Michael Gorham
Director of Logistics and Supply Chain at Merkur.
Leader in supply chain management and operational excellence with 30 years of experience in manufacturing, logistics, and consulting, with proven ability to establish a vision, identify opportunities, and create solutions within an organization and among supply chain partners.
US customs tariffs can pose a major challenge for Canadian companies. Considering this reality, it is crucial to conduct a thorough analysis and implement short-term actions to mitigate these risks.
In this article, Michael Gorham, Director of Logistics and Supply Chain at Merkur, explores various strategies to minimize the impact of customs tariffs, such as cost analysis, diversification of supply sources, and optimization of the supply chain. By adopting these measures, companies can not only reduce their costs but also strengthen their competitiveness and resilience.
Analysis and short-term actions – Mitigating risks related to US customs tariffs
Analysis of regional content and origins of raw materials and finished products
To minimize the impact of customs tariffs, it is crucial to analyze the regional content and origins of raw materials, finished products, as well as other significant costs such as tooling. This analysis will allow us to identify opportunities to reduce costs and avoid high tariffs. Here are some actions to take:
- Assess the impact of the steel and aluminum tariffs on your business: quantify the impact of the new 25% tariffs on your business by doing a thorough review of HTS codes in your raw materials and finished goods portfolio, while identifying opportunities to mitigate the impacts.
- Prepare for tariffs applied to Canadian products: Although tariffs on all Canadian products are currently suspended, it is prudent to prepare for their potential implementation by assessing our supply chain.
- Evaluate the impact of the 10% tariffs from China: In addition to the tariffs already in place, the new 10% tariffs on Chinese products can increase import and production costs for Canadian companies. It is important to assess how these tariffs affect raw materials and finished goods and identify actions to minimize the impacts.
Positioning your inventory in the United States
Before the implementation of tariffs, one tactic is to position your inventory in the United States. Several companies have already successfully implemented this strategy. By quickly repositioning products (raw materials or finished goods) already in inventory in Canada or Mexico, we can avoid the new tariffs.
Here’s how to proceed:
- Validate your financial and physical capacity: To apply this strategy, it is necessary to have financial resources due to the potential impact on your working capital and warehousing costs. Obviously, it also requires additional warehouse capacity in the United States.
- Reposition existing inventories: Quickly transfer products in inventory in Canada or Mexico to the United States before the application of the new tariffs.
- Strategically increase inventories: Build up additional stocks in the United States to anticipate tariff increases and ensure continuity of operations.
Analysis and short-term actions – A review of sourcing strategies is a necessity in the face of US customs tariffs
Identification of suppliers, qualification, and implementation of suppliers in the United States
In the short term, it is crucial to adopt an effective supply strategy. This includes identifying and qualifying new suppliers in the United States. For raw materials such as raw steel or chemicals, this may be easier, but for complex components such as automotive parts, it may be more difficult.
Identify alternative suppliers and advantageous countries of origin
Analysis of internal manufacturing or "make or buy" from external suppliers
Optimizing the supply chain is also essential to minimize the impact of customs tariffs
Should a warehouse be established in the United States or should orders be delivered directly from abroad to minimize total costs, including tariffs?
Creation of a warehouse in the United States could reduce delivery times and improve customer satisfaction by offering faster service. Additionally, it would avoid some high customs tariffs on imported products. However, it is crucial to consider costs such as rent or the services of a logistics partner, operational fees, and IT integration costs.
Analyze the option of delivering directly from abroad. This approach could be more economical in terms of storage and management costs, benefiting from lower tariffs in some countries. However, it is important to consider the risks related to inventory management, fluctuations in customs tariffs, and other trade compliance factors.
It is essential to conduct a thorough analysis. Consider order volume, transportation costs, applicable customs tariffs, and customer delivery time expectations. This analysis will determine the most optimal solution to minimize costs while maintaining a high level of service. By following these steps, you can optimize your supply chain effectively and strategically.
Customs duty drawback strategy
The refund of customs duties (duty drawback) can be a lever for your company. If you have products that transit through a country temporarily, you may be able to get a refund of customs duties, including tariffs. For example, your Canadian company has a warehouse in the United States and imports goods into the United States to then re-export them to Canada. In this case, the refund of US customs duties can allow you to recover part of the paid customs duties. This refund mechanism can represent a significant cost reduction.
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Ongoing actions – The importance of a cost reduction plan to mitigate the impact of US customs tariffs
In an increasingly competitive and unstable economic environment, a company’s ability to reduce its supply chain costs is crucial for its survival and growth. A well-designed and quickly implemented cost reduction plan not only improves short-term profit margins but also strengthens the company’s resilience to market fluctuations.
An effective cost reduction plan is a major asset for any company wishing to improve its profitability and competitiveness. By focusing on execution speed and relying on a rigorous methodology, it is possible to achieve significant results in a relatively short time.
To succeed, it is essential to focus on several aspects:
- Negotiation with suppliers: commodity strategies, supplier consolidation, review of existing contracts, and integrated negotiation (price, lead times, incoterms, packaging standards, payment terms).
- Inventory optimization: reduction of inventory, improvement of inventory management, and consolidation of warehouses.
- Transport optimization: load consolidation, choice of transport modes, and negotiation with carriers.
- Review of purchasing processes: task automation, centralization of purchases, and buyer training.
Conclusion
In conclusion, US customs tariffs represent a significant challenge for Canadian manufacturing companies, but they also offer unique opportunities to strengthen their competitiveness and resilience. At Merkur, we are determined to support you in this process, providing you with the tools and advice needed to navigate this complex environment. Contact our Merkur experts!
