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Bonus: Navigating the Tariff Regime with Passport's Alex Yancher: Duty Drawbacks, International Logistics, and the Arbitrage Opportunity Abroad
00:43:45
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- [00:00]
Alex
Take a look at your Google Analytics. What percentage of your traffic is coming from Canada, uk, eu, Australia compared to what percentage of your sales are coming from those countries? And if you see a big disconnect, there's some conversion rate optimization you can do to bridge that gap. We're going to help you with that. The second big number, your CPAs are cheaper abroad. And if you could get your conversion rate optimization close to parity with us, there's an arbitrage there. So if you're finding success with your top of funnel efforts, efforts today and you have a good roas and so forth on your us, can you only imagine how good it's going to be if I gave you a 20% discount on your cost per click and your top of funnel costs? So that's how good it can be.
- [00:51]
Eric
Alex, welcome to the DTC podcast. Passport helps brands localize and streamline logistics in international markets. We're going through a lot of changes right now in international e commerce. Can you break down how the recent tariff changes are kind of causing DTC brands to rethink the way that they're thinking about global expansion and fulfillment?
- [01:14]
Alex
Yeah, absolutely. Thank you for having me on. Excited to chat with you about all of this. The traditional model would be a brand imports all its goods into the US it's their single biggest market. They want to keep things simple. They domicile everything in the US and then they decide to ship things to other markets all over the world. And that makes up, call it 10 to 20% of their revenue. And that was the state of the world up until Trump and his trade policies upended the way in which at least brands are thinking about this whole thing. So now you're kind of considering if you're a brand and you're doing some real volume abroad, call it multiple millions of dollars outside of the US you're starting to think, should I import things into the us Pay these super high tariffs? You know, I made a post about this on X and LinkedIn, but the 30% headline that people are seeing, that's a floor for a lot of other for a lot of products, a lot of categories. That number is actually going to be 45%, 50% tariffs. So you're looking at 50% tariffs, you know, and you're considering whether or not you want to start just moving product from China, let's say China. It's going to be other countries as well, into the market where you're seeing some success outside of the US So bypassing the US Tariff regime and start to move product to other markets. That's one, that's one big consideration brands are starting to approach. The second big consideration is do they want to stand up a duty drawback program. So this is something where the US Government, it encourages brands to do what I just described, the old method of domiciling everything in the US and if you have to serve a foreign market, great. Serve it from a US warehouse with American labor, all of that. And one of the ways in which the U.S. government encouraged that is by giving you a refund on the tariffs that you paid when you import into the US and to a certain extent, it's not completely duty drawbackable, this 30% and the incremental tariffs that I was mentioning, but to a certain degree it is, let's say half is refundable. So that's pretty meaningful. And brands are starting to explore these new processes that they never really had to worry about, you know, and those processes might even have downstream impacts for things down the line of how they, you know, structure their operations with a 3 PL and so forth. But that's another big consideration for them. And I'd say, Eric, just like overarching, just like big picture, the US Is becoming a high tariff regime that's already a foregone conclusion, you know, with some pretty high minimums. And it does make, you know, input costs more expensive for brands. And brands are starting to look at other markets to at the very least diversify their downstream demand. So the US Is own only, only, you know, still the biggest market in the world, all of that, but only, you know, 330 million plus people and the rest of the world is 8 billion. So really we're just a fraction of the demand base around the world. And brands have just grown complacent with just having the US as their market, especially American brands or even Canadian brands for that matter. You know, I routinely talk to Canadian brands that, you know, 80% of their sales is U.S. you know, and like 15% is Canada, 5% rest of world, you know, so a lot of brands have become complacent and now they're really starting to consider alternative markets to at the very least diversify.
- [05:13]
Eric
This the first I'd actually heard of this duty drawback program. And it really makes sense, I think, from what you think about maybe the US is trying to accomplish here. Again, really just behooves brands to be selling in other international markets, right? Like what's involved in maybe, you know, like take a brand that's got some international presence, like what's Actually involved in getting a duty drawback program kind of up and running.
- [05:37]
Alex
Yeah. So specifically about duty drawback, it comes down to this core principle of inventory matching, meaning when you import a widget, you know, SKU A123, the government wants to make sure that you're not willy nilly getting a refund on whatever you want. You know, sure you shipped something abroad, but you know, it's important for you to match that specific SKU and the duty that you paid for that very specific SKU to the very specific SKU that you're exporting. That's like the core principle of it all. And if you don't have a good inventory management system and, or there's some overlap with your warehouse management system, your wms, your ims, your WMS and you don't have good data, it's going to be virtually impossible for you to do this. You're going to get rejected by the cbp. You know, vendors like us, we're just going to say no to bringing you on board as a client. So you really need to have some clean data that lets you match skus from import all the way through export. And then there's a wrinkle on top, Eric, which is this is the worst I've seen some brands have their applications rejected because of returns. So then, so then they get returns from abroad and that gets co mingled with the inventory and there's something about that that basically makes a lot of this null and void. So obviously the government doesn't want to give up revenue, but they still want to have this, you know, policy of encouraging everybody to domicile in the us but they're very strict about the application. And traditionally this has been for like, you know, timber, you know, raw materials, which is much easier to track. It's raw materials, it's, it's fungible. So like oil, you know, but with D2C, this is a new application, it's been done and we're doing it ourselves actually. You know, so we're no longer in the breaking ground stage. But, but you know, every new opportunity we take on board, we learn about some idiosyncrasy that we need to smooth out and help, you know, make it such that we give the brand the highest probability of being accepted by cbp.
- [07:57]
Eric
As if E commerce wasn't challenging enough, this, this wrinkle just really seems to be throwing brands for a loop. What, what are you seeing? I guess you got, you work with hundreds of different brands kind of going through this process. What are you Seeing brands do out there are brands taking a wait and see kind of mentality, are acting really quickly to kind of move things around and try to just defray this. These costs as much as possible.
- [08:21]
Alex
It's a tale of two cities to a certain extent. There's some things that every brand and every CEO, every brand owner and every CEO VP of Ops, you know, saw the writing on the wall from a mile away. So what are the, what are those things? Well, Trump's been talking about tariffs since he got elected, like, since before he.
- [08:42]
Eric
Got elected in, since the 80s pretty much. I think I saw him on Oprah talking about it in the 80s. Ye.
- [08:47]
Alex
Right, right, right, right, exactly, exactly. This has been one of the most consistent themes in his worldview. Love it or hate it, this is, he's been incredibly consistent about his, his view on, on tariffs also his view on China specifically. And, you know, what he deems economic fairness. And you know, he campaigned on this. So like, so we've, we've seen this from a mile away and brands that were able to move inventory away from China have and did or are in the process of, in this process began really during. Trump won, you know, to a certain extent. Biden didn't even lower any of the tariffs. So this whole thing about, you know, Trump won adding tariffs and it's gonna, you know, be so bad. When the Democrats took over, they didn't change anything. They kept everything in place. You know, so goes to show you, like, I think this is, this is at this point, to a certain extent, a bipartisan position. Right. The de minimis going away is bipartisan. You know, that's another, that's another thing. So it's just where the culture, where the American culture and our perception of fairness is going is, you know, this is just where, where the, the general population is at right now. There' Free traders left. I might be the only one, you know, so it's interesting and I won't.
- [10:18]
Eric
Ask you to look into your crystal ball too much, but like, do you see this netting out at a sort of low reciprocal tariff across the board for different places? Trying to try, like, he's always talking about trade fairness to, to an extent, and that works in some cases. In a lot of cases it doesn't, because you're not producing the thing that you need or vice versa. Do you have any thoughts about where this situation might net out in six months from now?
- [10:43]
Alex
Yeah, yeah. You know, pretty much at the very beginning of this thing, I made it a goal of mine to watch those, like, Sunday Morning talk shows with Desant and Lutnick. The consistent thing that I would hear from them is that they're viewing tariffs as a revenue generator for the US Government to help, you know, balance budget, pay for tax cuts, whatever. They have like their, you know, agenda of what they want to do. Either it's cuts or it's like, you know, actually even adding more spend but to the things that they care about, whatever, you know, and obviously, you know, the interest rate hasn't dropped, so, you know, we still have like a lot of interest coverage. So they're looking for revenue generating opportunities. They view tariffs as a viable way of getting to the range that I remember seeing was like 300 to 600 billion. Pretty big range, but still, you know, still order of magnitude. You kind of get where they're at. At the time, I think 2024 under Biden was 120 billion, something like that. So we're looking to basically 3 to 6 to say 5, 3 to 5x, 3 to 5x our revenue overnight. You know, this is like, you know, in the relatively short term budget, this is, you know, how much we're looking to raise. Okay, that's a valid approach, you know, for revenue generating. If that's, that's part of their, their plan, it makes sense. This is a, this is a way of generating revenue very, very quickly. This concept of like, they're paying for it, we're paying for it. I think it's like that doesn't, that argument doesn't even make sense. Obviously we're all kind of collectively paying for it. It's just like, where does the negotiation end up? Where does the, you know, market pressure end up? But like I said, I don't even.
- [12:36]
Eric
Who takes the haircut? Or do we all share a haircut?
- [12:39]
Alex
Yeah, yeah. I think like every industry, every company, every situation is a little bit different. Like if your manufacturer has fat margins, then they'll probably take that haircut. If they're literally, that's it. They say, I don't even want the order. If you're making me pay for it, I don't want the order. Okay, I'll tell you who's paying for it. You know what I mean? So that whole like, conversation just like never really made sense to me, but whatever. So they're trying to raise this amount. What does that mean in terms of your first question, like, where are we going with tariffs? Well, let's take a look at how much we import. Let's do some round math, you know, of like, prices go up, demand goes Down. So if we did like 4 trillion, maybe now with higher prices, it's going to be like 3.25 trillion, something like that. So like, I kind of did some rough math. I made a post about this on LinkedIn, but the math kind of rounded out to about baseline 10% tariff. And I wrote this in my post. Like 10%, I like guessed it. I mean, it's like kind of an obvious round number, but it rounded out to about 10% for pretty much everybody in the world. But that wasn't enough to get you to this like 3 to 600 billion dollar number. You needed to either raise everybody to 15% or do 10%. Everybody. But to have like your biggest exporters, you know, like China, Vietnam, Bangladesh, maybe India, Cambodia, you know, like some, some of those countries, they needed to be way more than 10%. So they need to be like, call it like baseline 20, 30%, something like that. And even then you're not really getting to 600 billion, you're getting to more like 4 or 500 billion. So you really need, you really need those countries to be like way north of 10. And China needs to be like at like 40 or 50 or something like that. So that's kind of where it looks like it's netting out. You know, like you're kind of. We'll see what happens with like India, China, whatever. Like, but if they, but if they. Non China. So if they all get 10%, I'm skeptical. I think it's going to be like baseline 10% plus the, like the 301 and you know, like other, other stuff, just like standard most favored nation numbers, which, which is like a few percentage points. So I think like every country on average is going to be like, say like 10 to 20%. And then like the, the big ones are going to be like closer to like 20%. And then China is going to be like 30 to 50%. And I think that that gets you to about 500 billion in revenue, you know, with, you know, holding 2024 numbers constant, minus like a little bit of demand degradation, because the price of things are going to go up, you know, something in that ballpark, you know, I think it's like permanent for Trump.
- [15:19]
Eric
I think that's interesting. And then because they also want to balance, or at least they're saying they want to balance this idea of like bringing your manufacturing back to the U.S. and there, I guess there's some cases where that's going to happen, but a lot of cases where it's not and businesses are just going to have to try to figure out all these ways, whether it's duty drawback or other things in order to make these tariffs palatable long term. How do you see that? Do you see, do you see this bringing a lot of manufacturing back in, in the E commerce world? Or is that more for, you know, chips and higher, you know, defense sensitive products that the US needs?
- [15:53]
Alex
Yeah, I think that there's some categories that are like special designated categories. Anything around defense, national security, ppp. Remember that was like a whole thing during COVID you know, where we don't have enough masks, we have to import them from China. You know, that's dumb. Obviously we need to have that kind of, you know, stuff or for another situation like that, medicines, so forth. I think let's put that in a box that's its own politicized, you know, heavily scrutinized categories that are kind of very hard to predict. And I do think that there's going to be a lot of pressure to have some US manufacturing base that gets some kind of preferential treatment. But because it's still so expensive and hard to manufacture in the U.S. they also get some degradation in cost structure or whatever compared to international. So the market can I think carry both and has to. We need to penalize outside the US manufacturers so much so that there can be a robust U.S. market, you know, at least 20% in the market or something like that. Other categories where nobody really cares, you know, like Trump made that statement that he's upset that Tim Cook is like setting up a factory in India versus versus US I mean I don't see a world in which that kind of stuff moves back to the US unless like Trump runs for a third election, you know what I mean? And like becomes like king of the US And I'll tell you why, I'll tell you why Eric. It's because like you know, people are even saying Republicans are going to lose the midterm election. So really like, like parties with a lot of power, they hold power for like at most an eight year cycle. @ most, at most in today's day and age, most likely the mode and the like the, you know, the average one is like four years and then there's like two year cycles where you really can't do anything as president because you know, you lost the House and Senate in the midterms. So now you're not like clean duck. You still do like you know, some tariff stuff, some foreign policies, but they can obstruct you. They can like, you know, put up, put up their own laws that, you know, whatever. And you're constantly, you know, basically playing whack a mole. It's very hard to like an obstructionist Congress. That's like a thing, you know, obstructionist judge system. Just like the whole, the whole thing, it's like built to put grain into or sand into the gears so of the whole system. So it, so it's tough. So like, why would you as a decision maker, especially like an apple, like moving manufacturing into the US like, yeah, if you knew Trump was going to be king for like 50 years, okay, maybe you'll do it, you know what I mean? Because you feel like he's just going to like retaliate against you. So you kind of have to do it. But if you don't think that and you think Democrats are going to be back in charge, it's kind of hard to like make a call of moving like your own manufacturing.
- [18:53]
Eric
You know, I was just watching a documentary on Foxconn the other day and the amount of skilled labor, the amount of time that it's taken to build up the 3 million person labor force that it takes to do that kind of thing. So yeah, that's definitely not going to happen overnight. Quite a challenge for brands that have complex manufacturing, I'm sure. What about the de minimis? What are we, what are we seeing? What impacts are we seeing from this de minimis situation?
- [19:18]
Alex
Yeah, dimension. Another big move the needle, once in a lifetime kind of event that happened in, in the world of global trade. So our debitimus was 800, which is a lot. Basically most of E Commerce falls underneath 800 and it went to zero for China, but it's still 800 for every other country of origin. So it's interesting dynamic here. You know, there's, there's some preferential treatment going on for other countries. So that's the new big question in the industry right now is if and when. I think a question of when, you know, just a little bit of an if the de minimis is going to go to zero or something else, you know, for non China country of origin? Hard to say. You know, there's a, there's a bill in Congress about it going away again, bipartisan, you know, for rest of world, July 1, 2027. So two years from now, you know, and then, and then you hear rumors of it going away in August or September of this year. So there's a pretty wide range of, of the rumor mill here. I'm not sure. Eric, do you have an opinion on this?
- [20:33]
Eric
No, I as A Canadian. I'm. I'm a bit of a passenger in the, in the trade war situation. I know it's funny, I come from the affiliate background, so I know the de minimis exception, the lack thereof is really impact anyone who, who is shipping, who exclusively relying on, on dropshipping. I know it's affecting TEMU and some of these other, you know, mass marketplaces, but I don't. Yeah, I think, I think we're also very early in this. I was just looking at your post from quoting Harvey Finkelstein from Shopify, just basically saying that they're not currently seeing any meaningful impact on their gmv. I'll say the same from our agency perspective. Like we're kind of waiting for the other shoe to drop, but it hasn't really impacted. It's impacted our clients and their back end, but it hasn't really impacted customers sort of. At this point, we're not seeing any meaningful drop offs on, on purchase rate or anything like that. Among the brands that you're working with, what are some of the biggest impacts that you're seeing?
- [21:32]
Alex
Yeah, Eric, one quick question for you. Have you seen your brands race prices?
- [21:37]
Eric
Some have. Some have a little bit, others are still waiting a little bit more. It's one of those things that you just. Once you raise prices, it's hard to go back in a way. And so people are being really cautious, I think, about impacting or raising their prices at this point.
- [21:54]
Alex
Right. I mean, there's a middle of the road tactic which is to add a line at checkout that said like tariffs or something like that, you know, and make that explicit. Have you seen that?
- [22:07]
Eric
I have, yeah. I have seen brands doing that, yeah.
- [22:10]
Alex
And is it effective?
- [22:11]
Eric
I'm not sure. I'd have to check back in on that particular case as to whether it's impacted things or not. But yeah, I think it's, I think it's definitely a viable strategy.
- [22:19]
Alex
Yeah, yeah. I mean, surely it's just supply and demand. When price goes up, demand ever so slightly goes down. Right. So just the question is how much does it go down? And it also becomes a really interesting natural experiment for your brands to test the demand curve. You know, they're like, oh, shoot, I should have raised my price earlier. Demand did not go down. You know that that can also happen as well. You know what a Giffen good is, Eric? No, it's a, it's a really interesting economic concept where I hope I'm saying it right. It's either Giffen or Griffin where it flips the demand supply logic. So the higher the price, the more demand there is. Like the example, the like classic example is Rolex watches. So if you go down the demand curve of Rolex watches. Oh, Rolex watch, $70. No thanks. You know, but Rolex watch, $1,500. Oh, that's a bargain. You know, I'll take it. You know, so like, the more expensive it gets, the more people want it because they associate cost with quality and, you know, high caliber. So there's some goods that have that effect as well. You know, sometimes you don't even know, like, you're not gonna have it with like gummies or something like that, but you might have it with like, with luxury items, you know, backpacks, purses, that kind of thing where you raise the prices and like, weirdly enough, the conversion rate goes up.
- [23:49]
Eric
I remember Swatch was a story like that actually where Swatch watches came out and they were made with cheap parts and they were plastic and they had these cool designs, but they were selling them like for a great bargain and, and they was just absolutely bombing. And then they decided to make them a premium product and it was like, oh, look at these beautiful design plastic watches. Started doing a lot better. I don't know if you want to name brands specifically that you guys are working with, but who are some brands or what, what's, what are some examples maybe of brands that are, have made deft moves, that are seeing them defray costs, you know, effectively, maybe more effectively than other brands. What are some good examples of what people are doing?
- [24:26]
Alex
Yeah, I mean, I think one good example that comes to mind is Dolls Kill. They're great, strong brand, huge following outside the U.S. huge following in the U.S. a lot of their stuff is made in China and they made some fast moves, you know, and I think that they start to break out tariff as a separate line item. They started to get creative with how they're testing that stuff out. So really, really impressive team. They're really fast moving. And I think at the end of the day, strong brands like that, that have a following, a community, they're going to do fine at the end of the day, you know, there's, there's, there's only so many players like that around the world, so. And most of them manufacture in the same places, you know, at the end of the day, in the same countries at least. So everybody's kind of in the same place.
- [25:18]
Eric
So brands right now that aren't. Because I, you know, we mentioned the duty drawback, which I think is such an attractive thing, it makes sense for brands. What do you recommend for a brand who maybe doesn't have an international presence but recognizes the benefits of it? In this, you know, in this current tariff regime, what do you recommend that their first steps are? To identify the biggest opportunities for them internationally.
- [25:39]
Alex
Yeah. Yeah. So whenever, whenever I think about a brand starting international, I try to remind the brand, and myself for that matter, that they're already international. That every single brand, especially E commerce brands that sell online, either on a marketplace or on their own brand.com, they're accessible by anybody in the world. Obviously, if you have a store on Rodeo Drive in Beverly Hills and that's your only store, you're, you know, contained to the visitors on that street. But that's not E commerce, that's not Internet. Right. You can have people from all over the world, every nook and cranny hitting your site. So you need to ask yourself, well, how are you, how are you getting that audience? Where, where are they coming from? If you're an influencer driven brand, I'll tell you, like more than half your traffic is already coming from abroad. You know, influencers are so global at this point. You look at Kim Kardashian's Instagram base, I think it's like 85, literally 85% non us, 15% us, 85% non us. And then the question becomes, how are you monetizing that traffic that you're already getting? You know, look at your conversion rates, look at where, look at your Google Analytics and see where your visitors are coming from and go through the experience yourself. You know, get a vpn. Sometimes you don't even need a VPN if you're on Shopify. You could just like change, you know, the toggle. If you have that on your site and go through the experience as if you're a Canadian, as if you're in France and, you know, go through it with some empathy of what they're seeing. Are they seeing US Dollars or are they seeing Euro symbols and CAD for Canadians? When you get to the shopping cart, are you showing that as a separate line item? If you are, that's not really how people see it in the uk, you know, or Australia. They don't see VAT broken out as a separate line item that's baked into the price of the goods. So it like throws them off a little bit. It's a little bit confusing. You know, go on some websites, you know, that are their native British sites, you know, Harrods, you know, that's a, that's a British site, go on Harrods. See how they display prices and things like that. You know, ask ChatGPT, like run your product catalog through ChatGPT and have it identify words that have a different word for it in, in the uk like obviously they speak English, you know, it's the same language but, but they don't say, you know, pants, they say trousers. You know, trousers. I forget what it was. For sneakers. They have a different word for sneakers. Tennis shoes or something.
- [28:21]
Eric
Trainers.
- [28:22]
Alex
Trainers. Trainers.
- [28:23]
Eric
Thank you.
- [28:24]
Alex
Trainers. Yeah, that's right. Trainers. Trainers. You know, so, so if you're a shoe company and you're trying to be big in uk, you should call it trainers. You know, it's pretty easy find and replace, you know, so little, little things like that, they kind of go a long way of localizing the experience. You can crawl, walk, run, you don't need to, you know, hit up all of those things all at once. And people see the picture of a sneaker, they know what that is, you know what I mean? So it's okay. It's not that of the world. If you have the word sneaker in there, that could be sort of at the bottom of your list. But just like, you know, get a feel for it, you know, look at where your traffic is coming from and, and like use some common sense. So if you have like, you know, 20% of your traffic from like, you know, Bangladesh or something like that and like that's just like where your factory is. So your workers are going on the, on the website. You're not going to monetize that Bangladesh traffic as much as you would like 12% to UK, you know, English speaking, middle class, you know, so you could kind of get a short list of countries that are really going to drive, call it 80% of your sales, go through the experience, see what's there. If your top of funnel is really not that, it's not influencer, it's not really like social, it's more of like search or listicles or you know, Reddit, you know, forums and things like that. Same thing. I mean you can, you can go and take a look at which one of those platforms are global, where people are coming in top of funnel from there and see if you can translate that into success into another market. So it all starts with top of Funnel. You know, you call us, we'll help you with the conversion rate optimization. You know, that's, you know, I wouldn't say easy, but we have that down cold. We've done that for hundreds of Shopify plus brands we know all the tricks of the trade of, you know, juicing the conversion rate and creating a great experience for customers. You know, you come to us, but we can't help you with the top of funnel that at the end of the day, you know, you need to see if you're already having that and you just need some help monetizing it. You know, if 20% of your traffic is coming from abroad, but only like 6% of your sales are coming from abroad, you have a disconnect there, you know, and let's work on closing that gap not by lowering your US sales, but by increasing at a faster clip your international sales, you know, so that's where we come into play. But I would say most brands, at the end of the day, like, what works for them for us is probably going to work for like the top, you know, non US markets like Canada, uk, Australia, EU even, and often at.
- [30:58]
Eric
Lower cost of acquisition or like, if all things the same, if you're able, like you say, to get the friction removed on an international purchase. So it looks like everyone's used to. It's got the right symbols and the right words and everything, but all things the same. The traffic costs in these other countries can be lower than what you're paying in the US to offset that during that process.
- [31:19]
Alex
Right, Great point, Eric. Yeah, the cost per click. America has the highest cost per click, I would say, you know, Canada is like 20, 30% cheaper. UK is like 15% cheaper. EU is like 35, 40% cheaper, you know, so, yeah, great arbitrage there.
- [31:36]
Eric
Super interesting. I actually just bought a pair of jeans from Australia from Brisbane. Came the other day and I had to. They were expensive. It's actually a creator I've been following. He's a fashion educator and he's also makes. Makes these great. These the ultimate pair of dad jeans I bought, you'll be happy to know, but I got them delivered and it was $100 duty charge. And I'm wondering when it comes to managing the, you know, the conversion funnel does. Does passport and do you recommend pushing that cost into the checkout as opposed to collected on delivery or what? What are brands doing? Well when it comes to that process?
- [32:10]
Alex
Yeah, yeah. Eric, did you pay that upon delivery? Did you pay that?
- [32:14]
Eric
I did, I paid it upon delivery, yeah.
- [32:16]
Alex
Interesting. Canada Post delivered it.
- [32:18]
Eric
Yep.
- [32:19]
Alex
Interesting, interesting. See, the, the thing is about that, I mean, you tell me, but it's not just that you're paying the duties, but you also have to pay this like, Canada Post fee of like nine Canadian dollars. Is that right?
- [32:30]
Eric
Yep.
- [32:31]
Alex
So you'll pay duties of 10 bucks and then boom, another nine. That's a lot. You know, that's a lot. That, that, that's, that's going to, you know, harm the repeat purchase rate. I mean, did you know that this was going to be a charge when you made.
- [32:46]
Eric
I figured I'd bought things, actually. I didn't actually even know that he was in Australia. I thought he was. I thought he was us. So it was. I. Once I realized it was coming from Australia, I actually did a chat GPT to figure out, you know, what my landed costs were going to be when I, when I actually accepted the product. And it was more or less accurate. So I did. I was kind of expecting it, but. And I have this great connection to this creator. So I was like, I was willing to pay this premium for this product, but it was, yeah, it was interesting. I'm always like. But I. But I think probably if that purchase, if that price had been included in the purchase price, it might have been enough to make me bounce on the, on the actual acquisition of the, of the stuff.
- [33:27]
Alex
Interesting, interesting, interesting. It is the item made in Australia?
- [33:33]
Eric
I think so. Yeah.
- [33:34]
Alex
Yeah. Interesting, interesting. Yeah, yeah. I mean there's two, there's two methods of shipping, let's say into Canada doesn't quite work the same in every country anymore. But what is what you got, which was deliver duties on paid ddu. And it's usually not. Usually it's, it's through a postal system. So he must have used Australia Post. And Australia Post has a handshake with Canada Post and Canada gets it, you know, and the same thing if you ship something back to him, like you return the item or whatever, you, you give it to Canada Post and then Canada Post would give it to Australia Post and Australia Post would deliver it. So this is a very popular method of shipping, especially for like micro entrepreneurs that have high price points, you know, partially because of this dynamic. And there's another interesting thing in this whole thing, Eric, which is this thing called postal leniency. Have you heard that term before?
- [34:37]
Eric
No, I haven't.
- [34:38]
Alex
So you kind of lost the postal lottery here. Meaning when you ship something postal into Canada Post, not everything gets assessed for duties and taxes, even if it should have been assessed for duties and taxes. Okay. That's this concept of postal leniency where there's so much volume going through this postal channel of like just like a random stuff. A friend sending, you know, a notebook, a friend sending you a pencil, you know, What? I mean whatever, like, and the cost to collect the duties and tax and you know, on top of this low value. Good. It's, it doesn't make up for the cost to collect it. So the duties that you're going to collect doesn't make up for the cost that you're going to collect. Not to mention they charge this nine dollar cash fee and you're like eh, eh, I don't even want it. I don't even want it. It's some gag gift. Now I have to pay this like five bucks and I have to pay another nine bucks. Nah. And you're, and you're pissed. You don't want to like deal with it. So a lot of stuff gets rejected and then it becomes Canada Post problem. They can't just like throw it away. They have to like ship it back. They have a deal, you know, with Australia Post, they have to ship it back to Australia. So there's this thing called postal leniency where they basically only assess, call it. I don't even know what the number is. It used to be very low. They used to assess like 1%. Now it's probably like 10%, 15%. I actually don't even know what the number is. But you know, you know, you know what it might be. You're on the west coast, right? You're in British Columbia.
- [36:10]
Eric
Yep.
- [36:11]
Alex
Yeah. You know I think, I think I remember hearing that like in British Columbia they like installed some new machines or something like that and now like pretty much everything gets caught into British Columbia. But the Toronto region is still only like a fraction or something. I don't even, I don't even know the exact setup. But the point is there used to be this thing called postal leniency. So it worked really well. So it's like, yeah, you might get it and then like somebody like you'll pay and then there might like half the time you won't even have to pay. So you just saved a hundred bucks, you know, between you and the customer, the brand, I'm saying saved 100 bucks. So like DDU was a pretty good method of shipping. DDP is the more popular and like it's the more standard way. And the reason is it's kind of a wash on the conversion rate. And you might be surprised by that even, even in spite of your anecdote here. The reason is because a lot of savvy cross border shippers, we're in like you know, the 15th year of like Canada, Canadians buying from U.S. consumers, you know what I mean? And Like, a lot of people bought stuff from, you know, American merchants and, and, or abroad, period. So Canadians are used to it. So when they don't see a line item for duties and taxes, they kind of know that they're gonna have to pay it. You know, maybe DHL Express, by the way, DHL Express, it's like everything you have to pay, there is no postal leniency or like a certain fraction don't get assessed. Like, everything you have to pay everything. So people are discouraged from transacting and they mentally add in that extra duty and tax. And in fact, it's like, very bad for conversion rate because, like, people are bouncing from the page, they're going to chat GPT, they're saying, how much extra am I gonna have to pay? And then you already forgot about the purchase. So it's actually very bad. TDU is actually very bad for conversion rate because of that, in spite of the lower cost. Because everybody's kind of wise to the, like, the extra cost that you have to pay. So. So you have that dynamic going on gdp. It's like, yeah, it's a higher price. So yeah, some people might bounce, but at least it's like, clear. You know, you don't. You're not expecting any surprise bills. You don't think it's going to be like this extra $9 CAD. Your stuff isn't going to be held at the post office until you pay. And so you kind of like, trust the, the purchase and the situation a little bit more. So I would say, like, maybe it's a wash in, in terms of conversion rate. Maybe DDP is a little bit better. I would actually say DP is a little bit better. But. But even if you believe it's a wash, it's not a wash. Inexperience. You know, at the end of the day, people hate it. People hate it. And they're like, I'll just pay it. Just please, like, you know, put it in the car. I don't want to, like, deal with this BS with Canada Post anymore, you know, so. Or DHL Express. So that's why, like, ddp, I'd say, is the most popular now that, like, even if you assume it's a wash on the conversion rate stuff, it's not a wash on the repeat purchase rate and the experience and like, fewer chargebacks and all that kind of stuff side of things.
- [39:01]
Eric
So we've got, you know, hundreds, maybe thousands of brands who will listen to this podcast. A lot of them will be, like you say, probably all of them are Selling internationally to some degree, whether they realize it or not or whether they're focused on it or not. What's your message to brands who have some international sales but haven't really like doubled down or focused on that opportunity?
- [39:23]
Alex
Yeah, yeah, I would say take a look at some of those numbers that we talked about. Take a look at your Google Analytics and compare what percentage of your traffic is coming from Canada, uk, eu, Australia and compared to what percentage of your sales are coming from those countries. And if you see a big disconnect, then there's some conversion rate optimization you can do to bridge that gap. And you should give me a call because we're gonna help you with that. Okay. That's one of the biggest things. The second big number that we talked about here is your cost per click is cheaper, your CPAs are cheaper abroad. And if you could get your conversion rate optimization to parity with us, or at least close to parity with us, there's an arbitrage there. So if you're finding success with your top of funnel marketing efforts today and you have a good roas and so forth on your us, can you only imagine how good it's going to be if I gave you a 20% discount on your, on your cost per click and your top of funnel costs? So that's how good it can be. So I would say all of those things, you know, we work with brands on getting them the confidence, getting them the right cost structure to, to really make it happen.
- [40:39]
Eric
Very cool. So send you an email alex@passportglobal.com Also, you got to follow Alex on LinkedIn because you're pretty active on there. You got a lot of engagement on your post. I, I just saw you mentioned, I didn't even know this was happening, but there's a Canada Post is planning another strike at midnight this week.
- [40:54]
Alex
Yep. Get ready.
- [40:56]
Eric
Great news. What does that mean? What, what's the follow up from something like that?
- [40:59]
Alex
Yeah, well, first of all, this just happened in, in December and it was bad. I mean it was really, really bad. There's businesses that can switch to an alternative carrier network like Passport. So I would say it's good for us, you know, in a way because a time of flux and change, it pushes people's timelines, you know, and people want to go live with us right away because we have a fantastic alternative carrier network. You know, we work with some of the largest 3 PLs in Canada on it. So we're a turnkey solution for, for that. But there's some categories that you just like, you know, even we can't really help you, which is like same day delivery, you know. Canada Post actually does a lot of same day and next day delivery locally. And I remember, I forget the name of the brand but it was like, it's like a cookie brand. One of the co founders is pretty active on on X and you know, he had no way of delivering perishable goods, you know, because his, you know, number one service provider was Canada Post for it. So when you're like single source, single threaded on your delivery, I mean what are you supposed to do? Your business literally grinds to a halt, which is really rough. So a lot of livelihoods and businesses are depending on it. Anything like, you know, flowers related and things like that and, and just you know, like the whole population kind of depends on the post office. You know, everything from sending stuff locally to your friends to postcards to you know, just the like the color of life, the joys of life, you know, you know, traveling, sending things back, it's. It all runs through the post office. You're not really going to UPS to send a postcard, you know.
- [42:49]
Eric
So Canada is such a unique challenge too because we're just so spread out. We had just have so much, you know, we have so much land and so few people. So the logistics of just delivery in Canada I think are always going to be a challenge.
- [43:01]
Alex
Totally, totally. Yeah, very true.
- [43:03]
Eric
Thanks for coming on the podcast today. Like I say, you gotta follow Alex on LinkedIn. Check out passportglobal.com if you're ready to get smart about your international expansion. This was a lot of fun. Thanks Alex.
- [43:15]
Alex
Thanks Eric. I'm also on Twitter, by the way. Alexander.
- [43:17]
Eric
Okay, we'll make sure we get all your links into the post.
- [43:21]
Alex
Thanks Eric. Thanks for having me.
- [43:29]
Eric
Thanks so much for listening to today's episode. If you're not a subscriber to our newsletter, you can do that right now at directtoconsumeralloneword. Co. I'm Eric Dick and this has been the D to C podcast. We'll see you next time.