Utilizing Section 321 to Save Millions of Dollars a Year Importing Products With Bobby from Baja

Tune in to the podcast here as Nathan Resnick talks to Bobby Armijo of Baja Fulfillment. See Baja Fulfillment in this article from msn.com for reference.

Nathan Resnick:

Hey, what’s going on? It’s Nathan Resnick with Product Sourcing Stories brought to you by Sourcify. Today we have one of my favorite founders that is really supporting e-commerce companies with their fulfillment and helping them really avoid duties and tariffs. We’ve got Bobby on from Baja Fulfillment. Bobby, thanks for joining us.

Bobby:

Thanks so much, Nathan, for having me. I appreciate it.

Nathan Resnick:

Oh, man. I really appreciate you coming on. And Baja Fulfillment is one of those unique services that so many people need to hear about, and that’s why I was so excited to have you on Product Sourcing Stories today. So I guess I want to dive in just heads first, give us a rundown on what makes Baja Fulfillment unique from a traditional 3PL?

Bobby:

Yeah, so first and foremost, Baja fulfillment is in Mexico, that’s one unique aspect. But the funny thing is you can see I’m actually in a downtown area, I’m in downtown San Diego. And our facility is in Tecate, which is about 30 minutes from where I live here at San Diego. So even though we are an international fulfillment company or cross-border fulfillment, we are literally closer … It takes me longer to get to Northern San Diego than it does to Tecate.

Nathan Resnick:

Right.

Bobby:

So proximity for us, is very close. We also have a facility on the San Diego side about 70,000 square feet. But I think the obvious is the savings on duties and tariffs from China and some other countries, but China specifically. We help e-commerce companies direct-to-consumer save on those duties and tariffs in a major, major way.

Nathan Resnick:

That’s amazing. So a lot of people that are listening probably haven’t even heard of Section 321 which is the law that’s been passed by Congress and has been around for, I think, decades, at least 20 years. And it enables items that are shipped into America that are valued at under $800 to bypass duties and tariffs. And so for any e-commerce company that is going in and importing products, typically when their products land at the port of Long Beach or wherever it may be, they have to pay pretty hefty duty fees and tariffs fees.

Nathan Resnick:

So, I guess walk us through the process. When people work with Baja Fulfillment, walk us through, I guess, the legal side of Section 321, and then also the fulfillment side of how do you actually get products to your warehouse and then how do you get them to a customer’s door?

Bobby:

Yeah, for sure. Yeah, Section 321 has been around for a long time. It only recently, as of 2016, got raised. So it used to be a $200 diminimous value, so that was the maximum you could bring in, but now it’s 800. And so $800 per person per day is allowed to be brought into the US without having to declare it and pay a duty.

Bobby:

So typically a 3PL, let’s say a domestic one, your old 3PL in the US, you’re an e-commerce company and you bring a container from China. When that container hits the port in the US you got to pay duties at that time. A truck picks that container up, brings it to your 3PL, they receive that container. And then as the orders come in on a daily basis, they are picked and packed and sent out to your customers, direct-to-consumer, pretty simple process. That’s what’s happening today for most people.

Bobby:

For us, how we get around that and avoid the duties and tariffs, is you still keep the same supply chain, whether you have Sourcify taking care of your sourcing needs in China, the supply chain on that side still stays the same. That container comes to the port in the US, to Long Beach, except now we don’t clear customs. Now you don’t actually declare at the port. We pick it up with our carrier and it’s a bonded carrier, so your containers in bond. Taken through the US, into Mexico underneath our Maquiladora license, which allows us to avoid the duties going into Mexico, brought to our facility in Tecate. And we receive your container, put them in the racks and bins, just like you would a regular 3PL.

Bobby:

And as your orders come in, we pick and pack those orders that day. We label them with the carrier for the US carrier, and put them on a truck, bring them back across the border. But because it’s now in individual packages or individual orders, it’s below that threshold, that $800 threshold per order. And so when it goes back into the US, you are now underneath that diminimous value, and we drop directly off of at the carriers, USPS, UPS, FedEx, so on and so forth. So that’s the high level of how the difference really is not much other than using a facility outside the US.

Nathan Resnick:

Right. I mean, it’s incredible. I think utilizing Section 321 is honestly probably the uncovered or hidden gem of e-commerce. So many brands that are paying hundreds of thousands of dollars in tariffs a year don’t know about Section 321 and don’t know about the benefits.

Nathan Resnick:

And so I think the options that are provided and the fulfillment that’s provided through Baja Fulfillment, I mean, it’s pretty much the same experience from a customer perspective as if you were fulfilling your products from San Diego, you’re just warehousing in Mexico and shipping from San Diego. Because the couriers of UPS, USPS, you’re dropping them off at locations in San Diego. So when it arrives at a customer’s doorstep, it seems like it’s shipped from San Diego, right?

Bobby:

Yes. So the label on the package says, “Shipped from San Diego.”

Nathan Resnick:

Got it.

Bobby:

So [crosstalk 00:05:29] get also sent through San Diego.

Nathan Resnick:

Got it.

Bobby:

From a customer experience, there’s no change to them.

Nathan Resnick:

That’s amazing.

Bobby:

And we do same-day SLA as well. So our packages are sent out the same day, so there really is no disruption to you or your brand.

Nathan Resnick:

Wow, that’s amazing. What is that cutoff time? I’m curious, let’s say an order comes in at 5:00 PM Pacific, I would assume it goes out the next morning. Is there a cutoff time that you guys work with?

Bobby:

Yeah, we aim obviously to try to get it as late as possible that day, but we do a 1:00 PM Eastern cutoff for that same-day shipments.

Nathan Resnick:

Got it.

Bobby:

Not same-day pick and pack-

Nathan Resnick:

Right.

Bobby:

… but actually [crosstalk 00:06:08] the carrier that day.

Nathan Resnick:

Wow, that’s amazing. That’s incredible. So what kind of products do you typically like to work with?

Bobby:

Yeah, you mentioned some companies can save hundreds of thousands a year in duties and tariffs. We actually have been able to save millions of dollars for some companies.

Nathan Resnick:

Wow.

Bobby:

And so it is the one thing you can do in your supply chain that will make a massive, massive hit to your bottom line. And you can actually convert that to top line, because you can then take those savings and buy more product on the staff expansion. So I just feel that if you’re saving 80% of your duty bill, that is something you can do overnight. Some people look at it like changing 3PLs is a big challenge, but we are obviously trying to make that seamless.

Bobby:

But you can’t go to your factories and you can’t go to Sourcify and say, “Nathan, I need 80% off of my cost of goods.” [crosstalk 00:07:07].

Nathan Resnick:

Yeah.

Bobby:

So where in your supply chain can you make a change so instantly and have such a big difference in revenue.

Nathan Resnick:

Right.

Bobby:

Especially your gross revenue, or your [crosstalk 00:07:17], excuse me.

Nathan Resnick:

Right.

Bobby:

And so that is, I think, one of the biggest game-changers that people should look at, instead of trying to save a nickel on this or two cents there. Of course product category is going to be a factor. So those companies saving millions a year are going to be apparel brands.

Nathan Resnick:

Got it.

Bobby:

Anything apparel is going to have a huge duty. Bags, luggage, some electronics categories, shoes is a big one. These are companies that pay a huge duty, and I want to be very specific to that. The duties have always been around or for decades.

Nathan Resnick:

Right.

Bobby:

The new Trump tariffs, the punitive tariffs, the additional, those are going to be on most categories. But there are some companies that, like I said, the apparel world, they’re used to paying 36% for a type of material.

Nathan Resnick:

Right.

Bobby:

Both will probably never go away. So it’s one thing if the tariffs go away, but the duties will always be there.

Nathan Resnick:

Got it.

Bobby:

And so those companies that … I always use brands like Lululemon, Nike, because they use that [inaudible 00:08:23] material. Anything athleisure, I mean, they’re getting absolutely killed. That’s why you see a lot of popular brands moving to Mexico already.

Nathan Resnick:

Totally.

Bobby:

But anyone not taking advantage of that is leaving in, like I said, some cases millions of dollars in [crosstalk 00:08:39] on the table.

Nathan Resnick:

Right, right.

Bobby:

And if they’re not doing it, their competition definitely is.

Nathan Resnick:

Yeah. Makes a lot of sense. Yeah, I’m curious, I mean, I don’t want to get too political here, but you mentioned obviously Trump’s increase in tariffs over the past two, three years while he’s been in office., Do you think that the tariffs that he put in place are going to stay? Do you think the Biden administration will change that? I mean, what do you think the future of tariffs from China looks like?

Bobby:

Yeah, there’s a Section of … Technically it’s called 301, so the additional tariffs is Section 301. 321 is for the regular, what we were discussing, but there is discussion of not allowing the 301 to qualify for Section 321.

Nathan Resnick:

Got it.

Bobby:

There’s discussion about that. However, Biden has come out, and I just sent the article to a recent customer or potential client I should say, about Biden being quoted in the media recently saying he is no rush to get the Chinese tariffs off the table, because right now that’s our only bargaining chip as a country. So very specifically I’m talking about the additional punitive tariffs, the 301s.

Nathan Resnick:

Roght, got it.

Bobby:

Anything normal, again, that 36% for clothing and 20% for shoes or 18%, that’s always going to be there.

Nathan Resnick:

Got it. Makes sense.

Bobby:

So yeah, that’s what [crosstalk 00:09:58] now.

Nathan Resnick:

Makes sense. So a lot of people probably are a bit skeptical of maybe the security in Mexico and all of that. I mean, can you walk us through your facility? I mean, is it secure, how big is it? I mean, any kind of details you can share on the warehouse?

Bobby:

Yeah. We just took over another 90,000 square feet, so we have a total of 300,000 square feet in Mexico. It’s in a business park that would resemble anything in LA or Irvine. Again, I live in San Diego, so I’ve been to many 3PLs around Southern California. It looks the same. It’s obviously secured. We have everything from temperature controlled areas to security cameras, security staff. The police also patrol the area. And Tecate is a tiny town, and you’ve been to Tecate before.

Nathan Resnick:

Yeah.

Bobby:

It’s just a little quiet town. It’s [crosstalk 00:10:48]-

Nathan Resnick:

Yeah, I’ve actually visited Baja Fulfillment, it was amazing. We had a great experience and had great tacos as well. I mean, that was amazing.

Bobby:

Absolutely. But it’s not like Tijuana. For those that don’t know about Mexico or haven’t been across the border. For us in San Diego, it’s 20 minutes down the road. And so Tijuana is a different vibe, for sure. I’m not saying 3PLs in Tijuana are dangerous, but if you go to Tecate you’ll see it’s a small, tiny town that is just a quaint little space.

Nathan Resnick:

Totally.

Bobby:

And so for us, we’re in a huge business park. Taylor Guitars is our neighbor. And so it gives you an idea of like how safe they feel with their product down there. And we fulfill for some very large brands and we’re very proud of that.

Nathan Resnick:

Yeah, that’s amazing. So I’m curious, when someone is going through the process of transitioning to Baja Fulfillment, or let’s say any 3PL in general, I mean, what does that process look like? They have containers coming in. Maybe let’s say they’re warehousing and working with another 3PL right now. How hard is it to make the transition?

Bobby:

Yeah, so obviously preparation is key. Our onboarding team, I think, would rival any other company out there just because we want it to be a seamless transition. And when you bring goods into Mexico, there’s a process. So we have a team that helps with that onboarding process, making sure that everything is dialed in.

Bobby:

We typically do either two different ways. There’s one way of, we move all your inventory from your existing 3PL and we can make that happen. Or in other words, we can do an inventory move of what you have, whether it’s half of it. And we let you dial yours down, and then we have the other half, we turn it on and flip the switch, we move all of it. Or the third part is we move none of it and we just take all your new inbound.

Bobby:

And so there’s three different ways, I guess, that we could do this and it just depends on the customer. So it just really depends on where they are, whether [crosstalk 00:12:48].

Nathan Resnick:

Yeah, and just to clarify too, if someone already has inventory in the States that is at a 3PL, most of the time they’ve already paid duties on that. So they’re not necessarily saving on duties when they move it from America to Mexico. But if they’re importing new containers and obviously bringing it into Baja Fulfillment, that’s when they’re really seeing those savings?

Bobby:

Yeah, we’ll redirect new inbound containers usually when we bring a client on, even if we’re not going to do an inventory move of what they currently have.

Nathan Resnick:

Got it.

Bobby:

[crosstalk 00:13:18] what the savings like right now.

Nathan Resnick:

Okay.

Bobby:

Why mess that up.

Nathan Resnick:

Totally.

Bobby:

Another the question I get is about is Fulfilled by Amazon, FBA. We still can do FBA for the clients, we can’t save any duties on that.

Nathan Resnick:

Got it.

Bobby:

It’s goin to have to be for direct-to-consumer through your channel, or fulfilled by a merchant we can do, but not FBA. But we do still handle all the FBA prep and we house it still in Mexico, but it’s just one of those things that we haven’t figured that part out yet. Amazon’s not exactly letting us do that.

Nathan Resnick:

Yeah.

Bobby:

So yeah, that’s a big question we get obviously, because Amazon is such a big [crosstalk 00:13:55].

Nathan Resnick:

Got it, got it. Yeah, I want to talk … Just speaking of Amazon, what do you think the future of e-commerce really looks like in terms of the divide between e-commerce companies that are selling on Amazon and that’s their main channel, they’re fulfilled by Amazon, as you mentioned. Or they’re going direct to their own customers via Shopify or their own e-commerce platform. I mean, what do you see as that split, and do you see that split continuing to become more separated? Or do you think more brands that are selling an Amazon will start selling on their own channels and vice versa?

Bobby:

The way I see it, at least the brands that I speak to, it’s all about obviously brand recognition, but also the experience, the culture, the community. And so I don’t think you’d get that with Amazon obviously, and so I think some companies are trying to get away from that, that I’ve noticed.

Bobby:

Obviously you can scale pretty fast with Amazon, but I think that at the end of the day, it’s expensive to do that with Amazon, FBA. And for us, because we can save on the duties and savings … Or excuse me, the duties and tariffs, those savings, you can take that money that you would have made more on volume, now you’re making more on a per transaction basis. And then you’re able to reinvest that, whether again, it’s ad spend, acquiring customer acquisition, et cetera. It’s just one of those interesting things that I think it’s just going to depend on the company.

Nathan Resnick:

Totally.

Bobby:

But I think with COVID, you had such a push for e-commerce that we have never seen numbers before obviously. And so I think that we’ll see what happens, but there’s going to be obviously a huge explosion, I think, in the next … It was already headed that direction as we both know-

Nathan Resnick:

Totally.

Bobby:

… but it just got sped up really fast because of COVID.

Nathan Resnick:

Yeah. Definitely, definitely. So I want to ask you two final questions here as we wrap up. Number one, who’s an ideal type of customer for Baja Fulfillment? And then number two is, how can people get in touch, where can they find you?

Bobby:

Yeah, sure. So, obviously I think the best thing to do is look at your numbers as a company and say, “Hey, we are paying a lot of duties and tariffs.” And if you are, you’re a good fit for us. We happen to do really well with the apparel brands, not that we want to, because that means there’s a lot of skews. We love the fact that if the company has lower amount of skews, it makes our life a little easier. But we happen to be really good with apparel and like I said, it happens to be also a really high duty item. But lower skew count would be ideal, obviously a good volume, direct-to-consumer.

Bobby:

Oh, one more thing I want to add is the integration side. For integration, I know that’s a big question mark for a lot of companies too. For integration for us, we do have a custom hub that plugs in. But integration wise, we obviously got to make sure that’s a fit. And the way to get ahold of me is very simple, bobby@bajafulfillment.com, and that’s my email. And I’m one of the two partners in the company and you’re looking at the sales guy, so [crosstalk 00:17:00].

Nathan Resnick:

Awesome, awesome. Well, Bobby, appreciate you coming on Product Sourcing Stories. This was fantastic. And for anyone that’s paying a lot in duties, I seriously recommend you check out Baja Fulfillment. I mean, I’ve personally seen them save millions of dollars for Sourcify customers when it comes to duties and tariffs and provide a great fulfillment experience. So Bobby, thanks again for joining us on Product Sourcing Stories.

Bobby:

Thanks so much, Nathan. I appreciate it.