Sent Items #175: Sunday, January 5, 2025

Happy New Year!

I hope everyone had a nice holiday season and New Year and are looking forward to what is shaping up to be an exciting year for e-commerce.

But I give up. Been grinding for 20 years, started a new company last year Third Person which has been incredible, but now a memecoin called Fartcoin is worth almost TWO BILLION Dollars - more than 1,000 companies in the Russell 3000 Index, an index of the 3,000 largest U.S. listed stocks. What am I doing wrong!!

Anyways, onwards to a few topics in mind….

There is a lot of operational and business changes happening at UPS. My friend Nate Skiver posted here (link).

➡️ Dec 14. UPS announces 9.9% SurePost GRI

➡️ Dec 24. UPS issues 20%+ Mail Innovations increase (effective Jan 1)

➡️ Dec 27. A post on a local Teamsters Facebook post effectively claims the end of their partnership with the USPS, that they are reclaiming of 3M packages into UPS’s network.

Besides tariffs, China and Mexico, this is the biggest story in US e-commerce logistics that few have started talking about. If you are an e-commerce brand I would be very focused on what your shipping network looks like for 2025. I suspect many 3PLs - many of whom have decent, at best, transportation networks and relationships - will be caught off guard when their carrier reps drop new 2025 rate cards on them. Particularly if you have been leveraging any of UPS’ deferred products such as Surepost or Mail Innovations, or other Parcel Select networks that leverage the Postal Service for the final mile. The carrier market is in flux, but there are options available. I know my friend Ben Emmrich at Tusk Logistics is eager to chat with folks - happy to connect anyone.

Chinese Companies Have Sidestepped Trump’s Tariffs. They Could Do It Again. (link)

• After Trump slapped tariffs on Chinese products in 2018, a curious trend started playing out - Chinese factories moved their final manufacturing and assembly operations out of China, setting up new facilities in Taiwan, Vietnam, Malaysia, Cambodia and India (“connector countries”). Using parts mostly from China, those companies made finished goods that they could export directly to the United States — without paying the 25% tariff had the goods been shipped straight from China. The net effect of what happened was that Chinese factories in China are setting up Chinese factories in other countries.

• The gap between the goods the United States exports to and imports from China narrowed to $278 billion in 2023 from $417 billion in 2018. At the same time, China’s exports globally have surged, and U.S. trade deficits with Vietnam, Taiwan, Mexico, Canada and elsewhere have been widening.

• The soon to be new Trump administration are eyeing these new back doors that Chinese products are using to enter the United States. Trump has proposed an additional 60% tariff on U.S. imports from China, as well as a “universal” tariff of 10 to 20% on goods from elsewhere.

• There are many strategies that companies are pursuing to reduce the tariffs they pay, having to do with the way U.S. customs officials assign tariff rates to different products. For example, an electronics company might move one important stage of its supply chain out of China and into Vietnam. That could allow the company to report to U.S. customs agents that the export came from Vietnam, even if the good is still finished in China and exported from China to the United States. Another lever is valuation. They can officially lower the value of the import by stripping out certain “intangible” costs, like payments for intellectual property, royalties, brand or research and development, and recording those to other global subsidiaries. By lowering the value of the import, they then pay a lower tariff.

The Panama Canal Has a Big Problem, but It’s Not China or Trump (link)

• The Panama Canal is a fascinating feat. I’ve actually traveled through it on a cruise ship many years ago, though I was barely old enough to remember, certainly not old enough to appreciate the magnitude. Sending a single ship through the canal’s locks can use around 50 million gallons of water, mainly freshwater collected from Lake Gatún. Though the canal is operating at full capacity, a drier climate and greater demand for drinking water have in recent years reduced the volume of available water. That has forced the state-run Panama Canal Authority at times to limit the number of daily passages through the canal, at one point by as much as 40%.

• With less rain, the reservoirs fill up more slowly, which means less water available to operate the locks, which means fewer ships can pass. Hence, the 2023-24 drought, among the worst on record, slowed transits and drove up transit prices, causing long delays, more expensive consumer goods and greater instability in shipping routes. This is a significant threat to U.S. commerce.

• In the short term, reduced access causes goods to take longer to reach their destinations, and they cost more when they arrive. Over the medium term, companies have begun to seek alternate routes and different methods of moving goods. Some projects, like a railway corridor across southern Mexico, have emerged to directly compete with the Panama Canal. Over the long term, as trade volume and ship sizes increase while the amount of available water decreases, the canal could well lose market share, declining in both usefulness and strategic importance.

• The Panama Canal moves roughly $270 billion worth of cargo annually–it's the trade route taken by 40% of all U.S. container traffic alone and handles about 5% of all global maritime trade. This is an important artery and a story to keep on your radar.

Finally, the results of the TikTok poll I circulated in my last issue:

It appears most of y’all do not believe TikTok Shop will be banned in the next few weeks.

As of now it is set to be banned on Jan 19. I believe it will be banned at that time. Congress overwhelmingly passed the legislation (360-58) and Biden signed the bill. I’m certainly not a legal expert, but absent last minute Congressional or Supreme Court action (which doesn’t seem likely), the ban will go into effect.

My hope is that it is not banned. While I believe society can live without another kitschy/cliché/unnecessary social media app, I work with a handful of e-commerce brands with a growing and significant share of their business generated through TikTok Shop. For them, I hope there is continuity.

For what it’s worth, Trump takes office on Jan 20. I suspect any ban will be short lived with Trump negotiating a deal.

Wishing everyone much success and happiness and peace in 2025!

- Matt

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