In an uncertain international trade environment, “trade war” has become a buzzword sending importers into a frenzy on how to prepare their supply chains for the unknown and mitigate risk to their forecast.
Proposed tariffs, retaliatory trade restrictions, or even temporary reductions on tariffs can amount to massive financial miscalculations for those not fully equipped to navigate the intricacies of import procedures and product-specific regulations. For example, importers who have access to their trade data by part number and sourcing matrix have a distinct advantage when responding to the C-suite’s question, “What does this mean for us?” The ability to take preventive or responsive action hinges on the readiness of easily accessible and accurate data.
While trade reports like those from ACE or MADB can provide the basic impact, they do not allow for drilling down into your supply chain and scrutinizing at the item/part level. Customs brokers with access to ad-hoc queries and reporting capabilities within a customs management system have the advantage of accessing trade data in real-time, taking the panic out of deciphering how swift changes in trade policy will affect customers and their supply chains.
Are your goods really duty free?
If you’re still receiving hard copies of documentation or manually searching through the Harmonized Tariff Schedule (HTS) for qualifications, it can be costing you more than labor hours. Here are a few real-world scenarios:
Importing furniture into the U.S., with the exception of some categories, has historically been duty-free. However, on September 24th, 2018, tariffs increased on over 6,000 products from China, adding an initial 10% duty to the cost of U.S. furniture imported from China, which is among their top three highest value exports. These additional duties will increase from 10% to 25% on January 1st, 2019. A furniture manufacturer in the U.S. importing raw materials would feel the same pinch of rising costs and slimmer margins with the June 1st tariff on steel and aluminum. Major retailers would likely feel the pressure to increase their prices to offset these increased duties, while manufacturers would be forced to evaluate new sourcing options and long-term design to meet specific product formulations.
Plastics, specifically for packaging, typically carry a general rate of duty from three to six percent. The new rule will compound those rates to 13 percent, jumping to 31 percent at the first of the year. Importers of these products span many U.S. industries, causing the cost of packaging consumer goods to increase by 10 to 25 percent when sourced from China.
Engines, namely, compression-ignition internal-combustion piston engines for agricultural or horticultural machinery or equipment, hold a general rate of duty of free, however because this HTS is subject to Section 301, the rate of free is followed by 1/, indicating that this product may be subject to supplemental duty treatment when the goods are a product of China. In this example, a U.S. importer of these engines would have a forecasted duty impact of $0 for the 2018 calendar year, and therefore cost of goods sold (COGS) of their American-made agricultural/horticultural machinery or equipment would not have been affected by duty cost of the imported Chinese-made engine. However after July 6, 2018, that same importer now has an increase in COGS equal to 25 percent of the import value of the Chinese engine, creating a drastic swing in forecasted costs for the year.
Adapting to change in global trade
With the mere mention of imposing tariffs causing market changes and price fluctuations to ripple through the supply chain, the cost of complacency is high. Waiting to react to policy change or delaying the implementation of technology to handle unique compliance requirements can have significant and costly implications for those dealing with cross-border trade.
Companies have already begun deploying contingency plans and stockpiling inventory to avoid the next round of duty changes, but customs handling must become more proactive and efficient to scale with changing policy and tariffs. Customs and compliance software can automate declaration execution, connectivity, document management, VAT/Duty accounting, and status notification, as well as provide tracking and visibility across the entire declaration process.
Organizations can minimize compliance risk, reduce fines and delays, and more easily adjust to changes in trade strategy and volume with a SaaS-based customs management solution. With electronic customs compliance, the ease of extracting data allows more time for strategy and collaboration within supply chains to leverage opportunities for diversification.
Michelle Frennier is Director, Solution Consulting, at BluJay Solutions, specializing in customs and compliance. Over 45 million electronic customs declarations are cleared annually using BluJay’s global customs solutions.