Brands ‘Paralyzed’ by On-Again, Off-Again Tariffs

The on-again, off-again nature of tariffs levied by the Trump administration has put brands and retailers in a holding pattern when it comes to supply chain planning, according to a top thought leader in logistics.

“If you think that there are going to be changes, you’re kind of paralyzed,” said Ryan Petersen, CEO and founder of Flexport on an episode of the Logan Bartlett Show podcast. “That’s a lot of what brands and companies are experiencing right now. They don’t know what the future is going to hold.”

While Petersen said that companies were always expecting added tariffs on Chinese goods at some level—that number amounted to an additional 20 percent duties—the conversations changed after 25 percent tariffs were placed on Canada and Mexico, before being delayed to April 2.

“All bets are off,” Petersen said, noting that Flexport clients that used to import goods from countries like Vietnam to derisk from China can no longer see that option as a safe haven from tariffs.

“The moment they put tariffs on Mexico and Canada, I think that logic has got to go out of the window and you should expect tariffs can come for any country,” he said.

One of the endgame scenarios for the Trump tariffs is the mass return of manufacturing and production to American soil. But Petersen, who described himself as “very anti-tariff” during the podcast, said that such a push is unlikely to be the primary driver of such a dramatic shift.

“They’re probably going to have to devalue the dollar,” said Petersen. “Right now, the dollar is just so strong that we can just import stuff and the amount of tariffs you would need to overcome that is probably higher than is what’s realistic. They have to change the dynamics of the U.S. dollar so that it’s just more expensive to buy things abroad and therefore cheaper to make things here.”

Petersen isn’t completely against tariffs, calling reciprocal tariffs a “reasonable approach” if deployed in the right situation.

“If you’re doing free trade and the other guy is throwing up huge tariffs on you, that’s just bad negotiating policy,” Petersen said. “That may result in lower tariffs on both sides, because what matters to them, more importing like taxing the small amount of U.S. imports or accessing our markets?”

Alongside the tariffs, U.S. importers have had to endure the brief chaos in which the duty-free de minimis provision was axed, before being reinstated just four days later. Much of the speculation behind the about-face was tied to concerns about package pileups as customs officers would be ill-equipped to process and inspect a flurry of goods that didn’t previously require the attention.

However, Petersen expects the $800 trade exemption to be scrapped for good by April 15.

Maggie Barnett, the CEO of third-party logistics provider LVK, had cautioned clients to “save up on cash” ahead of the initial closure of the de minimis exemption in early February, on the grounds that it would likely go into effect in April or May.

“We’ve been prepping our customers who leverage Section 321 to get a backup plan,” Barnett told Sourcing Journal last month. “We still believe it will [be closed], or that it will be effectively closed by putting a $2 charge on each package that has to be inspected by the CBP.”

The constant trade updates have forced both importers and their logistics partners to adjust operations on the fly. In one such example, Petersen said the digital freight forwarder doubled the revenue of its e-commerce fulfillment segment in the first 60 days of the year after Mexico abruptly restricted textile imports through its own import duty-deferral program, IMMEX, in December.

This move put apparel companies that had thought they could import goods tax-free through Mexico in a bind, and had more logistics firms working overtime to assist them with alternatives.

“We had to scramble because we offer e-commerce fulfillment, but in the United States, not in Mexico,” Petersen said. “You’re importing all these goods that are not labeled correctly. They’re labeled for the Mexican fulfillment center, not for ours. We’re just trying to keep these businesses above water. A lot of merchants’ sales went way down because they couldn’t fulfill orders out of Mexico and weren’t set up.”

“This is the first inning of this kind of disruption,” Petersen said. “If all of a sudden, you’re getting hit with duties that you didn’t have before, a lot of business models won’t survive.”

LVK’s Barnett said that many brands looking to circumvent IMMEX were contacting logistics providers looking to move their fulfillment operation out of Mexico into Canada instead. Additionally, she said more companies willing to pay the more expensive route were scrambling to go direct to U.S. 3PLs.

Apparel’s adaptation to these changing supply chain and customs regulations, whether it be tariffs, the de minimis provision or IMMEX, is difficult, especially if brands are looking to change partners or facilities.

“They might have 750,000 units to move that they keep in stock for evergreen SKUs, across 10,000-to-20,000 SKUs. Those are not easy moves,” Barnett said. “The transition can take $80,000 to $100,000 just to get that product moved and received and slotted into your new partner facility. It’s not a decision you want to take lightly with apparel.”