11 ways to help importers prepare for the fourth round of 25% Chinese tariffs
In September 2018 alone US Customs sent more than 1,200 insufficient bond notices to importers.
You may not have been directly impacted by previous rounds of tariffs imposed on imports from China. However, if the fourth round goes into effect and all 3,805 full and partial tariff subheadings are included, your business could suffer—unless you are prepared. Here are several things you can do to help mitigate the effects of the fourth round of 25% tariffs:
- Bond Saturation: In the event the fourth round of 25% tariffs goes into effect, immediately contact your surety company (usually through your Customs broker) and discuss how quickly and at what cost the valuation of your bond can be increased, and the amount of that If your bond becomes saturated, you will no longer be able to bring product through US Customs until the new bond is in place. In September 2018 alone US Customs sent more than 1,200 insufficient bond notices to importers alerting them to immediately increase the value of their bonds or lose the privilege to import.
- Cash Flow: Run through the scenario if you haven’t 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.? Work now to reduce your receivables and improve your balance sheet in the event the additional 25% tariffs go into effect.
- Credit Check: What’s your credit situation with your broker, forwarder, vendors overseas and are you able to “surge” if the additional 25% tariffs go into effect? Additionally, run through the scenarios if you have to import more product quickly, even by airfreight, to avoid tariffs.
- Duty Payments: Are you on your own Automated Clearinghouse (ACH) account with Customs and are you paying through Periodic Monthly Statement (PMS)? If not, start the application process now so you can leverage the up to 45-day float that Customs will give you for paying duty (as part of PMS).
- Ocean Volume Surge: The new 25% tariffs could go into effect in late June or early July—the beginning of the traditional retail peak season, when vessels begin to reach their capacity. Space is already becoming tight as importers move product shipments up so they arrive in the US as soon as possible. Bottom line: Make plans with your carrier or NVOCC partner that allow you to surge in volume, especially to the US west coast, where space will be extremely limited.
- Talk with Your Suppliers: Last year, many importers paid premiums to their suppliers to incentivize them to produce product 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 to have more product arrive before the tariff deadlines. Suppliers may have excess product either on track for production or in warehouses. Talk to your suppliers if there are other options, and be sure to ask what percentage of the tariff they will absorb, if any.
- Warehousing and Inventory Check: Can your distribution center handle volume surge? If you are using a common public warehouse, make sure they will be able to accommodate your surge and know their game plan. If you have a local overflow warehouse that you use, make sure they are ready as well. Finally, how would you handle a surge in inventory financially?
- Shipping to the US West Coast: This is the fastest way to get ocean cargo to the US and get it cleared before the additional tariff goes into 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 the final precleared destination? There are pros and cons to each of these scenarios so make sure you have vetted each of them with your team and logistics partner.
- Trucking: Work with your partners and coordinate closely with the dray carrier to 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
- Raise your Prices: What’s your strategy to raise prices? How will you communicate the increase to customers? How quickly can you do it? Is the sales team on board? Do you give two-tiered prices to customers, one with tariffs and one without? What’s your plan for longer-term contract obligations that preclude you from raising prices?
- 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.
For over 70 years, Laufer Group International Ltd. has established a complete logistics and service platform that helps customers improve the way they handle their logistics. Laufer Group International is headquartered in New York City. For more information contact our sales team at email@example.com or through the form below.