The Trump administration’s latest tariffs policy, which has been directed mostly at China, is dangerously disruptive, particularly the impact it’s having on American supply chains. As the 90-day U.S. tariff reprieve for other countries has ended, American businesses are increasingly experiencing the effects of increased tariffs. And experts have been sounding the alarm about the risk of catastrophic, irreversible damage. This would affect nearly every consumer goods sector from furniture to toys, and apparel to sports equipment.
The administration’s tariffs have climbed as high as an incredible 145% on some imports from China. This extreme step is causing hundreds of thousands of American businesses to reconsider where they source their inputs and where they produce their goods. Stephen Lamar, CEO of the American Apparel & Footwear Association, noted that the situation is reminiscent of the supply chain challenges faced during the pandemic.
As duties rise on various commodities, the logistics provider industry is learning to adjust to this new norm. Businesses are using bonded storage to permit freight to clear customs in the U.S. shores without having to pay tariffs right away. This strategy will quickly prove inadequate as the landscape of tariff uncertainty escalates.
Supply Chain Disruption
Beyond damage to American families and businesses, the Trump administration’s tariffs have had unintended consequences in the logistics and supply chain industries. Most shippers are taking a “wait and see” attitude, draining their inventory pools as they ride out these choppy waters. Even Maersk, the biggest global ocean carrier by market cap, has become alarmed about this skittishness among shippers.
Brian Bourke, chief commercial officer at SEKO Logistics, stated that bookings for containers out of China have resumed following the expiration of the 90-day reprieve. This jump in bookings hasn’t solved the larger supply chain challenges.
“The constant switchbacking means new tariff costs are not accurately presented or predictable until the goods arrive at the port, and the high rates are generating bills that can’t be paid. That is not a risk or burden small business can sustain.” – Stephen Lamar
Lamar’s remarks highlight the precarious situation many businesses find themselves in as they struggle to cope with unexpected costs and delays. Then you have the New York Terminal Conference Agreement, which goes even further. After 30 days at terminal, cargo is considered abandoned and may be sold to recoup demurrage fees.
Abandoned Cargo and Demurrage Charges
In the face of increasing tariffs, companies like JS Cargo & Freight Disposal are taking advantage. Other companies, like Freight Auctions and Merchandise USA, are cashing in on unwanted cargo. These companies essentially purchase the freight that businesses otherwise would be unable to pay to retrieve. They take these goods and resell them to discount retailers and through e-commerce channels. This trend is an ominous harbinger of a deeper market trend as companies struggle with orders being canceled and freight left behind.
NYTC sets demurrage charges to discourage excessive freight storage at terminals, placing additional financial burdens on businesses that are already suffering. As a courtesy, shippers will often fill out a “letter of abandonment” for U.S. Customs. They make this drastic decision only after it becomes financially impossible to get their cargo back. This practice is a particularly egregious example of the pitfalls one might face when navigating the vast and often treacherous landscape of an erratic trade environment.
Sourcing Stephen Lamar, head of the American Apparel and Footwear Association, focused on the need for immediate, clarifying trade policy.
“An extension of the trade war pause to U.S. imports from China is needed now before the damage is irreversible.” – Stephen Lamar
This feeling is reverberating through several industries as businesses reconsider their future plans amid a tidal wave of tariff changes.
Moving Production Overseas
In reaction to increasing tariffs, businesses of all kinds have been forced to consider ways to move their production away from China. At the same time, countries such as Vietnam and India are emerging as attractive alternatives. Businesses are growing more interested in these countries to lower risks associated with U.S.-China trade war. There are significant downsides to moving production.
Retail expert, Alan Murphy, recently described some products are easier than others to find substitutes or source same products from other manufacturers. For higher-margin goods such as electronics and machinery require a large amount investment and time to establish new manufacturing processes.
“Furniture producers in China have seen a complete halt in orders from U.S. importers, and we’re hearing the same across toys, apparel, footwear, and sports equipment.” – Alan Murphy
The current unpredictability around tariffs makes these decisions even tougher. If this much money is already floating around, companies will be reluctant to over-invest in new production lines. They worry that unpredictable tariff changes could happen at a moment’s notice.