Episode Transcript
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[00:00:35] Speaker B: You are listening to the Freight Buyers Club, a home for those interested in international trade, shipping, procurement, logistics and air freight. In fact, all things supply chain in the Americas, Asia and beyond.
[00:00:50] Speaker C: What a crazy time we're living in right now. Shipping is both on hold and overextended, depending on which trade you look Donald Trump is clearly over globalization, and importers and exporters are fed up of not knowing whether to stick or twist on shipments as they try and guess which way the tariff winds will blow between loading and delivery. Many have simply paused operations, a move that threatens a potential freight market supply side bullwhip effect. We certainly have lots to discuss today. Hello, I'm Mike King and welcome to this episode of Freight Buyers Club Insight, produced with the support of Ontegos Cloud. If you're new to this podcast, please do follow us and subscribe. We're on all podcast platforms and on YouTube. Now, before we start, I just want to say that yes, I did call this podcast the White House Kid, Tarifon Tarifort. And it is a light hearted reference to the Karate Kid. I almost called it War on Everyone, which is a comedy favorite of mine featuring Alexander Skarsgard and Michael Pena. But for many of you listening I know right now is no laughing matter. Because while this isn't a political podcast by any means, the supply chain business and many of the people who depend on it and on global trade are currently feeling rather battered and bruised by the pure confusion of tariffs and trade wars and the endless uncertainty. So today we're going to get some insights into how this rapid realignment of global trade by the White House is impacting retailers and manufacturers and those who manage their supply chains. And I'm glad to say that I've got a couple of great guests to cover both angles. First up is the Executive Director of the Air Forwarders Association, Brandon Fried. Welcome to the Freight Buyers Club.
[00:02:39] Speaker D: Thank you Mike. Good to see you and John today and thanks for having me.
[00:02:42] Speaker C: Thanks for coming back. Actually, yeah, and as you said, John Gold, Vice President for Supply Chain and Customs Policy at the National Retail Federation, America's busiest man, I believe.
[00:02:53] Speaker B: Thanks, Mike. Appreciate the opportunity to join you again.
[00:02:56] Speaker C: Thanks for coming on. Thanks for finding the time. John. We spoke at TPM 25 at Long beach, what was it, about six weeks ago? In my head, it feels like a million years ago already in terms of trade policy and my job. But for you, it must have been even more perturbing or chaotic. You've been advising your retailer members, I presume, and lobbying. Please give us your view on how you view that time period and how it's affecting your members. It must be very resource intensive juggling all this extra paperwork and working your way around this changing tariff landscape. Obviously, you know the intro I called it tariff on, tariff off. Please give us your perspective.
[00:03:38] Speaker B: Thanks, Mike. It certainly has been a busy few weeks. I think busier than anybody expected it to be. Lots of moving pieces, lots of tariff discussion, lots of executive orders, lots of CSMS messages out of Customs and still lots of confusion about what exactly is going on and how the tariffs are being applied. So I think we got to break it down into a couple of different buckets. When the President was elected, obviously he talked a lot about tariffs and there was a lot of concern about tariffs being enacted on day one, January 20, on Inauguration Day. I think there was a bit of relief when he signed the America First Trade Policy Memo that basically outlined how he was going to arrive at the different tariffs in different areas. Unfortunately, he kind of veered away from some of that by announcing and launching different tariffs in advance of any of those reports coming due in early April. Obviously we had the initial IPA tariffs on Canada, Mexico and China over the immigration and fentanyl related issues. They went on China, they were delayed on Canada and Mexico. We thought come March they were going to be delayed once again on Canada and Mexico because of what they had been offered on addressing some of the border issues. Unfortunately, they were put into place and at that point, you know, China's tariffs were then up to 20% within a couple of days. We then had a kind of rollback of USMCA qualifying goods that would not be hit with the 25% tariffs on Canada, Mexico. Since then, we've also had sectoral tariffs launched on steel and aluminum. The bigger concern here is the fact that they included derivative products. And it made it very difficult for companies to understand how to value the steel or aluminum within the product itself to capture the tariffs. And we're still waiting on Specific guidance, but folks understand how to do that.
[00:05:30] Speaker D: So.
[00:05:30] Speaker C: So that could even be like a can of beer, couldn't it?
[00:05:33] Speaker B: Yeah, well, they've, they've added beer in empty bottles to the tariff list for steel and aluminum. So they've, you know, put 25% tariffs now on beer and aluminum cans. But we've also got investigations on lumber and timber and their derivative products. So you know, furniture and paper products. On copper. We had the Liberation day announcement on April 2 of the the global 10% tariff on everybody and then the reciprocal tariffs on taking effect on April 9th. So the global tariffs took effect on April 5th, then April 9th, which we'll see the reciprocal tariffs with the higher rates on about 60 different countries that got changed right before they were supposed to go into effect. They decided to pull back and just maintain the global 10% tariff for a 90 day pause while there are ongoing trade negotiations with a variety of countries. But unfortunately they kept the tariffs on China and even increased them now up to 125% because of China's retaliation. So the base rate from China now is essentially 145% because when you take the reciprocal tariff plus the original IPA tariffs, that's 145 plus 301 tariffs, plus whatever your base MFN rate is. So you've got some folks that are upward up close to 190% tariffs. In addition to that, we had the auto tariffs that were announced. We now have investigations into semiconductors and pharmaceuticals. AG is on the way. And oh by the way, we just announced that we're eliminating the tomato suspension agreement with Mexico. So we're have 21% tariffs on tomatoes effective July. So lots of tariff announcements that are out there and we can dive into each one. But this is, it's a lot that companies are dealing with right now trying to figure out how this all works and the stacking nature of a lot of these different tariffs as well, which has been a huge concern for people.
[00:07:25] Speaker C: Just on one of those, John, you mentioned the 145% tariff that was on China, we think, and we're not quite sure how it all stacks up exactly. But then last Friday, April 11, there was seemed to be an exemption on smartphones and computers and other electronics. Do we know when that came into force? Because I was trying to check out exactly when that came to force. That's from Hong Kong and China, isn't it?
[00:07:48] Speaker B: Correct. So there was a message that came out from cbp, a CSMS message that came out late Friday night that said certain consumer Electronics products were to be reclassified or provided under the exemption of semiconductor products. You know, when you looked at the reciprocal tariff order that came out, there were six or seven different categories of products where there reciprocal tariff didn't apply because those products are subject to either an ongoing section 232 investigation or will be subject to an upcoming section 232 investigation. So what they did is they take, took some of those consumer electronics products and then put them under the semiconductor basket. And that investigation was just announced yesterday. So while they might have gotten a reprieve from the 125% tariff, they will likely be subject to whatever tariff is agreed to under the Section 232 investigation on semiconductors, 25% or more. But that that investigation is now underway.
[00:08:47] Speaker C: So do we have a timeline on that investigation?
[00:08:51] Speaker B: I think it was just announced. I think they're looking for comments within 21 days. I think that was the timeline. I think it's in the Federal Register notice now. I haven't had a chance to look at it just yet, but it's moving quick. I mean, if you look at how all the other tariffs have gone into effect, they move pretty quickly through these investigations.
[00:09:06] Speaker C: So it could happen at any point.
[00:09:08] Speaker B: Probably within the next 30 to 60 days, potentially.
[00:09:12] Speaker C: Okay. Yeah, but which is if you're, you know, you're shipping into the US you either do it very, very quickly if you, if you're shipping electronics or you don't.
[00:09:19] Speaker B: Right, but the challenge is, I mean, as you noted, you know, we had the customs notice that came out on Friday night, but we were waiting to see the official executive order that, you know, what it ties to. And I don't think that got published until yesterday. So again, lots of confusion about what happened, why it happened and what comes next.
[00:09:37] Speaker C: It is very confusing. You're speaking to shippers all the time. For some of them, they must be in this point where they do a stick or twist. Do I gamble and import and get caught with tariffs? I mean, people must be getting caught between rocks and hard places all the time.
[00:09:49] Speaker B: Yeah, I mean, they're certainly trying to figure out what's going on, especially with this 90 day pause, not knowing what happens at the end of 90 days. I mean, do these reciprocal tariffs go back in. I mean, take a look at some of the countries. Vietnam with a 46% tariff rate that's significant, especially for peril and footwear. Folks moved out of China specifically because of what happened back during the first Trump administration because of the Section 301 tariffs. A lot of them moved to Vietnam, but now they're going to get hit with these huge tariffs because they made that move. They're all trying to figure out now kind of what's next, where can they go. But I think, as you know, you and I have talked previously, it takes time to rebuild, redo your supply chain, to move. It takes months, if not years. And trying to figure out where can I go that's not going to be subject to these massive tariffs is a challenge for everybody. And again, as we're now looking at everybody ordering their holiday merchandise, trying to figure out what are they actually supposed to do, how are they supposed to order, what are going to be the price points that they order at anything coming out of China, can they pass along 145% plus tariff rate? Probably not, especially if you're a small business.
[00:10:53] Speaker C: I just want to just dive into the electronics there and the limbo that's in Mainland China accounted for 81.1% of U.S. imports of smartphones, 66% more or less of laptop computers, 14 or so percent of components and a bunch of other stuff. That's according to S and P Global market intelligence data. So it's a lot of imports. Now, the President said that these exemptions were brought in so that companies would have time to move production to the US as you said there previously, they were told Vietnam would be fine. China plus one would work. Chris Rogers, head of supply chain research at S and P, says that fully moving supply chains for phones and computers, the US Was pretty much impractical in less than three years. So the timescale and the messaging on all of this makes it really difficult for anyone to make a decision, even if it's about bringing it back to the U.S. doesn't it?
[00:11:46] Speaker B: Yeah, I mean, absolutely. Look, you've had some announcements by some companies about ramping up their US Production. I think Nvidia talked yesterday about bringing back semiconductor production here at the United States, but that's years away. That's not something that can get turned on overnight. So I think folks are looking to figure out how best to make that happen. I think everybody's looking, how do we shift away from China or do the China plus one plus two. But it takes time. It's not something that can be done overnight. Again, there are so many factors that go into the ability to move your supply chain. You know, is there the right capacity where you're looking? Do they have the right workforce? Do they have the infrastructure in place? Do they have logistics in place? I Mean, all that takes time and then having to go and validate that the factory is who they say they are, they meet all the different testing requirements, meet your quality requirements, all that stuff takes a lot of time to do it. So a 90 day pause is not enough time for folks to completely shift their supply chains Again, when these orders are placed, you know, 6, 9, 12 months in advance, it's a challenge.
[00:12:45] Speaker C: Brandon, bring you in. I mentioned the bullwhip effect in my intro. What we saw during the pandemic was a demand side bullwhip effect basically in shipping. It lasted the best part of two years and it massively fired up air freight markets during that period as well. This feels to me like this brewing potentially over in Asia where we're seeing some non Chinese manufacturers trying to get in as much stuff as they can into the US during this moratorium. Chinese exporters are trying to get as much into Europe while tariffs are so high or confusing into the US So all this equipment and all of these ships are all going to be in the wrong place. But I'm wondering how's this playing out in air freight markets from your point of view? I mean, this, I guess it's quite lucrative at the moment.
[00:13:29] Speaker D: Yeah, well, you know, every one of these deadlines, Mike, it sparks a temporary demand spike. And so especially on the air cargo side, people want to front load, they want to beat the tariffs coming in. So you see it on specifically or mostly on the Trans Pacific lanes and then it calms down a bit waiting for the next announcement to come out of the White House. And you know, we saw it in March, I think the Wall Street Journal this morning said There was a 12.4% surge in the month of March. You know, it's disruptive and it's unsustainable. In the long run, sooner or later, you know, that will probably abate somewhat. But I think right now, as John alluded to, is these constantly shifting deadlines are confusing customers. They're confusing their forwarders too, who are there supposedly to be advising their customers as well. So our members have been extremely busy right now, just sitting down with customers, holding hands and mapping out various scenarios based on the news that is changing every minute.
[00:14:40] Speaker C: And what sort of advice do your members give their shipper customers? I mean, how do you advise when things are moving so quickly?
[00:14:47] Speaker D: Yeah, well, don't make rash decisions. And first thing, I mean, you know, sit and don't watch and listen to the tweets and listen to what the news is. And it seems to have a cadence to it, you know, shock and then there's a drop and then there's another shocking thing. So you kind of have to learn, but by all means, don't make any significant investment decisions right now. Look at alternative routings. I think the Trump administration is pretty much demonstrating that there, as we saw with the Vietnam tariffs and other places, that there's no hiding place. And so I think that that's having an impact. But right now we need to see and we need to figure out where you can diversify your supply chains. I want to say something and this is really important. As I said, for the last 40 years or so, the US has relied on China as a manufacturing base and to quickly change. As Jonathan just said, this can't be done on a dime now. Yeah. You know, it used to be China was the, the cheapest place for labor. That's not necessarily the case anymore. But you need to look at the manufacturing infrastructure that has been built there. It's just simply not in the United States anymore. And it's going to take quite a, quite a long period of time to get it back here.
[00:16:08] Speaker C: You think there could have been a more sensible strategy or a long term strategy that if this was the aim to get manufacturing back to the US and I want to come back a bit later into the types of jobs that are desirable in the US or people want to do. But maybe there could have been carve outs on particular sectors and they could have been a time process and maybe tariffs could been progressive. There could have been different ways of doing this.
[00:16:31] Speaker D: Yeah. So, you know, look, we all know there's a place for tariffs as negotiating tools, not the extreme tariffs that we're seeing now. But at the same time, you know, you provide incentives, you provide inducements. The government provides the incentives to get manufacturers back here. Not the shock and all approach that we're seeing now. We're also seeing the cuts in the federal government with this chainsaw and doge approach. You know, this is shock and all and this does not help, it doesn't help American industry, it doesn't help people like retirees. And more importantly, most importantly of all, it doesn't help the American consumer. If the American consumer doesn't want to spend, we're all going to suffer, especially John's members. The American consumer needs feel confident.
[00:17:20] Speaker B: Yeah, I think, Mike, to that point, I think the biggest challenge here is not knowing exactly what the end game is here for the tariffs. You know, you hear the administration talk about a multitude of reasons why they're doing the tariffs you know, one, it's a negotiating tactic. Okay. There are countries that are lining up, so let's start negotiations. To be honest, you didn't need to put the tariffs into place actually to get those negotiations going. I think we'd all welcome the opportunity to have new free trade agreement discussions with a wide variety of countries to address some of these trade discrepancies that we have with market access. That's what a free trade agreement is supposed to do. It's used as a lever to get companies out of China. I think you saw that back in 2018, companies did make their shifts. They went to Southeast Asia, they went to Mexico, they went to Latin America. Some came back here to the United States, but not everybody because it's extremely difficult to move manufacturing back here again. It's, you know, bring companies back again. What kind of manufacturing are we talking about? I think that's a discussion we need to have is what do we want back here? You know, do we want socks, T shirt and underwear, or do we want to focus more on, you know, highly industrialized, national security related products that know, advanced manufacturing? So where do we want to focus in on? The other part too, that they continue to say is that it's about the revenue. You know, the President talks about how we were the richest when we collected tariffs back in the early 1900s. We're a very different world economy right now. The tariffs can't sustain and replace the income tax. It's just not the way it works. And they've got to pay for a new big tax bill that they're trying to work on this year that would maintain some of the tax cuts and jobs act provisions that, to be honest, we benefited greatly from. We were very appreciative of the President to get the TCJA done and lower the corporate tax rate from 35 to 21% because retail was paying the highest margin. That TCJA allowed us to make some changes to deflect the cost of the tariffs the first go around.
You know, it allowed companies to absorb and mitigate the impact of the tariffs and protect consumers. We can't do that. This go. The economy is very different. So again, what's the end goal for the tariffs? I think there's a lot of questions because you hear a lot of different things coming out of the administration of why we're doing it.
[00:19:28] Speaker D: And to be clear, despite what you hear, the narrative you hear out of the White House, the consumer's paying the tariffs.
[00:19:35] Speaker B: Absolutely. Absolutely. Look, I think, look, we all know the recognition is that tariff is paid by the US Importer. It's not paid by the foreign exporter, it's not paid by the foreign government. It's paid by the US Importers of product arrives at the United States and eventually gets passed along to the US Consumer. There might be some ability for larger importers to negotiate with their overseas suppliers to take on some of the cost. That certainly was done back in 2018. But the tariffs were 25% on China alone. Now you're talking about a 10% global tariff, 145% tariff on China. There's no slack in the system to negotiate those kinds of price increases.
[00:20:12] Speaker D: Yeah. To John's point, if this continues, you're going to have massive inflation, you're going to have job loss here in the U.S. i mean, you know, I look, you stand back, you look at this objectively. You try to. I understand what the White House is trying to accomplish here. And it's, you know, you shock and all to get people to the table. They want President Xi to come hat in hand into the White House Oval Office and sit down and work out a deal or, I don't know, get the Zelensky treatment. I don't know what's going to happen there. But the point of the matter is that they want to get people to the table. But in the short term, at least, this could have a devastating impact on the US Economy. For no real reason.
[00:20:56] Speaker B: For no real reason, Brandon, to your point, though, but using tariffs loan as the only strategy is not the right way to go. There are plenty of other levers that could be used. Part of this, too, is working with our allies, because a lot of our allies share those same concerns with regards to China. So why are we not working together as opposed to putting tariffs on our allies as well?
[00:21:14] Speaker C: Yeah. Where's diplomacy?
[00:21:16] Speaker B: Yeah.
[00:21:17] Speaker D: And by the way, and the other thing, John, and we, you know, the rationale and the reasoning behind the tariffs and working of trade deficits is a reason you pick these obscure countries and say, well, we have a trade deficit just because they have everything to give us, you know, that we can buy from them. So, yeah, of course you're going to have a trade.
[00:21:36] Speaker C: Lesotho, I think I mentioned on a pre.
[00:21:38] Speaker B: Exactly.
[00:21:39] Speaker C: I've been to Lesotho. It's very, very poor. They're not going to buy a lot of American products, I can promise you.
[00:21:44] Speaker B: Correct.
[00:21:45] Speaker C: I mean, you know, you raise something there. If the aim is to bring back US Industry to the US Then the tariffs are going to drop, which means your tax cuts aren't sustainable. So there's an economic conundrum at the center of these divergent aims. And another point you mentioned there on, on bringing G to the table and the Zelinsky sort of scenario. I mean, I can't happen. I've been over in China quite a bit. You can't even buy house wine in China because people lose face because it's the cheapest one on the menu. So they just don't have it. Xi is a strong man.
[00:22:19] Speaker B: He.
[00:22:19] Speaker C: He can't look at his own people in the face if he was to do that. So they put him in a position where he can't compromise, which I don't understand diplomatically, but anyway, I'm just. Just throw something at you both then.
[00:22:32] Speaker D: Someone should tell that to the President, by the way.
[00:22:35] Speaker C: Yeah, I think, yeah, maybe he listens.
Last year, the, the Cato Institute polled across the US about trade and globalization, and about 80% of Americans do agree with Donald Trump that it would be beneficial if more people worked in manufacturing. But then the problem with this is that only 25 said that they would personally be better off in a factory instead of where they already work. And only 2% currently work in manufacturing. So not many people have got much experience what this might be like anyway. And I think as of last May, there were over 600,000 open positions in the US in manufacturing. And that number hasn't gone below 300,000 in over a decade. So there's a political question at the center of that. People want more manufacturing back in the U.S. but if they don't want to do the jobs, what happens when it comes, how far can reshoring realistically go?
[00:23:33] Speaker D: Now you got a real problem, don't you?
[00:23:35] Speaker C: You do.
[00:23:35] Speaker D: I mean, bring it back to the U.S. but the problem is the American worker doesn't want those jobs.
[00:23:41] Speaker B: Well, the issue, too is that I think when this administration looks at manufacturing and talking about manufacturing, they continue to look back to how manufacturing was in the 1950s, and that's just not how manufacturing is done anymore. You're not going to have people standing on a line turning a bolt. That's just not the way it works. It's all advanced manufacturing, highly automated, highly technical. And what are we doing to upskill the workforce to be able to handle those jobs? I mean, that's the part that nobody's talking about right now is how do we ensure we've got that skilled workforce to handle the advanced manufacturing that's going to be needed to bring these industries back?
[00:24:15] Speaker C: And by the way, how do your Domestic industries compete against rivals, perhaps in China in export markets, if China's already got an advantage on automation and robotics. I was added DT Ruskina on from a DHL on the, on the last Freight Buyers Club podcast and she was explaining about a factory that she visited that was producing 120,000 Tu with 20 odd people over a year. I, I don't think there's that equivalent in Europe or the US or not that I know of. I hadn't really heard of anything like that before. I think that was for solar panels.
[00:24:47] Speaker D: But in a way, in a way. Let's look at this for a minute. Didn't we see this coming a while back? You know, we kind of saw what would happen. We, I think the response from the government back then was, well, we'll retrain the American worker. And we conceded this. We knew this was going to happen. This is no great surprise to anyone. It's been gradual, but somewhere along the way the US dropped the ball in that retraining of the American worker. And we're now in this globalized environment where it's trading. And look, right now, Mike, you're in London and we're talking to you like you're right here. We're all in the same room. I mean, this is progress. But globalization does bring its pitfalls and this is one of them. But at the same time, we have to, instead we have to learn to adapt. And I know that's a lofty expectation. I know it's easier said than done. But you don't bring down the world's strongest economy simply because you want to make radical change to restore what no longer works.
[00:25:53] Speaker C: One of the things I didn't quite get as well, it's all been about deficits on trade and no one's talking about surpluses on services. That's right, tourism's down. That's actually an export of US services.
There's a whole bunch of stuff where the US has got surpluses with Lesotho, just for example, and Vietnam and lots of other countries and China as well, actually, and the eu. So that's sort of been left out of the equation when you look at the economics of it. Maybe it shouldn't be, but back onto the freight market. I just want to explain to listeners a little bit about where we are on the shipping side of things because it's very much mixed messages. We're seeing. A lot of Chinese shippers seem to be pausing loadings to the U.S. and sea intelligence for the reasons we've been discussing that they don't know how much tariffs they're going to have to pay when the cargo arrives or even if the cargo will be picked up and paid for. But we've also seen this big surge in shipping capacity being deployed into Asia, North Europe, that's going to be arriving in 40, 60 days or so. That capacity is being allocated at the moment. So we might be seeing a switch in where these Chinese exports are going. And on the flip side of that from Southeast Asia where we're seeing people trying to export to the US before this 90 day moratorium ends. Are you worried John or Brandon? Well, Brandon, I mean the air freight supply chains could benefit from another change of policy. But John, are you worried that we could have really bad problems with supply chains? Say, for example, if a lot of these tariffs are removed because all of the equipment, all the ships is going to be in the wrong place?
[00:27:31] Speaker B: Yeah, I think there's a lot of concern about what's going to be happening. I think, you know, we're getting ready, gearing up for holidays as folks are putting their orders right now, trying to determine what they're going to be ordering, how they're going to be ordering. And for small businesses especially, they're, they're concerned because they're not gonna be able to absorb any of these additional costs. They're gonna have to pass those along. So you know, we put out a global port tracker last week where we did see an ongoing push in the early part of the year because folks trying to front load get ahead of the tariffs. But we're going to see a significant drop in the coming months because of the tariffs. I don't know what happens with the pause if folks are going to try and rush stuff in before the end of that 90 days, you know, at least for non China product, just to get ahead of it. But it's a concern. Folks are all scratching their heads trying to figure it out and see what is the best mitigation tactic right now to avoid some of the higher tariffs that are out there. But again, as we talked about, things change all the time. If we don't get the negotiations done within the 90 days, what happens?
We know Vietnam and Japan are kind of the first up in the queue. We've heard they've had some conversations but unclear where that stands right now. The other question too is while they're negotiating on the reciprocal tariff, which was the larger tariff, what happens to that baseline 10%, the global tariff? It's still unclear if that's going to get removed based on negotiations or not is that the new norm that we're going to have this global 10% tariff on everybody? Still no discussion of, you know, for the few countries where we actually have free trade agreements, why is that 10% tariff there? You know, shouldn't we be going with the tariff rate under the FTA like we did under USMCA where that product is pulled back for qualifying goods? So still questions on what happens the next couple of months?
[00:29:14] Speaker C: I have Donald Rumsfeld matrix would be overloaded, wouldn't it? With unknown. Unknowns, I think. Yeah.
Brandon, I can't believe it. But we've actually missed out one of the changes in the trade landscape we haven't actually covered yet. It was particularly specific to air freight and that's we've got on the May 2. This is when President Trump has ordered the US government to end duty free treatment for small dollar shipments from Hong Kong and China near the de minimis. Yeah, end of de minimis. So just for anyone listening, they allow goods valued at 800 or less to be shipped to a single person per day to be exempt from duty and taxes. I'm presuming everyone's getting everything they can in before May the second. But have you got any idea if Customs and Border Protection will be ready? Because they weren't in February.
[00:30:00] Speaker D: Yeah. Well, so apparently they say, they say they now are. And, and it depends who you talk to. And they say that they're making progress, but it's going to be a huge undertaking. You know, I go back to meetings that John and I were at the table at years ago when this de minimis thing was first. And I don't think we foresaw it to this extent. But no, you know, we kind of knew that this was going to be an issue because we were, John and I were in the same room kind of advising customs on what was going to happen. And wow, talk about the, you know, the horse has in fact left the barn and closing the barn door now is going to not, not stop online ordering an E Commerce. It's thriving and it's going to continue. We have several members that made significant investments in this.
So it's hard to say what's going to happen. Look, there are some significant concerns. I don't want to minimize them. I mean they're blaming the fentanyl precursors coming in and maybe at the beginning of the de minimis program that was the case. That's not how they're coming in now. But the reality is we don't know what's coming in and there are these revenue hawks on the hill that say, oh, it's lost revenue. But if you talk to customs, CBP even says the average de Minimis shipment is $54 in value. So it can't be a lot on duty. But, you know, stopping it right now and just bringing the whole thing to a halt, not sustainable. And I'll tell you, my wife is pretty upset about it. So, you know, these packages at the door, this would be a, just a seismic shift. John, what, what are your thoughts on it?
[00:31:37] Speaker B: Yeah, I mean, look, we, we've got members and retailers that are on both sides of the issue. Some who see it as a really competitive issue. That's a challenge for them. Others who utilize the minimums for a variety of reasons, not just for direct to consumer, but for things like samples that they, you know, have to bring in. There's been some discussion of how do we use the FTZ process to help bring some of those jobs back to the US Instead of going, you know, like going to Canada or Mexico and coming out of warehouses. There's. But agree with Brandon that there needs to be more transparency in the system, better enforcement, better data to ensure that only legitimate commerce is coming in. So I think it's going to be interesting to see what happens and how things evolve. Obviously, de minimis has been a hot topic of conversation for several years now. I mean, you've got these actions, you've got Customs with some new regs they've put forwards. Just, it's going to be interesting to see how it all kind of comes together at the end of the day. But it's going to put a lot of strain on Customs and Border Protection to be able to do the enforcement and on postal.
[00:32:37] Speaker C: How does cbp, how can they cope with this constant changing of the regulations? I mean, what are the systems that they have in place to allow them to do that? Do they have the workforce do this or is everyone just working overtime?
[00:32:50] Speaker D: Yeah, it's through automation, obviously, and consistently changing your programming. I've talked to people who, who are around it more so than I am, and they tell me, you know, CBP has come a long way and they've developed the automation, the technology, the algorithms that are required.
You know, I take the word for it. But the reality is it's gotta be a challenge. They can't know what's in every single one of those shipments.
[00:33:18] Speaker B: And then the challenge too is gonna be for the postal service. Cause a lot of this comes in through postal as well. So how are they and CBP working together on this to ensure that things are being done the right way. It's going to be a challenge.
[00:33:28] Speaker C: John, you mentioned before we came on, before we started recording that one of your members, a small SME shipper, had a particular problem. Could you just relay that for everybody?
[00:33:37] Speaker B: Yeah. So the speed at which these tariffs are taking effect is, is causing a lot of challenge and chaos for, for companies. So we had one small, small retailer, she imports bags, kind of, you know, baby backpacks and things like that. She told us that, you know, her products coming out of China. When the first IPA tariffs went into effect, the 10% on China, she tried to get orders in early. By the time the product arrived here, the China tariff had jumped up to 20% and she had to then come up with an additional $15,000 to pay to get the product out of customs. You know, these small retailers don't have that kind of cash sitting around to be able to do that. So this is a huge challenge. And that's just for the 20% tariffs that's on China. Now they're up an additional 125%. That's a killer for a lot of companies, especially the small, medium sized folks. They are really struggling to figure out what they need to do.
[00:34:30] Speaker D: Yeah, and that's not a unique story. We're hearing that within, throughout our members as well.
[00:34:36] Speaker C: And Brandon, you said earlier a lot of your members had invested heavily in this direct to consumer, the Temu machine type business that we've seen out of China. I mean, we see an alternative plans being formulated. Or is everyone just hoping it goes away?
[00:34:51] Speaker D: Well, I think there's a little of everything. Look, you can't make sound business decisions when the rules of the game are changing every five minutes. And that uncertainty is, you know, you do what you can, but the reality is, is that if you start writing big checks and all of a sudden the White House changes its mind, you're out a lot of money. And that's a big issue for these guys at this point. So they're waiting and seeing.
[00:35:16] Speaker C: Are you, are you either of you getting any sense that your lobbying efforts in Washington or anyone's lobbying efforts in Washington, explaining how supply chains are so integrated globally and the impact that some of this might have on U.S. businesses and consumers, this is getting through and we might get more clarity at least so people can plan properly?
[00:35:39] Speaker B: I mean, look, I think we're trying to educate as many folks as we can, whether it's Congress, the administration, about all the different impacts. I mean, we had A fly in a couple of weeks ago with 75 small businesses. The day that the reciprocal tariffs were announced, they were on the Hill the next day explaining to folks what this means for them. The fact that they've tried to find US Manufacturing, they just can't find it. Not just because of the cost, because people just don't make this stuff here anymore.
So we've got to look at the fact of what this actually means. I think people got excited with the announcement on Friday of the consumer electronic exclusion. Again, it's not necessarily an exclusion. It's moving the consumer electronics to a different category to get different tariffs. So granted, those tariffs might be significantly smaller than the 125% reciprocal in China, but they're still facing tariffs and it's just all the ongoing uncertainty. So we are continuing to work with our members, especially our small businesses, to encourage them to talk to their members of Congress, talk to the media about what this all means and really educate the public of what's going on. Again, this president ran on defeating inflation and lowering prices. Tariffs are the antithesis of that. We're having the exact opposite effect. Because of the tariffs, we're going to see prices increase. Despite what you hear from some administration officials, we're already getting messages from our supplier, our member suppliers, who are telling them the prices are going up and they're showing them the receipts. So we try to encourage as many folks as possible to educate about what this all means.
[00:37:03] Speaker D: And eggs are still expensive.
[00:37:05] Speaker C: Eggs are expensive. Yeah. Eggs have been expensive for a while, haven't they?
[00:37:09] Speaker B: Well, not only, not only are eggs still expensive, but you know, what was one of the maneuvers that we used to try and compensate for the egg shortage? We look to import more eggs.
[00:37:19] Speaker D: Yeah, import more eggs. Right now we're putting the tariffs on those.
[00:37:23] Speaker B: Right.
[00:37:23] Speaker D: And by the way, pharmaceuticals are coming up too, which is.
[00:37:27] Speaker B: That's right.
[00:37:28] Speaker D: They're not going to tell you that. We, we're lobbying for clarity and consistency, but we're not seeing transparency. We don't know what's going on. And that makes it very difficult for our customers, not only our members, customers.
[00:37:42] Speaker B: Yeah, well, especially for companies that want to do the right thing. I mean, customers is getting very aggressive on their enforcement of this. But again, if we don't have clear rules of the road, it makes it very difficult for them to comply with whatever the regulations are.
[00:37:53] Speaker C: They're coming down the pike just as we're finishing up. Guys, could you both give your worst case and best case scenario about how this would play out? Worst case being if this carries on with confusion, how bad does inflation get? How, how low might demand drop in freight markets? And best case being what you would like to happen. Brandon, you want to go first?
[00:38:15] Speaker D: Well, okay, here's the doomsday scenario. I hate to go there, but I will.
Inflation ramps up beyond even our wildest expectations. People start losing jobs. The rest of the world trades around us. The US Is no longer the economic stronghold that it's always been, and Americans suffer as a result. And I think so will the global marketplace on the other side, a more positive outlook, and I hope that the White House is leading in this direction, is that we bring people to the table, we iron out differences in a constructive manner, we balance things out. You're never going to have complete balance trade. That's a misnomer. But the reality is that you set things up so that things are more fair. The American worker and the American producer gets a better crack and a better bite at the apple, if you will. And our nation thrives as a result, as does the global economy. I hope that in fact happens. And quite frankly, I hope the stock market continues its upward trend because I want to retire in a few years and it just.
This is not doing well for my portfolio.
[00:39:32] Speaker C: Nor me. Nor me, John.
[00:39:36] Speaker B: I mean, look, I'm not an economist. I'm not going to play one on the podcast here.
We just put out our forecast for the year for retail sales and said sales are going to be up between 2.7 and 3.7% for the year, but with a big caveat on the lack of clarity on what's going to happen with the tariffs. Again, you've seen consumer confidence has dropped the past four months. Our members are starting to notice pullbacks on certain categories. So we're paying very close attention to the consumer. We've done lots of consumer polling and they don't agree with the tariff policy as it's going. I think they're very concerned about the impact tariffs are going to have on prices. So worst case scenarios, you really see that consumer pullback. Prices do increase and that's going to have a big impact on the economy overall if you're going to see demand orders drop. The other thing we talked about here is just the impact of retaliation. The fact that our exporters can't get to markets overseas. China's basically already stopped imports of meat and they've talked about today Boeing parts, they're canceling orders on Boeing parts. So that has a big impact as well on the economy. You know, as kind Of Brandon, we've got some of our trade partners that are now partnering together to take action against the United States. You know, we're causing enemies to become friends. So that's a huge challenge as well. As Brandon noted, we certainly encourage this administration to move quickly on getting some of these deals done and show the progress that there's need to come to the table. You know, it has to be more than just the tariffs. But again, we would urge real, real true free trade negotiations and for Congress to reassert its authority in this whole debate as well, because Congress has kind of stepped away and just given all the authority to the president. You know, this was the concern during last administration and this administration.
[00:41:15] Speaker D: Yeah.
[00:41:16] Speaker B: So, you know, Congress really needs to get itself back in the game of regulating foreign commerce and engaging on tariff policy, setting those, those rates, because none of these deals that the administration is negotiating are going to go through Congress. Congress doesn't know what its role is in this right now, but they need to be weighing in with the administration, talking about the challenges this is having for their constituents, both on the import side, the consumer side, as well as their manufacturers and farmers, who are all being impacted as a result of this. I mean, end of the day, if we can get these deals and get these tariffs to go away, great. But again, it's going to take time for the manufacturing to return here to the United States. So let's refocus on what is it we actually want to achieve. What are those key industries that we really need to be focusing in on to bring back here to the United States and kind of go from there? I mean, Mike, we didn't talk at all about shipbuilding. That's a whole separate podcast we can do.
[00:42:06] Speaker C: That's next week.
[00:42:06] Speaker B: That's a whole other. Yeah, but that's another issue, too. It's like, let's be realistic about what we can actually achieve, you know, moving forwards and how quickly some of this stuff can turn around.
[00:42:15] Speaker C: Well, you've just, you've just led me into an advert for. I've got Salma Carglano from what's going on in shipping, and John McCown, who was mentored by Malcolm McLean. They're both experts in this subject. So I've got them on the Freight Buyers Club next week to go through exactly that. I mean, there's a lot going on. Shipbuilding, just one of the many industries that have been upturned. But that it's very, very interesting what's going on with shipping there. I think we'll have some positives and negatives I imagine from the two of them. But for now, John Gold, VP for Supply Chain and Customs Policy at the National Retail Federation, and Brandon Fried, Executive Director of the Air Forwarders association, thanks for coming on. The Freight Buyers Club was a pleasure, Mike.
[00:42:55] Speaker B: Thanks Mike. Appreciate it.
[00:42:58] Speaker C: And big thanks also to Antigua's Cloud for supporting this episode, Karen Ball and Tom Matthews for making this production happen, and you all for listening. Please follow and like wherever you found us because we have got loads more content coming your way. Goodbye.
[00:43:19] Speaker B: SA.
