Amid tariff talk, industry stakeholders offer strategies to mitigate disruption

Going back to the beginning of President Trump’s re-entry to the White House, it does not come as a surprise that the topic of the day, or many days, pertains to the topic of tariffs.

To be sure, that does not come as a surprise, when considering that tariffs received a ton of attention by Trump on the campaign trail and, of course, going back to his first term in office. In the short time, he has been back, one needs a scorecard, really, to keep track of myriad examples of tariff actions or talk that have come out of the White House.

For example, going back to January 20, tariff actions taken by the White House have been ostensibly occurring on a frequent basis, including: 25% tariffs on Mexico and Canada, which are currently paused until March 6; an additional 10% tariff on imports from China to the U.S.; tariffs on all steel and aluminum imports to the U.S.; and a plan focused on introducing reciprocal tariffs on each U.S. trading partner, among others.

As for ways in which shippers can be prepared for and be ready to address how tariffs can potentially impact the logistics and supply chain operations and processes, there are no shortages of opinions coming from industry stakeholders.

Marc Iampieri, global co-leader of the Logistics & Transportation practice, as well as Partner and Managing Director, for New York-based AlixPartners, a New York-based global consulting firm, told Newsroom Notes that these abrupt tariff actions are certainly disruptive and could be destabilizing to supply chains in certain sectors.

“Many companies we have spoken to about this already have plans in place to diversify suppliers and in some cases customers ahead of these actions,” he said. “Unfortunately, it is very difficult to react overnight and the response now is to try to accelerate some of those moves. There already has been some increased forward buying to try to increase buffer in advance of higher tariffs, and supply chains have been able to absorb that demand with minimal issue…partially due to suppressed overall demand for services.”

And he also noted that his firm believes that for some commodities and, or, industry subsectors, the retaliatory tariffs on exports with have a relatively quick destructive impact to demand and that will require adjustments to the supply chain plan (for shippers).

That sentiment was shared by Vinny Licata, Director of Logistics, for Fictiv, a global manufacturer in the aerospace, automotive, consumer products, medical, and robotics sectors, whom noted that rhetoric around tariffs causes great uncertainty and is advising companies to prepare for the worst and hope for the best. 

Licata outlined various strategies in which manufacturing shippers can navigate tariffs, including:

• First Sale: Businesses can reduce tariffs by using lower value for import since companies can use the price paid in the first sale. It allows the earlier sales value to be used in declaring customs value as long as that sale can be documented as a sale for export to the U.S. and the importer meets all other custom requirements.
• Tariff Engineering: Refers to the process of designing, manufacturing or altering a product in a way that legally reduces the applicable tariff. By engineering the product's characteristics, such as its composition or assembly method, companies can often qualify their products for a more favorable HTS classification (Harmonized Tariff Schedule is a system used to classify and define goods being imported or exported internationally);
• Country of Origin: This involves manufacturing the part in a country with more favorable tariff impacts for that particular HTS classification. In February as tariffs on Mexico, China, and Canada roll out, it will be critical for businesses to be able to access multiple regions to find the most advantageous location. But this is only possible if they have pre-established sourcing in these regions already. Failing that, they need to find a supply chain partner with already established regional infrastructure;
• Free Trade Zone (FTZ)/Bonded Warehouse: This involves establishing a staging location for parts/products in order to delay the actual import. It allows businesses to re-assemble or alter products to meet lower tariff designation; and
• Duty Drawback: This enables businesses to pay duty up front. Once it’s re-exported outside of the U.S., businesses can file for duty reimbursement. 

And he also made the case for why shifting production closer to U.S. markets is beneficial.

“Relocating production to the U.S. or nearby countries like Mexico (nearshoring) can reduce tariff costs, shorten lead times, and take advantage of tax benefits (such as those specified in the Inflation Reduction Act), as well as mitigate environmental impacts,” he explained. “Proximity also enables faster response to demand fluctuations and minimizes exposure to global trade uncertainties. However, all of this is contingent on the final policies on tariffs. Under the IRA, U.S. companies are incentivized to nearshore production. It is clear that the IRA is a target for Trump but businesses can expect an increased emphasis on domestic production in one form or another. President Trump wants to bolster U.S. manufacturing, so it’s wise for businesses to have U.S. production options moving forward.”

Looking at tariffs from a trucking perspective, David Spencer, VP Market Intelligence at Arrive Logistics, noted that on the demand side, tariffs likely represent a net-negative for demand, adding that should tariffs go into effect, ultimately, to what degree, depends on various factors.

“The factors on the demand side that I think are relevant focus on how do these importers or shippers or retailers really respond in terms of how are they going to pay for these tariffs?” noted Spencer. “Is it through, passed on to the consumer? Is it squeezed out of somewhere else in the supply chain?” Additionally, how are consumers going to respond if those prices do get passed on to them and are they going to continue to buy that product? How much do recent wage growth trends help support additional inflation in this economy? And will they divert to other goods? you have to think it's going to be a net negative on demand. But to what degree, I think is a little less clear. We think about the supply side. In the case of Canadian tariffs on energy, even at 10%, if you start to see increasing fuel costs, I think you get sort of a mismatched impact on trucking, I think in the initial onset, especially in the spot market, carriers with a lot of exposure there, that creates additional financial stress and pressure, for sure, especially on the spot side of things, because you think about contract rates. Most of those are fuel surcharge-protected. These carriers who are moving contract [freight] that are protected by these programs, you know they're going to be covered in that regard. But I think it's the net deflationary on spot rates initially—that's going to start the spot market up demand.”

As new tariffs kick in, some of the changes importers should be considering, according to Tom Gould, chief strategy and compliance officer at Gaia Dynamics, include:

• “Diversification, we will be hearing terms like reshoring, nearshoring, friendshoring, etc. Any company that imports should be discussing ways to produce some, if not all, of their products in different countries, including the U.S. I have talked to many companies that said how difficult it will be to produce their products in the U.S., or even in nearby countries or countries with trade surpluses with the US. But when pressed, companies can typically find a few products that could be made in the U.S. or in different countries. Companies need to begin building relationships in different parts of the world to remain competitive in the future; 
• Data analytics combined with global trade data knowledge will become one of the most important tools for companies that import. As we move into a new paradigm with higher duty rates, companies will need to have data at their fingertips and an understanding of that data to make these sourcing decisions; and
• Relationships have always mattered in business and today is no exception. But today, it is the new relationships that matter. While a company may have great relationships with their factories, material suppliers and vendors in China, companies need to ask if those relationships should be augmented with companies in the U.S. or in different regions around the world.”

Given all the moving parts related to tariffs in recent weeks, it is fair to say things are moving at a rapid clip, with not a ton of clarity or certainty in sight, at least not at the moment. That could certainly change in an instant, to be sure. In a recent conversation with an industry friend, I was told, “the only certainty at the moment is uncertainty.” When it comes to tariffs, that really does appear to be the case.