The world of global trade is in a state of turmoil brought on by President Donald Trump. Tariffs aimed at making America more competitive while protecting our borders have businesses and governments scrambling in response.
Steel and aluminum imports will be hit with a 25% tariff effective March 12. But Trump has delayed 25% tariffs on most Canadian and Mexican imports until April 2, as long as they fall under auspices of the United States-Mexico-Canada Agreement (USMCA). However, that did not include a 10% tariff on energy products from Canada that went into effect March 4, including oil, natural gas, and electricity.
The following day, Canadian Prime Minister Justin Trudeau enacted retaliatory tariffs on $30 billion of U.S. goods, climbing to $155 billion after 21 days, despite Trump’s pause. And on March 3, Ottawa Premier Doug Ford put in place 25% tariffs on electricity exported to Minnesota, Michigan, and New York.
Trump’s response? A threat to impose retaliatory and reciprocal tariffs of 250% on dairy and lumber products imported from Canada. Mexico, however, responded to the reprieve by promising to expand the number of USMCA-compliant goods from 50% to 90%.
The trade war can affect North American logistics in several ways. Higher energy prices will push up transportation costs, while growth in domestic sourcing can shrink capacity and boost rates across LTL, TL, rail, and air freight. Also, higher steel and aluminum prices will hit infrastructure costs for trucking firms, adding more rate pressure.
Rising consumer prices can spike inflation, causing a spending pullback that could dampen transportation demand just as the “freight recession” appears to be receding.
Given these challenges, companies need more than adequate freight capacity, carrier booking, and warehousing services from a 3PL. They’re looking for strategic partners with the expertise to guide them through the changes and mitigate supply chain risks.
Key Tariff Mitigation Strategies
Companies are looking to mitigate tariff impacts through diversifying their supply chains, exploring alternative sourcing options, utilizing bonded warehousing, and strategically managing inventory levels. An experienced 3PL can prove an able partner in navigating changing trade dynamics across North America.
Supplier Diversification
On the inbound side, identify and source goods from countries less impacted by U.S. import tariffs, or those with whom the U.S. has favorable trade agreements.
Nearshoring in Latin America beyond Mexico can be attractive in certain industries, with lower labor costs and shorter trade lanes, but infrastructure remains problematic. In general, it’s good to diversify suppliers across regions to mitigate risk.
For exports, reassess your market strategies. Seek expansion into markets not affected by trade wars and retaliatory tariffs. Becoming familiar with the rules of various trade agreements helps reduce or eliminate tariffs on eligible goods.
The U.S. has bilateral trade agreements with 12 countries: Australia, Bahrain, Chile, Colombia, Israel, Jordan, Morocco, Oman, Panama, Peru, South Korea, and Singapore. There is also a regional free trade agreement (FTA) in Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Dominican Republic) and favorable trade agreements with the UK, the European Union, Japan, Taiwan, and India.
Some particularly attractive markets for U.S. exports include:
South Korea: Demand in automotive, semiconductors, pharmaceuticals, and energy, well-developed infrastructure, and no tariffs on 95% of imported goods.
Australia and Singapore: Demand in defense, technology, agriculture, and energy, and no tariffs on U.S. goods.
Japan: Strong demand for auto parts, aircraft, medical devices, and food, an advanced logistics network, and growth in U.S. agriculture and high-tech exports; there are some tariffs as it’s not a full FTA.
No matter what type of trade diversification strategy you pursue, a 3PL experienced in cross-border logistics can help you formulate a supply chain strategy based on your needs and budget.
Customs Compliance
Especially given major shifts in trade policy, accurate tariff classification and valuation help you avoid unnecessary penalties. Your 3PL can recommend a qualified customs brokerage service that can streamline the process, ensuring accurate documentation procedures to comply with import/export regulations and changing tariff controls.
Bonded Warehouses for Inventory Management
Bonded warehouses, regulated by U.S. Customs and Border Protection (CBP) allow importers to store goods duty and tariff free until they are sold domestically or re-exported. They can provide significant benefits in terms of deferred payments, cash flow, and inventory management.
If goods are later exported to another country, no U.S. tariffs are due. Goods can be stored for up to five years duty free. In addition, some bonded warehouses allow goods to be assembled or modified while in storage. Bonded warehouses are located near major ports and logistics hubs, and are often operated by 3PLs.
Companies have already been front-loading inventory ahead of the expected tariffs, even if there is a short-term hit from higher carrying costs. Using advanced software for demand forecasting helps optimize inventory levels and reduce the risk of overstocks.
Optimizing Transportation to De-Risk Tariff Impact
With shifts in sourcing and markets for exports comes a refinement of transportation strategy. This includes using alternate lanes and ports, increasing domestic suppliers to reduce freight costs and avoid tariffs, a greater reliance on intermodal, and cross-border trucking to support nearshoring.
Data analytics and route optimization help shippers adapt to changing freight flows. A transportation management system (TMS) provides dynamic carrier selection, routing, and shipment execution. Stand-alone platforms or modules within a TMS run comparisons across multiple carriers, finding the best spot rates or contract pricing.
Many TMSs also use AI and predictive analytics to recommend the best mode for each shipment based on cost, service level, and transit time. And strategically storing goods near key markets enables faster fulfillment while reducing transportation spend.
Important Considerations for 3PL Partners
A 3PL needs to collaborate closely with shippers to understand their specific needs, product categories, and supply chain in order to develop a tailored tariff mitigation strategy.
Flexibility and agility are key value adds of a 3PL, enabling shippers to quickly adapt to changing trade policies and market conditions. Having the right technology and tools in place, including data analytics and transportation network optimization, enhances tariff mitigation efforts.
In a Volatile Environment, Don’t Go It Alone
With U.S. trade policies changing so dramatically, it’s anybody’s guess as to how things settle out. Regardless, there’s sure to be economic impact, network disruptions, and rising costs in the near term.
Wicker Park Logistics, a tech-forward 3PL with years of experience in cross-border shipping, helps simplify the complex process of exporting and importing for U.S. companies. Our depth of knowledge gives us particular expertise in supply chain planning and execution, transportation management, forecasting, and benchmarking.
A woman-owned logistics company and WBENC Certified Business, Wicker Park helps companies navigate the complexities of customs clearance and paperwork. Our technology, driven by AI and machine learning, optimizes every aspect of customs clearance, creating a fast, accurate, and efficient process. And our homegrown TMS provides route optimization, load planning, carrier selection, freight audit, and performance tracking to streamline and optimize cross-border logistics. To learn more, get a quick quote from us today.
.jpg)