Blog postsOctober 02, 2019
How to hit a moving target: Managing tariffs & other supply chain uncertainties
The trade wars wage on, but navigating them comes down to your supply chain
Keeping up with what’s happening with tariffs is hard, let alone making sure your business is prepared for it. We recently published a post about the trade wars and and five ways retailers and brands can better manage tariffs with a flexible supply chain and warehousing and fulfillment strategy.
But, even since then a lot has changed. Here’s the latest.
What’s happened since August
As the trade war continues, retailers and brands are finding it increasingly difficult to track the moving target that tariffs have become. One day it's this, one day it's that, which only increases concern and makes it even more difficult to strategize on what to do with your goods.
The war wages on:
- August 1st: Announcement that $300 billion of Chinese goods will get an additional 10% tariff starting in September.
- August 13th: US splits the $300 billion worth of goods into two categories. Some of which will go into effect starting in September while the rest are pushed until December.
- August 23rd: In response to the U.S., China announced it will increase tariffs on $75 billion worth of U.S. goods including crude oil, automobiles, and farm products.
- August 23rd: The President responds that the U.S. will raise tariffs on $250 billion Chinese goods from 25% to 30% in October.
- September 1st: A 15% tax on more than $100 billion worth of Chinese goods went into effect, which was originally planned at a 10% increase, not 15%.
Tensions have eased, but concerns have not:
- September 11th: The October tariffs were pushed from the 1st to the 15th in respect of the 70th anniversary of the People’s Republic of China. This will give negotiators a chance to meet ahead of the next scheduled round.
- September 13th: In response, China is exempting some American products including soybeans, pork, and other agricultural products from additional tariffs.
- September 18th: Meanwhile, concerned parties (nearly two dozen U.S. lobbying groups) are forming a Tariff Reform Coalition in the hopes of getting congress to take greater control over trade policy and increase oversight over the president’s use of tariffs.
Tariffs are a supply chain problem
The next set of trade talks are set to take place on October 10th. While tensions have eased slightly, things didn’t end well during the last round of negotiations in May, and it’s anyone’s guess what will happen next.
But tariffs are just one of many supply chain disruptions that happen. Weather, natural disasters, and other unforeseen events are inevitable, and tariffs are a part of that. In order to protect your business, you need a degree of flexibility in your supply chain.
That’s where on-demand warehousing comes in. You can find capacity and services when and where you need them, without being locked into fixed contracts or long-term leases. And for situations like tariffs where there’s almost no way to predict what will happen next, it ensures you’re always prepared for the unexpected.
Below we’ve outlined five ways businesses can utilize on-demand warehousing and other solutions to manage tariffs.
5 ways to manage tariffs with flexible warehousing and fulfillment solutions
1.) Forward-buying and storing
To avoid or offset tariff costs, many retailers are forward-buying their inventory ahead of time to consolidate costs once they’re in place. By importing ahead of time, retailers can avoid paying additional fees, and save on costs for their business and their customers.
For instance, ahead of the Oct 15th and December deadlines, we expect to see an increase in FLEXE customers utilizing on-demand warehousing to store goods they’ve forward bought. Before the 30% tariff on solar panels, one FLEXE customer was able to purchase a large quantity of materials and then store them within the FLEXE network. Similarly, Ace Hardware did this with steel imports prior to that tariff being put in place.
2.) Prioritize best-selling inventory
With this next round of tariffs, virtually every product from China will have a tariff on it. Meaning the option to move categories to avoid tariffs will no longer be viable. Short of moving your supply chain to another country, avoiding these tariffs will become nearly impossible.
But by focusing on your best sellers and optimizing those imports, you can reduce costs and ensure you’re prepared for the upcoming holiday season—using your sales data to prioritize the right product lines. You run the risk of earning fewer sales with a smaller selection, but you’ll have more of the products you know you can sell, adding certainty to your short-term sales forecasts while you figure out your long-term strategy.
3.) Conduct a network optimization analysis
While you’re looking at ways around tariffs, consider how to make your network more efficient overall. Through a network optimization analysis, you can determine the most cost-effective network to save you on transportation costs and delivery times.
A proactive analysis of your distribution network shows you opportunities for improvement within your network. It provides detailed scenarios around network potential and outcomes and highlights the best locations to place your warehousing and fulfillment centers so you can shorten middle-mile and last-mile transportation.
4.) Expand your partnerships
Retailers and brands that have established wholesale partnerships with retailers can try and leverage those relationships to see if they’d be willing to take on more inventory. Typically, retailers that buy from brands that import goods either cover the import costs or cover a portion of them—helping you to share the burden of tariffs, rather then covering them all yourself.
This close to the holidays, it may be hard to renegotiate terms, but larger retailers should be better equipped to handle them and may be willing to help out a partner. In this scenario, it’s also appealing to forward-buy inventory and store for a smaller amount with an on-demand warehousing provider.
5.) Embed price increases into product pricing
Not ideal, but likely a reality for many retailers and brands is the need to embed the costs of tariffs into product prices. With nearly every Chinese import being tariffed, a lot of consumer goods are going to be impacted. The retailers and brands that sell them are very likely going to have to embed some costs into their product pricing if they want to remain profitable.
While embedding costs into product pricing certainly helps your margins, there are loyalty and sales concerns that also need to be taken into consideration. If you price too high, you run the risk of losing loyal customers to larger retailers like Amazon, Target, and Walmart who may be less affected by the tariffs and able to continue offering lower prices.
Key piece of advice: Go shopping for those shoes you wanted now.
Keep on-demand warehousing in your back pocket
In a world where your entire supply chain operation can be upended by a tweet, not to mention other supply chain disruptions like a natural disaster, future success hinges on your ability to adapt. Flexible supply chain and warehousing solutions like on-demand warehousing ensure you can respond to anything. With on-demand warehousing, growth isn’t stunted. Instead, you have a solution in your back pocket to evolve your business, no matter what uncertainties lie ahead.
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For more information on tariffs, here’s what we’ve been reading: