The Impact of Tariffs on Freight Forwarding
Updated: Sep 4, 2019
Tariffs impact the economy in ways that the average consumer doesn’t typically understand. However, being in the supply chain and logistics industry, it is important to stay up to date on what is happening with tariffs and how they can potentially impact your business.
With President Trump frequently discussing tariffs and stating that the government will be assessing them against imports and exports from other countries, the landscape of costs is ever-shifting and changing. These changes can be difficult to keep up with, and the high numbers tossed around in conjunction with prime imports and exports can be disheartening. Understanding exactly how tariffs impact a business and what a business can do to provide themselves with some breathing room are important to consider.
Tariffs Inhibit Trade
The most obvious impact of new tariffs is that they inhibit trade flow, which impacts businesses on a global scale. The ability to reasonably and cost-effectively move goods across international lines is a large part of many businesses, and where tariffs will most greatly impact freight forwarding businesses. It is estimated that 95 percent of consumers of goods used in the United States are created outside the United States. The success of businesses that conduct international trade can be made or broken on the backs of significant tariff increases and impositions.
This is the part of tariff talk that most consumers and businesses focus upon when the topic comes up for discussion, and it is the one most deeply understood because it applies the principles of basic supply and demand.
Tariffs Create a Competitive Disadvantage
Imported goods which have higher tariffs imposed upon them likewise become more expensive. This can, and typically does, drive down the demand for those products, creating a competitive disadvantage for the producer of those products. Higher prices mean that competitors who do not have to deal with the impact of tariffs are able to more successfully market their goods. This creates a trickle-down effect in that if fewer products are being imported or exported, fewer products are being shipped. This is the impact that these increased tariffs on goods will have on freight forwarding.
Profit Margins Narrow
Carriers often have higher fixed costs, which do not change with the ebb and flow of supply and demand or vary based upon import or export fees imposed upon businesses. Fewer products shipped or products shipped at lower volumes mean that profit margins will narrow significantly as fewer funds are allocated to shipping services, making it harder for freight companies to meet their financial objectives.
What You Can Do
With little control over the government’s imposition of tariffs or increase in them, freight forwarding services do have a measure of control over their own processes and procedures, and the looming changes and consistent focus on imposition of higher tariffs demonstrates that there is a need to focus on internal processes and efficiencies now more than ever. If freight services are to remain viable in today’s market, they will need to streamline processes and cut costs where possible. Many times this can be achieved by a thorough audit of processes and determining what steps or processes are redundant or altogether unnecessary. Focusing on these things that are within a service’s control help them alleviate some of the pinch that is felt as tariffs increase and the business landscape changes.
Whether the tariff changes are permanent or temporary, improving processes, reducing costs and streamlining procedures to become more efficient and cost-effective are long-term achievable goals that will benefit a company well into the future.