[00:00:05.460] Hi, David. Hi, Charles. How are you?

[00:00:07.320] Hey, it’s the end of the week. How could I not be happy? End of the week.

[00:00:10.290] End of a gorgeous week. Gorgeous week. Always delivers.

[00:00:13.930] September in Montreal. You always get that two weeks of pure dry sunshine. A full month. Almost a full month. Almost a full month. Good. Although, heard rains on the way, so you won’t be getting your full month. Anyway. So it’s behind the headlines? Yes. The most anticipated. Massive research department that we’ve staffed up for these behind the headlines because so many people love these.

[00:00:45.710] So much show that what is proposed, there’s too much to choose from.

[00:00:50.020] Too much. So maybe we’ll cut the staff down so we get less choice. But even last night, I was at dinner, and the dinner conversation turned to the last behind the headlines. Oh, very nice. There are people- Amazon, Walmart. Yeah. People watch. It’s crazy. They watch right before they have dinner with me. So they can pretend they’re watching. Okay, So we got two hot articles. First one is the real one, the real one, which is the Biden administration in the United States proposing or announcing, I not quite sure, their intention to eliminate a loophole in parcel shipping and the e-commerce world, which is the de minimis duty free allowances that American consumers have.

[00:01:50.110] Yeah, which dates from the 1930s.

[00:01:53.000] Yeah. And I think it’s really important for everyone to understand what this means. So As Montrealers, we are blessed with having shopping malls in Platzberg, New York, and Burlington, Vermont. Well, Platzberg is about 45, and Burlington is about an hour and a half away. A perfect day trip. And in the old days, cross-border shopping was quite a hot thing. You’d go down, you’d raid Macy’s or whatever.

[00:02:26.150] Outlets.

[00:02:26.950] And you’d return. But there was There’s a limit to how much you’re allowed to return without paying duties and customs. And typically, you had to stay 24 hours to get any allowance and then 48 hours to get your full big, juicy custom and duty free amount. That’s the de minimis. And the US and American citizens have the same opportunities when they go and leave the country to shop or as they’re touring, to come back with goods up to, I think it’s $800. And if whatever they buy, if it’s under $800 for however long they go, two minutes or two weeks, they can- Bring it back. 799.99. They can bring back duty free, custom free. And the e-commerce world, the supply chain planners got really sparked and realized, in effect, this is like a tax loophole, right? So that if you or me go on to a website and want to buy something from Finland or Australia, We could order it and it can get shipped directly to our house. And if it’s under that $800, no duties, no taxes. And two companies, I know you’re very active on social media. Have you heard of I should not wave to people as they’re leaving halfway through the show?

[00:04:09.200] And they should know, especially when they’re in the marketing department, they should know not to turn and wave to us as we’re leaving. Anyway. Yeah, so…

[00:04:17.720] Those two companies.

[00:04:18.990] Timu and Shine. Sheen. Sheen. Sorry. Sorry. Shein. I’m not sure. From China, where they’re selling things like crop tops for $3, jeans for $11, insane prices that they can ship duty free to your house. And obviously, it is very hard to resist an $11 pair of jeans, right?

[00:04:45.800] Unless you’re sensitive to your carbon footprint.

[00:04:48.630] Well, that’s true. I was very sad. I only find out about these $11 jeans after it’s being announced that there’s a big clamp down. Anyway, this is really interesting to me.

[00:05:01.570] Go ahead. And to explain how this Sheen and Timo are capable of doing this or it should be, because ultimately there’s no distribution center set within the market, well, named in the North America that stores the inventory to ship it.

[00:05:19.780] If they brought those jeans in, then they would pay duty, they would pick customs, and they’d have to have all the costs associated with an infrastructure United States.

[00:05:30.770] Yeah, because if you ship to individuals, those are all individual orders. If you bring it into the country to then ship orders, well, that merchandise is coming in is not perceived… Well, the value of it is obviously way more than 800. That’s why the duty in taxes would be applied.

[00:05:48.630] Well, this clamp down on the de minimis loophole, if you want to call it a loophole, is going to have massive repercussions for all sorts of areas of the supply chain. Not all sorts of areas, but geographic areas in the supply chain. We know, because we’re both fairly active, Lid is fairly active in Mexico. We know that Tijuana, as an example, has hundreds of thousands, if not millions of square feet of warehouses that are dedicated to taking advantage of this de Minimus law. And this is American retailers moving their product into Mexico in order to ship- Save cost. Right. It’s a labor cost. It’s a land cost. It’s a cost play. And we know that there are American retailers who, when they have a presence in Canada, they think the same way. Tijuana is one place, but Tijuana puts you at the bottom left. If I’m looking at the map here at the bottom left corner the United States. And yes, there’s a great population base in California, but realistically, that’s 10 %, 20 % of the population. Everybody’s very far from there. Now, if I put my facility in Toronto, in the Toronto area, I’m still getting a labor cost, a wage differential.

[00:07:22.710] On the currency exchange.

[00:07:24.400] On the exchange rate, right? And now I’m buried deep inside the North American marketplace, and I can ship quite efficiently, relatively speaking. So this clamp down, while it is obvious Obviously, attempting to surgically affect the Chinese businesses that are grossly escaping this loophole or building their whole businesses on this loophole. It’s going to affect the decisions that the supply chains of North America are going to make themselves without this de minimis opportunity.

[00:08:11.520] But you say the North American business because we could address those businesses, Shane and Thimu, but you’re saying also the supply chain, the business. Can you elaborate?

[00:08:23.390] Well, David, we’ve had conversations at Lid with with retail, North American-based retailers, global in scale, some of them, who, when they’re thinking about their Canadian supply chain, are asking themselves, well, if I’m going to renew my Canadian infrastructure and put a large facility and put a large amount of capital into the greater Toronto area, and I’m going to have a Canadian e-commerce operation anyway, why not greatly expand grant that operation and run my entire North American e-commerce operation there because the de minimis loophole allows me to? So that’s an example. Where you say that’s a decision that you hope you haven’t broken ground on because it is with the stroke of a pen, as they say, the administration in the United States could just take that opportunity away.

[00:09:29.770] Yeah. Yeah, I didn’t even think of this because then… Yeah, it is interesting. Because then if we go back to the businesses, those two large e-com- Thimu and Sheen. Sheen. Well, then they have a couple of… Well, so first of all, they would lose that advantage on costs, right? To attract purchases from here with an ultra-low cost approach. So The two options is, well, you have to then build a new… Not new. You need to adapt your supply chain to put that infrastructure, to have access to the market, build that infrastructure in North America or near the market.

[00:10:14.410] And pay duties.

[00:10:15.550] Yeah. So it’s actually twofold, the duties themselves plus the capital to put your infrastructure in place, which is obviously then you lose your ultra-low cost advantage and you You have to align more with the Amazon, or you abandon the market, which, and I’m no expert there, but I would tend to think that this is not something they want to do.

[00:10:41.940] I don’t know. Yeah. It does become very hard when you already have this Amazon beast, which has that infrastructure built, already has plans to do this bargain retail segment to react to Timo and Sheen. And then you say, okay, Timo and Sheen, And then you say, Okay, T-Munchin, what chances would you have? You have a competitor who will spend whatever money it takes to squash you as soon as you set that up. I don’t know. Maybe abandoning the market isn’t the worst decision. Isn’t the worst?

[00:11:14.940] Because then setting your infrastructure up here in North America, then you gain that advantage of time. What Amazon has is the same day or next day delivery, which these companies don’t have. So then you say, Oh, well, then I’ll be able to do this. But then to achieve what Amazon has been capable of over the last, whatever, 20, 30 years is not easily done. So, yeah, abandoning the market may not- Hey, I can think of, well, Target and Nordstrom’s for sure, and Walmart, not in Canada for Walmart.

[00:11:53.860] But these are all companies that are very successful, that have gone into markets, ultimately to abandon them. And sometimes it’s good to know when you’re going to win, lick your wounds, come back to compete another day.

[00:12:10.440] Well, to be continued. To be continued.

[00:12:13.680] And then the second topic, and this one is maybe not quite as burning in terms of its impact on the supply chain. But we do think it’s fun. There’s a lot of articles surfacing on Ozempic, the miracle drug, that apparently I’ve read now, it’s like blood pressure, heart disease. It’s a miracle drug.

[00:12:38.980] Miracle drug with unknown long term effect. That’s the part.

[00:12:43.430] Sure. But it is working. And it is in effect, as I understand it, it is a naturally produced chemical in your own body. I know you will worry about the long term, but they always say worry about the long term effects. Are you worried about the cell phones? Do you think cell phones give you brain cancer?

[00:13:01.200] Well, I don’t think about it.

[00:13:02.700] When you do?

[00:13:04.380] No, I don’t think about it.

[00:13:05.210] I don’t either. What about the wireless waves going through you? So far, so good. What about the chemtrails that leave the airplanes? Remember the lead singer from Smashing Pumpkins tells us that’s taking years off our life. I don’t remember that. Oh, well, you’ll YouTube it. You’ll see he’s got hours of chemtrail. I like his music. Just because you write a good song doesn’t mean you can’t be a lunatic. Phil Specter invented the Wall of Sound and ended up shooting his wife. Exactly. But back to the Ozempic. And the funniest, I think, thing. I think everyone who is looking below the microphone can see I’m not on Ozempic yet. But this whole idea that the major food companies and food retailers are starting to worry that sales are going to drop as the average caloric intake per capita drops, thanks to the widespread use of Ozempic. What do you think of that?

[00:14:09.690] Look, what I think, as you said, it’s the lighter article. But I can understand that the drug itself is having such an impact that businesses that operate on the supply chain, from a marketing perspective, are going to try to to adapt and attract a new type of consumer, I guess. I don’t know if it’s not the right term to say a new type, but a one that must adapt their portion and type of food that they eat along with the drug that they take. Yes, we’ll see. Either the product that are being produced. Well, actually, the thing that… Because I wrote a note here, and what makes me laugh is, you know the brand Hungary Man? It’s like a frozen dinner, and it’s actually called Hungary Man.

[00:15:08.580] It’s huge. It’s a giant frozen dinner that barely fits into the microwave.

[00:15:12.270] Yeah, and that market. So now this is the complete opposite, right? But ultimately, maybe targeted at the same human beings. So I think there’s a complete shift of going from a hungry man to, I don’t know what the brand is, but Nestlé is doing this, both in portion and nature of the food that is completely the opposite.

[00:15:35.080] Well, it is. I like this. I mean, if you think the obesity epidemic, which, again, I’m not living in a glass house. I’m not throwing stones. But the obesity epidemic comes down to too many people eating 2,200 calories a day. And that the solution to that ultimately is through whatever mechanism, pharmacological or other, get them to 2,100 or just to make the math more fun, get them to 2,080 from 2,200 or whatever. Don’t do the math. But my point is, that’s a five % reduction in the all food consumed in the food supply chain. Well, five % in the food world, that’s a huge number. Yeah. Yeah. Huge number.

[00:16:29.120] So, you know And Nicolas was pointing out also, if you think about retail, think convenience stores. And now we’re pushing further down the line, but how the shelf space and the snacks, right? You go in the convenience stores and you have all the chocolate and the candies right in front of you. Just how retail will potentially over time, if we succeed as a society to reduce this issue, would have an impact on store planograms.

[00:17:05.020] On that front, I would say, if I think about, let’s say, when I started my career today, less in Canada, but definitely in the United States, The average convenience store’s selection of, call it, non-carb quality snacks, it’s exploded already. You know You can get pickles in a bag to boiled eggs to- That’s true. A variety of high-quality beef jerky, pork cracklings, which I love pretending are healthy. They are not, of course. But anyway, so- So you could say that actually this is just another normal evolution or transformation or slow transformation of what people buy and eat. I mean, it’s exactly That’s exactly true. That’s one thing. And we always, I know we’ve both done this, talking to people who knew kids come from college and join Lid and talking about the food industry and how on the surface it may seem very boring in a way. Stalled. Just not dynamic like Silicon Valley or whatever. But actually, underneath, there’s an incredible churn and exciting because there’s a fashion element, there’s the globalization of the palate, there’s the focus on higher quality food. There’s the environmental aspect of food and trying to source locally. I mean, all these things have had a dramatic impact on the supply chain.

[00:18:46.660] And I would say to Nestlé and Unilever and big potato chip, don’t worry, you’ll figure something out in time for the Ozempic Revolution.

[00:18:58.590] Very nice.

[00:18:59.690] All right. Have a great weekend. Same to you. All right. Bye.