To Our Valued Customers:
Many of you have yet to directly be impacted by tariffs imposed on imports from China in Rounds 1, 2 or 3, but should Round 4 go into effect, and all 3805 full and partial tariff subheadings are hit with a 25% tariff later in June or July, clearly your business will be impacted.
We wanted to share with you what our other customers and we at Laufer have learned as a result of Rounds 1, 2 and now 3 that you can use to help you prepare quickly.
1. Bond Saturation: Yes, there is such a thing! You will need to immediately reach out to your surety company (usually through your Customs broker) and discuss how quickly and at what cost, and at what valuation your bond will need to be increased to in the event Round 4 25% tariff goes into effect. If you don't prepare, once your bond gets saturated you are no longer able to bring product through US Customs. And once that happens, it takes time to get reinstated and the new bond in place. In the month of September, 2018 alone we were informed that US Customs sent out more than 1200 insufficient bond notices to importers alerting them to immediately increase the value of their bond or lose the privilege of being able to import.
2. Cash Flow: Run through the scenario if you haven't already. How would you handle an additional 25% tariff on your products overnight - how would it impact your line of credit, cash flow, vendor payment schedule, ability to pay US customs, payroll, etc. What are you doing now to reduce your receivables to improve your balance sheet in the event additional 25% tariffs go into effect?
3. Credit check: What's your credit situation with your broker, forwarder, vendors overseas and are you able to "surge" if this goes into effect. Additionally, run through the scenarios if you have to import more product quickly, even by airfreight, to avoid tariffs.
4. Duty Payments: Are you on your own ACH account with Customs and are you paying through Periodic Monthly Statement? If not, start that application process NOW so you can leverage the up to 45 day float that Customs will give you for paying duty (as part of P.M.S.). Here are some useful links for you to help you get started:
1) US Customs ACH application process: https://www.cbp.gov/trade/automated/ach
2) Periodic Monthly Statement: https://www.cbp.gov/sites/default/files/documents/section_1_pms_3.pdf
5. Ocean Volume Surge: If Round 4 goes through, expect the 25% to go into effect in late June or early July as the regulatory and public comment period has to conclude. This corresponds to the beginning of the traditional retail peak season so vessels will begin to get full. Imagine how space will become even tighter as everyone who is capable of moving product up to have it arrive in the US as soon as possible. Make sure you have a game plan with your carrier or NVOCC partner that allows you to surge in volume, especially to the US West Coast as that is where space will be the tightest.
6. Talk with your suppliers: Many importers last year paid premiums to their suppliers to incentivize them to produce product earlier. In effect, they paid suppliers in China a premium to delay production for European cargo, domestic, or other export cargo to produce exclusively for them in the US in order to have more product arrive before the tariff deadlines. Have this conversation as quickly as you can. And what percentage of the tariff will they absorb if any; any percentage they absorb clearly will be positive for you.
7. Warehousing and Inventory Check: Make sure any surge in volume your DC can handle. If you are using a common public warehouse, make sure they will be able to accommodate your surge and everyone else's and what their game plan is. If you have a local overflow warehouse that you use, make sure they are ready as well. And very importantly, how would you handle a surge in inventory financially?
8. Shipping to the US West Coast: This is the fastest way to get ocean cargo to the United States and get it cleared before the additional tariff goes into effect. So what’s your west coast strategy if you are ultimately shipping to the mid-west or east coast? Will you clear Customs on the US West Coast and warehouse locally or transload and truck across the country to the final destination? Will you have your carrier or logistics partner cancel the IT and then clear Customs on the West Coast and move via rail to final destination already precleared? There are pros and cons to each of these scenarios and make sure you have vetted each of them with your team and partners.
9. Trucking: Work with your logistics partners and coordinate closely with the dray carrier and make sure they have enough power and can accommodate; you may have to create a pre-pull and storage strategy just in case. Expect additional chassis and possible detention charges as containers are pre-pulled and have to wait for delivery to an already full warehouse.
10. Raise your prices: What's your strategy to raise prices? What, how and who will communicate to customers? How quickly can you do it? Are sales on board? Do you give two tiered prices to customers, one with tariffs one without? What's your plan for more longer -term contract obligations that preclude you from raising prices?
11. Airfreight: What’s your airfreight procurement strategy for June and July if the tariffs go into effect. You may not have time to move product to the US West Coast by ocean, but you may have time and the ability to move product by air. How does moving cargo by air compare to paying 25% in additional tariffs? If it is advantageous to move by air, make sure you and your air partner are having conversations to put a plan in place so that when you decide to shift to airfreight, all stakeholders are prepared.
So... LOTS to do. We have the unfortunate advantage that we just lived through this since mid-2018 so can help guide along the way. Many of you may go from 0 to 25% virtually overnight so this can and will have a big impact on you and your business. We are here to help as your partner, and will walk with you through the process to put you in the best opportunity to minimize your risk to your supply chain other than the obvious risk posed by an unforeseen or unplanned 25% increase in duties. Should you need any additional information or assistance, please feel free to contact your Laufer sales or CHB customer support personnel. Thank you very much for all your support!
Have the News Delivered to you
Like what you see here? Why not let us send it directly to you?
Sign up to receive our Weekly Industry Newsletter, a compilation of all news articles that matter to you and your business.