How is the “trade war” affecting your business?

This is the most common question we are asked these days. The simple answer is “not much, yet.” However, we’ve seen some interesting impacts on our clients and factory partners. 

Sudden tariff increases

This past June, one of our clients noticed that the tariff for their product was taxed at a rate of 25%, when it had been taxed at 3% only 6 months prior. The rate increase cost them an extra $8000 and increased their landed unit cost by almost 22%. Although they (and we) knew about broad announcements of rate increases, we had no way of knowing which categories would be hit, until it happened. Frustratingly, at the time, their product category was still listed by the US Government website as 3% on the HTSUS official website, although as of Sept. 1 there is a new addendum posted on the site regarding China tariff hikes. 

Screenshot 2019-10-31 16.19.32

None of our other clients have experienced any import tariff increases so far, but nobody really knows what rate they will be charged on their imports until they get the bill from US customs, after the fact. 

Longer delivery times

Another area where we see a change is budgeting for delivery times from China. Over the past year we have noticed increased port traffic that has slowed many of our clients’ shipments and more regular customs holdups. The congestion in the port of Los Angeles caused one of our clients to wait almost an extra month for their goods to be cleared for delivery. As a result, we are advising our clients to budget an extra 1-2 weeks for customs clearance, which adds up to a roughly 25% increase in delivery time for our clients. 

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Photo source: https://www.greenworldwide.com/los-angeles-long-beach-port-congestion-persists-into-2019/

 

Considering exiting China

The final impact we’re seeing is one of inquiry. 2 out of our 6 biggest clients have asked us a question in the past 6 months that they never asked us before, which is “Should we look for new vendors outside China?” Our freight forwarder also noticed that their clients are more likely to be investigating sourcing options in SE Asia (especially Vietnam) or asking their current manufacturers to move or expand out of China. 

 

In sum, we’re not seeing import rate increases across the board or a mass exodus from China, but we’re not seeing a whole lot of good news for our clients or our business due to the Trade War. 

How about the Chinese factories?

 

Tune in next week for news from our Chinese factory partners and how the Trade War is affecting their businesses. 

We love your questions!

ola@thayer-consulting.com

 

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