Sent Items #185: Monday, April 21, 2025

I am en route to Toronto. My Grandmother passed away late last week at 98. Her husband, my grandfather was 100.5 when he passed away a few years back. An unbeatable couple, married for over 70 years. We’ll miss them both (and yes, I have good genes).

Onto biz. Disclosure: This issue is all about tariffs, so if you’re uninterested, stop reading (…and good luck!)

Where shall we start….

I’m just very confused why Trump continues to troll all of us. He’s already won the election. He needs to get Warren Buffett in the White House to advise how to Make America Great, not invite the President of El Salvador. I don’t even have all the context on what’s going on there, but as a hard working American, as someone who wants to employ people, and as someone who wants to be productive it doesn't seem productive that Trump chose to have the El Salvador President in the White House last week when we are in a trade war with China. The trolling of Americans has got to stop. You won. Now it’s time to be a leader.

We are about 2 weeks away from the May 2 de minimis “shut down” from China. I still wish we had a single person except Elon who’s ever built something real in the administration. Might be why it seems the White House thinks that manufacturing is like a computer in that you can turn it off and on without issue.

Factories all over the world, especially those focused on exports to the U.S. are laying off workers because U.S. businesses have halted new orders in fear of the 145% tariffs. Check out this chart of domestic freight out of LA, which is at the weakest levels it has been since 2020.

If we thought the COVID product shortages were a headache, just you wait for this round! It will be another couple of months before we feel the effects of these tariffs. Even if the Trump administration reverses course in the next month or two, it will take many months to fix the issues.

Many truckers don't realize how quickly container volumes have collapsed. Starting in May, port freight out of California will be almost eliminated. West Coast port drayage companies, intermodal, and east bound trucking will be crushed.

I was listening to The New Warehouse podcast last week with Jim Tompkins as the guest (link), and he described how near-shoring, re-shoring and “friend-shoring” is the future. You can find his white paper here (link). I thought his concept of “friendshoring” was interesting. While friendshoring and nearshoring often include the same regions and countries, geographic proximity does not limit friendship. The U.S., for example, has historic ties to nearby Canada, Central and South America. But the United States also has historic ties to Western Europe and growing ties to Eastern European and the ASEAN countries. And India could one day rival China as a manufacturing powerhouse.

Supply chain is no longer about optimizing… it’s about optionality.

Here’s an informative tweet from Flexport’s Ryan Petersen:

He goes on to say that thousands, and then millions, of American small businesses, including many iconic brands, will go bankrupt this year if the tariff policies on China don’t change. These small businesses are largely unable to move their manufacturing out of China. They are last in line when they try to go to a new country as those other countries can’t even keep up with the demand from mega corporations. 

The manufacturers in Vietnam and elsewhere can’t be bothered with small batch production jobs typical of a small business’s supply chain. When the brands fail, they will be purchased out of bankruptcy by their Chinese factories who thus far have built everything except a customer facing brand, which is where most of the value capture happens already. Now the factories will get to vertically integrate and capture the one part of the chain they haven’t yet dominated.

American businesses import $600B worth of goods from China every year, creating almost $2T worth of sales each year.

In the week since the tariffs hit, ocean freight bookings from China are down 50% across the industry. That’s around $1T of economic activity wiped out. And these companies tend to run very lean, financing inventory and reinvesting excess cash in more marketing and growth initiatives. If the goods stop, many will die.

The fact is, America will have to back off these tariffs, it’s just a question of when. Even if it’s not this administration, a future one will realize they’ve got to get us out of the recession and free trade is one of the most proven strategies to do it.

We are entering a golden age for fulfillment in the United States. Prologis Says Trade War Will Boost Demand for U.S. Warehouse Space (link). Prologis said its customers, which include Amazon, Home Depot and FedEx, have been rushing in merchandise, rerouting shipments and taking on overflow storage space as they seek to get ahead of President Trump’s new tariffs.

Companies stockpiling inventory close to U.S. consumers could help boost demand in a warehousing sector that has struggled with slow leasing activity over the past two years following a frenzied period of expansion during the pandemic. The average warehouse vacancy rate across the U.S. increased to 7% in the first quarter of this year, up from 5.7% a year earlier and more than twice the 3% vacancy rate in late 2022.

I was quoted in an article in the Business of Fashion: Trump’s Trade War Is Reshaping Shipping Routes (link).

Check out this short video from Aaron Rubin on how U.S. and Chinese companies are committing tariff fraud right now (and how risky it is) to avoid paying the 145%:

I break down how US and Chinese companies committing tariff fraud right now and how risky it is.

They Built a Business, and a Life, on Amazon. Tariffs Are Putting It at Risk. (link)

An Illinois couple who sell party supplies on Amazon have been frantically trying to understand and adapt to new costs caused by President Trump’s tariffs. Countless of small businesses are going through one of its most difficult chapters. Every day, entrepreneurs wake up to uncertainty. Years, sometimes decades of relentless effort and sacrifice are now caught in the crosshairs of global trade disputes.

Let’s be clear...no one or small business is opposed to U.S. manufacturing. If reshoring production were affordable, accessible, and quick to implement, no one would resist the shift. But the reality is far more complex. Telling these companies to simply “weather the storm for the greater good” disregards the very real human cost.

Actively building contingency plans and pursuing alternative strategies is critical. And while the road ahead won’t be easy, we’re determined to keep pushing forward with resilience and a long-term view.

This uncertainty must come to an end. It is not just about trade, it’s about the future of thousands of American entrepreneurs.

Heck, even SHEIN is increasing their pricing! (link)

No matter how efficient your brand is right now, protecting your gross margin means raising prices. Most brands are doing this gradually - waiting until current inventory sells out before moving forward with increases. Yes, brands are already doing this:

I can’t speak as well to the pricing and marketing side of the house, but an easy first move many can make is dropping free shipping. Consumers already expect to pay shipping costs, and this simple change puts $5−$10 straight back into your margin.

The key is small, strategic pricing adjustments that help offset rising costs without damaging customer relationships. A friend of mine shared the following list of "Tariff Mitigation Strategy Options" I found to be valuable:

1. Price increase

   1. Raise MSRP

   2. Add “tariff surcharge” at checkout

   3. Need to make sure you update forecasting if you raise prices

2. Question all promotions

   1. Do we still run our Mother’s Day sale?

3. Marketing spend

   1. Question MER and burn rate of current inventory

      1. Do this per product (differing COGS)

4. COGS

   1. Split tariffs with supplier

   2. Negotiate down actual COGS

   3. Tooling vs. part cost

      1. Maybe not actually a viable option?

5. Debt options

   1. Do we need anything beyond our LOC to last?

6. OpEx costs (fixed and variable)

   1. Negotiate and cut as needed

   2. Go to all providers and ask for terms/discounts

7. Supply chain relocation

   1. Use ChatGPT deep research tool

   2. Mexico, Philippines, Thailand, South America, India

Have a great week!

- Matt

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