Stord CEO: de minimis exemption removal is forcing brands to fundamentally rethink US inventory strategy

supply chain tariffs and the dimminimous uh uh the diminish deminimous exemption. " We will welcome him to the stream. How you doing? Great to be here. Thanks for having me guys. Good to see you. Uh great to see you last week. Where where where did you land? Where where are you now? Back home in Atlanta.

No longer having fun in uh New York having some uh breakfast with you guys. Yeah. Ve very nice. And uh business is good overall. Crashing breakfast, I should add. I guess crash. We were It was a great uh breakfast company. We were crushing breakfast.

It didn't feel like you were crashing because we you you were you were probably it was a busy day for us. You were probably even busier and and we uh we we requested that you hang with us. It was fun and uh shared some insights on on all the different things happening in your world.

So yeah, G uh give me the update on uh on tariffs, the dimminimous exemption, where things how we kind of got here and then where we are now and then we'll get into where we're going next. Yeah, absolutely. So I guess background, there's two types of core tariffs.

One is the general commercial, something's coming into a US port and you're charging a tariff based on the commercial value of the goods at that time. And that's largely what was rolled out at liberation day a few months back was all of these tariffs particular around large imports.

But there's a separate category that had a big action last week which is dimminimous uh exemption which is really started in the early 1900s mostly for international travelers think hey I want to send a package back to my family.

Well there's these rules created that as long as that package is under $800 and in these categories you don't pay any tariffs. Well, what's happened the last few decades is if I want to store my inventory locally in the US, meaning bring it through a port, hold it in the US, now ship it locally.

If I'm say, let's paying uh $2 for warehousing, $7 for delivery, and $5 for uh the tariff to get it in, I'm paying $14 to ship that locally.

But if I never bring it into the US, if I just keep it in China, keep it in Europe, put it in Mexico, Canada, and instead I'm maybe paying $1 for local warehousing and labor, a more expensive package like $9, $10 internationally, but I never pay the tariff.

I'm now comparing $14 to ship my unit through the US versus maybe $10 to ship it from international. That's a big difference on your average product.

And so Trump and the administration had formerly said that they well they've been waging war on this since even before election day, but they formerly said it was going to go away in 2027. So since the start of the year, brands thought they had maybe two years to get ready for this.

And all of a sudden last week you saw announced on Wednesday that it's going away on August 29th. And so now brands are rapidly trying to move inventory into the US. Yeah. And uh is it apocryphal to say that this all like Teimu and Shien like kind of started this trend or did they just merely capitalize on it?

Were there other other companies that kind of found this? It's not necessarily a loophole. It's more just like an opportunity that if you exploit it to the max, you can scale a multi-billion dollar business. People were using it. Nobody exploited it to the same degree. Yeah.

I wouldn't call Shien and Timu just like you know the tourist example. It's like they're they're shipping billions of dollars through this platform. But uh what are are they the are they the the the the real progynators of the idea? They've definitely exploited it at a greater scale than anyone else. Sure.

But what's crazy is that if you look at the top 100, let's say Shopify businesses, over 50 of those roughly was the estimate are shipping out of Mexico into the US. So this is very prevalent across brands of all sizes, particularly very large in the apparel category.

And just some quick numbers, last year alone, there was an estimated $64 billion of commerce that entered the US through the dimminimous exemption, which is roughly 10 billion of missed tariffs and roughly four to five billion of missed US logistics infrastructure revenue.

And so broadly speaking, uh, logistics USoriented companies like ourselves are very excited by this because it's very hard to compete with Chinese and Mexican and other labor, real estate, and no tariff versus local fast shipping.

So yeah, what I mean this sounds like a huge tailwind for your business, but um, what are your customers actually coming to you with questionwise? It sounds like, uh, there's a very quick shift on the horizon around the day minimus exemption.

So, they're coming to you and saying, "Hey, I need to move all my inventory from Mexico or China or Taiwan or Vietnam into Atlanta or somewhere else as soon as possible. " Is that is that basically what's happening? Exactly.

Because well, one I think it's important to note that when you look at tariffs, a lot of people apply it linearly. Okay, a 10 20 30% tariff product cost is going to go up 10 20 30%.

that's on the commercial value of the individual unit and so much of the cost is both margin for the brand advertising local US logistics and so these tariffs don't translate one to one for how it's going to impact the consumer but at the same time we're not necessarily talking to the brands as much about changing manufacturing origin to get away from those tariffs because the impact can often be absorbed for these mid-market brands who have real profits real growth we're talking to them about is back to that math I gave of if you were spending uh $10 to ship it internationally avoiding a tariff but you're doing a one to two week shipment so a slow delivery but cheaper and it was you could do two three day delivery in the US but maybe $14 all in with the tariffs well all of a sudden if you're now spending uh or I I said 11 at first with the tariffs or in the US well all of a sudden now if you're going to jump all the way to 14 it doesn't make sense to pay more and deliver in two to three weeks cheaper but now all of a sudden there's massive influx of volume where all these brands are saying how fast can you get me live in the US I'm in Mexico I'm in Canada I'm in Europe and the problem is with outdated technology most logistics businesses are going to tell them four to six months andor with the influx of volume a lot of capacity is becoming challenged again like we saw all the way back in 2020 and 2021 with such shortages of warehouse capacity it's not that there's not leases on the market it's that ready to go warehousing capacity with all the infrastructure technology and labor that capacity is rapidly getting gobbled up.

And so we actually had a case study on our website uh from exactly what's going on where True Classic TE's is great example, massive many hundred million dollar uh t-shirt retailer wearing one right now earlier this year.

they were stuck in Mexico and the Mexican president first signed away their exemption which was, hey, if you first bring it into Mexico and it's here for less than 180 days because we know you're going to ship it into the US, you also never pay our tariffs, but please pay our labor, our real estate, etc.

Well, they first signed that away. There's since been a pause put on it, but we already migrated customers. Take someone like True Classic. They were often told, we can get you live in the US in six months. That's insane cost that they're going to face for those six months relatively.

We had them live in 18 days from meeting us to go live. And that's all because we're really the cloud in comparison. Makes sense. Uh last question from me. Um uh how solid are we? I mean when we went into uh when we went into liberation day, a lot of it was just uncertainty from the business community.

How how confident whether or not it's good or bad for your business? How confident are we that we will be at least on the same course for whether it's good or bad for the next few years, for the next 12 months?

Like how much confidence do people have that these set this set of rules that are in place right now will stick? Personally, I think the confidence is going up. I think this is one of the last uh exemptions people are curious about.

While there are still a few negotiations going on with specific countries, the kind of broad general tariff, the reciprocal tariff, and even key countries have already been set. And frankly, I tend to believe the administration is liking the results.

So far, we've taken in over 150 billion of incremental revenue since Liberation Day just via tariffs alone. There was a GDP posit or sorry, um kind of balance budget positive month as a result of these tariffs and more. And so I don't think we're going to change course and go backwards.

And I think some of the logic is while it may drive a slight increase in cost on the the front end, you have to wonder what it's going to do on the back end when there is more production in the US, more middle and lowerass jobs that have been competing with Mexico, China, these other countries, labor on logistics, and ultimately if they're able to use tariffs to impact other taxation on citizens leaves me thinking the administration is going to stay course on this.

Makes sense. Awesome. Well, congratulations on all the growth and it seems like a lot of these uh decisions are going your way. So, uh happy to have you on the on team America building infrastructure and everything that we need to uh bring products to market in the United States. So, thank you so much for joining.

Great to see you, Sean. We'll talk to you soon. Absolutely. Thank you. Have a good rest of your day. We'll talk to you soon. Bye. Up next, we have Andy from Two Cents. We've highlighted his posts many, many times on the show. so excited to meet him and chat about the the business and