#299 - Sobering Insights About E-commerce Sourcing & Logistics in 2022

#299 - Sobering Insights About E-commerce Sourcing & Logistics in 2022 Speaker 1: Welcome to episode 299 of the AM PM podcast. My guest this week is Steve Simonson. Steve is one of the smartest guys I know when it comes to sourcing and logistics management. And in this episode, he's going to share some pretty insightful and honestly quite sobering thoughts about what's happening in China, sourcing outside of China, and a lot of other really fascinating things about where we're going in the future. Unknown Speaker: Welcome to the AM-PM Podcast. Welcome to the AM-PM Podcast, where we explore opportunities in e-commerce. We dream big and we discover what's working right now. Plus, this is the podcast where money never sleeps. Working around the clock in the AM and the PM. Are you ready for today's episode? I said, are you ready? Let's do this. Here's your host, Kevin King. Speaker 1: What's up, everybody? Say hello to your good friend, Steve Simonson. Steve, how are you doing? Speaker 2: I'm well and happy to be here on the AM-PM Podcast. Yeah, congratulations on taking the heavy mantle that is the AM-PM Podcast, but I'm very confident in your ability to keep it moving. Speaker 1: I appreciate that. You've got a podcast of your own, so you know how much work this actually is and what goes into it. I think you've maybe been on the AM-PM Podcast before when Manny was the host. Is that not true? Speaker 2: Gosh, it's certainly possible. I've done so many podcasts over the years, it's hard for me to keep track, but I definitely have been a fan of the show since kind of the olden days when Manny started it and continued on in the second phase with Tim, and now I'm pleased to be here in Gen 3. With Kevin King. Speaker 1: That's right. We've known each other for a day or two in this business and actually we, just a full disclosure, we have a little venture that we do together called Product Savants. Where we actually help large sellers and aggregators actually find new product opportunities. One of my secret skills is actually finding good opportunities and one of Steve's secret skills is, or not so secret anymore, is actually sourcing those opportunities and dealing with all the supply chain and everything. So we put our two heads together and formed Product Savants a few years ago to actually help large sellers and aggregators and we help them create brands through our brand genesis program. So, I know Steve knows what he's talking about and what we're going to be talking about today is dealing with all these sourcing logistics and nightmare and dealing with China or maybe not dealing with China and all the things that you need to be thinking about going forward as you're building your Amazon business or your e-commerce business. There's a lot of stuff that is going on out there. Economically, politically, logistically that a lot of sellers just probably aren't in tune with and you know Steve studies this stuff. He's been doing this for a long time, 20-25 years or maybe even more. Bringing stuff over from China. He's involved in several different businesses, not just Amazon, but several different businesses where they bring in hundreds of containers. I think monthly, in fact, for some of these businesses. So he's very in tuned with what the situation is and that's what we're going to be talking about today. So Steve, you've been going to China for... When's the first time you actually went over to China? Speaker 2: I think it's around 20 years ago. So it was either 2001 or 2002. I went over for the very first time and I have to say I was terrified of buying my first container. Which had happened just before the trip. And when I went over there, it was just a crazy, interesting, wonderful place to learn and to be exposed to so many things. But I definitely got a dose early on of, you know, what a fresh new idea, you know, buying from overseas was at that time. Back then, people thought I was nuts for going to China to buy stuff. And today when I talk about some of the geopolitical challenges and supply chain issues, people think I'm nuts for recognizing or at least calling out some of the challenges and then trying to divert myself from some of those challenges. But I'm always trying to think about where the path is headed so that I can react and maybe even anticipate that path and reduce the pain. Speaker 1: So when you first went to China it wasn't like it is now where it was like really the back roads and little small airplanes at airports and just it was nothing like what we know if you've been over to Yiwu or to Canton Fair maybe some of you listening have actually taken a trip to visit your factory. It's totally different now than what it was 20 years ago when you first went, correct? Speaker 2: Oh my gosh, yeah. It's night and day different. So one of the things that China has done is they put literally trillions of dollars, the equivalent of dollars, into their infrastructure. So when I started going there to my very first factory, it would take 8 to 9 hours by road. There were no planes, there were no trains. It was 8 to 9 hours by road. And today, I can do like a 40-minute Train and another half an hour drive on beautiful six-lane freeways that no other cars run. I mean, it's truly night and day. It's impossible to understand just how backwards it was. And I remember looking at one of my sourcing colleagues at the time as we're bouncing through these crazy roads and just nightmare. I mean, the conditions were just nightmarish. And going, yeah, here we are. We're living the dream. Everybody thinks we're, you know, going to China and traveling to Asia. It's so sexy and so exciting. But we were just bumping our heads for six to eight hours a day in roads that were not really roads. They were just kind of trails. It's terrible. Speaker 1: I'm old enough to remember when I was growing up and all the toys that I bought they I would look on the back and they would say like made in Taiwan I Seem to remember that but now when you buy something on Amazon or almost anywhere a lot of times It says made in China. So what happened? Where was the shift where? Basically China became the world's factory. How did that evolve or how'd that come to be? Speaker 2: It's a very interesting point so actually in the 80s when I was growing up like made in Japan made in Taiwan that was the That was the thing. And everybody kept saying in the 80s, oh, Japan's taking over the world and this and that. But basically at the point that China was admitted into the WTO, the World Trade Organization, and had kind of preferential status, that really opened up the entire Chinese economy to becoming an exporter to the most voracious appetite country, which is the United States. Other countries, of course, benefited. And in fact, they They took that ability to export and turn it into a skill, and they would do just about anything you ask them to do in terms of small lot sizes, multiple colors, very flexible. They would say yes to almost anything, right? We always used to joke when we would go over for sourcing that you will always hear a factory owner say, yes we can, yes we can. And when you hear yes we can, that could mean yes we can, no problem, we've done it a thousand times. From that all the way to the other extreme of there is no way in hell That I can do that, but I'm gonna say yes so that you, you know, are happy and we have a nice meal together. But I really mean no and I hope you leave here immediately, right? So it's kind of a crazy experience when you're there, but fundamentally the WTO entry gave China all of the the war chest that it needed to kind of get really big and becoming that world's factory you just described. Speaker 1: And the government subsidized a lot of this, right? They've actually been very instrumental. The Chinese government has been very instrumental in like really propelling their economy forward by becoming this big industrial type of factory nation, right? Speaker 2: Well, for sure, there's a lot of subsidization. There's a lot of like export tax credits. In many industries in China, they have been, let's say investigated or Called out as being, you know, dumping. The term in trade when you're producing products really below any economic viability is called a dumping. So there's been industries, I was in the, for example, furniture, the bedroom furniture business and China got so aggressive with their low pricing and their subsidization that the United States declared them a dumper and put in a 400% anti-dumping duty. So just do the math on that. So it used to cost us $100, now it's $100 plus the $400 and we can buy it in Vietnam for $200, you know, or whatever. So, you know, the truth is they have done a very good job at Promoting their industry and keeping the entrepreneurial spirit going. I think that was true right up until the point of COVID. There are some shifts happening, maybe we'll get to them, but their strength came on the back of where we have really low labor costs. So when I started going there, the labor costs were between 12 and 15 times lower than they are today. So they had low-cost labor. And if you had a labor-intensive product, you mentioned toys earlier, it's a really good way to take advantage of low-cost labor and low-cost freight means you can deliver products at a per-unit economic that is viable. Speaker 1: Now you've always, I've heard you on some other podcasts and stuff and at events, you always recommend this one book called Poorly Made in China that you suggest that anybody that really wants to get their head around how this, the whole mentality and the whole psychology and the whole process of how everything works there to take a look and you can get that on Amazon, but can you just give us the really fast Cliff Notes version of what that book really explains? Speaker 2: Yeah, so Paul Midler wrote that book, Poorly Made in China, and I don't even know how old it is. It's probably 15 years old or maybe longer. But the truth is, it tells you a common set of experiences. I think he's the first one who developed the term product fade. So, the product fade is when you start with a product, you go to the factory, the samples look good, the first order looks good, and the next order, it's fine, you didn't notice anything, third order, fourth order, and by the time you're at the fifth or sixth order, now you're getting claims, you're having problems, but you don't understand how you got there, because now you look at the sixth order and you're like, well, this is clearly thinner material. Then our master sample or our specification or our first shipment, however, your point of comparison is done. And then you say to the factory, hey, how did this get thinner? And they're like, oh, sorry, we'll fix it on the next shipment. They just kind of play it off. But the truth is, they're in a constant state of profit engineering and optimization. Just like we as Amazon sellers want to optimize our listing, they want to optimize their product margin or production margin, which is fair enough. We want them to be efficient. We want them to make money. We just can't do it in opposition with one another. So by reading that book, you can at least become prepared Know who you're dealing with on the other side of the table in terms of their absolute world-class skill and their breadth of understanding of the topics and the materials and all that. You are not prepared if you don't get aware of your competition. In that adversarial environment, they're the seller, you're the buyer. Everyone wants to use the word partnership, but it's not a partnership. I hope that I give you this money and you give me a good product and they are curious and worrisome that you'll screw them on the money and we get nervous and worrisome that we'll get screwed on the quality. So both of you have to keep each other honest. That's the way business works. In particular, business out of China. Speaker 1: A lot of people when they go into China, they're concerned. A lot of people say China's really good at copying but not good at innovating. And so a lot of people are worried about their IP when they go to China. What are some things that you've seen happen and some ways that you can protect yourself if you're concerned about Being either copied or protecting yourself, you know, from what the big guys do from Apple on down, because they manufacture a lot in China, to the small guys that don't have those kinds of budgets or that kind of infrastructure to really monitor it. What are your thoughts around IP and manufacturing in China or almost anywhere for that matter, but especially in China? Speaker 2: Yeah, I think these lessons that I'll share with you would apply to just about anywhere, but I think it's of particular interest in China because there is really no, I'll just say, respect for IP. The international norms of intellectual property protection are not being observed in China. In a strong way, so you have a couple things that weighs differently depending on your manufacturing technique, but let's say for example you have a mold. If you paid to have that mold made, you should pay somebody else to store that mold when it's not in production and to maintain control of that mold while it is in production. And because that's a way to make sure your mold is not being used for other people's production besides your own. So that's one intellectual property little best practice. And again, some of these molds have different sizes, but typically you can pay a third-party inspector type of company to take control and custody of that mold and to look out for your interest in that way. Other methods that people use is if the product has multiple manufacturing steps, assembly or different parts of the manufacturing process, is they will give, let's say you have five distinct manufacturing steps, instead of giving it to one factory who subcontracts it out to others, That you actually control, you know, those three or four subcomponents and then you have one company assemble all those together. I know a number of people who do this very well to keep away some of the tiny little aspects that give a competitive edge. You can set up agreements. There are, you know, things called triple net or 3N agreements, not triple net, that's for leasing. But those agreements have terms and conditions and so forth, but it's really difficult to make those stick. It's also difficult to make patents stick or any of that. So I wouldn't use that part of it as your, I'd say, tip of the spear. I would use prevention as the tip of the spear. Keep your mold to yourself, break up the process, and in some ways, just telling them, we're signing a contract, this is mine exclusive, you can't sell it to anybody else, and then monitoring that. Sometimes just the awareness that it's important to you and the vigilance of you asking about it, maintaining it will keep them from straying from the straight narrow path. Believe it or not that prevention is often just a component of your vigilance to maintain and monitor it. Speaker 1: Does that go to them just wanting to save face basically? Speaker 2: Well in part it's like well how much trouble is this gonna be worth. Face is a huge part of the culture but ultimately they just like if it's easy for them to get away with it then they will and if it's not then they won't. The juice and the squeeze are somehow calculated for any of these maneuvers. And I can tell you firsthand, we've come up with distinct and beautiful designs or colors or different types of things dating back to those early 2000s. And every factory I went who made that product, I would find my products in all of those factories. And so over time, we would get more and more careful about it. But no joke, there was one bamboo product line in particular, I went to 20 or 30 factories and every single one had a knockoff of that product that we created. Which is, you know, lesson learned and you try to get better, but inherently, you know, you can't stop people from knocking your stuff off. Speaker 1: Yeah, I've had the same problem where they took my images. You know, I've always, I do my own packaging. I don't, you know, the factory sometimes will say, hey, we'll design the pack, just send us the pictures or we'll take the pictures and we'll design it for you. I'm like, no, no, no, I'm going to handle my own. I'll give it to you, you know, ready to go. And they actually lifted off the photos off of my box and actually started using that on all the Chinese based sites thinking I would never see it, you know, uh, to sell products into China. And, and when I, I caught them red handed, you know, they took it down right away and didn't admit really any guilt, but you gotta be careful. They will take advantage if they see an opportunity. Speaker 2: It's a cultural difference in the west we see that as like theft and in the east they're like, yeah, I have it. Why wouldn't I use it? That would be dumb not to use it. Look at how great these photos are that Kevin made. I love them. I think other people love them too. Of course, I want to use it, right? They don't think about the property ownership of that being important. But I'm glad that they did respond to you. Generally, the power position comes if you do volume with somebody, you get them to do almost anything. And if you don't do volume with them, they're not going to listen to you at all. And so that's kind of how the power struggle goes down in China. If you do volume, you can get them to kind of comply and work with you. And if you don't, then you're just on the sidelines, you know, looking in. Speaker 1: So what are some of the cultural faux pas that you see sellers, you know, especially smaller sellers make when they're first venturing over, or maybe they're not even, it's not their first time, they've been selling for a while, but what are some of the big no-nos that you see Western people do that could be offensive to factories in Asia? Speaker 2: Well, I do think that in many ways factories have a more mature view of silly Western mistakes, right? So we, for example, the first time I went to China, we went to one of the big traditional dinners where they got the lazy Susan in the middle and they just keep bringing out food. And my colleague and I, we just keep eating the food because in the West, we got to clean our plate, right? That's polite. And so we just keep eating and finally I lean over to the translator that we were with. I'm like, tell him to stop bringing freaking food. We can't fit in another ounce of food. We're dying here. And she's like, stop eating and they'll stop bringing stuff. Right and so I had to learn the lesson of oh, so when I'm full I stop eating and they want food on the table That's how they show a good hospitality and Chinese are extraordinarily wonderful hospitality hosts and so forth So that was something that they weren't offended by it, but they're probably going this guy can really put it away right? I just kept eating and eating and eating and The next night I'm like You know, make sure they don't bring out too much food. And she goes, no, no, you stop eating when you're full, then they'll stop bringing out more food. But that was one, it's a small lesson, but it tells you a lot that many things are different there. For example, in accounting, if a company in the West goes in the red, that's bad news, right? And if we're in the green, that's good news. Well, it's exactly the opposite in China. So if you look at their stock market board and you see a bunch of red, you think it's people getting murdered over there on a stock market basis. But no, that's everybody making money. The green is when it's a problem. So those are, again, subtle lessons. But to me, the biggest problem that I see, particularly with Amazon sellers, is they have this, I don't know, supposed relationship. It's an imagined relationship where they're like, no, no. Steve, I hear what you're saying, but my factory is different. We're good friends. Their kids have come over to my house. They send me Christmas gifts. You know, we have this very personal relationship and this is special and unique and I was really lucky to find them. I could never find anybody like this ever. And I had one of those. My very first supplier was like that. I went on a cruise with her and her family and I just felt that we were just so lucky. But this is actually just a tactic of manipulation. There's always another factory. The competition will ultimately give you better results than if you just stick with somebody who you think is taking good care of you. Now, I'm not saying relationships don't matter. It's quite the opposite. They do. But don't assume the one person you found early on is the only one who can do the job for you at the only price. That is a common mistake and it's almost always wrong, almost always. Speaker 1: Now, you don't drink alcohol, but one of the big things is when you go and visit a factory, they like to take you out and wine you and dine you. So how do you weasel out of that situation or ease that situation and not offend them when you're out with the boss of the factory and he's really trying to have a good time and impress you? Speaker 2: Well, first of all, I tell them early on, hey, listen, I don't drink. This is not me not drinking with you. I never drink, ever. Sometimes, I'll have somebody else from one of my companies with us and they can be my pinch drinker. They'll do the drinks. Sometimes, I'll bring a Canadian. They'll drink the Chinese under the table. Believe me. They know how to get the job done, right? But if I just simply said, no, I will not drink with you, that would be a slight and that would not be a professional positive thing. So my actual countermeasure to that is although I won't drink, I will eat just about anything you put in front of me. And I don't ask you what's in it and I'm not picky. I'll try anything because I want to show respect for the local culture, traditions, you know, tastes and cuisines. And there's been a few times where I've had just terrible things. I hate stinky tofu, for example, but most of the time it's delightful and some of the best meals I've ever had are from China. Speaker 1: So now, I mean, now it's difficult to actually go and visit. China is basically closed to the outside world right now and probably will be for quite some time. So how do you cultivate, you know, in the past you would fly over and go to the Canton Fair, you go and visit the factories, you can go and hang out with them like we just talked about. What's the substitute for that right now? How do you create those business bonds without being able to actually go there? Speaker 2: Well, it is a really good question and it's certainly harder than it was before COVID. So if people remember back when COVID first happened, all of China shut down pretty hard and pretty fast and for a couple of months. And it was a lot of uncertainty. This is when a lot of the supply chain broke. But after, you know, not long after that, it kind of opened up. And the truth is they told everybody, hey, next Friday or this coming Friday, which is, you know, four or five days away, we're going to close the city. All the buses and rail and roads are closed, but the airports open and about five million people left. So once the thing left, they're like, all right, we're probably OK now. And they really did have a A pretty mellow time. So our substitute during most of the COVID time was my China team. And that China team is engaged with Kevin and I at Products at Once. We would go around to the factories and our team would be there. Sometimes we'll Zoom call with them, but we would really make extra efforts to have our team on the ground in the factories and maintaining those close relationships because that's something that was unique to us, or at least Very few companies, by comparison to the multitude of buyers, can put company people in the building. But in the last, let's say, three months since April, since the Shanghai lockdowns, now some of our people can't even move city to city. Some of the third-party inspection companies we'll use as backups, they don't even have people in those various cities. So we've had to get really creative, calling on some of the locals we know who used to work for that factory, for example, and having them go in, paying them money, and because they're in the same town, they don't have any border restrictions, and then doing video inspections and conferences with our team. All of this is to say that it's way harder now If you really do want to have a good relationship with your supplier, I highly recommend doing a Zoom. It depends on your order volume. Once a month, once a quarter, whatever makes sense for you. But send them a gift if you can. It takes forever to get there. They may not actually arrive, but take a picture of the gift as it's going. But it's much, much more difficult. And to be honest, I'm not going back to China as long as they have a quarantine period. Right now the quarantine period is 21 days and you have to get checked Like, every two days and you got to wear a mask, you know, everywhere and in your sleep. It's really quite a nightmare. And by the way, it's not going to go away, in my opinion, anytime soon. They have kind of a very difficult problem ahead of them. They can't abandon COVID zero before the fall, which is when the next kind of election is to reaffirm President Xi. So there's no possible way to scrap the policy before then due to face Even though they've changed the name to Dynamic Zero and Dynamic Community zero, basically like, oh, if we want Shanghai to be zero, we just ship all the people who have COVID out of Shanghai, now it's community zero. All of those things are problems and it's having, you know, big effects on the supply chain and on trade globally. Speaker 1: Yeah, the quarantine, I was just speaking to a couple friends of mine that are in Hong Kong, you know, and a lot of Westerners are bailing on Hong Kong right now because it's just changing, you know. With everything that's going on there and they said that they don't want to, if they leave, they don't ever want to go back because of this 21-day quarantine. They said it's actually, it's not like you're going to stay in a nice hotel, you know, for 21 days and get room service. They say, they showed me some pictures and some video. It's pretty bad. So yeah, the quarantine, you don't want to visit right now. But speaking of the coronavirus, when that happened and all this really disrupted supply chain, you know, container prices went into the $30,000 plus range you know they've come back down right now for a container from China to LA somewhere in the $10,000 ish range right now pretty much. You know there was a huge backlog at one point of was 130 plus ships outside the LA ports. I think I just read that's down to in the in the 20s right now so they've kind of worked through some of that. And I think I saw a stat, I think it might have been you put it out at the Billion Dollar Seller Summit, there's like 55,000 ships that are transporting goods around the world, 1.6 million sailors manning these ships, and about 50 to 70 million containers that are out there. And when COVID hit, this whole supply chain worldwide completely got disrupted. And it really hasn't recovered and then there's been some additional issues that have happened since then with the war in Ukraine and with, you know, additional lockdowns in China. That's just, I don't think we've actually felt the repercussions of that fully yet. And what's your take on all that? You know, commodity prices are going up, you know, steel and everything. It's just, it's a mess right now. So what's your take on what's happened and where it's going? Speaker 2: Well it's it's a very complex problem so that the reality is everything comes down to supply demand issue right so when you're out of containers all the containers are either unaccounted for or stranded somewhere. And then you're out of ships to move those containers because they're missing sailings be stopped up in LA and other places. Now the supply is way down and demand is as high or higher and so the prices get out of whack. This will balance itself over time. We can probably get a container On a typical, let's say Shanghai LA route now, maybe just under $8,000, which is an outrage to me, right? Because we were doing it for, you know, three, four, maybe four and a half on a regular basis for a 40 foot, by the way. And now it's still in that kind of 8,000 range. And the same problem, so the Shanghai lockdown, which you talked about, The repercussions will be still weeks and months away. So Rotterdam right now has a similar situation in LA. They're stacked with containers running out of space and a dozen or two dozen ships out there waiting to be offloaded. This is not unique just to LA, although it's particularly problematic because it's a very, very busy port. It's going to take many, many more months, maybe a year or two. for things to settle down. And unless demand goes down, which it's starting to in some cases, copper, for example, has entered a bear market. This time last year, copper was run away, high prices, and now copper's in a bear market. Steel is slowing down because the demand for steel is slowing incredibly. And one thing we alluded to earlier is, you know, one of the ways China has really driven their economy is by real estate and by infrastructure investment. And both of those sectors are under incredible stress right now. And that can cause a very deep contraction or problem within not just the Chinese economy, but the global economy. Because if they have a glut of steel, then the steel price will drop. That might sound good for some of us, but there are challenges with wild swings in any of these markets. So my number one, I suppose, be on the lookout for advice is be on the lookout for change, right? Track your commodities, understand the impact of oil, transportation, timing, and the risk of those timings really stretching out. We used to get stuff, I switched a bunch of containers from China to Germany, about 20 a month. By the way, it was around a six-week lead time and so what six weeks is, what, 40 days, 50 days, something like that, maybe, yeah, 50 days, let's go. Speaker 1: Forty-two days, six weeks. Speaker 2: Yeah, and now it's 85 days from Germany, right, for no real reason. But I say no real reason but clearly there are reasons, right? It's upstream supply issues and these things are happening all over the world and I think that the whole point I guess I'm getting to is what we became accustomed to in the globalized world is starting to break apart and I actually believe that de-globalization is happening where more and more Large companies especially but smaller folks like us, we need to start looking at nearshoring or reshoring as they call it, to try to figure out how do we get great products at competitive prices as close to our target market, sales market as we can. And it's not easy and it's going to take time, but it's a reality that's coming because whether we like it or not, there are aspects of these supply chains that are not super sustainable. Speaker 1: It's a problem though. I mean, a lot of people are looking at, you know, India or Vietnam or Thailand. I know you took a trip, ventured around both of the Vietnam and India to scout out some stuff, you know, Thailand, Malaysia. A lot of people are looking at Mexico and Colombia. You know, there's just, I think, A group of Amazon sellers put on, you know, Tim and some others, Amy Weiss put on the thing called the Mexico trip and took a group of people down to Mexico for sourcing there, but there's still a lot of problems. I mean, because what you're finding is, yeah, they may be able to do certain things well, you know, maybe textiles or certain things, but still a lot of the raw materials are still coming from China. So you really have to plan, even if you're trying to move your stuff out, you got to plan your supply train around the raw materials almost. And then you have tariffs, you know, you have the 25% tariff that people call it the Trump tariff that he slapped on China, that Biden is saying that he may take that back off temporarily or on certain goods because of the inflation. But that plays a role and tariff engineering plays a role. It gets really complex really fast when you're looking outside ...side of China. Can you talk about that a little bit? Speaker 2: It totally does. So the first problem is, you know, listen, it would be great if we could just go, I don't want to wait on a ship from China. I'll just buy it from some guy down in Mexico or Canada or down the street from me in Seattle. But that's not how it is, right? There's not enough of a manufacturing base in North America from the raw materials, which you eloquently and rightly talked about, all the way up through finished assembly or finished processing. But it's getting better so I can say that it's it's we're talking about in the next five years I think the world will change in global trade more than it has in the last 20. So, and many of the things that became a common practice in the last 20 years are going to be different, in some cases non-existent. Speaker 1: What are some of those things? Speaker 2: Well, I can't tell you down to the wire, but like there are some things that you will find that China simply will not be competitive. So China's, I mentioned earlier, their wages are up by 12 to 15 times depending on the region. Mexico has cheaper labor than China does. So, all you have to do now is go, well, let's solve the raw materials problem. Where can we get the raw materials besides China? Many times, China is not the raw materials source, it's the raw materials sub-processing plant. But I quite agree, just subbing in a Mexican finishing factory for a Chinese raw material is not solving the problem. So then you go, well what is that raw material? For cotton or textiles or things like that, the US and Mexico will solve it through automation and high yield farming. Within the next 3, 4, 5 years for sure. So anything apparel, canvas, anything that could be fabricated out of those types of textiles can absolutely be done in America or Mexico together. Same thing with wooden-based products, same things with oil-based products, many of which are plastics, plastic-injected molds, those types of things, many of those can move. Columbia also has upsides, but I suppose my point is, think about your product and think about, in a perfect world, how would I do this closest to my target sales market? So if it's in the UK, or if it's in France, or Australia, or US, wherever, How would I source the raw materials and how do I understand each component of that manufacturing process? Because the more you learn about it, the more you may realize, oh gosh, I'll give you an example of a product that I'm looking at right now. So I want to make these cool advent calendars, very nice wooden advent calendars, hand carved And I can certainly make those in China, I can make them in India, I can make them in many, many places, but I want to make them in America. So I'm figuring out what raw materials can I get in America, and that means I have to change the wood specification. Then it's like, well, what automation tools can we use to carve this instead of hands? And we're going to have a US-made, hand-carved, wooden, high, high-end product. That most people would look at and go, yeah, that does look hand-carved, but it's really machining that's making it. And there will be some hand assembly, but it will maximize the machinery and the automation to the greatest extent we can, and then it'll marry it up with labor for the parts that are absolutely required. But that's me leaning into wanting it to be made in America. I could still do it cheaper offshore, but I don't want the problems, I don't want the headaches, and I do want the, you know, the made in America. And that goes for the UK, by the way. If you're in the UK, you want to buy made in the UK if you can, or at least closer to home. Speaker 1: You have other issues. I mean, in China, you alluded to, you know, some of the, they have a massive debt problem right now. And then you talked about, you know, the labor costs going up 12 to 15 times. It's still Relatively cheap compared to like the US or somewhere, but the 996 work ethic is you know, there's a lot of pushback right now That was the work 9 a.m. To 9 p.m. 6 days a week ethic that they had they're having trouble in China You know, that's an aging population. They're having trouble getting getting workers. So we're still reliant on I mean, it's not like you can shift everything away right so fast, but How are we going to solve this problem? I mean, how long is it going to take for, you know, to get ramped up in the U.S. or to get ramped up in Mexico or Vietnam or wherever it is to where we can just sub them in? You can't really just sub in another place right now very easily. Speaker 2: It is not a copy and paste operation, that's for sure. I would say it depends on the scale of the operation. So first of all, I would say maybe Maybe the tariffs will be rolled back by Biden. Let's just say, so by the way, Catherine Tai, the head of the United States Trade Delegation says, no way we should roll these back. This is a bad idea. Like she's talking like Trump, right? And she's operationalized All of those tariffs in high, high effect ways. Very smart trade lawyer, Catherine Tai, that's our person. But she's totally against rolling back those tariffs where Janet Yellen and others are like, no, no, that's not our problem. Just give us lower, you know, lower importing rates. And what I would say is even if they're rolled back, I think the next administration will go back hard at China. So that uncertainty of, well, how long is this benefit going to last, makes players who think about the long term more skittish about just jumping right back into China. We've moved 60% of our stuff in the last five years from China to other countries. That's not insubstantial. Just average 150 containers a month and then move 60% of that, it's hard. But what I would suggest to anybody out there is look at your product or products, figure out alternative supply lines, whether it's India or Thailand. Vietnam actually is probably one of the best places to look. And I've been to Vietnam. We've been buying in Vietnam for a little more than five years now. I'll probably be going to Vietnam again this fall because for certain products they have a lot of advantages, not the least of which is the raw material components coming from China roll in trucks right across the border. Or short, short haul container vessels. The point being it's much more close and they don't have any tariffs at the present time. Speaker 1: A lot of Vietnamese factories are owned by Chinese companies as well, right? Speaker 2: Some of them. The interesting thing is, so China, the most aggressive folks in China have found Vietnam or other places to kind of plan a flag and go, I'm gonna have to I have to get creative here, but China, because of that economic issue that you talked about, some of those benefits of moving factories or trying to get money out of the country is not working anymore. They're really reducing the ability for people to take money out of China. And what that means is, by the way, in large part, So let's say Saigon and South, most of the factories are owned by Vietnam or Korean factory owners. And then in the North, it's a third maybe Korean, Vietnamese and Chinese ownership. And like anything, it's just about learning. So you got to be a little bit more prepared to talk with countries other than China. I highly recommend a text package that shows the specs and the drawings and all the little details instead of just sending a picture from Amazon and going, can you make this? That easy button, while it's nice, and I certainly, I still use China regularly, I just would tell you, have a backup plan. Speaker 1: Yeah, I always remember when COVID hit, you know, it was Wuhan was ground zero and then it was Italy that seemed to be hit next. You know, Italy had a big problem and I started looking into that and I saw an interesting story that came out, just a little side here, that there's a region in Italy, I think it's in Northeast Italy, that's basically where all these Chinese factories came and set up shop And brought in a lot of labor from China, you know, a lot of Chinese immigrants and are making a lot of these leather goods and high-end goods for all these luxury designers that everybody says made in Italy and everybody thinks it's some little man, you know, in his cobblestone, you know, making this thing and made in Italy, when it's actually these Chinese factory operators with inexpensive immigrant labor making this stuff. There's a lot of people, you know, you said 5 million people left, a lot of them went to Italy. So, who knows if that's where it came from, but I just found that interesting. Speaker 2: There are those types of factories. A lot of the Belt and Road initiatives, so-called BRI, are big promises of huge investment and the implication was, oh, well, if you put in a billion dollars to build our port, then a lot of our people are working on that port and even though there might be some heavy loans or heavy fees and penalties and interest and so forth, Versus the IMF, the International Monetary Fund. We put a bunch of people to work, but in almost every case, any of the work that pays money goes to imported Chinese folks and the locals get to do any of the stuff that is like the worst work, moving rocks or literally pounding rocks. You know it's a weird thing but what I would just point people to is, you know, I said the world is changing. You can see the signs of that with Sri Lanka basically being out of money. Pakistan just about ran out of money in the last 10 days and was wired some money, billions of dollars to kind of keep it afloat. And Turkey's kind of out of money, like there's a lot of this monetary crash happening and it's going to have impacts. I can't predict all of them, but I just know uncertainty and chaos are a likely result. And so even though I hate geopolitics and I hate supply chain nightmares, like all of this stuff I dislike, but for the last two years I've had to spend enormous amounts of time trying to solve these things and then think about what does the next five years look like. And I'm convinced that maximizing what you can in China, whether it's design or fast entry to the market, and then thinking about how can I be redundant in other countries, or if I need to switch, how would I do that? I guarantee the Shanghai lockdown is not the last one. And as a matter of fact, Kevin, at the Billion Dollar Seller Summit, I put a series of predictions on one of my slides. And I haven't done a full analysis, but most of those predictions are already happening or on schedule. And it's not because I have a crystal ball, it's because I use logic. It's like, if you do this, then that happens, right? If then this, you know, and that's what's happening. Speaker 1: Yeah, a lot of those, I remember when you made that presentation, a lot of people sat up in their chair and like, ah, Steve's just, you know, he's just being a Debbie Downer here. And then as these things started coming true, one of them came a couple, it was shortly after, like a week later, you're like, see, I told you, and then another one, and then another one. And it's true. I mean, you're on top of this stuff and, and you know, I mean, so what's a, what's someone to do right now? You know, someone's in this, they're, they're dealing with, with China. They just don't have the resources to go change everything to Mexico or to go somewhere. What should they, they should get some, maybe some supplier support, you know, maybe work on the terms or ask them to help pay for the shipping or can you, hey, can you let me slide right now on this 30% deposit or maybe try to lock in the price for a longer period. What are some things that they can do right now that are actionable to the audience that's listening, that they're a smaller seller, what can they do to just try to alleviate some of the pain? Speaker 2: Yeah, there's a few things that I recommend people do as almost like a health checkup almost anytime, but in particular in these kind of turmoil-filled times. So one of them is see if you can get a better price. Go shop that product, even in China, around to other suppliers and try to get a better price. I want to make sure that I have the best price possible on that product. By the way, your current factory is unlikely to go, oh yeah, I was glad you called. Please, let me give you a 20% discount. That's not how it works. You should assume that that's not going to be a call that's inbound to you. That means you have to go find the market price. Due to supply demand, supply chain, not everything is going down. Some things are going up, but maybe it goes up less than you thought if you find the market price. The second thing is currency. I guarantee you, currency is being overlooked. It's always a funny fascination of mine. If the currency, let's say the US dollar is weakening, and if they find that it's a negative impact to the factory, they're on the phone almost immediately. But if it's in my favor, they never pick up the phone. And my point is, the currency has changed quite substantially this year. We're talking about more than 10%, sometimes 15%. And so you should index that price, the FX rate, at the time you had a pricing agreement. And then 5% changes, whichever way they go, you should be encouraging your factory to do the right thing for you and you should do the right thing for them. I do think that if you ask them to give you a quote, make it effective for a longer duration, that's something that Kevin and I do with Products Advance customers. It's like, you got to hold this pricing longer than you would normally because commodities and everything. And most often we'll get a yes. As Kevin probably knows, the HTC, HTS codes, however you refer to them, they updated I think they actually updated earlier this year. It was January 1st, yeah. Speaker 1: January 1st. Speaker 2: Sometimes those things change. Oh, there you go. Sometimes those details change. In other words, the duty might change or the Trump tariffs. For example, there's 500 products that were taken out of the tariff scheme three or four months ago. Maybe you were paying it last year and you don't have to pay it this year. Knowing those and understanding it, very, very important. I always monitor margins, right? Job costing is something that I call it, but every product, every import has a landed cost, and we calculate, you know, what's the contribution margin, what's the shipping, what are all these margins. I really encourage you to know those numbers, you know, top line, midline, which is gross margin, the second line, which is contribution margin, and then your bottom line, obviously, after operation expense. So there's a lot of things you can do. Sinoshare is a company, it's actually a government state-backed company in China, that keeps a file on every Chinese company that exports out of China. And that means if you've exported out of China from a Chinese factory, they know your name and you probably already have a credit file with them. And in almost every case, if you've been doing business longer than a year and you've done more than 50,000 US dollars of export, you probably have a pre-approved rate The day will back your credit with the factory and the way we do it as we say will give you 0% down and will pay you in 60 days. And the factories, in our case, will say yes to that. By the way, I'll come back and tell you where they shouldn't be asked to do that. But if you're doing it at a reasonable volume, then they'll say yes. And then they have SinoSure to back them up in case Steve decides not to pay them. And they make an insurance claim and they get 80% of their money. And then SinoSure will chase me for the rest of my life to get the money. But the truth is, that might cost you 1 or 2% to get those added terms, but in terms of cash flow, it's highly advantageous. Really, really something that I like. Speaker 1: And that's not something that you can apply for, that you don't go and apply to the Sinoshare, that's something your factory does. Just to be clear, so that's something the factory has to go and get that insurance, basically. It's not something you apply for. Speaker 2: Very important point. Yeah, so your mission is to go to the factory and go, hey, I've been a good customer. I would like to move to 0% down and 60-day terms from the bill of lading shipping date. And to do that, I encourage you to go to SinoSure and get credit insurance on our account. And, you know what, for the first six months, I'll split the increase of cost that SinoSure charges you, right? So let's just say it's 1% a month that they're charging. You take half the cost, have the factory bear half the cost. Then six months later, you can have them take the whole cost. My main point is to have conversations with them. Let them know the truth. This is harder for you. Costs are squeezing you. Have candid conversations. Many times, they will come back and go, well, you know, if this thing was a quarter inch smaller, I wouldn't be wasting 12% of my material cutting it off the edge. And you're like, well, make it a quarter inch smaller. I don't care, right? I didn't even know that was a thing. But if you work with them, you can engineer ways of not just beating down the factory. I really do think that's another common mistake. You asked for big mistakes earlier, Kevin. The idea that we're there to beat them down And win, that is a transactional way of thinking. We want to be even with them. We want fair value. I give you money, you give me quality product and we can do that forever. But if I beat you down and I win, then eventually that factory will go out of business or stop doing business with me or vice versa. If they give me bad product, I won't keep using that factory. We want long-term sustainable relationships. And they do believe in a principle called Guanxi, right? This is basically relationships matter in China and having that mentality of how do I let them know what's important to me. I'm not yelling at them. I'm not rude. I certainly don't use slang with them, right? Let's be professional. Let's be respectful and show like I have a philosophy that we try to use in our company that says I put my name on it. When I speak to a factory, it's very rare for me to lose my patience. It's not that it's never happened, but it's extraordinarily rare and it's usually multi-million dollar problems. But even then, I'm not screaming and yelling and swearing. I'm just like, this is really, really important. Let's get to the bottom of it as quick as we can. Having a good relationship and a good rapport based on professionalism and respect, that's a trust but verify relationship by the way. That's how you get things done over the long haul and it doesn't matter what country you're dealing in. That works everywhere. Our stuff in India, that works. Our stuff in Malaysia, Germany, Poland, it doesn't matter where. It all has a place. Speaker 1: Just before we wrap up, I just want to cover one or two other little things really quick. You've said, I saw you make a presentation where you said, hey, listen, China knows they've got some issues here, and they're going Bridezilla on everyone. What did you mean by that? Speaker 2: So it is really weird. All the things that got China to its extraordinarily positive and competitive position, you talked about 996 earlier, that extraordinarily over-the-board work ethic. By the way, it's not good for people to work 996. And it's also, they paid him for a 40-hour work week, so it's like getting 50% more output for no extra wages, right? And that's hard to compete with. But all those things, 996, the education, they've outlawed tutoring, that entire industry is dead. The video games, they've taken the ability for kids to play video games. Like the sports teams, you can't have tattoos if you're on a sports team. They've gotten rid of something that they called sissy boy culture. Sissy boy or sissy pants culture. I don't remember exactly what it is. But it's like boy bands to them, like especially the ones from Korea, they're like, no, they're out. They're blocked from all that. Like all of these things on the social basis, that's the bridezilla actions. They're acting nutty. And, you know, they're beating down Alibaba, they're beating down The equivalent of Uber over there called Didi. They're doing lots of things that are like all the things that got you the success. You're now beating down. This doesn't make sense from a practical picture and so it's all the achievers, all the people who've done really well are kind of nervous and scared and that's creating I guess turmoil within the country of China. So it's that turmoil should play out or at least settle down by the end of this year but who knows if she will Presumably, everybody presumes that she will stay in power, but it's a big struggle right now based on the COVID lockdown problem. Speaker 1: So what do you think we're going to be, you know, if we do this podcast again in two years, what are we going to look back on, where are we going to be compared to where we are right now? Speaker 2: Well China's financial condition will worsen dramatically they're running out of workers we didn't talk about the demography but they, you know probably by 2050 or 2060 they'll have half as many people as they have now they're the oldest population on earth they're the fastest aging population on earth. What that means is fewer workers in the factories, for example, which means wages go up. Even the massive amount of, you know, they have 11 million people graduating from college, they made a new requirement that says, oh, by the way, you don't graduate officially until you have a job. This way, they don't have to show college graduate unemployment rates. So you did all the schooling, but you don't have a job, you don't have a certificate of graduation. So I think the financial condition will be much, much worse. The real estate was going to drag a lot of things down. And by the way, that puts our deposits for products at more risk than they've ever been. I'm not, I still will send a deposit if the order is small and it's an infrequent order. You know, say less than $25,000, we'll probably still just pay on the 30% down, 70% on bill of lading. But that's getting more and more risky. And, you know, China's super, they have a bunch of smart people. If the entrepreneurial spirit is allowed to unleash, it'll probably all smooth out and the trade situation will probably get worse in the next two years. So I would, you know, I would just be prepared for a little bit of chaos. Don't assume the easy button will always work. And, you know, I say hope for the best, plan for the worst. That's a good strategy. Speaker 1: Steve, this has been awesome. It's very enlightening. I'm sure everybody out there has got something to think about right now. If people want to reach out to you, what's the best, you know, if they want to learn about Empowery or listen to some of the Awesomers podcast or some other things, how can they learn more about the world of Steve? Speaker 2: Yeah. Well, first of all, I'll just give you a warning. It ain't always pretty. No, you can go over to the Awesomers.com podcast. And really, I do most of my interaction with the community in a volunteer capacity at Empowery.com, which is a A trade association and co-op buying group style. And I answer questions and I regularly do masterminds and other free meetups there. I'm a volunteer there. And awesomers, I'm not very regulated in my publishing, but I've published 250 plus episodes and people can listen to my rants and raves, including a four-part China series that is still relevant today. So I love entrepreneurs and every entrepreneur can do anything they want in terms of Building their business and growing it, nothing changes, nothing stops. It's just we can't assume that the past will be the same as the future or the future will be the same as the past. It's just things are going to be different and that's okay. The people who are adapting and persistent will win. Speaker 1: Awesome. As you just learned from Steve and I's conversation, there's a lot of ducks you need to get in order to really protect yourself and make sure you're prepared for a lot of changes that are coming on the horizon when it comes to sourcing and logistics. And you know, if you want to stay on top of everything Amazon, one of the best places to do that is in the Helium 10 Elite. Every month we bring in three guests. And I do a presentation so make sure you check out Helium 10 Elite. You can upgrade your Helium 10 membership to the Elite plan. You get a lot of extra features and benefits with some of the software tools and you get a monthly training where we keep you up to date on the latest tactics and strategies for selling on Amazon. I'll be back again next week with another episode, but before we go, we have another golden nugget for you. It's not what you don't know that will hurt you most. It's what you think you know, but you don't, that will really hurt you. Think about that when it comes to logistics and sourcing. It's not what you don't know that will hurt you most. It's what you think you know, but don't, that will really hurt you. See you again next week. Take care.