Way back in 2018, tariffs and duty costs became top of mind for importers. Prior, those costs were relegated to afterthoughts and the “cost of doing business” when importing products, especially from China. Today, the magnitude of the increases in tariffs (the 301, or “Trump” Tariffs) created added focus with a variety of supply chain initiatives, including negotiating with suppliers to offset a portion of those costs, leveraging currency exchange rates to mitigate the effects and investigating options to resourcing product manufacturing to other countries. Each measure taken came with costs (and benefits), although likely none of them eliminated the costs entirely.
- Are you importing finished products?
- Are shipments to customers generally less than $800 in sale value (not cost value)?
- Do you have, or do you plan to have, Direct-to-Consumer, activities?
If your business meets these criteria there is not just a possibility, but a probability, that you could eliminate your exposure to these costs risks, which in some cases approach 30% potential cost savings.
Section 321 is a US Customs “De Minimis” (meaning “not substantial”) trade code that provides the opportunity for US-based companies to fulfill consumer orders from a Mexican or Canadian warehouse, so no US import duty or tariffs are paid. Seems a daunting task for many small and mid-sized business with limited resources. However, with the proper partner, an alternative warehouse in Mexico (or Canada) can be set up in as little as 90 days and run in parallel with current US-based operations. To mitigate risk. Further, customers won’t even know the shipments originated in Mexico or Canada. Here’s the math:
- If you’re shipping $5Million in Direct-to-Consumer business, your cost of goods is likely around 40% = $2Million
- If your products imported from China and are effected by the 301 Tariffs, your tariffs and duties on those products may run as high as 30%. Against $2M in product costs, that’s $600,000 in costs
If you’re facing the lower end of tariffs, your duty and tariffs costs are likely around 17%. This would result in $340,000 in tariff and duty avoidance
- Costs of labor in Mexico run around 66% of US labor rates; in some cases lower so even your fulfilment costs would run lower
When facing seismic changes, smaller firms are often intimidated by supply chain risks. The meaningful element to transitioning to this model is that it can be done in parallel with current US-based operations to mitigate risk
If you’re interested in saving your Direct-to-Consumer business multiple hundreds of thousands of dollars, contact your trusted strategic sourcing consultants at Forsyth Advisors