Izzy, welcome to the 2X eCommerce podcast.

Great to be here and very excited.

I have been looking forward to speaking with you. We were meant to speak way back but it didn’t happen. I love what you’re doing in Portless. Before we jump right in, who is Izzy? Let’s jump into that one.

People ask, “How do you get into Portless?” There are pieces of the puzzle that took me from growing up to starting this company. It goes back to my grandfather. My grandfather survived the Holocaust, almost his entire family was killed in Poland, in the Holocaust. He came to Canada pretty much on his own, and this was in the early 1950s. He started, from nothing, a dress manufacturing business. First, he worked at one, he learned to trade, and then he bought his own machine.

Over the course of ten years, he started his own company and It did well for about 30 to 40 years. Back in those days, there were probably 200 or 300 local manufacturers in the clothing business, the dress business, and the pants business. Manufacturing was more or less done locally. My father joined in the ‘70s and they ran a small shop, they were doing business in Canada and the US, etc. In the ‘80s, containers became standardized.

There were ships before the ‘80s but it wasn’t efficient. You would put stuff on a boat and it would take 2 to 3 weeks to unload the boat. They then start making containers where you could unload a massive boat within probably a day or two. All of a sudden, the efficiency starts kicking in the 1980s saying, “You can manufacture in other places around the world that might be more cost productive.” Most of the raw materials came from many of these countries like China and they could bring in the same or better quality and sell it to the customer and the customer wins.

For us, we saw that happen in the ‘80s. There was a bunch of people that pivoted and they jumped and they started working with factories or built their own factories overseas. They did well over the next 20 to 50 years. There were some companies that didn’t pivot and most of them went out of business. My grandfather ended up going high-end and niche for a specific customer. Growing up, I saw that evolution. I was there when things were getting already bumpy.

All of a sudden, consumers had great quality products for a better price. At the end of the day, we weren’t upset about it, consumers always need to win. They got the same or better quality at a better price. What I saw is supply chain could disrupt. As the world evolves, your business needs to evolve. If you don’t evolve your business, you may not be in business. You might be one of the people that refused to pivot and simply went out of business a few years later.

When I got started, on my end, I got fortunate, I met some incredible ex-Alibaba executives that were early advisors and investors and they introduced me to a new evolving model of cross-border logistics by airmail. Years ago, when I started, it wasn’t efficient. Over the last few years, the ability to ship something from a Euro factory, for us, mainly as China, but that applies to Vietnam and other countries directly to the end consumer in 5 to 6 days is extremely efficient.

From my perspective, it’s the 1980s all over again. If you’re in physical retail, you gotta use a traditional supply chain, put stuff on boats, and put it on the shelves. Maybe you need next day delivery, there’s a big space for containers. If you’re strictly digital commerce or you could have a 4 to 7-day window delivery, it makes no sense to bring it.

The companies that pivot will get the early advantage of this model and the people that don’t will be harder and harder to be profitable or have great cash in this space. To me, I’m super passionate about how the supply chain could massively change industries. To me, in this model, as we unpack it through the show, Portless, and cross-border logistics are the 1980s all over again for eCommerce.

This is why I like recording the podcast. I didn’t realize that containers were a 1980s innovation. That is mind-blowing. I thought they were around forever. I grew up in Nigerian Lagos and I do remember that there were a bunch of merchants, people who got filthy rich off the back of international trade. They made fun of them with mobile phones saying, “Is my container still on the sea and all that?” It’s fascinating that it was an innovation.

Thank you for sharing your background, the generation, the tenacity of your grandfather, you being the third generation, and all that passing and you jumping on waves. It’s an interesting story. Thanks for sharing that. In Portless, you guys are a D2C logistics firm. Rather than shipping from a local 3PL or local warehouse, your thesis is that a vast majority of your domestic customers will be okay with 5 to 6 days shipping and it is going to help your bottom line. Is that the thesis? Am I missing any other points?

That’s fundamentally the thesis. Especially for most D2C, that timeframe is the normal timeframe, 4 to 7 days. Otherwise, you’d be on Amazon FBA. People come to you as a brand because you have something unique you’re offering to your customers and 4 to 7 days is the typical supply chain time for D2C. Our thesis is to give your customer the exact same experience while having massive benefits as a business.

I get it. There are two things to unpack here. The first is benefits to the customer, which is paramount, top and center. The second thing is the benefits to the merchants to you as a seller. What are the business benefits from an efficiency standpoint and also a bottom-line standpoint? Let’s start with customer experience.

I’ll tell you a small story. We recently acquired a beauty tech company, a beauty device company. We sell a number of devices. Most of the products are manufactured in China. Our primary market is the United States. We ship a vast majority of all our stock to the United States. The remaining stock is for worldwide shipping. I decided to run a test in the early days of the acquisition of this business to understand what customer experience feels like.

Fantastic boxing and fantastic presentation of the products we got delivered to us. However, the outer packaging was soft. It was seller taped everywhere. When something comes from China, they tape it round and round. I was like, “This is unacceptable. We have to do something about it.” We’re working on doing something. We’ve come up with a solution to that. What does the customer experience look like with Portless? This is a massive opportunity. What are ideal products that will fit the bill? Can I be selling washing machines, for instance, and ship from China?

I’ll jump in first with the consumer side and then the business side. First of all, what company works best? It’s definitely on the lighter end. Think of cosmetics, small accessories, small electronics, and apparel, anything on the lighter end. Anything that’s bulking heavy doesn’t make sense with this model. 100%, the customer experience has to be the same or better in this model. A lot of that responsibility is as a brand.

You have some bad brands manufactured in China and good brands manufactured in China. You own the quality control of your product and your brand. As our business, as a 3PL, we were originally merchants and we can unpack that soon. We’ve shipped millions of products, millions of shipments as merchants. We know that the unboxing experience is as important as the product quality itself. It’s Making sure that you work with partners that understand that everything is important from experience. Whether it’s custom packaging or well-packaged red paper, having a great customer experience is fundamental to it.

In this model, when you go cross-border, delivery times are the same, but all of a sudden, you as a company, your cost gets reduced. A lot of times, when you price your product, you’re looking for a certain margin, you can reduce your costs and lower that price to your customer. Your customer can benefit by simply being more effective in the backend and making it more attainable and accessible for more customers in the US.

Another big part is international. We have brands and a huge amount of their traffic is international but then you had to charge $30 or $40 to ship it because it wasn’t as efficient to ship it from the US to Germany, the US to the UK, or the US to Australia. In our model, it’s cost-efficient. You could ship stuff to the UK for $5, under $4, or a quarter of a pound. Australia as well. Instead of charging a huge amount for an inefficient model of shipping from the US to Australia, you could do it from one inventory hub.

Everyone has a last small experience. If you’re shipping it to Australia, it’s a post, to Canada, Canada Post, UK, Rural mail, or the US, the USPS. From a consumer perspective, it looks like you have 3PL in every single major country. It’s being shipped with local experience. The customer has the exact same experience but you can reduce your costs. They’re saving money and you’re saving money while having the experience they had yesterday.

The outer packaging or the outer box can be branded. You can select the quality of the carton. All those little bits of detail matter.

We work with them. It’s like, “We want honeycomb packaging.” No problem. We help with the factory. We float with you. We get your design on it and make sure you like the design. 100%, Make sure the customer cannot have anything less, if anything, they should have more, and that’s what we focus on. The consumer side should be the same or better and better could be from the price point, more accessibility to international markets, etc.

From a brand’s perspective, there are many places where a brand takes advantage here. If you think in the apparel space, in general, over 30% of apparel goes to waste, it goes to the garbage. You got to take a bet. Q4 is coming up you put $1 million in inventory, so you could sell a few million of revenue. What happens is you take a bet and some stuff and it does well but you lost the sales cycle. You got to wait till next year. You take another bet on some product and it did bad. You had to put $50,000 or $25,000 to test it because if it does, you got to sell something for data.

In our model, A, you could be way more agile with your inventory. If your factory is done production, let’s say, August 1st, you could start selling it to your customers by August 4th by us. It’s 2 or 3 days for us to bring it in and inbound it. We have a Shopify app. We show up as location. All of a sudden, you got inventory ready to sell.

Six days later, it gets delivered to your customer. Being able to turn inventory into cash goes from months to days and no container costs and you could ship internationally with a click of a button. If you want to ship to the UK market, we facilitate all that. You turn on Shopify markets, we’ll ship it by Royal Mail to your customer. Instead of putting inventory in all these different countries, one inventory hub, all markets, cost-efficient in shipping, cost-efficient pick and pack costs, and $1 per order. Cashflow is the most underrated savings here. Besides for dollars to your bottom line cheaper, you have access to cash, you could hire more people, and do more marketing in your market.

That’s an enticing proposition, the cash piece. Before we talk cash, you need to work with your customers. I’m glad you laid out some of my concerns from a CX standpoint. From a unit economic standpoint, you mentioned $4 or $5 to ship from China to the UK, which is unbelievable but it’s a reality. The question is, do you have options to use couriers like DHL, UPS, or FedEx? I know they charge quite a lot. Is that an option in this model or is it just air freighted with a batch of other goods so that the national postage carriers such as UPS, USPS in the US, or Royal Mail in the UK handle it last mile?

Great question. We do focus on key national carriers of every country. What we do on our end is we’ll print USPS labels in Shenzhen, we put stuff on airplanes every single day, and then what we’ll do is we also sort it in advance. A customer that lives in San Diego, we put that on planes to LA. They’re going anyways, either it’s commercial or first class. We inject it as close to the customer as possible.

We get cheaper shipping rates because we’re not saying, “Pick up from New York, drive across country, go to the LA distribution center, and then deliver.” We skip the first two parts. We inject it right into Los Angeles and it gets delivered to San Diego. We will airmail it as long as there are planes going to the key markets as close to where the customer lives so we can reduce our costs and the customer has a faster delivery time. It is the key carrier of every country but we go as close to the injection point as possible to the customer.

What are the tax implications for the merchants on the one hand and also the customer? I have purchased a number of products abroad and I’m being faced with a lofty tax bill off the back of it for the merchant not paying tax or getting me to pay tax at checkout.

Every country is different but I’ll talk about some of the key countries. First of all, the sales tax, you always gotta collect. If you’re in Pennsylvania, you got to charge Alavara. Shopify is a great software. It will charge the local sales tax. For import duties, every country is different. In the United States, if you’re shipping to the end customer, as long as the value of goods is under $100, it’s duty-free with sections 3, 2, and 1 diminish law. Australia is $1,000 Australian dollars. UK is £135. Europe, there is no minimum, you got to pay taxes on everything. A couple of key countries got good thresholds.

For the countries that have low thresholds or no thresholds, we pay that directly to the government so the customer doesn’t have that experience of pulling out a credit card and paying taxes. We will do the customs in advance. We’ll pay directly to let’s say the German government or the Spanish government. We’ll pay directly through the carriers. We’ll bill our customers, like, “For this shipping, because of this value to Germany, this is the cost.” That’s dynamic. Some of the major countries, the import duties have great thresholds as long as you’re shipping right to the end customer.

Makes a lot of sense. Shipping costs $5. What are the other unit costs? You did mention £5 or less than £5 items entailed. Do you have warehouse storage fees? What’s the other cost? Merchants are like, “This sounds good.”

We heard nightmare stories of different types of 3PLs, they have the easy ones, the complex ones, tape costs, and label costs. It’s super simple. There are three cost structures you got to know about. A is simply the shipping grade and that depends on the tiered weight if it’s a quarter pound, a half pound, a pound, two pounds, etc. We give you a sheet, it’s in the contract, and whatever the weight is, that’s the price.

There are the pick and pack costs, it’s $1 per order, 20 up to 3 units, and $0.25 for every additional unit. It’s very affordable pick and pack. The last thing is warehousing. We take a unique approach to this and we say, “We encourage you to think of your inventory differently than you’ve ever thought of it before.” Historically, you’d buy inventory, you got to think at least 60 days on water and then you got to think of, “You need a buffer for restocks.” You’re thinking at least four months. We say, “No, think weeks and not months.”

Let’s say your production time is 14 days, keep 2 weeks buffer, and you could constantly restock with us. As long as your inventory is turning over within 60 days, we won’t charge you any warehousing fees. If it’s beyond 60 days, we have a $25 pallet-a-month fee. We encourage you to think agile inventory, always restock, you don’t want to waste stuff, and that’s it. Those are the only three things.

$25 per pallet per month or per week?

Per month.

Makes sense. That’s pretty straightforward. Pick and pack costs, $1 per unit, and then $0.25 per additional unit. For inventory storage, think weeks and not months. There’s a buffer on there. A 60-day inventory turnover of $25. If it’s sitting there for more than 60 days, $25 per pallet. What happens to orders? Some people go wild with orders. Let’s say clothing for instance. When you expect 1 or 2  items per purchase, there’s always that customer who comes and purchases 50 items at one go. What do you do in that scenario?

The $1 is per order for up to three units. If that person orders 50 units, the other 47 are $0.25 cents per unit.

I’m speaking to the weight.

In those scenarios, we’ll ship it. I would imagine the AOV is quite high. What we’ll do is we’ll ship it. As long as it fits in a box, that makes sense. It is expensive but based on that high AOV, it should make sense. You shouldn’t be losing money on it. Especially if that’s 1 of every 100 or 1 of every 1,000, your bottom line will be good. It’s not like we can’t ship it. We could ship it, it’ll just be more expensive, and less cost-effective than shipping half a pound for $5.80 anywhere in the US.

I just wanted to put that use case on there.  

We’ll ship it.

There’s clarity. Some customers will still want speed so they would want their items the day after tomorrow or in two business days max, and they want that Amazon experience. What are you seeing there? Would you suggest we keep a percentage of inventory domestically so I could fulfill those customers’ needs? What are your best-in-class merchants doing with Portless?

You nailed it, that’s exactly what they’re doing. We have one customer, for example, 10% of their orders are express, and they pay extra for express. 90% is standard. Standard, we live in the SLAs, no problem. What they’ll do is they’ll bring in a portion of inventory locally so they can reduce their OpEx from a fulfillment center.

They don’t need a huge fulfillment center. They have a smaller fulfillment center. That fulfillment center will handle their express deliveries. If they need to do a large bulk shipment to someone, often, they’ll take inventory. 90%, that would’ve been maybe $1 million of inventory, they could reduce that to $100,000 of inventory and restock from the factory as the demand goes for those items. It’s not a full reduction, it’s a 90% reduction of inventory.

Makes a lot of sense. I have a full understanding of what you guys do at Portless. Before I let you go, I want you to give readers some tips on how to improve their cashflow and their margins and create a healthier business in the midst of all the headwinds going on now. Loads of brands are still thriving. The reason why I like speaking to guests like you is you’re not just speaking anecdotally, there’s a lot of data to go through with all the transactions you’re processing. How are you seeing your best-in-class customers manage their cashflow and maintain decent margins?

To what you said as well, I fully agree, DTC is not going anywhere. DTC in the United States was $176 billion in revenue and you have brands facilitating that demand. We think that demand will only keep growing in the US and internationally as well. The brands that approach that demand as cost-effectively and intently as possible will perform the best and will be the most healthy businesses.

If you’re a business that is on the lighter end, it doesn’t have to be us but think of this model, think of cross-border commerce where you don’t need to bring an inventory. Rather, you could be way more agile in how you bring an inventory. Also, there’s a world out there. The US market is not the only market in the world. You’re from the UK, the UK is a great eCommerce market with an incredible conversion rate.

AOV is a little bit lower in the UK but so are CPMs, CPMs are lower in the UK. Australia and Canada are all great markets. If you’re not thinking internationally, you’re leaving money on the table. Another thing I was talking about with some brands is, from an inventory perspective, working with your factories. Often, you got to be booking with your factories in advance to get Christmas seasonality in play. Some of those factories are okay but if you want to lock in your inventory, you need to go to produce $1 million dollars of inventory.

We had a story in 2020 where we were speaking to a factory, they wanted $2.5 million, and we were selling a certain drone back then. What we spoke to them was, “What’s the cost of material? Why do we need to lock it in today versus let’s see how demand picks up and then produce a product as we see demand increase?” They said, “It’s because of the raw materials, you got to lock-in in advance.” They figured if we had the raw materials, we were going into production. How much were the raw materials? It was somewhere between $50,000 and $75,000, certain chips, and certain plastic.

I’m like, “Okay, let’s buy the raw materials, and sit in your factory. As we see demand come up, then we’ll go through complex production, which the product costs are where it’s expensive. If we don’t see demand, we’ll save the leftovers for next year. We’ll sell it as raw materials.” That’s another area of the supply chain. There’s so much opportunity either from factory to logistics to going international.

Most brands think about marketing all day and I understand that, I was a brand for many years, and I did my own marketing and spent millions of marketing but the supply chain is a big opportunity to increase your cashflow, and increase your margins. Go international, there’s money there to be a healthier and more profitable business.

I love your point on agility from the factory to your logistics to your ability to fulfill anywhere in the world. It’s like a 3-stage level of execution. You’re absolutely right about the supply chain. When you’re an Amazon merchant, Amazon teaches you that you have to get your supply chain ready and they punish you each time you lag by not staying in stock. It’s just the way it is. Merchants need to keep in stock. They need to take it seriously. I had one question about Black Friday, Cyber Monday, and Q4 in general and how that plays out with the Portless model. Does the supply chain hold up? How do you adjust? Traffic now is different, the traffic in Q4 and the gifting season.

On our end, what we’ve seen historically between Black Friday and December 15th is because of the volume going on, there is going to be a 2 to 3-day delay than normal delivery times.That’s not on our end. Once we inject it to USPS, there are channels usually so backed up. There are not always delays depending on USPS but if they’re experiencing delays, everyone, even locally, will have that same delay. That’s something to think about during Black Friday. During that time, the volume is so much you do have to expect that.

What we’ve seen brands also leverage on the flip note is if you’re going Black Friday, out of stock has lost revenue. What we’ve seen is brands, let’s say, have transitioned to us, they have some product locally, and they’re going towards selling out of stock but their production time is let’s say seven days. They won’t stop selling, they’ll just add delivery time, add another seven days. They can keep that selling because the demand is there. Either there’s a TikTok going viral. Not being able to sell during demand is simply lost revenue. That’s another way we’ve seen people leverage this model.

Makes a ton of sense, Izzy. For those who want to find out more about Portless, it is Portless.com. How about you? Are you active on socials?

I’m on LinkedIn, Izzy Rosenzweig, and Twitter. Those are probably the two places I am the most. I love the DTC communities there. There’s everyone to follow and your podcast. Learning from everyone, there are golden nuggets everywhere. Follow me but follow everybody, it’s a great community.

I’ve connected with you on LinkedIn. I’ll check out your Twitter. Izzy, it’s been a pleasure having you. Thank you for sharing all the nuggets, your backstory, both family and personal, and what I think is groundbreaking from a fulfillment standpoint, Portless, with what you guys are doing. I wish you the best of luck. Thank you so much for coming on the 2X eCommerce podcast.

Thank you so much. I had so much fun. I appreciate it. Thanks, Kunle.

Cheers.