By Thomas Cook, Managing Director, Blue Tiger International
Anyone that is involved in global supply chain I am sure is watching carefully as Trump and his new administration navigates threats and promises on increasing tariffs in certain markets.
In January, he was successful in leveraging tariffs against Colombia, who was refusing to allow our aircraft to land in retuning illegal immigrants back home. Within 48 Hours he was successful, in changing Colombia’s position and they now accept our aircraft and their returning immigrants.
Whether or not, his rhetoric is a negotiation strategy or a serious threat, as supply chain managers we need to prepare how we might address these tariffs both pro and reactively.
There are over 18 mitigating solutions in dealing with risk and spend in the global supply chain.
I will discuss four of them in this article:
- Demand Planning
- Inbound Freight Assessment
- Drawback
- Foreign Trade Zones
Demand Planning
When we look at inbound costs to our “landed cost” model, and we see significant spending in air freight (which is typically 18x more expensive than ocean freight) it is usually due to failures in the demand planning process.
There are times air freight is warranted, but in most circumstances, it is a necessary consequence of poor planning.
Demand planning has numerous working parts and contributions to determine what to order when and how much.
If we are not diligent in analyzing all the influencing points, particularly historical, seasonal and predictive needs … the process will open to disruption … causing the need for expediting shipments and utilizing air freight.
Diligent, responsible and detailed information flows into the demand planning process will have favorable impacts on inbound landed costs.
Inbound Freight Assessment
We sometimes become too complacent in negotiating freight spending and evaluating less expensive options. Additionally, we should periodically run “RFP’s” to assure we are obtaining the best value for our spend and obtaining the most competitive freight pricing
Drawback
When we have products that are imported, where duties have been paid and we now export those goods, we are afforded through a CBP program … drawback, where we can request a 99% refund of those duties paid on good imported, that are now exported.
Foreign Trade Zones
FTZ’s in the most simplified definition are physical areas with U.S. boundaries that with a FTZ designation, sit outside the economy of the United States.
Therefore, freight entering the USA and a certified FTZ, do not have to customs clear the goods nor pay and duties or taxes.
Only when the goods exit the FTZ, are you now responsible for duty payment.
So, one of the most important benefits of an FTZ is the deferral of duties and taxes. Additional benefits include:
- Any goods that are exported, there is no obligation to pay duties, as the goods would never of entered the U.S. economy.
- Reduction of customs clearance charges, along with reduced MPF costs
- The FTZ can also be utilized for assembly and manufacturing, setting up the opportunity for tariff inversion benefits
- Unlike Bonded Warehouses … FTZ’s allow domestic freight and product manipulation.
FTZ’s can also be utilized for goods imported that are on “Quota”, where goods can be stored in volume and only released when the quotas allow.