News / A 'genius evolution' as US retailers adapt to beat tariffs, with a switch to ocean

US importers are trying a variety of tactics to reduce the impact of tariffs, from shifting sourcing over supply chain optimisation to tariff arbitrage.

And with the full brunt of duties yet to unfold, collaboration with supply chain partners will be critical.

Worries over inflation are affecting US consumer spending plans for the holiday season, with 79% in a recent survey stating they don’t intend to spend more on purchases than they did a year ago. More than half (56%) cited import tariffs as impacting their purchasing expectations.

They will be looking for deals and intend to counter rising shipping costs – 72% naming free return shipping as their most important factor in a returns process and 57% noting that it influences where they purchase.

Retailers are bent on softening the blow from tariffs. American Eagle Outfitters aims to cut its costs in the second half of its fiscal year to $70m, down more than 60% from a projected impact of $180m, without any mitigation action.

The firm is pursuing a multi-pronged strategy that includes price increases, cost negotiations with suppliers, shifting sourcing with a strong focus on reducing intake from China and Vietnam, as well as aiming to use the most effective transport solutions.

In the ecommerce arena, ITS Logistics sees a trend away from direct shipping to consumers by inserting a wholesale platform in the US, changing the process to a B2B2C model. Seamless for the consumer, it reduces tariffs, as these are levied on the wholesale value of the goods in lieu of the retail price.

According to a recent report by CNBC, this makes a difference of 30% to 60% on the tariff.

“We’re now seeing ecommerce companies implement a tariff arbitrage strategy in response to the ongoing changes in global trade,” said Josh Allen, chief commercial officer of ITS Logistics.

“These companies include everything from the luxury sector down to those that provide what are considered to be lower-valued goods. This strategy is being leveraged to mitigate shifting tariff impacts and keep overall costs down for their consumers.

“It is a genius evolution in how companies are adapting to the economic impacts of tariffs and global supply chain management overall.”

This has repercussions for supply chains, though. It reinforces the shift from direct flights from international ecommerce origins to the US to volume shipping by ocean carrier. Moreover, warehousing becomes a significant factor.

“As companies further leverage this tariff arbitrage strategy — especially during peak seasons with returns — US warehouses will need to be used more by retailers in strategic areas to avoid sending products back overseas, thereby incurring a new tariff fee,” ITS exxplained.

Bob Imbriani, SVP international at forwarder Team Worldwide, noted another aspect increasing the need for warehouse space.

“Companies look for bonded warehouses in the US, allowing them to delay or defer duties,” he said, adding that others are looking to get FTZ sub-zone designation for some of their facilities.

The US is becoming less of a transit point for international flows, believed Mr Imbriani. Companies that used to bring in goods from overseas, with some going on to Canada, are now routing shipments directly to Canada, he said. Nestlé used to cover half its Canadian sales from US distribution points, but now supplies 100% direct from Europe.

Supply chains themselves are part of the catalogue of tariff reduction efforts retailers have on their radar. Global sourcing patterns and supply chain optimisation are two of the elements of Under Armour’s strategy, alongside pricing and cost-sharing initiatives with key partners. Last year the company began an overhaul of its distribution and logistics operations. At the same time, it is striving to reduce inventory and targets a 25% reduction of its SKU count.

Inevitably trimming logistics expenditure is part of the effort.

“We see more pressure from customers to reduce supply chain costs,” Mr Imbriani reported, but added that clients were aware that this was not likely to yield huge results, illustrated by years of such efforts triggered by the pandemic and subsequent supply chain upheaval.

“If this had happened six year ago, there would have been enormous pressure on logistics providers to cut costs,” he said. At this point there appears to be more focus on supply chain visibility, to know where shipments are than on trimming costs, he added.

According to the Organisation for Economic Cooperation and Development, the full brunt of the tariffs is yet to unfold, which suggests further turmoil ahead.

Mr Imbriani emphasised the increasing need for a collaborative approach.

“Global import/export has become more complex than ever for all parties. We all have to address this together, in partnerships between customers and supply chain providers,” he said.