsiblefor having the product shipped to the
(31:29):
port and the country of origin,
and then the freight forwardwill pick over at the port.
Got it. Got it. Okay. Well,
let's talk about you specialize in helpingpeople diversify their supply chain
or re-engineer their supply chain. Andyou're looking at outside of China,
who should reach out to you?
I know everybody's kind of scramblingand looking just because of the chaos
(31:51):
lately,
but who should reach out to you and whatare some of the things they should be
considering as they're looking atdiversifying their supply chain?
Are you mostly helping people fully shifttheir manufacturing to the countries?
Are you looking at, hey, let's diversify,
let's have these things made here andthese things made here. Walk me through.
That. Yeah, I mean, the majorityof our clients tend to shift.
(32:14):
The majority of clients tend havea couple key products, but yeah,
they're shifting for the most part,all their manufacturing to Vietnam.
But yeah,
we work with a lot of clients who havedozens of different product categories,
and we're just, for those clients, we'regoing through their list saying, Hey,
these three, four categories wecan definitely do in Vietnam.
These two are maybe, and theseprobably can't do in Vietnam.
(32:34):
And then we're shifting some of thesupply chain. A lot of our bigger clients,
like our eight bigger plus clients,
they have the means tobe more diversified.
So they're keeping their suppliers inChina for the time being and then placing
new orders with factories in Vietnamjust for the time being. But I mean,
for the most part, yeah,
we're just ultimately shifting alot of clients down to Vietnam,
(32:56):
completely and interesting. A lotof people, their supply chains,
but they've been buying from China,
so they'll keep 'em for futureorders potentially if things change.
But for the most part,
I think a lot of peopleare moving permanently to Vietnam or permanently away.
From China. What doesthe process look like?
So I've now decided I'm going tostart shifting my manufacturing.
(33:16):
Some were all from China to Vietnam orone of the other countries you work with.
What is that process like? Howmuch time are we talking here?
Is this a six month plan, an 18month plan? What does that look.
Like? Yeah, it's definitelyis ballpark six months.
Do you actually get yourfirst order in hand? Yeah,
once you kind of reach out to us,
(33:36):
we'll let you know if the productcan be made in Vietnam or not.
But once we get that point, our teamwill go out, research suppliers verify,
and that we've worked on,
we've probably placed orders with a fewhundred factories already in Vietnam.
So we have pretty goodworking relationship on pretty good idea what they can
and can't do. But yeah, once we getthat, we'll get quotes for our clients,
do direct introductions to theclients and the manufacturers.
(33:57):
So everything we do is transparentin that way. And then, yeah,
once they do that, obviouslythere's samples to be made,
make sure they can make the product.Exactly. And then purchase order. So yeah,
you're looking at about four weeks,
actually get the quotes verified thatthe suppliers make sure everything's in
line with your expectations a coupleweeks per each surrounded samples.
And then purchase order,
(34:19):
which place purchase order leadtimes tends to be about 30,
45 days for most products. Gotit. Yeah. I mean then shipping.
And so realistically,
you're looking at actually having theproduct in hand from Vietnam in about five
to seven months once youactually start a project.
Got it. Got it. That actuallydoes not sound too bad. I mean,
that still seems very reasonable.Very cool. So what are you hearing?
(34:40):
I'm just curious ifyou have a perspective,
how's the US going to play a partmanufacturing in the us? Is this going to,
are you seeing that there's goingto be a lot more investment in US
manufacturing? Think that's somethingyou guys will eventually help with?
Yeah.
Is that just definitelya lot of things expand.
Yeah, I mean,
our ultimate goal is we want to find thebest buyers for our clients no matter
where they are. And you got to haveexpertise in each country of origin.
(35:02):
But I'm American, so obviously I wantto find some great suppliers in America.
So actually, if any EricManufacturers are listening to this,
please feel free to reachout to me. I want to.
Our database. Yeah, reach gymman. He's connecting people.
Yeah, I know. Yeah. I mean,
we looked to a captain woodworkermanufacturer literally last night,
and I really have a couple projects thatI'm willing to recommend to him and get
quotes as well.
(35:24):
So I think it is going to be a goodtime to look at American manufacturers,
but it's still very limited becausewhat most people need is contract
manufacturers.
Ones you can reach out to with a techpack and RFQ and then actually quote and
make it, well, most manufacturersin the United States
tend to work for brands likethere's auto power manufacturing,
flashing injection warning,
but they're set up by a client tomake it for those specific things.
(35:48):
So there's not as much, even thoughthere's a lot of manufacturers,
not as much contract manufacturing in.
Place, they're manufacturingfor a specific,
it's manufacturing spun up by aspecific brand and needs type of thing.
Yeah.
It makes sense.
And I mean, people are setting up too.I know of a laundry sheets manufacturer,
they are buying from all over. Theyjust weren't happy with the quality.
(36:09):
Started looking into what it would taketo actually build a manufacturer for
laundry sheets, andthey did it themselves.
I know they sell eco-friendly laundrysheets made out of North Carolina.
So yeah, people are doing that.
Is that true Earth? Or you may notbe able to say who the company is,
but we used to work with TrueEarth, which was fun, but yeah.
Oh man, actually name it might be.
Yeah, no worries. But yeah,this is one of those things.
(36:31):
I know we were talkingabout simple, modern,
I was talking about that on anotherpodcast, one of the founders there,
and they're manufacturing some of theirstuff now in Oklahoma where they're
based, they still get mostof their products from China,
but they're manufacturing a lot inOklahoma now. There's some benefits,
right to speed and cash flow and m OQsif you're manufacturing here and things
like that. So yeah, unit costscould be higher in the us,
(36:54):
but maybe it's more cashflowbeneficial to you to manufacture.
Here. With manufacturing, everything'sgetting more and more automated too.
So a lot of stuff like flexion injectionmolding is more or less just get a
mold, a machinery, one guyknows how to program it.
Yeah, yeah. Pressing buttons atthat point, right? I know. Yeah,
totally makes sense. Well,Jim, this has been fantastic.
(37:14):
This is one of those things where I'mglad now that people are getting serious
about their supply chain.
I think anytime you can findmargin in your cost of goods,
that opens up opportunity for you togrow and has been more and marketing or
just to profit more, and so painful time.
But I think the best operators aregoing to come out ahead during this.
And so Jim, for those that arelooking at moving outside of China,
(37:38):
how can they contactyou and Cosmo sourcing?
Yeah, so yeah, you send to my directemail, which is jim@cosmosourcing.com.
You can get the spellingback there, sander.
And our website is cosmo sourcing.comor just Google Cosmo sourcing.
We come up first. Yeah.
Awesome. I'll link to everythingin the show notes as well.
But if you've got questions, chipis a really smart guy, good guy,
(38:01):
knows what he's doing. He'sworked with some of my clients,
people that I know trust him and so do I.
And so reach out to Jimif you have questions with that, Jim, good luck to you.
Congrats on your amazingtiming and predicting the future that one day there'll
be massive tariffs on China orwe want to be moving out. So.
Absolutely.
Kudos to you on that andkeep doing good work.
(38:22):
Great. Thank you. It'sa pleasure being here.
Awesome. And thank you for tuning inas always. We'd love to hear from you.
What would you like to hear more of onthe podcast if you have not done so?
We'd love that review on iTunes.
Share this podcast with someone thatyou think would enjoy it or benefit from
it. Somebody that's thinking aboutwhat do I do with my supply chain or my
manufacturing share with them thisepisode. And with that, until next time,
(38:45):
thank you for listening.
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Well, hello and welcome to another editionof the E-Commerce Evolution podcast.
I'm your host, BrettCurry, CEO of OMG Commerce,
and today we are talking aboutoptimizing your supply chain outside of
(01:32):
China. How do we think about tariffs?
How do we think about supplychain optimization and what opportunities are there
for us outside of China? Obviously,
this is very timely and thisis a topic where the game is
changing on the field, daily,hourly, all of those things.
So we'll try to keep the conversationpretty high level and also make this
(01:55):
useful regardless of what the tariffnews is when you decide to hit play on
this. But my guest today is Jim Kiner,
and Jim is the founder managingpartner of Cosmo Sourcing.
I met Jim at Seller Summitin Fort Lauderdale last week,
I guess it was at Steve Choose Events.
Steve and Tony running a great eventdown there, one of my favorites.
(02:16):
And so Jim was a speaker, I was a speaker,
and he talked about tariffsand I was like, man,
I got to get you on the pod becauseeverybody's freaking out about this or at
least wondering about this. And so withthat, Jim, welcome to the show, man,
and how's it going?
Hey, it's great to be here and doinggreat. Yeah, thanks for having me here.
It's been a whirlwind for you.
You picked the right time tospecialize in sourcing outside of
(02:39):
China. I picked 10 years ago,
so to you saw the futureyears ago when you map
that out and you've had quitethe couple of weeks, man,
you were on stage before Lauderdale,
you got quoted in the WallStreet Journal about this topic.
And so tell us a little bit about that.
How did you end up getting mentionedin the Wall Street Journal?
(03:00):
Yeah, Hannah reachedout to me, Hannah Mao.
She's the reporter for Wall StreetJournal, and she obviously covers tariffs,
supply chain, manufacturing andVietnam. So yeah, reached out.
She's doing a six part storyactually about manufacturing Vietnam,
the whole on the ground and whatnot.But yeah, we helped for the first story,
(03:20):
she visited a couple of factories thatwe put her in touch with, and yeah,
she interviewed the factories andfeatured one of them pretty prominently in
their story. And then, yeah, the one Iwas featured in was the second of six,
I believe so, yeah. But yeah,it keeps changing with the news.
So.
Keeps changing. We werejust talking about,
so we kind a casual comment the presidentmade recently that who knows what
(03:43):
that's going to do to the markets,
but I think we're just all ourtolerance level for chaos is
just going to be prettyhigh here for the foresee.
Future, future, be adaptable right now.
You've got to be adaptable.
And so I think there's a fewthings we're looking at here.
I just record a podcastwith Andrew Ferris,
who's just a legend in terms ofmarketing and media buying and e-comm in
(04:03):
general. And he and I wereboth talking about, Hey,
in times this times of uncertainty,
there are always opportunities to growactually to get better than you were
before. And I think one of the things,
and this is somethingthat Andrew mentioned,
one of the potential benefits orsilver linings in this is going to
force brands to optimize theirsupply chain look for better,
(04:24):
more stable, more affordable waysto enhance their supply chain.
Every point or couple of points youcan save on your supply chain makes a
huge, huge difference as you canmake your supply chain more stable,
more reliable, thatmakes a huge difference.
You increase your quality of product,that makes a huge difference.
And so it's a time tolook at your supply chain.
And you've been doingthis a long time, Jim.
(04:44):
Oh, absolutely.
When did you first start lookingoutside of China and was it because you
were predicting something like thiscould happen or was there something else
that was driving that?
Yeah, I moved to Vietnamand started sourcing from Vietnam in 2014. At the time,
everybody was sourcing fromChina. I just felt like saturated,
(05:05):
there were plenty of people doingit. And then I visited Vietnam,
fell in love with country, and yeah,
2014 at the time I was trying to getahead of the transpacific partnership,
which was at the time the largestfree trade agreement in history.
It ended up not gettingratified in the past,
but I still had a lot of people reachout to me about finding manufacturers in
Vietnam. And at thattime, 10 years ago, 2014,
(05:26):
it was much less developed manufacturingwise than it's today. I mean,
we were doing industrial wood goods andsome really kind of basic cheap stuff,
to be honest at that time. But yeah,I mean there's still a demand for it.
And yeah,
definitely kind of saw Vietnam asbeing the future early and kind of got
lucky in a sense, but yeah. Yeah.
(05:47):
Love it. You were ahead of the time andman, it has really paid off for you,
especially now.
For sure.
And so there's a few thingsI want to talk about.
We'll talk about minimus with you. Wewant to talk about tariff engineering,
we want to bonded warehouses.We're talk about what not to do.
You really were dropping some bombs ofknowledge in the talk in Fort Lauderdale
that a lot of people were like, waita minute, wait, I can't do that.
Are you sure I can't dothat? And you're like.
Yeah, for sure. Yeah, I foundout some people were doing it.
(06:09):
I never named names, but I had awkwardconversations with some people.
I'm like.
Yeah. They're like,wait a minute. Careful.
So there's several thingsto talk about there,
so stay at tuned for that.
But I want to talk a littlebit about why Vietnam,
why did you go there?But more importantly,
why should we consider Vietnam rightnow? Because as I've learned from you,
(06:32):
and actually one of our topclients in ports from Vietnam,
their product is phenomenal.Why should we consider Vietnam?
And I know there are otherplaces to consider as well,
but you've got a special placein your heart for Vietnam.
Yeah, I mean for Vietnammean they definitely,
you have to pick what they specializein, but what they do specialize in,
they do excellent job.
And two biggest categories wedo are anything textile cut.
And so based that ranges from clothing,apparel to bags, luggage, tool belts,
(06:55):
our mutual client that we work with.
And then also we do a lot ofwooden good and furniture.
And they're definitely growingin several other industries.
We're starting to do electronicmore electronics, OEM, electronics,
but it's definitely, I don't want tosay hit and miss, but it's growing.
It's probably thefastest growing industry.
But when we're doing a lot more plasticejection molding, silicon parts,
(07:18):
we've been doing a lot of industrialmetal projects, St metal goods,
starting to do some car parts too.
And all those industries Ithink are definitely growing more developed industry,
but you really got to figure out whatVietnam can do and then target in on those
products.
That's great. And so I think it'salways important to understand, hey,
what are maybe the misconceptions abouta country or where are the stereotypes
(07:40):
true or not true?
So any misconceptions out thereabout Vietnam right now or
anything you like to setthe record straight on?
Yeah, for sure. I think a lot of peopledo private label manufacturing in China,
which is fine.
Just find a factory thatmakes a pre-existing products slap your logo on it and
sell it, which everybody'sbeen doing for years.
But Vietnam and honestly anywhereoutside of China just does not do that.
(08:03):
So the overall, I mean,
majority of what projects we do is goingto be contract manufacturing where you
supply the factory with your productspecs, sheets and tech packs,
and they'll make it to your specs,
but they're not going to haveexisting designs on hand.
Got it.
Got it. That's probably the biggestone. Other one too, Alibaba.
And those alternatives just aren'tgood or don't really exist there.
(08:24):
So when you find factories, youcan't just put an RFQ on a website,
have a dozen factories come to you.You have to do your own research,
really follow up with'em and chase 'em down.
I know a lot of peopleget turned off by that.
They expect factories to be trippingover fine or work with clients,
but it's not the case. Andthey're also higher MQs.
I know a lot of people say low MQs andthere are kind of boutique handmade
(08:49):
dress factories and whatnot. Theydo small, but for the most part,
I would say MOQs tend to be higherin Vietnam outside of China as well.
Interesting. So higher, MOQ isa little more legwork upfront.
You're going to have to supply thespecs, it's contract manufacturing,
that sort of thing. But thenwhat are some of the benefits?
Because I know in talking to our mutualclient who manufactures in Vietnam,
(09:11):
they actually moved from theUS to Vietnam a few years ago,
and they said their quality went up,
cut their cogs by 70%, qualitywent up, that sort of thing.
But speak to us about
how does it compare manufacturing Vietnamfor the things they're good at to the
rest of the world.
(09:32):
For what they're good at? I think theyexcel because yeah, the tool belt,
I'm not going to name who, but yeah,the tool belt is pretty high end.
And I mean they have a pretty good,
the quality they have inplace is pretty good. Yeah.
And then, yeah, I mean just overall,
I think the quality is quite goodfor a lot of what they excel in.
(09:53):
We do a lot of furniture too,
and we can do some very highend custom hardwood pieces that
they go for thousands,
thousands for a single piece and go inliterally multimillion dollar homes we're
doing.
Interesting.
The projects in Palm, PalmBeach, Florida right now.
And then another comes to home builder,custom home builder out Palm Beach.
So they're doing literally10 million plus they doing.
(10:13):
All that in Vietnam. Yeah.
They're doing a lot of it, not all of it.
So m OQs are a little higher, but prices,
and I know it's hard to compare pricestalking about it depends on the category,
depends on the good,depends on so many things.
But pricing general comments onpricing, how does it compare?
Yeah, pricing for apparel and textilestends to be cheaper in Vietnam than China
(10:33):
outright. And same with wooden goods.Because Vietnam is a tropical country,
there's lots of access to highquality tropical hardwoods.
And with Asia Associationof Southeast Asian nations,
which all the Southeast Asiannations have free-trade,
so it's pretty easy to move woodfrom one country to another.
So the quality of wood youget in Vietnam is excellent.
(10:55):
So for that is definitely oneof the big things they sell on.
And pricing for textiles, bags, backpacks,
even shoes we consistently find is beabout the same price and oftentimes
cheaper than China and theprice to quality ratio,
like you're buying a $5 sweatshirtfrom Vietnam versus $5 in China,
the quality is going to be higher.
China does have a lot of very cheap lowquality. So people are like, I can get,
(11:17):
we were talking to clientsgetting t-shirts for like 83 cents in China and ours
were coming in about one 30,
but the one 30 shirts weredecent versus very low quality
t-shirts for that 83 cents. Andthat was as cheap as we could find,
but it is definitely atthe price to quality ratio.
So the cost of quality ratio is reallygood there, which goes a long way.
(11:38):
So lots of opportunities in Vietnam andwe'll continue to talk about that as we
go and as we go through our othertopics, we weave that back in.
But what other countriesshould people think about?
I know basically you specializein anything outside of China,
so what other countries shouldwe consider and for what?
Yes, for sure. So yeah,
we've been in Vietnam for 10 years andwe've been expanding since last year to
(11:59):
all of Southeast Asia, Mexico, andlooking to expand even more this year.
I mean, Southeast Asia is great.Indonesia has a lot of great factories.
Thailand, we're doing a lot of higher endauto parts and appliances in Thailand,
some rubber goods, some naturalrubber. So pretty eco-friendly stuff.
Malaysia does appliances and some reallygood metal furniture and Mexico too.
(12:20):
A lot of interest in Mexico.
But I will say Mexico is alittle difficult to source from because they're very
limited in what they couldproduce. Much more limited.
People expect more people wantMexico work than it's suitable for.
What are those limitationsand why for Mexico?
So we're doing a lot of stampmetal and industrial goods,
some aftermarket car parts,some work wear denim,
(12:42):
so we can do stuff like that. Butwe get a lot of requests for scrubs,
which we do a lot of scrubs inVietnam, and the quality is great,
but then people specifically wantMexico just for the use of shipment,
but it's just not a goodquality scrub suppliers there.
And there's definitely a fewother products that people
really want to get fromVietnam, or sorry, from Mexico.
(13:03):
I really think Mexico is going to getmore and more investment over the coming
years just because thedemand is absolutely there.
It's just the supply has not caught up.
And I will say a lot of new factoriesare getting or have Chinese backed
investment to Mexico, but there's still a.
Portion of it. Interesting.Makes sense, right?
China's going to diversify themselves.
(13:23):
They want to avoid the tariffs and soprofit and from what they're really great.
I was just manufacturing.So makes a lot of sense.
One of the things that I knowhas caused some confusion,
you talked about thisduring a talk at seller.
Summit.
Is country of origin because I thinkthere's going to be some creative
things that people are going to try to do.
(13:45):
Oh, for sure.
Skirt around country of origin and stufflike that. But can you talk about that?
What constitutes country of originand what do we need to know there?
Yeah, I mean what's reallykind of annoying is it's very broadly written in the
law.
Basically the law states that a newarticle of commerce has to emerge in the
country. So it'd be, I import raw fabricsfrom China having made in t-shirt,
(14:05):
that's a new article,commerce, and you actually do,
so the fabric making everythingin Vietnam, it's a new article.
Commerce cause T-shirts fundamentallydifferent from fabric. But yeah,
I mean broadly speaking, youhave to have substantial change.
And I try to advise peopleat least 50% of value,
but as long as it me as a newarticle of commerce is new,
(14:27):
but you can't simply put a new labelon something. If you get a mug,
you can't just put your logoon it and ship it from Vietnam,
from China or just addlogos or change colors or.
It was a mug. It is a mug.You added a logo that is not.
The same thing withcommerce. Same. And people,
I've gotten a request for people to dorepackaging multiple times and I either
turn 'em down or nor 'em. But yeah,
(14:48):
they think you can just havethis product shipped from China,
find a package supplier inVietnam, package it in Vietnam,
and then ship it to us is anew product. But it's not,
the product is still fundamentallythe same thing. So yeah,
I mean you have to havesubstantial transformation of the product and generally
if you get audited, you haveto document it. So I mean,
(15:08):
if you have a factory in Vietnam,
you just simply have the factory writea certified letter. Yeah, we made it,
here's the invoice, here's theletter we here's the factory.
You can maybe even take videos ofyour product being made in Vietnam.
That's some nice Vietnamese worker saying,yep, look, I making this. But yeah,
just document it. It'll go throughfine. But if you're just like we said,
doing the repackaging orpass through transshipment,
(15:30):
it's definitely something to get caught.
And they're definitely with CBP andCustoms of Border Protection who enforces
customs.
They're doing 50% more audits nowjust last month more in April,
50% more in April than they were,I don't know what the timeframe,
I guess probably duringthe Biden administration.
And they're planning on increasing thatmore and more and they're planted here
(15:51):
and whatnot,
have contracts with CBP now andcountries like Vietnam and most other
countries share import data.
So what's getting imported intoVietnam is getting shared with CBP,
so they know what's getting shipped inand then they can hypothetically use AI
or whatever to match it.So it's definitely, yeah,
don't do transgender just actuallymake the product in the country.
(16:14):
It's going get more about the fines arepretty steep. And once you get called.
Ones, yeah.
Yeah.
Once you get called once you're prettymuch red flagged for the rest for ever.
And they can look back onprevious shipments too,
so it's not like they get caught one time,
they're only looking backat your previous shipments.
Yeah, yeah. It's just oneof those things where,
and I think one of theanalogies you use is like, Hey,
(16:35):
we would never cheat on our taxes. Right?
Or not file our taxes or something likethat. We know, dude, you don't mess.
I mean, yes, I'm going totake every advantage, every deduction that I can take,
but I'm not going to screw aroundwith the IRS, right? Oh, absolutely.
And CCB P is the same,
maybe going to get more intense andit's going to be such a huge revenue
(16:56):
generator for the US government tariffsthat they're not going to be messing
around here. And so it makessense to do it by the book. Yes,
look for advantages,but do it by the book.
Yeah, absolutely. You do it by the book.So make sure everything's compliant.
You've got paperwork and documentationsupport, everything you made. Yeah,
I mean they'll look atpayments potentially to the factory and I mean they have
as much capability,
more or less than as the IRS tolook at your finances and why not?
(17:20):
Yeah, I mean Trump wants to have theexternal revenue service, which is,
I mean as far as I'm.
Concerned, basically cvp, right? I meanthey're going to be connected. Yeah.
Absolutely. So yeah, if you don't cheaton your taxes, don't cheat on shipments,
your taxes, period.
Love that. Love that comparison. I thinkthat sets the right frame for folks.
Let's talk about di minimis. This issomething that's talked about a lot.
(17:41):
It's come up a lot,
but explain that for folks thatare still maybe a little bit fuzzy,
how has that impacted and whatshould we know about that?
Yeah,
so minimis was a rule in place thatbasically shipments under $800 in
value, would not have a tariffduty rates applied to it.
Just at that point they were like $800.
(18:02):
That tax and duty collect is going tobe less than what or less than what the
actual cost administrator callsto get in and figure stuff out.
Was that rule's gone awayfor China and Hong Kong?
But it's still in effect for the restof the world. And I do want to get,
the big caveat is definitely somethingthe White House and the people in charge
have talked about getting rid of somepoint in the future, but as of today,
(18:24):
may probably about 10:00 AM a few hoursago, I'm checking news in a few hours,
it's still in effect.
Any single shipment under$800, no customs or no tariffs.
There does not apply to Chinaor Hong Kong. But right now.
But yeah,
you can ship from Vietnam and getunder that $800 value and that's each
individual shipment. So you have to do,I don't know, it's a lot of people just,
(18:49):
but there are companies like port listsand whatnot that does warehousing in
Vietnam. You can ship tothe warehouse in Vietnam.
Each time a customer plays itorder to the United States,
they ship each item out to the customer.
And it scripts around asof now the di minimus law,
assuming your product's lightweight,but I mean there is cost.
Cause when you ship each individualitem versus the container,
(19:11):
you want to have small lightweightstuff like t-shirts and small electronic
items. Cause once you getlarge heavyweight items,
let's just say flat pack furniture,
the shipping cost per item to doair shipping, it's going to get.
Prohibitively you worthto save on shipping costs.
It's worth the 10% tariff for whateverbecause you're saving more on shipping.
So you got to kind balance that out.Great. Well, speaking of warehouses,
(19:33):
I know something you've talked about andI've heard a few people talk about is
bonded warehouses.
And so explain that and then when shouldwe consider that versus when is that
maybe not advantageous to.
Us? Yeah, for sure.
So custom responded warehousesare warehouses that are more or less connected to
the port.
So what you can do is you can ship aproduct to the port and then from the port
(19:54):
will get shipped to the customresponded warehouse directly.
And then when it leaves thewarehouse, so each shipment,
that's when it gets to tariffrate applied to it. So yeah,
the sample I use.
So that way if you have a hundredthousand container with a hundred thousand
dollars worth of goods, I guess newtariff rate is 30% typically goes to port,
leaves the port through customs.
(20:15):
You pay 30,000 on tariffson that shipment at one time
before product sells.
But you can ship that shipmentstraight to a cost of bond warehouse.
And then each time a customerplaced an order on a product,
you get revenue from the customerand then it leaves the warehouse.
So let's just say as ahundred dollars items,
you pay $30 in tariffs each time theproduct leaves the warehouse and you get
(20:36):
cashflow in from your customer.So there's not that one big hit,
you're going to still paytariffs, but it splits it up.
So you pay the tariff as you get cashflowcoming in from the clients or your
customers.
Yeah, it makes a lot of sense.
I know especially when tariff were154% from China there for a hot minute,
people were like, whoa, bond warehouse,
I'm only going to pay that on a per itembasis as much as I can. That is 30%.
(20:58):
Maybe people are a little more flexible,
but it's so nice to have that flexibilityof it's there now you can absorb
the hit because you got cashflowcoming in from the customer.
So a lot of benefits there.
And if you shipped it in April, like lateApril, early May when it's still 145%,
you shifted customs on theirwarehouse, you can ship it out now,
pay the 30% tariffs instead ofpaying what would've been 145%.
(21:20):
And I know a lot of people are trying,30% is manageable for a lot of people,
so they just want to getit out and pay what they.
Need to at the time. It'sstill painful but manageable,
especially in comparison.But so the customs,
modern warehouses are close to a port.
I know there's some extracosts associated there too.
So what do we need to consider?When would we not want to do.
This? I mean, for the most part, I mean,
(21:42):
just kind look at your cashflowand how you want it managed. Yeah,
customs on a warehouse, they'redefinitely in demand right now.
So they're going to be more expensiveon a per square footage rate than a trip
to pull warehouse. But I mean,
if you're looking at the tariff ratesand it's more cost advantageous where you
just want to preserve yourcash flow for the time being,
(22:02):
it's definitely going tobe advantageous to do.
And I know a lot of people areprobably shipping out of customs,
modern warehouses likeI mentioned earlier,
just moving a traditional oneand just pay the tariff now.
But it gives you that flexibility to kindof adjust as the tariff rates changes.
Because right now, as everyday is a new announcement.
Every day, a new adventure for.
Sure, he's going to have new on.
(22:23):
Scores of country check tariffnews. It really is every day.
Totally makes sense. So thenlet's look at tariff engineering.
So tariffs, I believe we're here tostay at least for this administration,
and likely beyond. Just like anythingwith the government though, once
Democrats say they don't like tariffs,but then once they're in place,
if people are okay with it,it's hard to turn away revenue.
(22:46):
And that's true foreither party. So likely.
Tariffs.
Hearsay. Hearsay.
Yeah. Biden kept to 25% onChina. There is administration.
Exactly. Yeah. So it's like, oh, we'repretty, well, nobody's talking about it.
Let's just keep it. Yeah. Solet's talk tariff engineering.
How do you coach people or howdo you work with your clients to
(23:06):
engineer tariffs for the least?
Yeah, it a little tricky.
You really have to really dive in deepon what your product is, the HTS code,
and then look at similar HTS codes.
And what is the HTS code?
Yeah, HTS code. So HTS codefor those aren't familiar,
harmonized tariff schedule is the codethat assigned to pretty much 17,000
different product categories.
(23:27):
And that's going to be what thetariff rate is determined by.
So there's going to be a list.
So each product falls under adifferent HCS code. They're 10 digits.
But yeah,
what you do is you look at your HT Scode and then look at similar ones.
And then if you have asimilar HCS code nearby,
you can make changes to that,have a lower tariff rate.
(23:47):
You can fundamentally changeyour product to get in.
The example I used was ColumbiaSportswear for all their shirts.
They all started adding a littlepocket on the inside of their shirts,
credit card size pocket, I think.
And the difference is the shirt has ahigher tariff rate than a windbreaker.
And so since it has a pocket,
they can actually classifythe shirts as a windbreaker.
(24:09):
That meets the requirement forwindbreaker change, the HTS code,
lower tariff now.
Exactly.
And they engineer the product to meetthe requirements for a windbreaker.
And I'm sure everybody has a shirt.It's nice to have a little pocket.
Nice little benefit as well.
Yeah. So yeah,
they figure that out and they pay a lowertariff rate on their shirt shipments
because of that change.And Converse did that.
(24:31):
They put a felt in liner intheir Converse all stars.
Cause the slippers instead of shoes orsneakers and slippers have a lower tariff
rate than sneakers. That's probablyone of the most famous examples,
but a lot of people are kind of justexploring similar products that can
effectively sold the same justto get a different HDS code.
But this is a little tricky todo because not every product,
(24:55):
because most of the time products inthe same category get text at the same
array more or less. Soeven if you do change.
So not always a lot of opportunities here.
And is this kind of goingback to our IRS example,
this is sort of using deductions, right?
So then it's like do youfall under scrutiny here if you're getting too cute or
too creative? Or is this.
Relatively should would cause Yeah, Imean when you submit it through CVP,
(25:18):
you're going to say, Hey, it's this HTS code and there's going to be some guy,
literally somebody looking at theirdatabase, checking it, the product,
the materials and whatnot. And ifthey say it's something different,
they're like, Hey, we actuallythink it's this HTS code.
And then there's goingto be back and forth.
And then ultimately there'san arbitration court more,
I don't know the exact term,
(25:39):
but I know there's basically arbitratorwhere more or less a judge rules on what
the ultimate HS code is. Gotit. We were looking at not,
we didn't do the ruling,but we looked at a ruling.
We were doing baby carriers for a client.
It was trying to figure out which HT Scode. Yeah, I mean there was a court,
not court ruling, but customs rulingfrom 2013 said, is this HTS code,
(26:01):
which is surprising catchall HT S code.
It was all fabric babycarriers versus of course,
most baby carriers dot havesome sort of structure in it.
Those structured baby carriers areactually tax at a different rate or
classified as different than fabric.Yeah.
So I mean, you got to kind of figurethat out. But ultimately though,
(26:23):
it's going to be what the customsays the product is. And again,
if you get cute, it's not as bad asfines. It's just straight up lying to 'em.
But they're going to say it's theHCS code. There's going to be some.
Got to, you don't haveto pay the difference.
Everything they correct got to difference.
If it gets held up, there's some demure,
some storage charges too related to that.
And look,
we got to design our productfor a customer and it's got to meet our vision and
(26:47):
mission and what we're tryingto accomplish with the product.
But it's just another one ofthose things where it's like, Hey,
let me take a look because maybe thisis easy or maybe we have the wrong HT S
code, we need to switch it andit's going to work better for us.
It's something that take a look atbecause we could have a meaningful impact.
A lot of small things too, likesynthetic fabrics and natural fibers,
fabrics are sometimes taxed differently.
(27:08):
So you can look at just changing thefabric of your product, for instance, but.
Just maybe you can change it and getbetter performance and now you get a lower
turf. Right? Yeah. Yeah. Interesting.So let's talk about what not to do.
And I know there are several caveatshere. This is not legal advice.
You're not an attorney,I'm not an attorney,
but what are some things thatwe need to avoid right now?
(27:28):
Or at least need to bevery, very cautious of?
Yeah, for sure. Yeah, I think thefirst thing I mentioned was DDP and I.
If I were redo that talk,
I would say there's a right way todo DDP and a wrong way to do DDP.
Yeah. And what is DDP.
Delivery duty paid? So DDP is ANCO term,
which means you work with a manufacturer,
they'll give you an invoiceand the manufacturer will be in charge of making the
(27:49):
product, shipping the product,paying the dues and deliveries,
everything for you up until it reaches
the ultimate final destination. And
it's legal. It's been a thingfor a while the right way.
So in this case,
you just basically pay the manufacturerone and they handle everything. I mean,
(28:10):
there's a right way, and like I said,there's right way and wrong way.
The right way is trustby verify your supplier,
make sure you get copies of all themanufacturers, invoice the shipping,
who's shipping what HCS.
What they're classifying is becausewhat's happening a lot of times,
not all the time,
but a lot of times is the manufacturersknow that they have the lowest
price they're going to go with them.
(28:31):
So they're figuring out ways tofalsify manufacturing invoice so that
because what they use to the bill oflading or whatnot is what they use to
calculate the tariffs on. So we canpay 145,000 or 30%, 145, I dunno,
whatever it is today, 30% on10,000, there's 20 pay 3000.
But if they falsify it and say 5,000and we pay 30% is half the tariff
(28:54):
cost.
And so a lot of manufacturers doing that.
What's happened is ultimately the personthat is legally and liable for it is
the importer, the personbuying the product.
So if you verify thateverything they say is accurate,
the manufacturer's invoice is accurate,
the shipping bill ladings correctlylisted a CS code is correct, it's fine.
(29:16):
So no issue there, but they don'talways supply that information to you.
So a lot of people just turn the blindeye just accept what everything the
manufacturer is saying is correct.
And they have a lot of times thatthey have suspicious low bids.
This what they're probablydoing. Yeah, trust.
To verify.
But I think that's the piece a lot ofpeople don't dunno is they're like, oh,
no, no, no, it's my factor doing it.Right? So they're the ones are reliable.
(29:41):
The agent of record is the, or themanufacturer, and they assume, oh,
since they're agent of record, they'rethe one legally liable and responsible.
If anybody gets called, it's going to bethem, but it's not the case. And yeah,
I got a lot of pushback from it. I'mnot going to name names, but yeah,
there were people doing this and I hadto explain how to do it correctly and how
not to, and I was like, okay, probablygave a few people a heart attack,
(30:03):
so I want to apologize to those people.
And again, it's just sort of one ofthose things where it's like, oh, well,
my accountant screwed up mytax return, not my fault.
I don't have to pay those taxes. Well,no, you still do. They're your taxes.
Oh, absolutely.
And so you got to lookat it that way. Yeah,
you got to absolutely verifyeveryth to do, basically,
you've just got to look at, hey,
what I'm paying per unit ortotal to the manufacturer,
(30:25):
is that what they'reputting on the invoice?
And is that what the tariff is beingcharged to? And if all that looks good,
then you're fine.
Yeah, yeah. Just trust, verify everything.Yeah. If it gets caught up as held,
gets red flagged by customs,they're going ask for documentation,
ask you more or less. And if youdon't have that, you're just, I know,
I just thought they would do a goodjob. It's not going fly. They expect.
(30:46):
You to. Yeah, and I thinkyou mentioned this too,
then once something is flaggedfor you, probably future orders,
they're going to be paying attention you,
you're going to be scrutinized from there.
On. And again, they can lookback on passion ship too.
And if they find you weredoing that on passionist,
then you can also get paidfines for pass shipment.
So just know how to do it correctly.Yeah, work with customers, brokers,
(31:07):
make sure everything goes throughsmoothly. Yeah, I always mean just for me,
I always recommend FOB have your ownfreight forwarder and then they'll have
a custom broker and they'llhandle everything and tell you what to do and give
you advice for theshipment and all that. But.
I never, what does FOB.
Free on board?
So it means the manufacturer's responsiblefor having the product shipped to the
(31:29):
port and the country of origin,
and then the freight forwardwill pick over at the port.
Got it. Got it. Okay. Well,
let's talk about you specialize in helpingpeople diversify their supply chain
or re-engineer their supply chain. Andyou're looking at outside of China,
who should reach out to you?
I know everybody's kind of scramblingand looking just because of the chaos
(31:51):
lately,
but who should reach out to you and whatare some of the things they should be
considering as they're looking atdiversifying their supply chain?
Are you mostly helping people fully shifttheir manufacturing to the countries?
Are you looking at, hey, let's diversify,
let's have these things made here andthese things made here. Walk me through.
That. Yeah, I mean, the majorityof our clients tend to shift.
(32:14):
The majority of clients tend havea couple key products, but yeah,
they're shifting for the most part,all their manufacturing to Vietnam.
But yeah,
we work with a lot of clients who havedozens of different product categories,
and we're just, for those clients, we'regoing through their list saying, Hey,
these three, four categories wecan definitely do in Vietnam.
These two are maybe, and theseprobably can't do in Vietnam.
(32:34):
And then we're shifting some of thesupply chain. A lot of our bigger clients,
like our eight bigger plus clients,
they have the means tobe more diversified.
So they're keeping their suppliers inChina for the time being and then placing
new orders with factories in Vietnamjust for the time being. But I mean,
for the most part, yeah,
we're just ultimately shifting alot of clients down to Vietnam,
(32:56):
completely and interesting. A lotof people, their supply chains,
but they've been buying from China,
so they'll keep 'em for futureorders potentially if things change.
But for the most part,
I think a lot of peopleare moving permanently to Vietnam or permanently away.
From China. What doesthe process look like?
So I've now decided I'm going tostart shifting my manufacturing.
(33:16):
Some were all from China to Vietnam orone of the other countries you work with.
What is that process like? Howmuch time are we talking here?
Is this a six month plan, an 18month plan? What does that look.
Like? Yeah, it's definitelyis ballpark six months.
Do you actually get yourfirst order in hand? Yeah,
once you kind of reach out to us,
(33:36):
we'll let you know if the productcan be made in Vietnam or not.
But once we get that point, our teamwill go out, research suppliers verify,
and that we've worked on,
we've probably placed orders with a fewhundred factories already in Vietnam.
So we have pretty goodworking relationship on pretty good idea what they can
and can't do. But yeah, once we getthat, we'll get quotes for our clients,
do direct introductions to theclients and the manufacturers.
(33:57):
So everything we do is transparentin that way. And then, yeah,
once they do that, obviouslythere's samples to be made,
make sure they can make the product.Exactly. And then purchase order. So yeah,
you're looking at about four weeks,
actually get the quotes verified thatthe suppliers make sure everything's in
line with your expectations a coupleweeks per each surrounded samples.
And then purchase order,
(34:19):
which place purchase order leadtimes tends to be about 30,
45 days for most products. Gotit. Yeah. I mean then shipping.
And so realistically,
you're looking at actually having theproduct in hand from Vietnam in about five
to seven months once youactually start a project.
Got it. Got it. That actuallydoes not sound too bad. I mean,
that still seems very reasonable.Very cool. So what are you hearing?
(34:40):
I'm just curious ifyou have a perspective,
how's the US going to play a partmanufacturing in the us? Is this going to,
are you seeing that there's goingto be a lot more investment in US
manufacturing? Think that's somethingyou guys will eventually help with?
Yeah.
Is that just definitelya lot of things expand.
Yeah, I mean,
our ultimate goal is we want to find thebest buyers for our clients no matter
where they are. And you got to haveexpertise in each country of origin.
(35:02):
But I'm American, so obviously I wantto find some great suppliers in America.
So actually, if any EricManufacturers are listening to this,
please feel free to reachout to me. I want to.
Our database. Yeah, reach gymman. He's connecting people.
Yeah, I know. Yeah. I mean,
we looked to a captain woodworkermanufacturer literally last night,
and I really have a couple projects thatI'm willing to recommend to him and get
quotes as well.
(35:24):
So I think it is going to be a goodtime to look at American manufacturers,
but it's still very limited becausewhat most people need is contract
manufacturers.
Ones you can reach out to with a techpack and RFQ and then actually quote and
make it, well, most manufacturersin the United States
tend to work for brands likethere's auto power manufacturing,
flashing injection warning,
but they're set up by a client tomake it for those specific things.
(35:48):
So there's not as much, even thoughthere's a lot of manufacturers,
not as much contract manufacturing in.
Place, they're manufacturingfor a specific,
it's manufacturing spun up by aspecific brand and needs type of thing.
Yeah.
It makes sense.
And I mean, people are setting up too.I know of a laundry sheets manufacturer,
they are buying from all over. Theyjust weren't happy with the quality.
(36:09):
Started looking into what it would taketo actually build a manufacturer for
laundry sheets, andthey did it themselves.
I know they sell eco-friendly laundrysheets made out of North Carolina.
So yeah, people are doing that.
Is that true Earth? Or you may notbe able to say who the company is,
but we used to work with TrueEarth, which was fun, but yeah.
Oh man, actually name it might be.
Yeah, no worries. But yeah,this is one of those things.
(36:31):
I know we were talkingabout simple, modern,
I was talking about that on anotherpodcast, one of the founders there,
and they're manufacturing some of theirstuff now in Oklahoma where they're
based, they still get mostof their products from China,
but they're manufacturing a lot inOklahoma now. There's some benefits,
right to speed and cash flow and m OQsif you're manufacturing here and things
like that. So yeah, unit costscould be higher in the us,
(36:54):
but maybe it's more cashflowbeneficial to you to manufacture.
Here. With manufacturing, everything'sgetting more and more automated too.
So a lot of stuff like flexion injectionmolding is more or less just get a
mold, a machinery, one guyknows how to program it.
Yeah, yeah. Pressing buttons atthat point, right? I know. Yeah,
totally makes sense. Well,Jim, this has been fantastic.
(37:14):
This is one of those things where I'mglad now that people are getting serious
about their supply chain.
I think anytime you can findmargin in your cost of goods,
that opens up opportunity for you togrow and has been more and marketing or
just to profit more, and so painful time.
But I think the best operators aregoing to come out ahead during this.
And so Jim, for those that arelooking at moving outside of China,
(37:38):
how can they contactyou and Cosmo sourcing?
Yeah, so yeah, you send to my directemail, which is jim@cosmosourcing.com.
You can get the spellingback there, sander.
And our website is cosmo sourcing.comor just Google Cosmo sourcing.
We come up first. Yeah.
Awesome. I'll link to everythingin the show notes as well.
But if you've got questions, chipis a really smart guy, good guy,
(38:01):
knows what he's doing. He'sworked with some of my clients,
people that I know trust him and so do I.
And so reach out to Jimif you have questions with that, Jim, good luck to you.
Congrats on your amazingtiming and predicting the future that one day there'll
be massive tariffs on China orwe want to be moving out. So.
Absolutely.
Kudos to you on that andkeep doing good work.
(38:22):
Great. Thank you. It'sa pleasure being here.
Awesome. And thank you for tuning inas always. We'd love to hear from you.
What would you like to hear more of onthe podcast if you have not done so?
We'd love that review on iTunes.
Share this podcast with someone thatyou think would enjoy it or benefit from
it. Somebody that's thinking aboutwhat do I do with my supply chain or my
manufacturing share with them thisepisode. And with that, until next time,
(38:45):
thank you for listening.
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