Izzy Rosenzweig 00:03
The biggest myth we saw was the term transaction value. What is the definition of transaction value?
Andrew Maff 00:09
Welcome to the E comm Show podcast. I am your host. Andrew MAFF, owner and founder of blue tusker, from groundbreaking industry updates to success stories and strategies, get to know the ins and outs of the e Commerce Industry from top leaders in the space. Let's get into it.
Andrew Maff 00:23
Hello everyone, and welcome to another episode of the E comm show as usual. I am your host, Andrew Maff, and today I welcome back Izzy Rosenzweig, who is the CEO and founder over at Portless. Izzy, how you doing? Man? How's it been?
Izzy Rosenzweig 00:36
Doing great! Andrew, thank you for having me for a second time, very excited about it.
Andrew Maff 00:39
No, problem. Do you know it's all so we almost nailed it. We, well, as of the recording today, we're almost exactly a year out from when your last episode was published, so we'll get a nice annual recap from Izzy over at Portless. Super excited. I know the amount of stuff that has happened since the last time you and I spoke is we'll need multiple episodes between now and the next annual catch up you and I have, but let's start off kind of the usual, and I'll give you the floor.Tell us a little bit about your background, how you got started with portless, and then we'll jump into the good stuff.
Izzy Rosenzweig 01:16
Absolutely. So I was originally a brand owner. I ran a brand for about 10 years, I ran it in the home and kitchen space, direct to consumer. The first two years of running that business, I ran it in the traditional supply chain model that most e commerce still do today, which is I was buying goods from somewhere overseas. My stuff was mainly China, Vietnam, and I was putting stuff on shipping containers, and that was just an absolute brutal way to buy goods from a cash flow perspective. I'd put out 50k 100k 250k at a time, and that was just always waiting, waiting, waiting, waiting, waiting for the goods to get here. Once it got here, is waiting for it to sell. So I get cash out of inventory. Then I realized I made a wrong bet on prediction. So I'm trying to buy four to six months in advance, and I would have excess inventory which I had to liquidate, or whatever, like lose money on the sale. It was really hard, but that was the way I ran the first years of that business. Then I pivoted, or I got very lucky, I met early Alibaba executives, and they kind of introduced me to this evolving space of what we call the direct supply chain model, which is, you don't need to put stuff on boats, keep goods near the factories, in facilities near the factories. We have two in China, two in Vietnam and ship from there. And essentially what the way it works is, once we have the goods in our facilities, we could deliver goods in about six days across the US, 100% local experience. So a customer makes an order within 24 hours, there is a USPS tracking number, five days later, your driver puts on the front door. USPS label or another regional carriers label either be non branded or branded packaging, whatever the customer wants, but the brand, the customer has exact same experience as the idea straight but from a brand's perspective, I argue everything changes, and that's how I ran my brand for 10 years. We're all of a sudden, my cash flow was incredible. I was applying goods Well, I didn't, I didn't even put out turn 50 grand at a time or a million dollars at a time, because it wasn't buying six months. I was buying four weeks at a time, and then as I was selling, I was rebuying the right SKUs, the right colors. So it was avoiding excess inventory, because I wasn't reinvesting in bad SKUs, and I was capturing demand in season of the good SKUs. So the right colors, the right products, and scaling it, I was never out of stock. I constantly buying more. So that business, we were able to scale quite aggressively. We built infrastructure, software and logistics solutions around that entire business. That business did about 100 million in revenue and amazing cash flow. I did shift out of the brand to the brand business, the DTC business to B to B business. When iOS 14 happened. So if your marketing world, you remember, there was a period about a year, I would say that IRS 14, we got released basically Apple's privacy update. Apple said, I'm no longer sending meta any data or any anyone data. So if you're in the marketing world, which we were driving a lot of our revenue through marketing, everything kind of went chaotic, and we couldn't see our marketing attribution. So we started to do is lean into the infrastructure, the software, the solutions we built from a logistics perspective, and we launched Portless to help other brands be more sophisticated when it comes to cash flow. And now we're fortunate. We support hundreds of brands across the US, UK and Australia and some Western Europe, and we deliver goods five, six days from the from near the factory to the well in our facilities near the factory, so brand can manufacture within one to two days later, it's in our facility. They start selling. We pick back, have that order delivered to the customer's front door five to six days later, fully local experience. Brands go from a million dollars in inventory upfront to now last 250k and they're restocking on the right stuff, so they're getting cash back faster, less money in inventory. So that's what we do at Portless, and that's how I got into it.
Andrew Maff 05:06
Interesting. Okay, so you've, you've been on the show, you know that my knowledge and operations and inventory management is impressively low, but I have questions. So first thing I'm thinking about, it all makes a ton of sense, right? Like, I know we I was lucky enough to have the founder of butcherbox on the show, and his operational skill set was, it was really impressive listen to but he talked about the same problems. Of like, in the beginning, you got to order so much and then you're basically just playing catch up all the time. You're chasing your tail the whole time with the Portless solution. Makes a ton of sense. What I'm curious about is, if you're now ordering, you now need to order less quantities from your factory. Wouldn't that theoretically increase your costs on the factory side, because you're not doing as big of a bulk purchase? And then my other question being, if I can bulk ship a ton of stuff through a boat and then be able to ship it individually out of a 3PL versus leaving it overseas and then doing it from that way? Wouldn't I potentially be paying more on the individual order, because it's now coming, I assume, from a plane or something like that?
Izzy Rosenzweig 06:16
Both great questions. So let's do one at a time. First, let's talk about MOQ in general, we've seen a new shift out of China, where Brent, where factories are starting to put a premium on lower MOQ. Now, why they're doing that is because Shein has proven over the last 10 years that if you're a factory and you're willing to take bets on smaller MOQ, yes, the factory won't make as much money. But then the brand could find winners faster, and then they get once, get winners faster. Everyone wins. The brand wins, and the factory wins. So we've seen, we've seen factories go down in the apparel space. Let's say one roll of fabric, 50 units in that one roll, so you could test and not charge you much of a premium. So that's, that's one in general. It's a fundamental shift away factories looking at manufacturing. So it's called small batch manufacturing. It is the kind of evolution that Shein has invented or has perfected, and brands are leaning into it. Now, again, small batch manufacturing only works if you're filling your from your factory, because you gotta stop really quickly. The next thing is, let's say it goes up by 10% let's just say your COG goes from $5 to $5.50 now you have to have a question, okay, I'm paying 50 cents more, but what's my velocity of sales? So if you do a, you know, 10,000 upfront, but you lost, but you messed up on 30% of the average excess inventory rate. So you messed up 30% on your predictions. Now you have a 30% write off, that's, you know, $5 times 30% or whatever your inventory is, you will actually make more money on your PnL, forget about cash flow. Cash flow is amazing in this model, but you actually have net better profits by avoiding excess inventory. If it's an essential, like, if you sell this all day every day, of course, like, why not? But if it's newer, or you're not sure how the season's gonna go, last year was good. Would be good this next year, the slight cost, and it's very slight, it's not even 10% usually, but whatever that cost is, well, what's the cost of excess inventory? What's the cost of not restocking and really fast from your factory and having an inventory? That is a cost that you got to do your calculations with? So that's your first question. Should I move on to the second one?
Izzy Rosenzweig 08:09
Okay,the cost. So you're right, I want to say you're right. You're right depending on the customer. So that's why we don't service all customers. If you're in the furniture business, do boats, you're in bulky business, you know, whatever, if you could fit in a shoe box or less, think like shoes, cosmetics, clothing, all that type of stuff. The cost per flight isn't that expensive when we have many orders in a single pallet. So two things keep in mind. First thing is, we do zone skipping. What does that mean if you were using a 3PL on the West Coast? Well, if you're so LA is, let's get zone one. But you got to ship orders to New York, you got to ship orders to Chicago. You got to ship orders to Miami, Texas. You'r paying a premium. The further goes from your core location. It's called zone one through zone eight. So your shipping rates in LA might be five bucks, but your shipping to New York might be eight bucks, even if you have two locations, East Coast and West Coast, okay, you still have zone one through zone four. So first what we're doing is, when we put stuff on planes, we're going to six injection points, LA, Chicago, New York, Arizona, Texas, Miami and sometimes Atlanta, which means we're zone skipping. You're never paying more the last mile than zone one or zone two. Okay, that's great. You're saving on the last mile. How about the airplane? Well, the airplane, it's all about us blending many different orders in the single palette. And the example I give is, pretend you're in the jewelry business and you're selling a pair of earrings. How many orders of a pair of appearance, could I fit on a single pallet? A million, like 100,000 so your cost per order is pennies in that scenario, and your last mile is own. Skipping. Our shipping rates start at $5 door to door, customs clearance to the customer's front door for a quarter pound. Obviously, as it gets larger and bulkier, gets more expensive. So, that's a pair of earrings. Let's say even under $5 like $5 $4 and something and 80 something cents. But you could scale up to a T shirt. You could scale it up to a dress at a certain scale. Once you're, like an extreme example, once you're selling furniture, well, obviously not gonna fit one furniture, one pallet, but as long as you're under five pounds or fits in a shoe box, um, most likely your shipping rates will be very similar to our shipping rates, so you're almost apples to apples on the shipping rates, but now you unlock cash flow, you unlock, avoiding excess inventory, your ability to test faster. And there's one other advantage I'll talk about is connected to the tariff conversation, but I'll get into that good i love the segue
Andrew Maff 08:09
Go for it. Yeah. You're on a roll.
Narrator 10:46
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Izzy Rosenzweig 11:18
Should I jump in?
Andrew Maff 11:19
Yeah, let's go for it. That's what I'm ready to get. That's what I'm here for. So that was, that was what I was alluding to like in the past year, I'm like, Oh, great. This is gonna be perfect, because this is the tariffs 101, conversation I know we're about to have. And you're in China, Vietnam, let's go what's happened in the past year?
Izzy Rosenzweig 11:35
Let's go big or go home. Okay, so this is what happened when we spoke last year Dominicus existed and and everyone says, oh, American brand Shein, the only exist in this business. Because of Dominicus, I fought it forever. You could find me in every major news article, from Bloomberg to New York Times to CV. That is not correct. People use this model for the ultimate cash flow model. It is a supply chain game. It is the efficiency and agile inventory. So when inventory, when Dominicus went away, all that happened is you're paying, you're paying your import tax on it the same way you would pay import tax if you use a shipping container. We haven't lost a single customer. We're set. We are shipping the same amount of orders every single day that we did before Dominicus and after Dominicus. Yes, you're paying import tax, but import tax, let's say right now it's 30% there's 20% reciprocal, or 10% reciprocal, 20% fentanyl. Then there's section 301, and base tariffs. So you're anywhere between 30 to 50% okay, so if you are a $10 COG item, you're adding three to $5 on your retail but that $10 item, you're probably selling for some for $75 now you got to sell 79.99 again. It's inflationary. It sucks. Everyone's done it. It's not slowing down. Ecomm is pumping. At 145% tariffs. I would argue Trump was going to bankrupt the economy. He was going to bankrupt 10s of 1000s of brands. But at a 30 to 50% tariffs, people are living with that, people are scaling with it, you know. So it is working. So now the prior yes, Dominicus is gone for everybody. Everyone's got a pay import tax side, side note, not Vietnam. We'll put that to the side for a minute. China first. But our customers still the major financial advantage, which is, if you're a brand and you're importing a million dollars of goods, and you're doing it through the traditional way, through boats, you need to put your checkbook and write a check to the CDP for $500,000 the day it hits the ports. It's not in your warehouse yet. You haven't sold a single shoe or a single shirt. You need to write an additional $500,000 and cash to support. That's not your bank. In our model, you're not spending a penny on import duties day one. It's sitting in country of origin, sitting in China. You're not it's not in America.You don't pay import duties. You sell your shirt. Let's say you sell, in this case, the pen. You collect money from the customer. Money's in your bank at that point, we ship it. And only when that order crosses the border, you're paying import duties, so you got to pay the same 500,000 over time, but you're collecting the money up front, and that, in itself, is game changing. Sure, sure. Dominicus is gone, but you but the people that use us aren't laying out that money. They're using that money for operations, these, money for marketing, these, that money for whatever they got around their business, versus the competitors, the ones are using these, the old supply chain model, they just lost that much more money in their operations. So not only does cash flow still exist, not only does the agile inventory still exist, and not only are brands still scaling this model, but now they also have financial advantage, which is tax deferment, and that is huge.
Andrew Maff 14:36
Yeah. So are you seeing more and more like warehouses 3PLs, kind of thing popping up within China and Vietnam to start allowing for more of this to happen. And you're going to start seeing, I guess, warehouses and three PLS, start to dwindle in the States.
Izzy Rosenzweig 14:52
I don't think so. I don't think it'll dwindle. I mean, we're probably the largest one that we know in this model. We're in China, Vietnam, are opening up in India, but the US, like, to me, e-commerce is so big, there's always gonna be a local need. So I don't, I would say Canada, Mexico getting crushed. So if you were doing this model of Canada, Mexico, using it for Dominicus, that's shipping either to the US or us, because once you're in those models, like it was all about Dominicus, but Dominicus is gone. Why are you using it? Now, Dominicus is gone for China. It is still existing for every other country in the world. So if you're shipping out of our Vietnam location, you are legally allowed to import, import, duty free, as long as your transaction value is under or your retail value is under $800 so that is that's still around, and it's supposed to go away based on the big, beautiful bill, July 2027, end of June or early July 2027, there's a lot of time to use that so, so Mexico and Canada are still leveraging it for brands that are manufactured and not in China, still leveraging it like, why not? It's there. You could use it. You should use it. Yeah, so that model still existing, which is quite interesting.
Andrew Maff 16:03
What would you say is, like, the biggest myth right now? Because there's so many theories there every especially when the terrorist first started becoming thing, I swear I got some cold email every five minutes about someone who's like, here's what you got to do. And they were all different. In your opinion. What is kind of the biggest myth right now that brands are struggling with regarding the tariffs?
Izzy Rosenzweig 16:24
Yeah, I would say there was, in the early days, there were so much noise. I would say people that are, I want to call them influencers, people that will post a lot about it, but they didn't necessarily speak to trade lawyers to validate what they were posting. They were just seeing what they believe was true, versus speaking to lawyers. So it is definitely complex. It's very complex, very complex world. But I would say that the biggest myth we saw was the term transaction value. What is the definition of transaction value? So a lot of people saying, oh, transaction value. If you are shipping goods into the United States, you have to use transaction value. Well, historically, transaction value was retail value. That was when it was under Dominicus. The Dominicus rule, the import of record was the ultimate consignee. And the ultimate consignee their transaction value, because they're the import of record, was what they bought on the retail site. But in the new model, where now it's moving towards commercial entry, not under Dominicus, the merchant is the input of record, and the merchant's transaction value is not retail. The Merchant's transaction value is what they are buying it from their seller, and their seller is the factory. So it's actually FOB China. So it's not I use carefully the word Cog, I don't want to use the word COG, because COG could look at cost of goods. So it's not the raw material cost, it's the fully developed product once, and what you're paying for from the factory. The factory obviously has to make a margin and be profitable, so it's what you're buying, what is your invoice from your factory, that is transaction value. So there was a lot of misconception, and we worked with trade lawyers, and we kind of explained it many, many times, and consistently, this has been the agreed upon. So if you are shipping goods, let's say in our model, or in the other models from Vietnam or China, the transact your taxes is on your transaction value. And that is, that was a big misconception early days.
Andrew Maff 18:15
Interesting. Okay, I understand that. So last year you're on the show, and we had no idea this was going to happen. So let's now say you're back on the show next summer. What do you think we're going to be talking about? What happens between now and then?
Craig Gile 23:41
Yes!
Andrew Maff 23:42
Craig, this was awesome. I really appreciate you taking the time. I know you're super busy. It was awesome learning all about Coolmitt. I'd love to give you the floor here tell everyone where they can find out more about you, and, of course, more about Coolmitt.
Izzy Rosenzweig 18:33
Great question. I do think what's nice is we're post the chaotic side. I mean, still chaos, but I do think the way Trump approached it, the way the administration approached it, I won't say him, but maybe he's the trade leader. The trade negotiators went very extreme, very fast. One thing we think is clear is that Trump wants the economy do well. He wants a great stock market. He wants the economy to well. He wants to make money. He also wants the economy to well. Both things want to be true. He wants additional revenue, and he wants the economy to do well it to me that the path he was going on with going extreme, they say, is like his art of the deal, that he keeps playing, go really extreme, grab leverage, and then negotiate where it's somewhere in the middle. So what's nice is he's done the extreme part, which is the painful part. We're past that now. We're now to where he wants to show the market and the economy that he is a good negotiator, and he'll he'll do well for the American people in the taxpayers, which is, there will be, there will be taxes. If you look at the UK, let's call it our tier one partner. Baseline is 10% you look at China, it's at 30% you look at Vietnam, is at 20% so most likely, as long as you're not pissing him off too much, and you're doing business with them, you will see import duties anywhere between 10 to 30% I don't think it'll be higher than that, and I don't think it'll be lower than that, which now tells you, okay, we know where we live and what we you know where brands cannot make decisions. Well, do I want to go to Vietnam? Well, he just announced a Vietnam deal, and now it's a 20% additional on top of base. Okay, the spread isn't so much anywhere between China & Vietnam. It's still there, but it's not huge. So like we're seeing now, I think a lot more clear direction, and therefore brands are able to make decisions. And I do see brands starting to diversify a bit like no people have learned their lessons, not not all their eggs in one basket. Do I do on a little bit in Vietnam? Do I do a little bit in India? End of the day, the problem is that China is so robust, ecosystem when it comes to manufacturing. We don't see people moving that much, to be honest. Unless you're huge, hundreds of millions of revenue, then we're seeing diversification. But at least there's stability, and people kind of know where they live. They could price according to that stability. So I think we're in a much, much better spot. So I do think by the time next year, there will be deals made. Every country will be different. I would say those are the I think there'll be more stability compared to this year.
Andrew Maff 20:56
Yeah. And so you think we're back to kind of a the new norm, I guess, at that point?
Izzy Rosenzweig 21:02
The new norm, which is tariffs and import duties.
Andrew Maff 21:05
Yeah.
Izzy Rosenzweig 21:05
And also, I would say, over the longer run, while Dominicus still exists in United States, from Vietnam and Dominicus exist in many countries around the world, by the way, exists Australia for under 1000 Australia dollars, exist to Europe for 150 euros, and existed to the UK, under 135 GBP, directionally diminish what's going away around the around the world. The only one that is increasing, it is Argentina, the ultimate free trade guy. But everyone else is probably going to, know, get rid of it, which is fine. It's like, I mean, Europe is calling 2028 so they don't move as fast. I would say that's another, you know, trend we're saying,
Andrew Maff 21:43
Yeah, interesting. Izzy man, awesome, fantastic. I'm already looking forward to next year so we can do this again. This was great, obviously normal. Really appreciate having on the show. I'd love to give you the floor let everyone know where they can find out more about you and more about Portless.
Izzy Rosenzweig 21:59
Hey, again. Thank you so much for having me on the show. Always a blast. If you want to learn, I post a lot on LinkedIn. You can follow me @Izzy Rosenzweig on LinkedIn, feel free to send me a DM, therefore to learn more. Also@portless.com we have a ton of information, podcasts, webinars, case studies. You learn about, educate yourself about the model for us, this is our position is this is the evolution of logistics for E commerce, and either you go with that trend or your competitors will, and you'll probably take market share. So learn about it. At a minimum, learn about it. Educate yourself. And if you want to learn more, reach out to us. We'd love the opportunity to talk to you.
Andrew Maff 22:35
Izzy, thank you again, sir. Really appreciate you having the show and everyone over the Portless team, thank you as well. As usual, everyone who tuned in, thank you as well. Please make sure you do the usual thing, rate review, subscribe all that fun stuff. On whichever podcast platform you prefer, or head over to the Ecommshow.com to check out all of our previous episodes. But as usual, thank you all for joining us. See you next time, have a good one.
Narrator 22:55
Thank you for tuning in to the E comm show. Head over to ecommshow.com to subscribe on your favorite podcast platform or on the BlueTusker YouTube channel, the Ecomm Show is brought to you by BlueTusker, a full service digital marketing company specifically for E commerce sellers looking to accelerate their growth. Go to bluetuskr.com now for more information, make sure to tune in next week for another amazing episode of the E comm show!