When Tariffs Move, Who Absorbs the Work? With MobyTrade’s Jeb Pierce

[0:00] Johannes Crepon: All right, awesome. Let’s get started. Welcome, everyone, to today’s webinar, another update on tariffs, and I have Jeb with me. My name is Johannes Crepon, one of the co-founders of PDM Automotive, and we’re excited to have Jeb here again today. The setup is similar to the first one, in case you’ve seen that as well. The focus for PDM is always on streamlining the connectivity between a supplier and their resellers, and everything revolving around tariffs has become such an important topic since Liberation Day, with a lot of changes happening on a daily, weekly and monthly basis. So I’m really excited to have Jeb here with me.

[0:59] Jeb, do you want to do a quick introduction? Jeb Pierce: Hi, everyone. I’m Jeb Pierce, the co-founder of MobyTrade. We’re an AI supply chain platform focused on tariff management and landed cost. We work with a variety of industries, with a really heavy presence in the auto parts aftermarket, working with companies like AutoZone, Cloyes and others folks would know. Excited to be back for the second version of this, and to see people at MEMA Tech next week if they’re around. I think both Johannes and I will be there, so we’ll mention it again at the end, but if you’re there, please say hi. Johannes Crepon: Awesome. That’s definitely exciting, the next event coming up out in Dallas. So before Jeb dives in here.

[1:57] The topic at a high level: tariffs are a moving target, and there’s always an evolution in how they need to be handled. The one thing that’s consistent is that it’s a topic that lives between a supplier and their customers, the resellers, distributors, retailers, et cetera. Since tariffs have become a more dominant factor in pricing, it really comes down to who owns the narrative. If you’re a supplier selling 1,000 or 10,000 SKUs, you have a certain price, and that price is often negotiated to be valid for a fairly long period, say a year. But with how frequently the tariff situation is changing, you may need to change those prices.

[3:02] The higher-level thesis we’re talking about is: how do you control the narrative around that price change, and how do you make it transparent enough that a changing price doesn’t become an obstacle in your relationship with your customers? You’re promoting your products, you set a price, your customer agrees to it, and they have downstream commitments based on it, like contracts with shops. So a price change is a pretty impactful event in that relationship. How can you control that narrative? It’s a lot of work, and we’ll get into it with Jeb’s slides, because changing tariffs don’t just mean recalculating your price sheet. You need to understand how it really affects your product line: how many part types are affected, whether it depends on the material. There are so many nuances, and this is where Jeb’s company and expertise are super helpful, so you’re in control of the narrative and authoritative on the information you give your customers. With that, I’ll hand it over to Jeb. It sounds like quite a lot has changed since we last spoke. Jeb Pierce: Absolutely. One of the main changes since we last spoke gives a concrete example of how quickly tariffs can shift, whether it’s the same type of tariff, a percentage move, inclusions and exclusions, or an entirely new tariff coming online. A short history on Section 122 and Section 301: Section 122 is what replaced the IEEPA tariffs that were struck down back in February. It’s a blanket global 10% tariff that expires after 100 days, so it was set to expire July 24. Section 301 was originally the tariff targeting China. With 301 you can do economic investigations to prove things that would make someone a bad trade partner.

[5:49] In this case, it was around forced labor. They involved 60 countries, built up a case, and presented it on July 23 around 5:00 p.m., which shifted rates from the global 10% to 12.5% across various countries. The big thing is that there wasn’t a lot of notice. There were lots of rumors: would they extend Section 122 for another 100 days? Would they move it from 10% to 15% to 20%? And any time these tariffs come online, they can be a blunt instrument, like Section 122 or IEEPA before it, just 10% on all products, or much more surgical, by product type and the materials in the product, broken down by HTS code, with exclusions. Not to mention how these tariffs stack on top of each other with the base duty rate, Section 301 or anything else that applies.

[6:57] So that’s a pretty core example of what changed and how quickly it can happen. Section 301 was announced late afternoon, early evening on July 23 to replace Section 122, and it went into effect for goods entering on July 28. Not a lot of time to figure out next steps. If we go to the next slide: the biggest question is how this impacts aftermarket companies. A few things. As companies move to diversify sourcing outside of China, China is never replaced with one other country. It’s usually four to seven on average, from what we see.

[7:56] Each of those countries now has a different tariff rate that you’ll have to apply to different products. What they did was roll out a 431-page PDF. Traditionally you’d go through it manually, line by line, then go back to your parts catalog and your sourcing team and do a detailed analysis over a series of all-nighters to figure out how it affects you. When it comes to pricing, you ingest that 431-page document and figure out, first, what it does to your cost basis, and then how you can potentially increase prices. But as Johannes mentioned, there are a lot of downstream conversations you need to have with your customers, and everyone’s fighting for shelf space.

[8:54] So if you’re increasing prices, how does that affect your shelf space and your relationship? If you do this internally, it’s a lot of work. If you outsource it to a customs broker, understand that while they are experts, they’re also doing this manually, and they’re working with a slew of other customers. You get in the queue, and days later they come back with your actual impact. Next slide. We had a really practical scenario with one of our customers, an aftermarket parts manufacturer bringing goods in through the U.S. and Mexico. They’re owned by private equity, so they’re getting hit from a few angles. First, how they’ll reprice things and have those conversations with customers, and internally, what their cost basis will be.

[9:54] And third, being owned by private equity, they had a board meeting on July 28 where they were presenting quarterly financials and estimates for the back half of the year. Within a couple of hours of the rules being released, we were able to scan everything against their parts catalog, about 8,000 different SKUs, and figure out their actual net impact for the back half of the year. Being able to move that nimbly, they were already having calls with their customers by Friday afternoon, and they had a really tight presentation and numbers for the PE firm that owns them, with everything in one spot. That used to take people hours or days. The pace of tariff changes has slowed a little from where it was around Liberation Day.

[10:56] I think everyone probably still has some whiplash from that period, but things will likely pick up again over the next two years with this administration. We’ll have to wait and see, but things move really quickly. For now there’s a bit of a lull. Johannes Crepon: The product families, were those different part types, or did it go down to the material and composition of the products themselves? Jeb Pierce: In this specific example, these were finished goods for this client, in five product families. They were lucky that a lot of their HTS codes fell under the administration’s exemptions. We have other clients who weren’t as lucky and got hit a lot harder, but for this particular example it was finished goods they were importing, with a lot of exclusions.

[11:58] Johannes Crepon: Okay, got you. Want me to advance? Jeb Pierce: Yes, please. As I mentioned earlier, any time there’s a tariff change, everyone talks about how they used to be heavily reliant on China and now the target is to get that down to maybe 35 or 40%. What does that do to our cost basis, and ultimately to pricing and margins? As tariffs shift across all these countries, the question is whether, at any given moment, you’re sourcing from the lowest landed-cost country, not just leaving China for the sake of leaving China. China could still be the cheapest option, based on the tariff rates for other countries and China’s unit cost plus whatever tariff it faces.

[12:58] So we always tell our clients: yes, look into the tariffs for each country, but also look at unit cost, keep up with all the tariff shifts, and track the compliance rules for every country, because China could still be the best place to source from. Make sure you have line-item-level detail, because your board may push back, “I thought we were getting off China,” and if you can back it up, “It’s still the cheapest place for these reasons; here’s a quick comparison,” you’ll be in a really good spot. Johannes Crepon: Is that one of the features your software provides, modeling scenarios like “What if we shifted everything to Malaysia or Thailand? What would be the ideal mix?” Jeb Pierce: Yes, we do all sorts of scenario modeling. We frequently show what this looks like as a sourcing spread by country.

[14:00] If you’ve historically imported one product from five countries, you can mix and match: if we bumped Malaysia from 15% to 35%, what does that do to our cost basis? From a tariff perspective, we had clients within MobyTrade on Section 122 asking, “What if it’s extended another 100 days, but goes from 10% to 17.5%?” Scenario planning lets you have options in mind. We also ingest posts from the president and the administration on Truth Social and notify clients. We’re very careful to say it’s a rumor and not the rule of law, but if the president says “I’m going to do X by this date,” and you’re not on the executive team, you might get an email from them asking what you’re going to do about it.

[14:56] If you are the executive team, you might get an email from your board asking what you’re going to do about it, with just a link to the post. So we see a lot of scenario modeling. Another thing we see is that many companies haven’t touched their HTS codes or historical entries in five years, or ten in extreme cases. You could be importing under an expired HTS code, which could get you in trouble. You could be using a more general catch-all code with a higher rate, or there could be an alternative code that’s actually exempt from the tariffs. So we do a lot of audit work, whether it’s a company someone just acquired and wants to audit all the customs entries and HTS codes, which we can do quickly, or a company saying, “We hired someone five years ago to help with classifications.

[15:56] We need to refresh and understand where we sit today.” The HTS catalog right now has about 18,000 codes. A year ago it was about 17,000, maybe a little less. There will always be more HTS codes tomorrow than today, and they’re getting hyper-specific by product and use case. An example I like: if you’re importing a stuffed animal, a stuffed dragon has a different HTS code than a stuffed teddy bear. That kind of granularity will spread from apparel and kids’ products to everything you can think of. Johannes Crepon: With the recent challenges with Canada as well, is there even a safe country at this point that you can recommend? How do people deal with the fact that the right answer today may not be the right answer tomorrow?

[17:05] Jeb Pierce: That’s a big question right now, especially as you go upmarket and companies are thinking about investing hundreds of millions or billions of dollars in manufacturing plants overseas. The ground is always moving from a trade policy perspective. Some companies say they just want less exposure to China anyway, on the thesis that there could be more decoupling between the U.S. and China over the next 10 or 15 years. Others are betting that in 2028 there could be a new administration and the posture may soften, so they don’t want to make big investments yet. Our recommendation is to make sure you have all the right data and information as quickly as possible.

[18:04] That way you can have the different conversations. Maybe your supplier will absorb some of the tariff; maybe your retailer will take on some of the cost. In terms of safe countries, there doesn’t appear to be a clear answer right now. In North America, USMCA is set to expire in about ten years, I think, and the delegations just met on July 1. I wouldn’t say it went particularly well in terms of outcomes; there was some saber-rattling and the U.S. threatening to leave. So it’s tough to tell. I’d say don’t try to predict the future and make heavy investments based on it. Use the latest technology, bring the right people onto your team who can move quickly and make educated decisions, and, which is probably where PDM comes in, figure out how to have better conversations and relationships with your resellers.

[19:14] At the end of the day this is a relationship-based business, and tariffs are affecting everybody, so it won’t be a huge shock if you go to a retailer and start that conversation. The shock is if you just send a new price without the conversation. I haven’t been in that exact role, but I assume that wouldn’t go over well, especially compared with others who come with the right data, faster. Johannes Crepon: That’s definitely what we see a lot. Pricing is always a heavy negotiation. Even without tariffs, you have rising costs for raw materials, electricity, labor, so there’s a price increase almost every year.

[20:12] This is where we see our role continuously strengthening. As you showed in the recent slides, being able to act fast depends on having the relevant information. I hadn’t heard the stuffed animal example before, but it shows that this needs to be in your data. An automotive example: a brake hose. You might have a brake hose made of rubber or one made of stainless steel, and those could have two different tariff codes with very different rates. Having the data right in the first place is what lets you react quickly, assessing your entire catalog within a couple of days and understanding the impact of yet another regulatory change.

[21:20] This is where we really appreciate the partnership with you, Jeb. For all the years PDM has been on the market, clean data has always been the foundation for the opportunities that come from it. The more traditional topic we’ve talked about is that clean data improves your odds of success on marketplaces and in e-commerce. Tariffs are just another example: if you have the information in the first place, you can act quickly with solutions like yours. When we were preparing, we talked about the urgency, and I think that’s the next slide.

[22:16] There was a meeting recently by CBP that increased the urgency even more to get the data right, which means getting your tariff codes right. Can you speak to this? Jeb Pierce: There have been a few things over the summer that came to a head at the Trade and Cargo Security Summit, also in Dallas, a couple of weeks ago. Leading up to that, there was an executive order stating that Customs and Border Protection would crack down on what it deems bad actors and be more forceful around compliance for things coming into the country. That was the first thing. The second is that they’ve walked the walk.

[23:13] They’ve put things into motion. They’ve collected more in penalties this year than before, and they’re clawing things back on a regular basis. This used to be something where you’d see an egregious example once every ten years. The most notable example: Ford was fined about $365 million a couple of years ago because of the HTS codes it used from 2009 to 2013, importing vehicles as passenger vans rather than commercial vehicles to get a lower duty rate. It took ten years to find, but they did. The other big thing is that Customs is using its own AI tools to identify these issues much faster and more accurately.

[24:12] Whether it’s intentional or not, and we’d like to think everybody is a good actor, especially everyone on this call, Customs doesn’t care if it was deliberate or accidental. In their mind, and with the AI they’re using, an error is an error, and they’ll hold you accountable with a fine and/or by holding your cargo at the port, where you’re paying detention, demurrage or other fees every day until it’s sorted out. One way or another, it costs hard dollars. And if your shipments are delayed at customs, that’s another day they’re not on the shelf being sold to end users, which can erode trust and reliability in relationships you’ve worked for years to build.

[25:10] Everything you submit, certainly within ACE, is now being reviewed by the government using AI, so we think of it as leveling the playing field. Catching errors before you submit saves you time, effort and potentially a lot of money. Johannes Crepon: It’s AI against AI: getting it right versus getting caught. Jeb Pierce: Yes. Johannes Crepon: It makes it so much more relevant. As we wrap up, our takeaway is that besides staying on top of everything that’s changing, tariffs are becoming a variable cost. In most pricing models the tariff rate was hard-coded: it’s X percent and won’t change for the next few years. That’s no longer true, so treat it as a variable cost.

[26:25] That’s one recommendation. Especially in your relationships with customers downstream, be proactive and transparent when prices change because of tariff shifts. Everyone reads the news, so it won’t be a surprise. But to Jeb’s earlier example, the actual tariff change was just 2.5%, because the 12.5% in the headlines wasn’t net new; it replaced the previous 10%. If you went to your customer and said, “We have a 12.5% increase in cost, and that’s why we need to raise prices,” and it turns out, even without bad intentions, that it was only a 2.5% difference, that causes a lack of trust and really deteriorates the relationship you as a supplier have with your customer.

[27:26] So be deliberate and transparent about those changes, which means your data has to be in a clean core state, because that makes everything downstream much more efficient. Don’t treat it as a one-time effort to update prices for the latest tariff change. This will be an ongoing topic for at least the next two years and probably beyond. It may not continue at this intense rate for 20 years, but it will be a topic for the next few years for sure. We’re at time, but Jeb, if you have a minute to stick around, we’ll see if anyone in the audience has questions.

[28:26] As Jeb mentioned at the beginning, the MEMA Aftermarket Technology Conference is coming up next week, starting Sunday, with most events Sunday through Tuesday and some on Wednesday. If you happen to be in Dallas, please find Jeb and me; we’d love to connect. There are receptions, lunches and networking breaks. Jeb, anything you want to add before we wrap up and let everyone get back to their day? Jeb Pierce: All good on my end. Hopefully we’ll see a lot of people next week. We’ll be there Sunday through Wednesday night.

[29:22] Johannes Crepon: All right. Thanks, Jeb, and I’ll see you on Sunday, or I guess Monday. Thanks, everyone. Jeb Pierce: Thanks, everyone.