Whether you endorse or decry the strategy, it’s clear that the escalating exchange of tariffs between the U.S. and other countries is not going away anytime soon. The unpredictable roller coaster of tariffs in the last year has led to growing trade tension and shifting trade dynamics with countries like China, Canada, Mexico and Turkey.
For third-party logistics providers, the current state of affairs presents both new complexities and new responsibilities—but also new opportunities. While this trade instability persists, logistics providers’ ability to serve as true counselors and problem-solvers for their clients will be essential.
With new tariffs constantly emerging, third-party logistics professionals must think on their feet. They need to understand and appreciate what products (and in what forms) are subject to tariff taxes, and be willing and able to help their clients identify opportunities to recapture some of those taxes to lessen the impact on the organization’s bottom line. Clients expect their logistics partner to mitigate the extra cost of tariffs through other means, as well, such as localizing products in lesser amounts. Providers need to continue to get smarter and more strategic with respect to production and distribution locations as well.
The following tips will help third-party logistics providers achieve some of those goals, navigating today’s rapidly shifting tariff landscape and mitigating the financial impact of the current trade war. In the process, both clients and providers will be better able to position themselves for continued flexibility and resiliency going forward.
Now is the time for clients to head to the negotiation table with their supply base. We strongly advise our clients to use the current circumstances as a negotiation tactic to try and get as many pricing concessions as possible. Approaching a steel supplier in Canada, for example, and informing them that you can get a better deal here in the U.S. might secure those concessions without requiring costly and complex adjustments to your existing supply chain.
Look closely at any available duty exceptions, and identify opportunities to leverage those exceptions to your clients’ advantage. The high-profile 25 percent tariff on raw steel imports from Canada and the EU might be avoidable if a manufacturer purchases the steel and ships it to an outside processor before bringing it into the U.S. Modest changes to a product or tweaks in the supply chain may make it possible to bypass tariffs that would otherwise be costly or prohibitive.
Conduct an audit
In today’s environment, it makes sense to conduct a full-blown audit of the Harmonized Tariff Schedule (HTS) codes that apply duty rates globally to different commodities. Third-party logistics providers need to ensure that, whether the product is steel or potatoes, the HTS codes applied by U.S. Customs are accurate and valid. Within the category of steel alone, for example, there are literally thousands of different HTS codes. Errors are surprisingly (or perhaps, depending on your perspective, unsurprisingly) common.
Utilize duty drawback programs
Another strategy is to make efficient use of duty drawback programs, especially with respect to temporary bonds. When material is imported, processed or altered and shipped back to its country of origin within a certain time frame, clients can file through a temporary import bond instead of a their standard continuous import bond. Logistics providers should be diligent about ensuring that all clients with a supply chain that ships freight back are doing so through a temporary bond. If not, they can apply for a duty drawback—essentially a refund from U.S. customs. Duty drawbacks can also recoup funds in the event of mislabeled/mischaracterized material or misfiled documentation. Mistakes are all too easy to make, especially when dealing with massive volumes of customs import entries.
Finally, advise clients to create a direct ACH (automated clearing house) account with U.S. customs. Duties can be paid one of two ways: either through a contracted customs broker who makes payments on your behalf and subsequently invoices you/the importer of record, or through a direct ACH account with U.S. customs. With the first option, importers are typically paying a disbursement fee (typically 1-3 percent). While this wasn’t usually a significant sum with the modest to minimal tariffs in the past, it can now add up to a painful chunk of change.
While these practical and specific steps can all be impactful, third-party logistics providers should remain cognizant of the big-picture, recognize the value of staying nimble in the current environment. With circumstances changing constantly, maintaining strict record-keeping and regular audits is essential. None of these measures should be a one-time check list item. Navigating turbulent times requires a full-blown maintenance program that should continue indefinitely. Taking the time and investing the resources to set these systems up correctly before mistakes happen or circumstances change can help you avoid missteps and missed opportunities in the future. Don’t scramble and patch holes when your vessel springs a leak in the rough seas of a trade war—instead, do the proactive work and ongoing maintenance that it takes to make your operation seaworthy for years to come.
Drew Janney is Vice President of Operations at Michigan-based Argus Logistics, a non-asset based, third party logistics management provider with operations across the globe. To connect with Drew, email firstname.lastname@example.org.