Coffee Machine Startup Fellow Faces Unprecedented Uncertainty And Disrupted Product Launches From 145% Tariffs On China – CoffeeTalk

Jake Miller, CEO and founder of Fellow, a locally grown coffee company, has been dealing with the escalating trade war between the world’s two biggest economies, Liberation Day. The Trump administration’s shifting policies have left a warehouse worth of Fellow’s products languishing in China. Miller, who had been able to stay out of social media trolling and focus on building his company, is now dealing with the economic uncertainty as he juggles his company’s biggest product rollout, an espresso machine that was nearly $6 million in the making. Tariffs threw a last-minute snag that scrambled a meticulously planned launch strategy, resulting in a price that still leaves Fellow making less profit per unit.

Fellow designs its products in San Francisco and works with contract manufacturers in China to produce them. The U.S. has imposed a 145% levy on most goods from China, which has responded with a sky-high retaliatory tax. Although there have been carve-outs for specific products, it amounts to a full-scale trade embargo between the two countries. Miller said that this has been the most disruptive thing that has ever happened to him, and that “Christmas is going to be very different” this year.

In just a few weeks, the tax on imports has jumped 70-fold for some of Fellow’s products, meaning an item that previously cost $10 to bring into the country now costs $25, solely due to the tariffs. This has brought a key part of Fellow’s U.S. business to a screeching halt. Production lines in China have been stopped, and completed products remain stacked in a warehouse. Overall cargo traffic from China to the U.S. fell 60% in April, according to San Francisco logistics company Flexport.

Fellow’s China-based team reports that piles of containers are parked along the road in port towns as companies try to wait out a trade war that could intensify or end at any minute. The company employs around 75 people in San Francisco and 25 in overseas offices. Since these tariffs, they have not brought a single item into the U.S. They are just sitting on their hands, and “Christmas is gonna be very different this year both in terms of what’s available to purchase and — if there are not big changes — the price.”

Fellow, a coffee maker and grinder company, is facing challenges due to the US government’s reluctance to manufacture coffee makers and grinders. This has led to a decrease in sales volume, particularly during the holiday shopping season. Miller, the company’s CEO, has four months of inventory to weather the storm, but this may not be enough to meet the demand for their products. The company has also halted hiring and reduced investment in research and innovation. The snack budget has also been paused, and layoffs are not currently planned.

Fellow has ramped up the use of bonded warehouses, but this is only a delay tactic. To meet demand before the holidays, the company will need to increase production in China and pay import fees. Miller’s focus now is on survival and diversifying its supply chain. Plans to set up production in Mexico, Vietnam, or Indonesia are in the works, but they will take months and millions to achieve.

The capriciousness of current trade policy is causing uncertainty, as Miller is concerned about the possibility of a six-month move to Vietnam and potential 100% tariffs on that country. Miller is optimistic, but not everyone will be so lucky. In recent weeks, he has received calls from smaller competitors offering to sell off their businesses for pennies on the dollar.

Read More @ The SF Standard