Sent Items #174: Saturday, December 28, 2024

Last Sunday I said that it would be my final Sent Items of the year (the week prior I said that too), but there’s just too much happening in what’s usually a quiet week.

Before we get into it, here’s my Beehiiv year in review (prior to this post):

I’m not an email marketer, but these stats look good.

Happy New Year!

I want to discuss Mexico and tariffs.

Mexican President Claudia Sheinbaum Pardo issued a decree effective immediately (Dec 20) that introduced measures to protect Mexican textile and apparel industries under the IMMEX program.

On Monday, one of the largest Mexican 3PLs servicing US-brands XB Fulfillment, sent a note to customers that they will no longer be able to import apparel into Mexico, declaring force majeure.

The decree increases to 35% the import duty on 121 apparel products and 17 made-up textiles of Chapters 63 and 94, and to 15% the import duty on 17 tariff headings related to textiles. These increases will remain in effect until April 2026.

Under the new decree, certain finished products are excluded from temporary importation under IMMEX. These exclusions include finished clothing and textile articles classified under Harmonized Tariff Schedule Chapters 61, 62 (coats, suits, jackets, pants, dresses, shirts, and sweaters, textile accessories such as gloves, belts, and ties), and 63 (home goods (bed linens, blankets, pillow cases, curtains, towels, etc.), tents, awnings, needlecrafts, rags); quilts and comforters classified under HTS subheading 9404.40; and pillows, cushions, and other bedding materials classified under HTS subheading 9404.90.

This creates an immediate nightmare scenario for these 3PLs and brands who work with them. The vast majority of their customers are apparel brands, some of the largest on Shopify. According to Flexport's founder Ryan Petersen, at least 30 of the top 100 American brands on Shopify now fulfill from just across the Mexican border, mostly in Tijuana, to avoid these customs duties.

A boon to U.S. based 3PL's but a mess for these wonderful brands who are now scrambling to find new solutions. Since Monday I have spoken to about a dozen impacted brands and 3PLs to better understand what’s happening and how they plan on resolving and timeline.

As I shared with the Journal of Commerce on Thursday (link), I suspect this will bankrupt many 3PLs who are wholly indexed to providing Mexico-based 321 clearance for U.S. brands, shifting billions of dollars in fulfillment revenue back into the U.S. Naturally the increase in cost - both in terms of the elimination of duty savings as well as higher cost of labor and storage in the U.S. - will adversely impact these brands’ margins. I suspect in the magnitude of -10% margins. Brands will decide whether to absorb this new margin profile, or pass on to customers.

Mexico government is on vacation until January 6. At that point I suspect more news and developments with respect to the IMMEX program.

PSA: If you are a brand (or know one) impacted by these changes, I welcome you to reach out to me directly or check out Third Person, the free AI-powered platform I built for e-commerce brands to discover and connect with fulfillment providers. Like a dating app for brands looking to find the best 3PLs, you complete a brief 5-minute intake, find a curates list of 3PLs that are a good match for your specific needs and you can connect with any of them directly on the platform.

TikTok Ban Will Undo Social Commerce in the US (link)

• TikTok Shop will sell roughly $8 billion in goods this year. It is set to get banned on January 19, along with the rest of TikTok. With it, social commerce will disappear, too.

• Users and creators will likely migrate to platforms like YouTube Shorts and Instagram Reels that have replicated the core TikTok experience. However, the $8 billion marketplace will mostly evaporate. There is no shopping on YouTube Shorts or Instagram Reels.

• But then yesterday we got news (link) that Trump asked Supreme Court to pause TikTok ban so he can 'negotiate a resolution', suggesting he can find a way to save the popular video platform without compromising national security or American's free speech rights.

• Trump takes office on Jan 20, a day after TikTok will be banned in the United States unless it's sold.

I am curious to hear from this community, whether you think TikTok will be banned.

Because I’m cheap I can’t embed the Typeform poll into this newsletter, but instead you can click here (link) and take 2 seconds to make your selection. Will provide the results in my next issue.

Enjoy the final few days of the year!

- Matt

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