The world’s economic climate is in a constant state of change. In 2020, the COVID pandemic changed global shipping and logistics, and recent world events and increasing tariffs are once again straining our industry. The tariff impact on freight forwarding continues to reshape how goods move globally, adding complexity to an already challenging landscape.
Increasing and fluctuating tariffs influence the cost of goods and how and where your customers ship. Your logistics and supply chain will also be affected as you seek to avoid the added cost, time, and headaches of changing global tariffs.
In this article, we’ll discuss the role tariffs play in global shipping, logistics, and freight forwarding, and how you can mitigate these changes’ negative consequences and impacts.
Understanding tariffs and their role in global shipping logistics
A tariff is a tax imposed by one country on goods imported from another country. They create an economic burden for foreign exporters and encourage the destination country to source local goods and services instead, which would not be subjected to higher taxes. Countries use tariffs to manage trade disputes, force the hand of a country they’re negotiating with, and protect local industry.
Because of changing or increasing tariffs, freight forwarding companies may notice:
- Increased cost structures, changing your pricing models for freight charges, surcharges, and insurance
- Decreased shipping volumes to certain countries with tariffs
- Rerouting of shipments to lower-tariff countries and regions
- Increased customs documentation and compliance requirements
As a freight forwarding company, you can absorb the extra cost and time or, more likely, in the case of extreme tariff increases, may need to pass along the additional costs to your customers.
How tariff changes affect shipping cost and time
Significant changes in tariffs have a ripple effect that will affect freight forwarders and shippers, not just the end customer of the goods. Here’s the impact tariffs can have on global logistics:
- Increased landed costs due to an overall increase throughout the logistics and customs process.
- Demand for alternative routes and suppliers as customers opt for lower tariff countries, leading to increased shipping time and costs.
- Fluctuating shipping volumes means freight forwarders must plan for fewer FCL shipments and use the more expensive LCL containers.
- Increased insurance costs because as products increase in the sale price or value, so do their insurance costs.
- Port congestion can occur as shipments are rerouted, leading to slowed shipping speeds.
- Increased warehousing costs may occur as goods may sit in storage longer or wait for LCL space.
- Increased shipping costs to pass to your customers as your team’s efforts and expenses increase due to the above delays and cost increases.
Here are some examples of increasing costs as a result of the recent US tariffs:
- MSRP for Tesla EVs are increasing by as much as 21% in Canada.
- The PlayStation 5 (from China) could increase 104% to $1,018 for the US market.
- Amazon sellers are increasing their prices in response to tariffs.
- Groceries from countries like Mexico will increase significantly.
Rerouting and shifting shipping lanes
Tariffs change the way companies do business and their supply chains. Since the recent tariffs, many businesses are reviewing their sourcing locations and who they do business with to minimize service impacts and costs.
For example, US-based companies that once relied on imports from China may look to local or lower-tariff countries to get their products. Likewise, many countries may stop sourcing from US-based companies for moral reasons.
As shipping and freight forwarders change their logistics, traditional heavy shipping routes (like the English Channel, Panama Canal, and cross-ocean routes) may notice decreased volumes. In contrast, new routes may emerge and become overwhelmed. Adding to the changes, importers may temporarily pause shipments to avoid tariffs or logistics stress.
Freight forwarding companies must keep a close watch on shipping routes and create alternate routes and shipping methods to avoid congestion or increased costs. Regardless of the economic climate, having multiple partnerships and logistics plans helps avoid delays and unexpected costs for you and your customers.
Broader impact on international trade relationships
International trade relationships have been under a global microscope in recent months. Its impact will be felt far and wide, including the following groups:
- Customers will feel the pinch in their wallets when buying everyday essentials (like groceries), and making larger purchases like vehicles, homes, and renovation supplies.
- Importers and exporters will incur higher costs due to tariff taxes and added customs and shipping procedures.
- Countries may seek new international free (or low-cost) trade agreements with other allied nations to create favourable trade agreements.
- Governments may offer financial incentives for specific countries or industries to promote favourable trade between new countries and partners.
- Insurance companies may sell new products and policies to lower a business’s risk of doing business abroad.
- Local businesses may experience a surge in popularity and sales as communities look to keep their hard-earned money close to home.
As a freight forwarder, you can help your customers stay flexible and understand importing and exporting requirements and tariffs to provide predictability (as much as possible) and peace of mind.
How freight forwarders can stay resilient
Business is full of ups and downs. It’s part of business. As a freight forwarding company, you can increase your business resilience by:
- Networking and staying connected to your peers.
- Keeping up-to-date on the latest tariffs, international trade rules, and logistics regulations.
- Using AI and technology to help your client optimize their shipment costs and delivery speed.
- Building multiple relationships and logistics to remain agile.
- Creating value-added services to stay competitive.
Stay connected to your logistics community
As logistics coordinators and freight forwarders, we can’t control who or what is taxed through tariffs. We also have little control over customs processes and procedures. However, the best value we can provide customers is our knowledge and agility.
Build your freight forwarding business to be agile to changing market conditions and global economics. Have options for customers to choose the best option for their needs. Look for ways to make importing or exporting easier for your customers by staying on top of all procedures, rules, and tariffs.
If you’re looking for a professional network to help you stay on top of the global logistics industry. Look for an RWNetwork near you. We have groups based on your shipping niche or region. Membership grants you access to networking opportunities, resources, workshops, and newsletters, so you’re always in the know.
View the comprehensive group of RWSolutions freight forwarding business networks.