Tariffs Are Raising Concerns in Shipping Industry

In March, President Trump’s announced tariffs to be imposed on imported aluminum and steel causing varied reactions. Even though no one really knows what the fallout will be and to what extent at this time. Trade partners of the United States are expected to retaliate in some form, but no one can say for certain how this will happen and what effect it will have on U.S. consumers.

Tariffs

“The tariffs will create jobs in the steel and aluminum industries—my generous guess is not more than 15,000 jobs—but they will destroy three or four times as many jobs sprinkled across the economy’’ Gary Clyde Hufbauer, a trade expert at the Peterson Institute for International Economics and former deputy assistant secretary for international trade and investment policy at the Department of Treasury told PBS.com.

Jeffrey Frankel, an economist at the Harvard Kennedy School and former member of the Council of Economic Advisers under President Bill Clinton, echoed those sentiments:

“The import tariffs are likely to create a few jobs specifically in the U.S. firms that make steel and aluminum. The important point, however, is that such positive effects will be far outweighed by negative effects on other sectors. This is especially true of those manufacturing sectors that use steel and aluminum, such as the auto industry, heavy-equipment manufacturers, beer-can makers, and so on. The net effect is likely to be negative even if there is no loss of U.S. exports. But there will in addition almost certainly be a loss of exports, and therefore jobs, in other sectors.’’

Then again, a senior executive at an American Fortune 100 firm told the economist.com that his firm has spent a month intensely studying the likely impacts of Trump Administration policies and still does not know how its suppliers and sub-suppliers will be affected.

Change is Not Easy

The difficult reality some companies are facing is complex–supply chains can’t be shifted to different countries or facilities on demand.

While some businesses have 6 to 9-month contracts in advance of delivery, others have multi-year contracts with suppliers. Companies who manufacture medical devices cannot change suppliers without regulatory approval. Fore some businesses, there are no options, but to stay put as there are no alternatives to existing suppliers.

For other companies, they are scrambling to rework supply chains that were built for an era of a stable, open trade policy that soon may no longer exist.

Peter Guarraia, a partner at Chicago-based Bain & Co, told Reuters that last month he covered three continents in just two weeks. After first scouting for vendors in India and Thailand, Guarraia then flew to Atlanta, Mexico and then to the UK to evaluate supply chains. “We are all over the place,” he said. “A lot of our clients are asking, ‘How do we turn our supply chains from a necessary evil into a competitive weapon?’”

Is There a Good Solution?

With so much that is unknown, how can you turn your supply chain into a “competitive weapon?”

Many industrial buyers are being proactive by locating backup supplies for steel and aluminum that will limit the risk of disruption. Companies that have lean, agile supply chains and rely on constant contingency planning-often with the aid of supply chain design software–are best equipped to handle the unpredictable future.

As Forbes pointed out: “scenario planning with sensitivity analysis can help supply chain executives and teams to determine their tolerance around cost drivers that they can’t control, such as tariffs and retaliation. They need to understand which metrics they need to monitor based on which metrics will have the most impact on making a network design less than optimal.’’

Some companies utilize a Digital Supply Network that allows supply chain partners to pool resources to find the necessary capability for transporting goods, or find alternative sources or locate additional resources. In essence, a DSN is a continuous improvement strategy that begins by connecting companies to multiple tiers of supply chain partners.

The idea is that it will allow suppliers to obtain materials more efficiently. Shipping companies can access visibility into logistics performance to locate problem areas and make informed decisions for improvement. As for customers, they will be able to know where their orders and shipments are in real time.

All this comes at a time when supply chains in the U.S. are already strained due to higher transportation costs as a result of a shortage of drivers and higher fuel costs.

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