The U.S. economy is experiencing a new inflationary pressure as several sectors have recently reported rising prices even as tariff debates continue to roil the markets. Ryan Martin, president of distribution and fulfillment for ITS Logistics, said an increasing number of customers are changing their pricing practices. Now the U.S. is looking at a possible as high as 50% Chinese tariff. This new enforcement dynamic has retailers very concerned about the long term impact on their pricing and inventory control.
Six months later, the effects of the tariffs are becoming clearer by the day. According to Peter Sand, chief shipping analyst at Xeneta, the decline in average spot rates is unprecedented. Since June 1, rates from the Far East to the U.S. West Coast have dropped by 39%. If this trend holds, shippers can expect to see similar declines on the U.S. East Coast in the not-too-distant future. Zachary Rogers, an associate professor of supply chain management at Colorado State University, underscored that inventory growth has slowed dramatically since June. He further narrowed his expectations of price increases to between 8% and 15%.
Tariff Threats and Their Impact
The threat of a 50% tariff on Chinese goods by former President Donald Trump continues to loom over the retail sector. Retailers are under intense pressure, as most cannot afford to bear such elevated tariffs without passing additional costs onto American consumers.
Martin underscored the unpredictability of pricing and current inventory in the market. He remarked, “Indecision is the best decision right now with shippers because of all the tariff talk.” He further highlighted that many companies are opting to maintain lean inventories, stating, “No one knows what will happen tomorrow or understands the cost structure. It’s better to have lean inventories in this case.” This conservative orientation is reflective of a larger trend in retail as retailers are afraid to go out too far with ever-changing costs.
Nike was one of the biggest losers from tariffs, taking a $1 billion hit. After a difficult price increase in their core refreshment business this year, the company hit a wall. Martin indicated that this trend of re-ticketing prices has been reminiscent of the pandemic’s peak but remains lower than during that period. He advocated against this as he witnessed widespread re-ticketing during the pandemic. During the next decade rates hovered in the low 30s to high 40s percent.
Changing Dynamics in Shipping and Supply Chains
The shipping landscape is experiencing significant shifts with carriers and trucking companies adjusting to market demand as shippers renegotiate their supply chain strategies. Sand anticipates that shippers on the U.S. East Coast will soon experience similar drops in spot rates as seen on the West Coast. “It is only a matter of time before shippers do the same on the U.S. East Coast,” he stated, emphasizing that this shift will further affect pricing dynamics.
Bethann Rooney, assistant director of the Port of New York and New Jersey, has seen a recent, if minor trend away from global supply chains. This shift means sourcing from Europe and Southeast Asia. She painted this change as somewhat modest, projecting a shift of only 1% year-over-year. “The tariffs are certainly not going to impact us anywhere near as much as they are going to be on the West Coast because we don’t depend on China as much as our West Coast counterparts,” Rooney added.
In spite of all these changes, fears are still rampant when it comes to the upcoming peak season. Rogers highlighted that with so many empty containers still at ports, importers seem unprepared for the typical August-September surge in demand. “The fact that so many empty containers are still sitting at the ports suggests that importers are not expecting our normal August-September peak season,” he said.
Inventory Levels and Future Outlook
Current inventory levels illustrate how much of a departure we are seeing from normal, healthy market conditions. Rogers described how companies changed their game plan after the announcement of the first rounds of tariffs, the increase in costs, and uncertainty. “Even at present inventory levels, we already have a ton of inventory on hand, and with the tariffs that are still in place, I would expect that imports, particularly those related to manufacturing, will be lower than what we would have expected at the beginning of the year,” he remarked.
Martin reinforced this sentiment by noting a shift towards reduced inventory levels among businesses: “You are looking at three months of inventory on hand now versus six.” This recent modification is a sign of a new focus on reducing risks linked to unpredictable pricing and the possibility of future tariff hikes.
Even more troubling, inflation data has come in with larger-than-expected jumps. Accordingly, retailers have to be strategic about their pricing practices and keep a close eye on their inventory. Together, the perfect storm of these factors spells a dark reality for companies trying to operate during these times of tariffs and supply chain interruptions.