On Saturday, the Trump administration said it would exempt technology products such as iPhones, PCs and chips from many of China’s recent tariffs. However, for most US companies, orders from China have been cancelled and Chinese cargo may be shipped. Without a wider suspension in the trade war with China, damages will soon become “irreversible” for American businesses, according to retail experts in furniture, toys, apparel, footwear and sports goods.
Apple’s iPhones and other technology hardware, from chips to PCs, received Chinese tariff deferrals from President Trump on Saturday, but for many US economy and small business owners, the damages will soon be irreversible from the 145% tariffs imposed on Chinese imports.
According to supply chain executives, cancelled cargo orders and abandoned cargo from China are becoming the norm for the trade war between the US and China. This has resulted in companies in the US industry halting container exports completely, and tariffs are hit like a massive amount of bricks.
“Chinese furniture producers have heard the same thing beyond toys, apparel, footwear and sports goods, with orders from US importers completely stopped,” said Alan Murphy, founder and CEO of Sea-Intelligence.
“We had the same thing all over Southeast Asia, but after a 90-day reprieve, those reservations resumed,” said Brian Burke, chief commercial officer of Seko Logistics, but cancelled reservations for containers from China continue.
“It’s related to Chinese business so almost everything is on hold,” said Alan Baer, CEO of OL USA.
“Trump’s total tariffs on Chinese imports will halt most trade between the US and China,” Erica York, vice president of federal tax policy at the Tax Foundation’s Federal Tax Policy Center, said on Thursday of CNBC’s “The Exchange.”
“There may still be no alternatives that businesses have to step into the bill, but most of the time it cuts off,” York said.
Just as it became clear last week that China remains a major target for the Trump administration’s tariff policy, the message that China cannot produce lower marginal goods after a 90-day reprieve is granted to all other countries expected to be hit by new tariffs, strengthens where the biggest pain can be felt, although the new technology exemption can be explained in part by the supply chain mechanism.
“Higher margins and more technical goods, such as electronics, machinery, medical devices, pharmaceuticals, etc., cannot easily move procurement because highly technical manufacturing takes time and considerable capital,” Murphy said.
Before the technical duties exemption, he analysed which components were available to producers of these goods elsewhere, but says he is primarily trying to pull down US stocks in the short term. There are cooperative efforts to move production to Southeast Asia, primarily Vietnam or India. It was also considered to cut prices to Europe to continue production, or shut down production lines completely.
“It’s not a risk or burden that small and medium-sized businesses can maintain.”
Stephen Lamar, CEO of the American Apparel & Footwear Association, said sudden policy changes and high tariffs are destroying supply chains at levels not seen since the pandemic.
“Because the tariff levels on US imports from China are so high, many companies have no choice but to cancel their orders,” Lamar said. “Certain switchbacks mean that new tariff costs are not accurately presented or predictable until the goods arrive at port, and high charges are generating bills that are not paid.
Lamar said this sudden order shortage will soon lead to a loss of sales and a widespread product shortage, as there is no alternative procurement on the horizon for many of these companies, especially small businesses. “We need to extend the suspension of US imports from China before the damage becomes irreversible,” Lamar said.
On the container liner side of its business, Maersk warns that next week, the decline in bookings, coupled with the possibility of shipbuilding fees on “Chinese” vessels, will result in a “massive restructuring of all liner services into North America.”
“And it will take months to clear up the chaos as crowds and freight rates will skyrocket over the coming months,” Maersk wrote to his client.
Murphy said across all China-based producers his company spoke about, no one is currently actively looking to move production to the US.
“The biggest concern here is the complete uncertainty of the Trump administration’s actual final game,” he said. “If tariffs are merely a ploy to negotiate better trade transactions, no one will consider a massive investment in US production. If the administration is actually pursuing the goal of re-maining the US, the long-term plan for tariffs should be less about “4D chess” and “art of contracts,” he said. “Yo-Yo’s tactics of changing tariff charges every day can only create uncertainty,” he added.
Holding cargo handling is one way to mitigate the impact of tariffs. Logistics providers can provide bonded storage. This allows freight to enter the US for a certain period of time without being charged customs duties. Use of foreign trade areas and other means of delaying transportation will allow for temporary postponement of trade obligations.
“The current situation is unprecedented,” said Karsten Kildahl, Chief Commercial Officer of AP Moller-Maersk.
Abandoned cargo
The fate of abandoned seas and air freight – the freight that has not been charged or paid by the carrier or freight carrier responsible for paying customs on behalf of the client – is not clear, and the rules are changed to ports and contracts.
Port officials have told CNBC that they will not normally notify abandoned cargo. The New York Terminal Conference Agreement states that any cargo remaining in terminals for more than 30 days will be deemed abandoned and sold for recovery of regression charges by the NYTC. It also states that ultimate responsibility for costs is usually dependent on a particular shipping contract. “If the BL (Buy of Lading) has not been transferred to the consignee, it is the responsibility of the consignor. The consignor can decide to retrieve the cargo (i.e. re-export the cargo), or destroy it or donate it.”
The shipper will usually prepare a “waiver” for the purposes of the US Customs for which the cargo will be sold or auctioned, and the revenue from the sale/auction will pay costs such as terminal balances, such as the use of containers and chassis.
Terminals can move abandoned cargo to a glued warehouse or place it at the terminal for sale from there. There is a market for purchasing abandoned cargo. Companies such as JS Cargo and Cargo Processing, FR8 Auctions, and Commodity USA will purchase abandoned cargo and sell it at discount stores, outlets, liquidators and online sellers such as Amazon, drug chains, variety outlets, redeeming centers, liquidators, close-out buyers.
Maersk told CNBC that many shippers are deploying a “waiting and viewing” approach, and that until a recent alert to clients brings out clearer photos, customers will continue to look at inventory levels and explore ways to build additional flexibility in their supply chains. Beyond the global network of warehouses, distribution centers, port terminals, ships and cargo aircraft, the “flexibility” that many clients currently want is “additional flexibility.”
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