A candid discussion with Abe Orgel on what’s unfolding with new tariffs, what’s still uncertain, and how businesses like yours should be thinking about their next moves.
After having a similar conversation with a large number of you, obviously the number one questions is: “Is it really 45% on goods made in China?”
Yes! Apparently it is.
The bigger question to ask is what can we do about it.
Unfortunately, the latest 20% is across the board, even on goods that have been excluded from previous tariffs. Whether it previously had a tariff of 25% or 7.5%, it is now subject to 20%, and that 20% is on top of anything else. So to confirm: Be it duties or tariffs, you now have another 20% on top of it all.
While there is nothing to do about it,there is never a bad time to ask what can be done to reduce costs.
Here are a few actionable tips that I would like to suggest.
1. Evaluate the commercial value listed on your commercial invoice.
2. Ask your vendors for discounts.
3. Look for alternative countries.
4. Find cost savings in your shipping to offset the added cost of duties.
Let’s break them down.
Commercial Value
The lower your commercial value, the less duty you’ll pay.
The debate on what adds commercial value has been ongoing for many years. The rule of thumb is this: Anything that does not add value to the product the way its sold to the end consumer is not considered dutiable. However, there is debate on specific value adds – where it’s a question whether it acts as a value add to the product or not.
Let’s say for example, you are importing fragile items and need your supplier to add foam or bubble wrap for each unit.Your supplier charges an additional 10% of the product cost in order to do that. Is this considered part of your product cost and therefore dutiable? What about individual wrapping each unit to be able to just place them on the shelves without having to repackage them in the USA? Product design?Instructions manual? Safety testing? And the list goes on…
(Disclaimer: These are my thoughts based on my view from a customs brokerage and logistics standpoint, nothing that I write should be taken as legal advice.)
Packaging
On the matter of packaging, especially with fragile items, if the packaging is to prepare the goods for transportation it is therefore considered dutiable value (Source: https://rulings.cbp.gov/ruling/546690).
On the other hand, if the packaging is merely for the display of the products “after” they are delivered in the US and is not needed for the safe transportation of the merchandise, it is fair to say that cost will not be dutiable.
Another way to reduce the packaging cost is if you can prove that the packaging is reusable in and of itself. (Consult legal counsel before doing this)
Branding
On the topic of branded material on your items, payments made to a third party is not considered dutiable. But if you make extra payments to your supplier for branding, customs will consider it part of your cost and it will therefore be dutiable.
Safety Testing
The cost of safety testing (usually done for children’s products and hazmat products) is not dutiable if done by a third party laboratory. But if it was done by the supplier, it will be considered dutiable. This holds true even if your supplier hired a third party to do it on your behalf. It is recommended to contract the third party yourself or ask your supplier for the payment to be done from you directly to the third party lab testing facility, and not pass through the supplier.
Instruction Manual
Instruction manual creation is very similar to branding duty-wise. The extra cost is not needed for transportation internationally but since it is usually paid to the supplier, it might be considered dutiable. It is best to pay the third party directly for the creation of the instruction manual.
Mold Fees
If a mold was manufactured by the manufacturer it is considered dutiable, even if it was billed on a separate invoice. Furthermore, even if the mold is provided by the importing US company(purchaser) free of charge, it is still considered valuable and will be part of the imported value.
Asking for Discounts
Simply put, it’s time to negotiate for the best possible deal. That’s what Trump does, isn’t it?
Suppliers will consider giving you a break to continue doing business with you.
Discounts can be just good old-fashioned price reductions or extended lines of credit and offering handling of your shipments (DDP) for a discount.
The best is probably a price reduction.
If they offer free or discounted shipping, be wary of their intentions and the intentions of their subsidiaries and agents.Especially knowing that tariffs now make up the biggest portion of shipping costs, it is possible that they intend to falsify documents or declared value.
That’s why it is so important to ensure you are not the importer of record when they arrange the shipping for you.
When you select DDP it means that you are buying the goods landed, delivered at your door. It is not your business to know how they got it there. But if you or your company name is the importer of record, customs will hold you responsible for anything submitted in your name – so of course you want it to be with the utmost compliance. (This is not to say that your supplier does not have to oblige by the law, but you get the point here.)
An extension of payment terms is also very beneficial. It allows you to stockpile inventory now before further tariffs on China take effect, and it also would allow you to ship more inventory during low season when shipping costs are cheaper.
Looking for Alternative Countries
Now more than ever is the time to expand your horizons and start looking for manufacturers in different countries.
They can be in Asia but they can also be in Africa and Europe. There are factories waiting to be utilized. They’re usually not as convenient as China but if that’s what you have to do then you know what to do.
Reciprocal Tariffs
One very important factor is the pending reciprocal tariffs that our president is planning to announce on April 2nd.
VAT (Value Added Tax) will be considered as part of the reciprocal tariff. The intention is to retaliate against those nations who have a VAT imposed upon importation to the US (which quite frankly most of the world has).
Expanding to different countries that have a high VAT might be a temporary relief but you might be faced with increased tariffs very soon. It will still be cheaper than China for the most part but keep it in mind especially because many other countries have higher manufacturing costs too.
Aluminum and Steel Products
Another thing to keep in mind when looking into alternative countries is that if your product is made of aluminum or steel (either wholly or partiallly) it will be subject to the Section 232 tariff that is supposed to go into effect on Mar 12. That tariff will be 25%.
I am not saying here that there is a country that you will be able to hide from this tariff. But back to my previous point: Most other countries are already higher priced for manufacturing and so with the Section 232 you might not have any cost savings or at least not much when considering alternative countries.
Find Cost Savings on your Shipping
This is probably the best section, but I will write the least on this topic.
(Hit me up if you need to know more! You have my number and email address. This is my occupation and I would LOVE to find another cost savings gimmick for you.)
Shipping is not a one size fits all and is therefore not something that can be fixed with one quick tip. Also, what works for you might not work for someone else and what works for them might not work for you. Furthermore, what works now might not work in a year from now!
That being said, here are some very common cost savings that I help some of you to take advantage of.
They could be many, including but not limited to:
1) Delivering direct to the end customer,eliminating 1 or 2 warehouses in-between,
2) Consolidating multiple LCL shipments into full container loads,
3) Prioritizing shipping during the low season (especially if your supplier grants you a more favorable line of credit)
4) Optimizing your supply chain to cheaper and closer ports to the point of origin etc.
Let me finish off with a quote: “You can’t stop the waves, but you can learn to surf.” – Jon Kabat-Zinn
But of course I can’t leave out my old time favorite (wink wink): “A smooth sea never made a skilled sailor.”– Franklin D. Roosevelt
Happy and smooth sailing.
I’m here if you need me.
Your truly.
Abe
