President Trump has been busy since his Jan. 20 inauguration. He has not only run through a bunch of executive order pens, but he’s also making good on his campaign promise to enact a series of tariffs to, in his words, level the playing field in global trade.
Changes to the global trade picture have been coming fast and furious, with some measures being put on and then pulled off the table. Trump’s across-the-board tariffs on steel and aluminum imports are set to take effect on March 12 – for now. However, his 25% tariff on all goods imported from Canada and Mexico, which was to go into effect on March 4, has been put on hold until April 2 for all imports covered by the U.S.-Mexico-Canada Agreement (USMCA). On that date, Trump has threatened to impose across-the-board reciprocal tariffs on all U.S. trading partners.
While Mexico has responded to the reprieve by promising to expand the number of USMCA-compliant goods from 50% to 90%, Canada has taken the opposite tack. From north of the border have come not only heated rhetoric but retaliatory tariffs, despite the pause called for by Trump. This includes a 25% tariff on electricity exported from Ottawa to New York, Michigan, and Minnesota, and tariffs on $30 billion of U.S. goods, climbing to $155 billion after 21 days.
Trump’s response? A threat to impose retaliatory and reciprocal tariffs of 250% on dairy and lumber products imported from Canada.
A 10% tariff on all goods imported from China, which went into effect in early February, was met immediately by retaliatory tariffs of 10%-15% tariffs on commodities imported from the U.S. These cover coal and liquefied natural gas as well as crude oil, agricultural machinery, and large-engine cars.
Commodities in particular are in the tariff spotlight, with steel, aluminum, oil, coal, and natural gas in the Trump crosshairs. This is reshaping markets for these important commodities and the products they’re made into, while also spurring retaliatory measures. So how is this affecting not only commodities markets but the supply chain and logistics? We’ll explore the ramifications of these disruptive actions within that context.
Objectives of the Trump Tariffs
The stated policy objectives of the Trump tariffs are in essence twofold: to protect our borders and keep out deadly fentanyl – the focus of measures involving Canada and Mexico – and to create fairness in global trade and improve American competitiveness.
Whether or not these objectives are achieved in the long term, in the short term there is a good deal of uncertainty and disruption. This includes hits to consumer confidence and small-business optimism, concerns over inflation and lower spending, and some carping even from Trump supporters.
Immediate Effects on Key Commodities
Prices on aluminum have already shot up in anticipation of the threatened tariffs being imposed. The U.S. imports 82% of the aluminum used in transportation, construction, and packaging, and domestic production couldn’t replace even a portion of the foreign sources, an analyst told Reuters.
It’s a similar story with steel, 25% of which is imported to the U.S. Prices have risen, and domestic producers could not replace the shortfall anytime soon. This will likely mean higher consumer prices on a range of products made with both metals, from appliances to bicycles, canned goods, and many other everyday items.
Gasoline and diesel prices have risen since tariffs were announced, although the impact has been dampened because of the lower rate for Canadian energy (10%). Expectations of a drop in overall demand due to tariff impacts on the economy have also been a check on energy price increases. Energy industry analyst Andy Lipow estimates the tariff on Canadian oil imports could raise the price at the pump by 15 cents per gallon.
Broader Implications for Freight Industry
As the price of goods rises as a result of the tariffs (fuel and other commodities), transportation providers will be forced to raise their rates as well to compensate. In addition, companies will respond by adjusting to alternate sourcing to mitigate the tariff impacts. This in turn will disrupt freight demand patterns, affecting service levels as demand increases or decreases along particular lanes and routes.
An increase in domestic sourcing in particular to bypass tariffs could lead to a tightening of capacity in truckload and less-than-truckload, putting upward pressure on both spot and contract rates. Companies would do well to lock in contract rates as soon as possible ahead of tariff imposition.
One mitigating factor affecting rates: Tariffs and a follow-on trade war could easily postpone what many had seen as a slow recovery from the so-called “freight recession.” This two-year-plus decline in freight volumes has worked in favor of shippers, but is a cause for concern among carriers also facing higher costs.
With the imposition of tariffs on imports from Canada, Mexico, and China, closer scrutiny by officials from U.S. Customs and Border Protection to ensure compliance could slow down processing. This would in turn lead to longer transit times for cross-border freight, affecting delivery and production schedule and inventory management.
Strategies for Shippers in the Face of Tariff Disruption
Companies need to continue to diversify their supply chains, both in terms of sourcing and carrier/modes/lanes, in an effort to limit tariff exposure. This dynamic was already well underway in response to the pandemic disruptions and seesawing demand.
Stay informed about the continually evolving situation as markets and service providers react and adjust to seismic shifts in global trade policies. Since the fall, many companies had already been proactively stockpiling inventory in anticipation of supply chain shocks.
For smaller shipments, consider shifting volume from truckload to more cost-effective LTL. How much you can save depends on the volume, the distance in transit, and, of course, market conditions. LTL makes economic sense for regional or short-haul moves, as the networks are designed for cost-efficient consolidation, and when flexible schedules can absorb the multiple stops.
Lastly, find an experienced, trustworthy 3PL partner that can help you find ways to lessen the blow from tariffs. A well-connected 3PL can analyze your supply chain, identify cost-saving opportunities, and implement solutions such as duty drawback, bonded warehousing, and tariff engineering to minimize exposure.
A 3PL partner can also help you optimize routing, consolidate shipments, and leverage foreign trade zones (FTZs) to defer or reduce tariff payments. Additionally, a 3PL’s carrier network and freight volume can help you secure competitive freight rates, mitigating cost increases.
Buckle Up, Tariff Turbulence Ahead!
It’s going to be an interesting few months as all this back-and-forth and maneuvering on trade policy and geopolitics plays itself out. Here’s hoping that Trump’s twin objectives of border protection and American competitiveness can be gained, but there’s no denying it will cost at least short-term pain for businesses and consumers alike.
For shippers in need of an expert guide to help them navigate the reefs and shoals created by trade disruption, look no further than Wicker Park Logistics. A woman-owned logistics company and WBENC-certified business, Wicker Park has a veteran team that can help lessen the impact of market shocks on your transportation plan.
Shippers benefit from an optimized service network built and maintained by a trusted, collaborative 3PL partner. Whatever your business needs across truckload, intermodal, expedited freight, supply chain services, and much more, Wicker Park can help you optimize your spend and be proactive in the face of market shifts. Get in touch today for a quick quote.
