In today’s episode of The Top Three Things Clint Reid Founder & CEO of Zonos talks to us all about cross-border business. He shares what he has learned about the difficulties of doing business across borders and technology he helped create to improve the process.
Guest: Clint Reid: Founder and CEO of Zonos, the leading cross-border technology company. During Clint’s previous work experience focused on international logistics with DHL and UPS he observed many pain points in global e-commerce shipping and costs. Clint took a chance to solve these problems with technology and his vision became a reality when Zonos finally kicked off. Clint also serves as a board member of Utah’s District Export Council, which provides mentoring and counseling on international trade.
James: What’s up! My name’s James Oldroyd welcome to the top three things my guest today is Clint Reid, the CEO and founder of ZONOS. Clint it is great to have you in the office today.
Clint: Thanks James, happy to be on.
James: Great James! So tell us a little bit about your company.
Clint: Zonos is a technology solution. We calculate imports, duties, and taxes on goods that are going into other countries. We do that for the actual seller of the goods. So let’s say an e-commerce company in the United States that’s selling to Canada. Traditionally those duties and taxes are getting calculated (and still are) at time of commerce clearance. We do that at the time of e-commerce checkout. If it’s not done at the time of e-commerce checkout or if the customer can’t pay for it there.Their experience is the complete opposite of a domestic customer in the US that buys something on Amazon. Their experience is that they have to pay those dues and taxes when it arrives. So the driver shows up with a COD (Collect on Delivery) and asks for an additional 30$. So we help solve that whole issue by helping the e-commerce company.
James: That’s great. So in the US we don’t do COD a lot. I know it’s common in other countries. You are taking the uncertainty out of all of that. You are giving them a number upfront.
Clint: Exactly, so if the shopper that’s outside the United States (or outside any country that has to cross borders) decides not to make the purchase because they don’t know how much it’s going to truly cost in the end. Or they don’t buy regularly and they get surprised and say “Wait I already paid for this!” and they don’t want to pay it, then they get stuck in customs, while someone in the US ends up having their credit card charged back. They will not win and they will lose it because the goods never truly got delivered to the door. It can be tricky for a US Business, it’s a miserable experience for the international shopper.
James: This really seems like a brilliant idea, you know you talk about unmet needs. This is clearly one of those unmet needs. How did you pinpoint this? Where did the idea come from?
Clint: I had the opportunity luckily to work at DHL Express. They do a lot of international shipping and was an account manager sales rep there, and after about 4 years I went to UPS and was an international specialist there. So I would assist the normal self rep in closing their international deals. That’s how I got the experience! I would see E-Commerce sellers in particular, and I would try to explain to them all about this. I would explain to them duties, taxes, brokers fees and their eyes start glazing over. It got to the point where I saw one customer turn to me and say “Yeah, No. I’m turning it off. I’m not going to sell internationally anymore.
Clint: Instances like that made me realize that there really wasn’t a logistics problem. UPS could get the package there, it was a technology problem. These E-commerce companies don’t have the ability to at scale calculate import duties and fees to 200 different countries for 1000, 2000 skews! Sometimes hundreds of thousand skews! It’s overwhelming for them. I seized on that opportunity and built a small prototype that would help with taking an international order online and went out selling that.
James: Love it. As you built the infrastructure, and as you’ve done it for a skew it seems like its a very scalable business on your hand.
Clint: It is! I mean it’s still been difficult for us, every skew has a different skew number, so the skew numbers don’t help us. Everyone also has the description of their goods (which also doesn’t help much) because each good has its own tariff applied to it. We have built in some ability to do auto classifications of goods or harmonized codes so we can push that through our calculator for duties and taxes. We definitely made it scalable so that a customer on shopify can go to their app store and download our app, install it, and be upselling globally within an hour. It’s talen about 10 years to get to that point, but it’s starting to feel a lot more scalable than it did at the beginning.
James: Yeah that’s great. Because of your unique position sitting at the crossroads of a lot of international business. I think you have a unique perspective. Tell us a little bit about the difference between international business and cross border business.
Clint: I get asked a lot what I do and typically when you think about international business you’re thinking about doing business in a certain country. So warehousing in Europe and doing distribution inside the EU. Or getting a second office in Canada. Cross border involves the good moving directly from the seller to the buyer and not necessarily to the distributor. It’s a direct sale kind of like the Shopify example where you have an online store you sell women’s clothing and the shoppers now buying directly from you. So cross border transactions are occurring just between those two parties which makes it a lot more complex. So cross bordering definitely falls under that international bucket. A lot of people that are familiar with international are not familiar with cross border and vise versa. I’m not as familiar with doing international business as I am with really helping facilitate trade between two different entities with low value goods.
James: It seems like the internet has been key in getting that growth in cross border business. Have you seen, is this an exponential increase over the last few years?
Clint: It’s growing at a faster rate domestically so in the United States cross border is growing faster than just normal ecommerce. That’s because more and more people outside of the U.S. are having disposable income and they are purchasing, wanting to get goods, especially from U.S. brands. SO that has helped drive that. They have kind of done that in spite of the situation. So it’s growing, there has been major technological advances with ecommerce there has not been with cross border. The clearance of the logistical movement. That part is still broken. It sure seems easy at first for an international buyer to arrive at a website and buy. So it is growing in spite of the situation.
James: So tell us what is the state of global trade?
Clint: Right now I’ll give you the perspective from the ecommerce standpoint, that what the countries are starting to do right now, and I’ll start with Australia. Australia came out with a law where first of all anything under 1000 Australian dollars so I don’t know 800 U.S. dollars. Anything below that number would go into Australia duty and tax free. It would just get cleared, there’s no tax on it. It’s called the de minimis value. The United states has a de minimis value that’s really high which is why US shoppers we don’t experience the same problem. So Australia they’re seeing all this revenue that’s coming from Amazon and going into their country. Competing with their retailers with an unfair advantage because their retailers have to charge sales tax. Domestic sales tax. So they came out with a law that says the tax needs to be reported by and remitted from the overseas entity if they sell over a certain amount. So the moment that that law came out, Amazon and other big retailers or even medium size retailers have to start on a quarterly basis start remitting the tax directly. So this is outside the whole customs process, it’s really strange, because usually this is getting collected by the customs agents. This is now actually happening through the normal tax channel you just have to remit you tax, say I did this much in sales. It was wildly successful, for Australia, like way more than they thought because honestly I think US companies I think are really honest with their dealings and so it was….
James: Is it self-disclosed, like here’s my earnings and here’s my tax?
Clint: Yes, yes. They have some mechanisms in place for penalties and maybe shut you down for imports if they feel like they catch you. Then, New Zealand came out with a similar law with it’s own new flavor to it, about a year after that. This was 3 or 4 months ago. That’s what is going to continue to happen, is these countries are going to try and find ways to get tax revenue outside of the normal process and yet then you still have the duty that’s getting collected when it gets imported, it’s not necessarily getting easier, it’s becoming different.
James: So then, again just to clarify, that happens upfront, similar to a sales tax, but you still have the duties and all of the other stuff that would normally happen on the back. It is increasing the complexity.
Clint: Yeah so if a company, you are selling to someone in Australia and now you are collecting the tax which is easy, it’s 10% to GST to Australia, but you still have the duty. So I will collect the tax, but now you have to pay the duty in certain circumstances, well it’s a mess. The whole law. We have posts on this which are just huge pages explaining how this works, it can be very difficult to know exactly how you fit into this if you are a retailer.
James: Yeah, I’ll actually grab those links and put them up with the podcast so that our listeners can go and read. It is a lot more complex than it used to be. So what does technology look like in the future of global trade?
Clint: So right now, I’m thinking y’know 10 years down the road plus, today funds are getting collected and remitted typically for the import, for the duties by the broker and by customs agents. What I see more as e-commerce evolves is the ability for ecommerce platforms or technology providers to calculate these funds up front, it really if it is trusted, the ability to figure out what the import duty is and the import tax can be a trusted number all the time. I see it getting to the point where that money is getting directly remitted right to the government at the time of the transaction vs. the time of the customs clearance. Or at least before it clears, once it ships, which could actually take out some middle men with customs and brokers. I would say that a majority of people in this field wouldn’t think this would happen, but if a government can feel like that they could get their revenue in a trusted way or in an audittible way, why wouldn’t they just trust what was already collected at the time of the transaction, instead of waiting for customs clearance and all the amount of effort that goes into that. Customs can focus a little bit more on the restricted items and things going into the country vs trying to always collect and remit the funds on the imports. It will be interesting to see, it will definitely be impacted by the ability to calculate duties and taxes, even to the point where just in the direct commission of items and calculating what the import tariff is is going to become mainstream.
James: That’s awesome. Tell us a little bit about brokers and agents, say they are disintermediated as you are suggesting. What kind of cost savings would there be? What’s their involvement? What is their role?
Clint: The customs is a government agency, they are government agents. Brokers are not, they are licensed by customs to calculate what the duty and tax is typically, it depends on the country. Sometimes countries force the customs to also do the brokerage and the clearance. In a lot of countries, let’s just say Canada, any Canadian citizen can start up their own brokerage firm and they can calculate what the import duty and tax is and they would collect that money and remit it to Revenue Canada and charge a fee to do that. So, there’ s tons of little brokerage firms that do that and UPS, for instance, is the largest brokerage firm in the world. They have their own brokerage firm in Canada, so they are brokering their own packages and charging, just to give you an idea of the cost on the low value good. A $100 T-shirt going into Canada, brokerage fees, and them having to collect the money and them having to front it to customs. They’ll charge $50-60 in fees along. It is absurd, it’s just totally broken. It varies based on crown or air, but the brokers, it’s been really lucrative, because prior to ecommerce, this fee-structure wasn’t that prohibited to buying higher value goods. But as more and more E-Commerce  are moving it doesn’t align very well. So they are all logistics providers that are trying to do better consolidation and improve this process with a broker clearing a big shipment full of individual shipments. Instead of a bunch of individual shipments at once. That’s the difference between the broker and the customs agent.
James: Yeah, that’s really interesting because if you think about it you know a 20 foot container that’s easy for a brokerage agent to handle, full of thousands of T-shirts. But when you start doing ones and twos it becomes much more complex. You can charge a couple hundred dollars for a container but you can’t charge…
James: It’s very expensive on single items. And yet if you look at it…as people get more and more comfortable shopping across borders that’s the volume that will grow.
Clint: Exactly. We are going to see more and more especially as these like India right now is going to be buying more and more cross borders. So there are these up and coming countries where there is more disposable income and they want goods from other countries. It’s just going to increase. But that doesn’t, like you said, it doesn’t scale really well like it does with a container load. They only had to classify one item on that container load. The T-shirt.
James: Yeah, yeah.
Clint: There might be 5 goods in a single shipment that is under $200. And that is where technology is going. It’s where it needs to go in order to improve and streamline this whole process.
James: And the automation you are talking about is essential there. Okay, so if you had one piece of advice for a business that is thinking about doing cross border, what would you say to them?
Clint: So as much as all of that sounded complex, honestly what I would say to them is “Just do it.” I mean, you’re probably going to fall on your face a little bit. But you can just get started by selling goods online, letting the customer pay when it arrives, and just dip your toe in the water to get started. Don’t overthink it. Especially if you are just getting going. If you’re a larger retailer, and you haven’t been doing it, that might be a different story. You might not want to test out with all your current customers. Opening up to a new country with a big batch of brand new customers that think your brand is amazing. To open up a new country and have them be super unhappy . But for small retailers I would definitely say, you know, “Go out there, give it a shot, there are definitely providers like us and other providers like that that can help with the technology aspect to make it a whole lot less painful. But I wouldn’t say that us nor anyone else is going to take away the pain completely. However it can become a big percentage of your company and long term, your competitors that are outside of the United States they will start stealing your customers that are inside the United States. And you have got to compete with them and don’t be blinded by that your market is just big enough in the US. There is a huge market outside the US. And you also need to compete with the companies that are trying to get your customers and they are going to get better and better at it because cross border is going to grow. And you’ll be way behind the 8 ball if you don’t at least get going.
James: Yeah. So is there a specific example you could give of a company that you’ve helped that you’ve really seen just take off as they are charting that and figuring it out?
Clint: Here’s an example. We work with a company that sells pinball parts. I mean pinball itself is an American game, right? Why would you be selling pinball parts internationally? Right, wouldn’t that be the first thing you would sort of ask yourself? If this is a US product, what is the market? Well, the few pinball machines that are outside the US, which there is actually a surprising number of people that actually buy them (X pats or whatever) that have pinball machines. If the pinball machine breaks, where can they get a replacement?
James: Yeah, interesting.
Clint: Only one country, right? Almost 50% of this company’s revenue comes from outside the United States and they do pinball replacement parts. So, you know you need to…don’t just assume…. Somebody doesn’t want your widget or your good. So, opening up and expanding outside the United States there is absolutely an opportunity to grow. And it can vary between product and industry and if you super highly restricted items it might be hyper entry but it also might be a big opportunity.
James: Well, thank you. That’s really interesting and it’s great advice. It’s great to have to be on the show, thank you for your input.
Clint: Absolutely. Thanks for having me on the show, James!