In the spring of 2018, the U.S. government imposed a number of new and increased tariffs on imported goods from China. Many of these tariffs – on products such as steel, aluminum and solar panels – had a limited impact outside of the specific industries involved. However, as the economic trade conflict continues on, increased tariffs on Chinese goods are starting to have a much larger effect on the shipping industry as a whole.
The ongoing trade war has already greatly impacted global commerce – most noticeably in the shipping industry. This time last year, we saw a significant decline in air cargo that has yet to bounce back, followed by layoffs at major trucking companies. Considered to be the gateway for U.S.-China trade, the Port of Los Angeles reported a 30% drop in daily container traffic this February and forecasted a 25% drop in imports for March.
With no end in sight, the shipping and logistics industry will likely continue to experience the dramatic effects of tariffs from the trade conflict. If you move goods in or out of the U.S., you should understand the recent tariffs on Chinese goods – and how they could impact your shipping strategy.
- Diversity of import sources
With the increased tariffs on imports from China, many U.S. importers have started moving their production to facilities in other countries. Importers have also started creating safety nets by buying from multiple sources – thus having less risk of halting production if tariffs on Chinese goods continue to rise. As more companies begin sourcing from multiple countries, the number of smaller orders needing to be shipped – plus the number of locations shipping freight to the U.S. – will also increase. Diversifying supplier sources could result in higher prices and quality assurance issues for many shippers. With more orders coming from more locations, U.S. importers should keep a closer eye on their freight shipping logistics to optimize their shipping costs and establish new supplier relationships.
- Impacts on the retail industry
With at least 20% of the retail supply chain dependent on China’s consumer goods, this only confirms the need for diversifying import suppliers. In fact, the National Retail Federation stated that consumers and businesses have paid an additional $38 billion from the start of the trade war (February 2018) through September 2019. However, while some retailers may be forced to cancel or postpone purchase orders with Chinese suppliers until the economic conflict is behind us, this could be a costly decision – most supplier contracts have a penalty clause for not fulfilling the terms of the original agreement.
- Consolidating logistics
With the number of smaller freight shipping orders on the rise, companies will likely look for other ways to simplify their supply chains. Companies may look for a single logistics provider (or even take over these responsibilities themselves) to avoid contracting with multiple companies for warehousing, shipping, last mile delivery and more. This effort to consolidate gives more visibility into the supply chain and can help businesses react to potential foreign challenges sooner.
- Increased domestic shipping
Rather than looking for loopholes to avoid increased tariffs, some companies may instead choose to source from domestic suppliers. As domestic shipping routes inevitably become more congested, small and medium-sized businesses (SMBs) will need to find creative solutions to keep their freight shipping running smoothly. By working with a third-party logistics (3PL) company like Unishippers, SMBs have a better chance of getting their freight on the road during times of limited capacity.
If your business relies on imported goods, you will likely need to re-evaluate your sourcing choices, product costs and vendor relationships in the coming year. And even if your company doesn’t directly work with imported goods, you may still notice the impacts on your freight shipping logistics from extraneous world events such as the COVID-19 outbreak.
While the economic trade conflict between the U.S. and China has complicated domestic and international freight shipping logistics, it’s clear that companies who are willing to innovate and adapt their shipping strategies will come out ahead. Contact Unishippers for a free shipping assessment and learn how we can help you optimize your shipping strategy.
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Freight Class Tips to Know
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