News / Shippers have hard choices to make, says GSF, as tariffs begin to bite

© Ratz Attila

With a range of tariffs to be implemented on Wednesday next week by the US, including the most recent announcement of 25% on all imported vehicles, shippers will need to make some hard choices – and likely pay some “hard dollars”. 

The tariffs are set to be paid by US importers, those established as an ‘importer of record’ and able to open a payment account with US Customs & Border Protection (CBP).  

“The US importer of cars may well be a subsidiary of a foreign manufacturer based in the US or an independent distributor, or their appointed Customs broker. But tariffs are paid in hard dollars by the importer or their Customs agent,” said James Hookham, director of Global Shippers Forum. 

But the ramifications of the new trade barriers will only be discovered once shippers have made some choices, he said. 

“The real impact on trade and economies will come from the way that US importers respond to this additional cost. Do they ‘pay and absorb’, and take a hit on profits, and their share price?  

“Do they ‘pay and inflate’ – pass the cost on in higher retail prices and probably lose market share to home-produced products? 

“Or do non-US manufacturers look to reduce their export price and effectively pay the tariff themselves, but at least maintain their current prices in the US market?  We call that ‘pay and squeeze’.” 

There are of course other options – but not quick ones, and the benefits could change overnight. 

“The other option would be to avoid the tariffs by relocating production to the US, which several manufacturers have been doing or saying they will do, only now they have the tariff amount and a date to do the costings and see if this would be worthwhile.  

“And a fifth option is to avoid the tariffs by sourcing from a non-tariffed country. This is not available for the automotive tariffs, as all car imports are tariffed, as was steel and aluminium earlier this month.” 

But whatever option you choose, there will be pain. 

“The point often overlooked is that whereas tariffs bite from day one, the above effects will play out over time (relocating production could take years) and US entities will carry the cost of the tariffs in the short-term.  

“This will cause pain locally and is probably the reason for the current uncertainty in the US stock markets and the US economy in general. I think this is what the president meant when he spoke of ‘a little local disturbance’.” 

Mr Hookham had some advice for shippers. 

“As importers, US shippers should be looking out for the official listing of the Customs classification codes affected by this announcement in the Federal Register, so they can check for any exemptions or other conditions. These are then uploaded to the US Harmonized Tariff System in time for formal application to all shipments presented for clearance by US CBP from 00.00 on 2 April.” 

He added that there were three practical points for shippers to note – the first of which will involve “difficult conversations for the sales teams”.

“First, it takes the best part of a month to cross the Pacific, and a couple of weeks to cross the Atlantic, so exports at sea now (and possibly already sold to a US customer at an agreed price) will become tariffed when they arrive. 

“Secondly, all terms of sale (incoterms) specify that the buyer of the goods pays for border clearance, except on delivered duty paid (DDP) – and the only trade done on those terms is ecommerce most of which is (currently) exempted from Customs and tariffs if under the $800 de minimis value.” 

Finally, he advised: “Check the official federal register listing as not everything may be at the headline tariff rate and the tariff may apply differently to different classification codes.”