The 2:00 Minute Warning

The tariff war has created massive disruptions in global supply chains. That’s what happens when you take the world’s largest exporter (China) and the world’s largest importer (the U.S.) and fracture that relationship. Until the 145% tariff with China was suspended for ninety days on May 12, trade had slowed significantly. Now with the combined tariff with China standing at 30%, there’s a rush to move goods from China into the U.S. before the 90-day grace period ends on August 12. 

However moving these goods may be easier said than done because the surge in demand for space on vessels exceeds the available capacity. Similar to what happened in the post-covid world of 2020 and 2021, a lot of companies are scrambling as they try and get stuff moved instead of having to deal with the risk of the unknown – a.k.a. what will happen after August 12.

That’s why our team here at TranzAct has asked me to share two considerations for shipping conditions in the wake of China and the U.S. getting back to business. 

First, space is going to be at a premium. We are starting to see a replay of the post-covid days. With space at a premium and uncertainty in the air, container rates are starting to go up – way up! While we haven’t seen the massive cost increases of 2020 or 2021 yet, we have seen carriers make a concerted effort to reduce capacity. Whether it’s things like seeing blank sailings in the first week of April exceeding the high point in the pandemic or hearing about ocean carriers “slow steaming” their vessels, the ocean rate “escalator” is going up!

For example, the average price to move a 40-foot container from Shanghai to Los Angeles rose 16% last week from the previous week according to the Drewry World Container Index. And some experts are predicting that with peak season type surcharges, the cost to move a container may double over the next four to eight weeks. And no one is venturing a guess in what the holiday shipping season is going to look like. 

A second consideration is that the variability and lack of predictability could impact your cash flow and cash conversion cycles. 

If you’re concerned about your cash flow (and frankly, who isn’t) there are two very important issues to address: First, blank sailings, slow steaming and continued trips around the Cape of Good Hope, may increase the number of days it takes for your goods to reach your facilities. Depending on the Incoterms you have with your foreign suppliers, this could increase the number of days in your company’s cash conversion cycle.

Second, the current plan for a tariff resumption with China on August 12 is causing many companies to pull forward inventory in a significant way. Absent having stress tested their inventories (which most companies have not done), companies could have excess inventory and deteriorating inventory turns. Here is an important question: “What does one, twenty or thirty days of excess inventory cost your company?”

One final note to consider. Our consulting experts have found that companies are paying too much in tariffs because certain items are erroneously being included in the cost of goods. Companies need to make sure that various tariff costs are not being included in the costs of goods themselves.

There's much more to cover, but we'll stop there for now.

If you’re wondering how to account for all the possibilities and make sure you're not paying too much do yourself and your company a favor: Give me a call, send me an email or schedule a time to meet so we can discuss how TranzAct’s Tariff Management Plan can help your company be more proactive in addressing important tariff issues and eliminate a lot of your tariff headaches.

Two other items to address before closing. First, we have a great resource that will bring you up to speed on the tariffs. In case you missed it, our second webinar on this topic that took place on May 7 got outstanding feedback. People loved it because we had a panel with experts from Thompson Hine and John Janson, VP of Global Logistics at SanMar, sharing some great insights and action items.

Second, on June 3, I will be on a panel for a National Industrial Transportation League webcast that looks at the first 120 days of the Trump administration and what it means for shippers, plus what to anticipate through the rest of the year. If you are interested, let me know and I will send you the link to register.

If you have questions about any of this, we’re here to help and encourage you to get in touch.

BY MIKE REGAN, CO-FOUNDER OF TRANZACT

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