Brett Curry sits with Jim Kennemer in this latest episode. Jim knows his stuff when it comes to tariffs, supply chain management and sourcing anything outside of China. Brett wanted to bring Jim on the pod to break down the opportunities and considerations of sourcing from Vietnam, Thailand, Indonesia, and Mexico, sharing real examples of how brands like Columbia Sportswear and Converse have legally engineered their products to slash tariff costs. From understanding country of origin rules to leveraging bonded warehouses for cash flow management, this conversation is packed with actionable insights for any brand looking to optimize their supply chain in today's volatile trade environment.

Key Takeaways

• The DDP trap that could destroy your business – Why "delivered duty paid" arrangements are legal but dangerous when suppliers falsify invoices (and why you're still liable even if it's their mistake)
• Tariff engineering strategies – How adding a simple pocket or felt liner can reclassify your products for lower tariff rates, plus when this optimization makes sense vs. when it backfires
• Vietnam vs. other manufacturing hubs – Where Vietnam excels (textiles, wood goods, furniture), what to expect for pricing and quality, and why MOQs are higher than China
• De minimis rules and bonded warehouses – How the $800 shipment exemption still works (except for China), and when custom bonded warehouses can turn a 30% tariff hit into manageable cash flow
• Country of origin compliance – The "substantial transformation" rule, why trans-shipment will get you caught with 50% more audits happening, and how to properly document manufacturing

Whether you're considering your first move away from China or optimizing an existing diversified supply chain, this episode provides the roadmap to do it right without the costly compliance mistakes that are tripping up other brands.

Chapters: 

(00:00) Join Us in NYC at Our Exclusive YouTube Event!

(01:08) Introducing Jim Kennemer 

(03:55) Supply Chain Optimization Beyond China

(06:23) Vietnam as a Manufacturing Hub: Benefits and Misconceptions

(11:40) Alternative Countries to Consider for Manufacturing

(13:30) Country of Origin Regulations and Compliance

(17:36) De Minimis and Bonded Warehouses Explained

(22:25) Tariff Engineering and Challenges

(27:16) Best Practices for Importing Goods

(31:35) The Process of Diversifying Your Supply Chain

(34:39) The Future of Manufacturing in the US

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Brett Curry:

Well, hello and welcome to another edition of the E-Commerce Evolution podcast. I'm your host, Brett Curry, CEO of OMG Commerce, and today we are talking about optimizing your supply chain outside of China. How do we think about tariffs? How do we think about supply chain optimization and what opportunities are there for us outside of China? Obviously, this is very timely and this is a topic where the game is changing on the field, daily, hourly, all of those things. So we'll try to keep the conversation pretty high level and also make this useful regardless of what the tariff news is when you decide to hit play on this. But my guest today is Jim Kennemer, and Jim is the founder managing partner of Cosmo Sourcing. I met Jim at Seller Summit in Fort Lauderdale last week, I guess it was at Steve Choose Events. Steve and Tony running a great event down there, one of my favorites. And so Jim was a speaker, I was a speaker, and he talked about tariffs and I was like, man, I got to get you on the pod because everybody's freaking out about this or at least wondering about this. And so with that, Jim, welcome to the show, man, and how's it going?

Jim Kennemer:

Hey, it's great to be here and doing great. Yeah, thanks for having me here.

Brett Curry:

It's been a whirlwind for you. You picked the right time to specialize in sourcing outside of China. I picked 10 years ago, so to you saw the future years ago when you map that out and you've had quite the couple of weeks, man, you were on stage before Lauderdale, you got quoted in the Wall Street Journal about this topic. And so tell us a little bit about that. How did you end up getting mentioned in the Wall Street Journal?

Jim Kennemer:

Yeah, Hannah reached out to me, Hannah Mao. She's the reporter for Wall Street Journal, and she obviously covers tariffs, supply chain, manufacturing and Vietnam. So yeah, reached out. She's doing a six part story actually about manufacturing Vietnam, the whole on the ground and whatnot. But yeah, we helped for the first story, she visited a couple of factories that we put her in touch with, and yeah, she interviewed the factories and featured one of them pretty prominently in their story. And then, yeah, the one I was featured in was the second of six, I believe so, yeah. But yeah, it keeps changing with the news. So

Brett Curry:

Keeps changing. We were just talking about, so we kind a casual comment the president made recently that who knows what that's going to do to the markets, but I think we're just all our tolerance level for chaos is just going to be pretty high here for the foresee

Jim Kennemer:

Future, future, be adaptable right now,

Brett Curry:

You've got to be adaptable. And so I think there's a few things we're looking at here. I just record a podcast with Andrew Ferris, who's just a legend in terms of marketing and media buying and e-comm in general. And he and I were both talking about, Hey, in times this times of uncertainty, there are always opportunities to grow actually to get better than you were before. And I think one of the things, and this is something that Andrew mentioned, one of the potential benefits or silver linings in this is going to force brands to optimize their supply chain look for better, more stable, more affordable ways to enhance their supply chain. Every point or couple of points you can save on your supply chain makes a huge, huge difference as you can make your supply chain more stable, more reliable, that makes a huge difference. You increase your quality of product, that makes a huge difference. And so it's a time to look at your supply chain. And you've been doing this a long time, Jim.

Jim Kennemer:

Oh, absolutely.

Brett Curry:

When did you first start looking outside of China and was it because you were predicting something like this could happen or was there something else that was driving that?

Jim Kennemer:

Yeah, I moved to Vietnam and started sourcing from Vietnam in 2014. At the time, everybody was sourcing from China. I just felt like saturated, there were plenty of people doing it. And then I visited Vietnam, fell in love with country, and yeah, 2014 at the time I was trying to get ahead of the transpacific partnership, which was at the time the largest free trade agreement in history. It ended up not getting ratified in the past, but I still had a lot of people reach out to me about finding manufacturers in Vietnam. And at that time, 10 years ago, 2014, it was much less developed manufacturing wise than it's today. I mean, we were doing industrial wood goods and some really kind of basic cheap stuff, to be honest at that time. But yeah, I mean there's still a demand for it. And yeah, definitely kind of saw Vietnam as being the future early and kind of got lucky in a sense, but yeah. Yeah,

Brett Curry:

Love it. You were ahead of the time and man, it has really paid off for you, especially now

Jim Kennemer:

For sure.

Brett Curry:

And so there's a few things I want to talk about. We'll talk about minimus with you. We want to talk about tariff engineering, we want to bonded warehouses. We're talk about what not to do. You really were dropping some bombs of knowledge in the talk in Fort Lauderdale that a lot of people were like, wait a minute, wait, I can't do that. Are you sure I can't do that? And you're like,

Jim Kennemer:

Yeah, for sure. Yeah, I found out some people were doing it. I never named names, but I had awkward conversations with some people. I'm like,

Brett Curry:

Yeah. They're like, wait a minute. Careful. So there's several things to talk about there, so stay at tuned for that. But I want to talk a little bit about why Vietnam, why did you go there? But more importantly, why should we consider Vietnam right now? Because as I've learned from you, and actually one of our top clients in ports from Vietnam, their product is phenomenal. Why should we consider Vietnam? And I know there are other places to consider as well, but you've got a special place in your heart for Vietnam.

Jim Kennemer:

Yeah, I mean for Vietnam mean they definitely, you have to pick what they specialize in, but what they do specialize in, they do excellent job. And two biggest categories we do are anything textile cut. And so based that ranges from clothing, apparel to bags, luggage, tool belts, our mutual client that we work with.

And then also we do a lot of wooden good and furniture. And they're definitely growing in several other industries. We're starting to do electronic more electronics, OEM, electronics, but it's definitely, I don't want to say hit and miss, but it's growing. It's probably the fastest growing industry. But when we're doing a lot more plastic ejection molding, silicon parts, we've been doing a lot of industrial metal projects, St metal goods, starting to do some car parts too. And all those industries I think are definitely growing more developed industry, but you really got to figure out what Vietnam can do and then target in on those products.

Brett Curry:

That's great. And so I think it's always important to understand, hey, what are maybe the misconceptions about a country or where are the stereotypes true or not true? So any misconceptions out there about Vietnam right now or anything you like to set the record straight on?

Jim Kennemer:

Yeah, for sure. I think a lot of people do private label manufacturing in China, which is fine. Just find a factory that makes a pre-existing products slap your logo on it and sell it, which everybody's been doing for years. But Vietnam and honestly anywhere outside of China just does not do that. So the overall, I mean, majority of what projects we do is going to be contract manufacturing where you supply the factory with your product specs, sheets and tech packs, and they'll make it to your specs, but they're not going to have existing designs on hand.

Brett Curry:

Got it.

Jim Kennemer:

Got it. That's probably the biggest one. Other one too, Alibaba. And those alternatives just aren't good or don't really exist there. So when you find factories, you can't just put an RFQ on a website, have a dozen factories come to you. You have to do your own research, really follow up with 'em and chase 'em down. I know a lot of people get turned off by that. They expect factories to be tripping over fine or work with clients, but it's not the case. And they're also higher MQs. I know a lot of people say low MQs and there are kind of boutique handmade dress factories and whatnot. They do small, but for the most part, I would say MOQs tend to be higher in Vietnam outside of China as well.

Brett Curry:

Interesting. So higher, MOQ is a little more legwork upfront. You're going to have to supply the specs, it's contract manufacturing, that sort of thing. But then what are some of the benefits? Because I know in talking to our mutual client who manufactures in Vietnam, they actually moved from the US to Vietnam a few years ago, and they said their quality went up, cut their cogs by 70%, quality went up, that sort of thing. But speak to us about how does it compare manufacturing Vietnam for the things they're good at to the rest of the world

Jim Kennemer:

For what they're good at? I think they excel because yeah, the tool belt, I'm not going to name who, but yeah, the tool belt is pretty high end. And I mean they have a pretty good, the quality they have in place is pretty good. Yeah. And then, yeah, I mean just overall, I think the quality is quite good for a lot of what they excel in. We do a lot of furniture too, and we can do some very high end custom hardwood pieces that they go for thousands, thousands for a single piece and go in literally multimillion dollar homes we're doing.

Brett Curry:

Interesting.

Jim Kennemer:

The projects in Palm, Palm Beach, Florida right now. And then another comes to home builder, custom home builder out Palm Beach. So they're doing literally 10 million plus they doing

Brett Curry:

All that in Vietnam. Yeah,

Jim Kennemer:

They're doing a lot of it, not all of it.

Brett Curry:

So m OQs are a little higher, but prices, and I know it's hard to compare prices talking about it depends on the category, depends on the good, depends on so many things. But pricing general comments on pricing, how does it compare?

Jim Kennemer:

Yeah, pricing for apparel and textiles tends to be cheaper in Vietnam than China outright. And same with wooden goods. Because Vietnam is a tropical country, there's lots of access to high quality tropical hardwoods. And with Asia Association of Southeast Asian nations, which all the Southeast Asian nations have free-trade, so it's pretty easy to move wood from one country to another. So the quality of wood you get in Vietnam is excellent. So for that is definitely one of the big things they sell on. And pricing for textiles, bags, backpacks, even shoes we consistently find is be about the same price and oftentimes cheaper than China and the price to quality ratio, like you're buying a $5 sweatshirt from Vietnam versus $5 in China, the quality is going to be higher. China does have a lot of very cheap low quality. So people are like, I can get, we were talking to clients getting t-shirts for like 83 cents in China and ours were coming in about one 30, but the one 30 shirts were decent versus very low quality t-shirts for that 83 cents. And that was as cheap as we could find, but it is definitely at the price to quality ratio.

Brett Curry:

So the cost of quality ratio is really good there, which goes a long way. So lots of opportunities in Vietnam and we'll continue to talk about that as we go and as we go through our other topics, we weave that back in. But what other countries should people think about? I know basically you specialize in anything outside of China, so what other countries should we consider and for what?

Jim Kennemer:

Yes, for sure. So yeah, we've been in Vietnam for 10 years and we've been expanding since last year to all of Southeast Asia, Mexico, and looking to expand even more this year. I mean, Southeast Asia is great. Indonesia has a lot of great factories. Thailand, we're doing a lot of higher end auto parts and appliances in Thailand, some rubber goods, some natural rubber. So pretty eco-friendly stuff. Malaysia does appliances and some really good metal furniture and Mexico too. A lot of interest in Mexico. But I will say Mexico is a little difficult to source from because they're very limited in what they could produce. Much more limited. People expect more people want Mexico work than it's suitable for.

Brett Curry:

What are those limitations and why for Mexico?

Jim Kennemer:

So we're doing a lot of stamp metal and industrial goods, some aftermarket car parts, some work wear denim, so we can do stuff like that. But we get a lot of requests for scrubs, which we do a lot of scrubs in Vietnam, and the quality is great, but then people specifically want Mexico just for the use of shipment, but it's just not a good quality scrub suppliers there. And there's definitely a few other products that people really want to get from Vietnam, or sorry, from Mexico. I really think Mexico is going to get more and more investment over the coming years just because the demand is absolutely there. It's just the supply has not caught up. And I will say a lot of new factories are getting or have Chinese backed investment to Mexico, but there's still a

Brett Curry:

Portion of it. Interesting. Makes sense, right? China's going to diversify themselves. They want to avoid the tariffs and so profit and from what they're really great. I was just manufacturing. So makes a lot of sense. One of the things that I know has caused some confusion, you talked about this during a talk at seller

Jim Kennemer:

Summit,

Brett Curry:

Is country of origin because I think there's going to be some creative things that people are going to try to do.

Jim Kennemer:

Oh, for sure.

Brett Curry:

Skirt around country of origin and stuff like that. But can you talk about that? What constitutes country of origin and what do we need to know there?

Jim Kennemer:

Yeah, I mean what's really kind of annoying is it's very broadly written in the law. Basically the law states that a new article of commerce has to emerge in the country. So it'd be, I import raw fabrics from China having made in t-shirt, that's a new article, commerce, and you actually do, so the fabric making everything in Vietnam, it's a new article. Commerce cause T-shirts fundamentally different from fabric. But yeah, I mean broadly speaking, you have to have substantial change. And I try to advise people at least 50% of value, but as long as it me as a new article of commerce is new, but you can't simply put a new label on something. If you get a mug, you can't just put your logo on it and ship it from Vietnam, from China or just add logos or change colors or

Brett Curry:

It was a mug. It is a mug. You added a logo that is not

Jim Kennemer:

The same thing with commerce. Same. And people, I've gotten a request for people to do repackaging multiple times and I either turn 'em down or nor 'em. But yeah, they think you can just have this product shipped from China, find a package supplier in Vietnam, package it in Vietnam, and then ship it to us is a new product. But it's not, the product is still fundamentally the same thing. So yeah, I mean you have to have substantial transformation of the product and generally if you get audited, you have to document it. So I mean, if you have a factory in Vietnam, you just simply have the factory write a certified letter. Yeah, we made it, here's the invoice, here's the letter we here's the factory. You can maybe even take videos of your product being made in Vietnam. That's some nice Vietnamese worker saying, yep, look, I making this.

But yeah, just document it. It'll go through fine. But if you're just like we said, doing the repackaging or pass through transshipment, it's definitely something to get caught. And they're definitely with CBP and Customs of Border Protection who enforces customs. They're doing 50% more audits now just last month more in April, 50% more in April than they were, I don't know what the timeframe, I guess probably during the Biden administration. And they're planning on increasing that more and more and they're planted here and whatnot, have contracts with CBP now and countries like Vietnam and most other countries share import data. So what's getting imported into Vietnam is getting shared with CBP, so they know what's getting shipped in and then they can hypothetically use AI or whatever to match it. So it's definitely, yeah, don't do transgender just actually make the product in the country. It's going get more about the fines are pretty steep. And once you get called

Brett Curry:

Ones, yeah,

Jim Kennemer:

Yeah. Once you get called once you're pretty much red flagged for the rest for ever. And they can look back on previous shipments too, so it's not like they get caught one time, they're only looking back at your previous shipments.

Brett Curry:

Yeah, yeah. It's just one of those things where, and I think one of the analogies you use is like, Hey, we would never cheat on our taxes. Right? Or not file our taxes or something like that. We know, dude, you don't mess. I mean, yes, I'm going to take every advantage, every deduction that I can take, but I'm not going to screw around with the IRS, right? Oh, absolutely. And CCB P is the same, maybe going to get more intense and it's going to be such a huge revenue generator for the US government tariffs that they're not going to be messing around here. And so it makes sense to do it by the book. Yes, look for advantages, but do it by the book.

Jim Kennemer:

Yeah, absolutely. You do it by the book. So make sure everything's compliant. You've got paperwork and documentation support, everything you made. Yeah, I mean they'll look at payments potentially to the factory and I mean they have as much capability, more or less than as the IRS to look at your finances and why not? Yeah, I mean Trump wants to have the external revenue service, which is, I mean as far as I'm

Brett Curry:

Concerned, basically cvp, right? I mean they're going to be connected. Yeah,

Jim Kennemer:

Absolutely. So yeah, if you don't cheat on your taxes, don't cheat on shipments, your taxes, period.

Brett Curry:

Love that. Love that comparison. I think that sets the right frame for folks. Let's talk about di minimis. This is something that's talked about a lot. It's come up a lot, but explain that for folks that are still maybe a little bit fuzzy, how has that impacted and what should we know about that?

Jim Kennemer:

Yeah, so minimis was a rule in place that basically shipments under $800 in value, would not have a tariff duty rates applied to it. Just at that point they were like $800. That tax and duty collect is going to be less than what or less than what the actual cost administrator calls to get in and figure stuff out. Was that rule's gone away for China and Hong Kong? But it's still in effect for the rest of the world. And I do want to get, the big caveat is definitely something the White House and the people in charge have talked about getting rid of some point in the future, but as of today, may probably about 10:00 AM a few hours ago, I'm checking news in a few hours, it's still in effect

Brett Curry:

Any single shipment under $800, no customs or no tariffs. There does not apply to China or Hong Kong. But right now,

Jim Kennemer:

But yeah, you can ship from Vietnam and get under that $800 value and that's each individual shipment. So you have to do, I don't know, it's a lot of people just, but there are companies like port lists and whatnot that does warehousing in Vietnam. You can ship to the warehouse in Vietnam. Each time a customer plays it order to the United States, they ship each item out to the customer. And it scripts around as of now the di minimus law, assuming your product's lightweight, but I mean there is cost. Cause when you ship each individual item versus the container, you want to have small lightweight stuff like t-shirts and small electronic items. Cause once you get large heavyweight items, let's just say flat pack furniture, the shipping cost per item to do air shipping, it's going to get

Brett Curry:

Prohibitively you worth to save on shipping costs. It's worth the 10% tariff for whatever because you're saving more on shipping. So you got to kind balance that out. Great. Well, speaking of warehouses, I know something you've talked about and I've heard a few people talk about is bonded warehouses. And so explain that and then when should we consider that versus when is that maybe not advantageous to

Jim Kennemer:

Us? Yeah, for sure. So custom responded warehouses are warehouses that are more or less connected to the port. So what you can do is you can ship a product to the port and then from the port will get shipped to the custom responded warehouse directly. And then when it leaves the warehouse, so each shipment, that's when it gets to tariff rate applied to it. So yeah, the sample I use. So that way if you have a hundred thousand container with a hundred thousand dollars worth of goods, I guess new tariff rate is 30% typically goes to port, leaves the port through customs. You pay 30,000 on tariffs on that shipment at one time before product sells. But you can ship that shipment straight to a cost of bond warehouse. And then each time a customer placed an order on a product, you get revenue from the customer and then it leaves the warehouse. So let's just say as a hundred dollars items, you pay $30 in tariffs each time the product leaves the warehouse and you get cashflow in from your customer. So there's not that one big hit, you're going to still pay tariffs, but it splits it up. So you pay the tariff as you get cashflow coming in from the clients or your customers.

Brett Curry:

Yeah, it makes a lot of sense. I know especially when tariff were 154% from China there for a hot minute, people were like, whoa, bond warehouse, I'm only going to pay that on a per item basis as much as I can. That is 30%. Maybe people are a little more flexible, but it's so nice to have that flexibility of it's there now you can absorb the hit because you got cashflow coming in from the customer. So a lot of benefits there.

Jim Kennemer:

And if you shipped it in April, like late April, early May when it's still 145%, you shifted customs on their warehouse, you can ship it out now, pay the 30% tariffs instead of paying what would've been 145%. And I know a lot of people are trying, 30% is manageable for a lot of people, so they just want to get it out and pay what they

Brett Curry:

Need to at the time. It's still painful but manageable, especially in comparison. But so the customs, modern warehouses are close to a port. I know there's some extra costs associated there too. So what do we need to consider? When would we not want to do

Jim Kennemer:

This? I mean, for the most part, I mean, just kind look at your cashflow and how you want it managed. Yeah, customs on a warehouse, they're definitely in demand right now. So they're going to be more expensive on a per square footage rate than a trip to pull warehouse. But I mean, if you're looking at the tariff rates and it's more cost advantageous where you just want to preserve your cash flow for the time being, it's definitely going to be advantageous to do. And I know a lot of people are probably shipping out of customs, modern warehouses like I mentioned earlier, just moving a traditional one and just pay the tariff now. But it gives you that flexibility to kind of adjust as the tariff rates changes. Because right now, as every day is a new announcement

Brett Curry:

Every day, a new adventure for

Jim Kennemer:

Sure, he's going to have new on

Brett Curry:

Scores of country check tariff news. It really is every day. Totally makes sense. So then let's look at tariff engineering. So tariffs, I believe we're here to stay at least for this administration, and likely beyond. Just like anything with the government though, once Democrats say they don't like tariffs, but then once they're in place, if people are okay with it, it's hard to turn away revenue. And that's true for either party. So likely

Jim Kennemer:

Tariffs.

Brett Curry:

Hearsay. Hearsay.

Jim Kennemer:

Yeah. Biden kept to 25% on China. There is administration.

Brett Curry:

Exactly. Yeah. So it's like, oh, we're pretty, well, nobody's talking about it. Let's just keep it. Yeah. So let's talk tariff engineering. How do you coach people or how do you work with your clients to engineer tariffs for the least?

Jim Kennemer:

Yeah, it a little tricky. You really have to really dive in deep on what your product is, the HTS code, and then look at similar HTS codes.

Brett Curry:

And what is the HTS code?

Jim Kennemer:

Yeah, HTS code. So HTS code for those aren't familiar, harmonized tariff schedule is the code that assigned to pretty much 17,000 different product categories. And that's going to be what the tariff rate is determined by. So there's going to be a list. So each product falls under a different HCS code. They're 10 digits. But yeah, what you do is you look at your HT S code and then look at similar ones. And then if you have a similar HCS code nearby, you can make changes to that, have a lower tariff rate. You can fundamentally change your product to get in. The example I used was Columbia Sportswear for all their shirts. They all started adding a little pocket on the inside of their shirts, credit card size pocket, I think. And the difference is the shirt has a higher tariff rate than a windbreaker. And so since it has a pocket, they can actually classify the shirts as a windbreaker

Brett Curry:

That meets the requirement for windbreaker change, the HTS code, lower tariff now.

Jim Kennemer:

Exactly. And they engineer the product to meet the requirements for a windbreaker. And I'm sure everybody has a shirt. It's nice to have a little pocket.

Brett Curry:

Nice little benefit as well.

Jim Kennemer:

Yeah. So yeah, they figure that out and they pay a lower tariff rate on their shirt shipments because of that change. And Converse did that. They put a felt in liner in their Converse all stars. Cause the slippers instead of shoes or sneakers and slippers have a lower tariff rate than sneakers. That's probably one of the most famous examples, but a lot of people are kind of just exploring similar products that can effectively sold the same just to get a different HDS code. But this is a little tricky to do because not every product, because most of the time products in the same category get text at the same array more or less. So even if you do change.

Brett Curry:

So not always a lot of opportunities here. And is this kind of going back to our IRS example, this is sort of using deductions, right? So then it's like do you fall under scrutiny here if you're getting too cute or too creative? Or is this

Jim Kennemer:

Relatively should would cause Yeah, I mean when you submit it through CVP, you're going to say, Hey, it's this HT S code and there's going to be some guy, literally somebody looking at their database, checking it, the product, the materials and whatnot. And if they say it's something different, they're like, Hey, we actually think it's this HTS code. And then there's going to be back and forth. And then ultimately there's an arbitration court more, I don't know the exact term, but I know there's basically arbitrator where more or less a judge rules on what the ultimate HS code is. Got it. We were looking at not, we didn't do the ruling, but we looked at a ruling. We were doing baby carriers for a client. It was trying to figure out which HT S code. Yeah, I mean there was a court, not court ruling, but customs ruling from 2013 said, is this HTS code, which is surprising catchall HT S code. It was all fabric baby carriers versus of course, most baby carriers dot have some sort of structure in it. Those structured baby carriers are actually tax at a different rate or classified as different than fabric.

Yeah. So I mean, you got to kind of figure that out. But ultimately though, it's going to be what the custom says the product is. And again, if you get cute, it's not as bad as fines. It's just straight up lying to 'em. But they're going to say it's the HCS code. There's going to be some

Brett Curry:

Got to, you don't have to pay the difference. Everything they correct got to difference.

Jim Kennemer:

If it gets held up, there's some demure, some storage charges too related to that.

Brett Curry:

And look, we got to design our product for a customer and it's got to meet our vision and mission and what we're trying to accomplish with the product. But it's just another one of those things where it's like, Hey, let me take a look because maybe this is easy or maybe we have the wrong HT S code, we need to switch it and it's going to work better for us. It's something that take a look at because we could have a meaningful impact.

Jim Kennemer:

A lot of small things too, like synthetic fabrics and natural fibers, fabrics are sometimes taxed differently. So you can look at just changing the fabric of your product, for instance, but

Brett Curry:

Just maybe you can change it and get better performance and now you get a lower turf. Right? Yeah. Yeah. Interesting. So let's talk about what not to do. And I know there are several caveats here. This is not legal advice. You're not an attorney, I'm not an attorney, but what are some things that we need to avoid right now? Or at least need to be very, very cautious of?

Jim Kennemer:

Yeah, for sure. Yeah, I think the first thing I mentioned was DDP and I. If I were redo that talk, I would say there's a right way to do DDP and a wrong way to do DDP.

Brett Curry:

Yeah. And what is DDP

Jim Kennemer:

Delivery duty paid? So DDP is ANCO term, which means you work with a manufacturer, they'll give you an invoice and the manufacturer will be in charge of making the product, shipping the product, paying the dues and deliveries, everything for you up until it reaches the ultimate final destination. And it's legal. It's been a thing for a while the right way. So in this case, you just basically pay the manufacturer one and they handle everything. I mean, there's a right way, and like I said, there's right way and wrong way. The right way is trust by verify your supplier, make sure you get copies of all the manufacturers, invoice the shipping, who's shipping what HCS. What they're classifying is because what's happening a lot of times, not all the time, but a lot of times is the manufacturers know that they have the lowest price they're going to go with them. So they're figuring out ways to falsify manufacturing invoice so that because what they use to the bill of lading or whatnot is what they use to calculate the tariffs on. So we can pay 145,000 or 30%, 145, I dunno, whatever it is today, 30% on 10,000, there's 20 pay 3000. But if they falsify it and say 5,000 and we pay 30% is half the tariff cost.

And so a lot of manufacturers doing that. What's happened is ultimately the person that is legally and liable for it is the importer, the person buying the product. So if you verify that everything they say is accurate, the manufacturer's invoice is accurate, the shipping bill ladings correctly listed a CS code is correct, it's fine. So no issue there, but they don't always supply that information to you. So a lot of people just turn the blind eye just accept what everything the manufacturer is saying is correct. And they have a lot of times that they have suspicious low bids. This what they're probably doing. Yeah, trust

Brett Curry:

To verify. But I think that's the piece a lot of people don't dunno is they're like, oh, no, no, no, it's my factor doing it. Right? So they're the ones are reliable,

Jim Kennemer:

The agent of record is the, or the manufacturer, and they assume, oh, since they're agent of record, they're the one legally liable and responsible. If anybody gets called, it's going to be them, but it's not the case. And yeah, I got a lot of pushback from it. I'm not going to name names, but yeah, there were people doing this and I had to explain how to do it correctly and how not to, and I was like, okay, probably gave a few people a heart attack, so I want to apologize to those people.

Brett Curry:

And again, it's just sort of one of those things where it's like, oh, well, my accountant screwed up my tax return, not my fault. I don't have to pay those taxes. Well, no, you still do. They're your taxes.

Jim Kennemer:

Oh, absolutely.

Brett Curry:

And so you got to look at it that way. Yeah, you got to absolutely verify everyth to do, basically, you've just got to look at, hey, what I'm paying per unit or total to the manufacturer, is that what they're putting on the invoice? And is that what the tariff is being charged to? And if all that looks good, then you're fine.

Jim Kennemer:

Yeah, yeah. Just trust, verify everything. Yeah. If it gets caught up as held, gets red flagged by customs, they're going ask for documentation, ask you more or less. And if you don't have that, you're just, I know, I just thought they would do a good job. It's not going fly. They expect

Brett Curry:

You to. Yeah, and I think you mentioned this too, then once something is flagged for you, probably future orders, they're going to be paying attention you, you're going to be scrutinized from there

Jim Kennemer:

On. And again, they can look back on passion ship too. And if they find you were doing that on passionist, then you can also get paid fines for pass shipment. So just know how to do it correctly. Yeah, work with customers, brokers, make sure everything goes through smoothly. Yeah, I always mean just for me, I always recommend FOB have your own freight forwarder and then they'll have a custom broker and they'll handle everything and tell you what to do and give you advice for the shipment and all that. But

Brett Curry:

I never, what does FOB

Jim Kennemer:

Free on board? So it means the manufacturer's responsible for having the product shipped to the port and the country of origin, and then the freight forward will pick over at the port.

Brett Curry:

Got it. Got it. Okay. Well, let's talk about you specialize in helping people diversify their supply chain or re-engineer their supply chain. And you're looking at outside of China, who should reach out to you? I know everybody's kind of scrambling and looking just because of the chaos lately, but who should reach out to you and what are some of the things they should be considering as they're looking at diversifying their supply chain? Are you mostly helping people fully shift their manufacturing to the countries? Are you looking at, hey, let's diversify, let's have these things made here and these things made here. Walk me through

Jim Kennemer:

That. Yeah, I mean, the majority of our clients tend to shift. The majority of clients tend have a couple key products, but yeah, they're shifting for the most part, all their manufacturing to Vietnam. But yeah, we work with a lot of clients who have dozens of different product categories, and we're just, for those clients, we're going through their list saying, Hey, these three, four categories we can definitely do in Vietnam. These two are maybe, and these probably can't do in Vietnam. And then we're shifting some of the supply chain. A lot of our bigger clients, like our eight bigger plus clients, they have the means to be more diversified. So they're keeping their suppliers in China for the time being and then placing new orders with factories in Vietnam just for the time being. But I mean, for the most part, yeah, we're just ultimately shifting a lot of clients down to Vietnam, completely and interesting. A lot of people, their supply chains, but they've been buying from China, so they'll keep 'em for future orders potentially if things change. But for the most part, I think a lot of people are moving permanently to Vietnam or permanently away

Brett Curry:

From China. What does the process look like? So I've now decided I'm going to start shifting my manufacturing. Some were all from China to Vietnam or one of the other countries you work with. What is that process like? How much time are we talking here? Is this a six month plan, an 18 month plan? What does that look

Jim Kennemer:

Like? Yeah, it's definitely is ballpark six months. Do you actually get your first order in hand? Yeah, once you kind of reach out to us, we'll let you know if the product can be made in Vietnam or not. But once we get that point, our team will go out, research suppliers verify, and that we've worked on, we've probably placed orders with a few hundred factories already in Vietnam. So we have pretty good working relationship on pretty good idea what they can and can't do. But yeah, once we get that, we'll get quotes for our clients, do direct introductions to the clients and the manufacturers. So everything we do is transparent in that way. And then, yeah, once they do that, obviously there's samples to be made, make sure they can make the product. Exactly. And then purchase order. So yeah, you're looking at about four weeks, actually get the quotes verified that the suppliers make sure everything's in line with your expectations a couple weeks per each surrounded samples. And then purchase order, which place purchase order lead times tends to be about 30, 45 days for most products. Got it. Yeah. I mean then shipping. And so realistically, you're looking at actually having the product in hand from Vietnam in about five to seven months once you actually start a project.

Brett Curry:

Got it. Got it. That actually does not sound too bad. I mean, that still seems very reasonable. Very cool. So what are you hearing? I'm just curious if you have a perspective, how's the US going to play a part manufacturing in the us? Is this going to, are you seeing that there's going to be a lot more investment in US manufacturing? Think that's something you guys will eventually help with?

Jim Kennemer:

Yeah.

Brett Curry:

Is that just definitely a lot of things expand.

Jim Kennemer:

Yeah, I mean, our ultimate goal is we want to find the best buyers for our clients no matter where they are. And you got to have expertise in each country of origin. But I'm American, so obviously I want to find some great suppliers in America. So actually, if any Eric Manufacturers are listening to this, please feel free to reach out to me. I want to

Brett Curry:

Our database. Yeah, reach gym man. He's connecting people.

Jim Kennemer:

Yeah, I know. Yeah. I mean, we looked to a captain woodworker manufacturer literally last night, and I really have a couple projects that I'm willing to recommend to him and get quotes as well. So I think it is going to be a good time to look at American manufacturers, but it's still very limited because what most people need is contract manufacturers. Ones you can reach out to with a tech pack and RFQ and then actually quote and make it, well, most manufacturers in the United States tend to work for brands like there's auto power manufacturing, flashing injection warning, but they're set up by a client to make it for those specific things. So there's not as much, even though there's a lot of manufacturers, not as much contract manufacturing in

Brett Curry:

Place, they're manufacturing for a specific, it's manufacturing spun up by a specific brand and needs type of thing.

Jim Kennemer:

Yeah,

Brett Curry:

It makes sense.

Jim Kennemer:

And I mean, people are setting up too. I know of a laundry sheets manufacturer, they are buying from all over. They just weren't happy with the quality. Started looking into what it would take to actually build a manufacturer for laundry sheets, and they did it themselves. I know they sell eco-friendly laundry sheets made out of North Carolina. So yeah, people are doing that.

Brett Curry:

Is that true Earth? Or you may not be able to say who the company is, but we used to work with True Earth, which was fun, but yeah.

Jim Kennemer:

Oh man, actually name it might be.

Brett Curry:

Yeah, no worries. But yeah, this is one of those things. I know we were talking about simple, modern, I was talking about that on another podcast, one of the founders there, and they're manufacturing some of their stuff now in Oklahoma where they're based, they still get most of their products from China, but they're manufacturing a lot in Oklahoma now. There's some benefits, right to speed and cash flow and m OQs if you're manufacturing here and things like that. So yeah, unit costs could be higher in the us, but maybe it's more cashflow beneficial to you to manufacture

Jim Kennemer:

Here. With manufacturing, everything's getting more and more automated too. So a lot of stuff like flexion injection molding is more or less just get a mold, a machinery, one guy knows how to program it.

Brett Curry:

Yeah, yeah. Pressing buttons at that point, right? I know. Yeah, totally makes sense. Well, Jim, this has been fantastic. This is one of those things where I'm glad now that people are getting serious about their supply chain. I think anytime you can find margin in your cost of goods, that opens up opportunity for you to grow and has been more and marketing or just to profit more, and so painful time. But I think the best operators are going to come out ahead during this. And so Jim, for those that are looking at moving outside of China, how can they contact you and Cosmo sourcing?

Jim Kennemer:

Yeah, so yeah, you send to my direct email, which is jim@cosmosourcing.com. You can get the spelling back there, sander. And our website is cosmo sourcing.com or just Google Cosmo sourcing. We come up first. Yeah.

Brett Curry:

Awesome. I'll link to everything in the show notes as well. But if you've got questions, chip is a really smart guy, good guy, knows what he's doing. He's worked with some of my clients, people that I know trust him and so do I. And so reach out to Jim if you have questions with that, Jim, good luck to you. Congrats on your amazing timing and predicting the future that one day there'll be massive tariffs on China or we want to be moving out. So

Jim Kennemer:

Absolutely,

Brett Curry:

Kudos to you on that and keep doing good work.

Jim Kennemer:

Great. Thank you. It's a pleasure being here.

Brett Curry:

Awesome. And thank you for tuning in as always. We'd love to hear from you. What would you like to hear more of on the podcast if you have not done so? We'd love that review on iTunes. Share this podcast with someone that you think would enjoy it or benefit from it. Somebody that's thinking about what do I do with my supply chain or my manufacturing share with them this episode. And with that, until next time, thank you for listening.

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