The escalating trade war has significant transportation strategy and operations implications.
Tariffs are a tax on goods imported or exported. The expense is tied to the transportation budget as part of the landed cost for a product or shipment. This is an added complexity for transportation managers as they optimize mode, load size, and transit time as well as cost.
Measuring the impact of these tariffs should be done in a landed-cost analysis for all products imported. This will include the price of the product, tariffs, consolidation, currency conversion, duties, transportation fees, customs, and any handling charges. As part of your supply chain strategy, it is now vital to have a global trade management package as part of your TMS. This will allow you to track and compare landed cost at the SKU level, as well as automate customs-filing processes and broker collaboration. Landed cost must be the cornerstone of conversations regarding sourcing, consolidation strategies, and planned profitability. Global trade intelligence will provide the ability to view metrics against business targets coupled with updates that compare landed cost planned versus actual. A cloud-based global trade management package will mitigate risk by providing real-time business intelligence for an international supply chain environment with increasing uncertainty.
In today's marketplace, purchasing cushion inventory to account for days at the dock, intermodal failures, customs or a port-to-door transit quote that is unachievable will increase tariff expense. A cross-functional team comprising distribution, purchasing, transportation, sales and finance needs to collaboratively decide on the inventory level by SKU. This is particularly important when sourcing seasonal apparel that is often a one-time buy. The goal for every retailer should be to reduce the number of SKUs that need to be discounted or put on clearance due to excess inventory.
Moreover, a collaborative approach is needed for mode selection by SKU using landed-cost scenarios. Each SKU's landed cost should be evaluated in multimodal scenarios to best determine the optimal cost and service. This analysis should be used to adjust planned profitability as well as supporting documentation when determining the true elasticity of each SKU's price. For publicly traded companies, these solutions will directly impact reported earnings.
While deciding the optimal scenario by SKU, it is also important to evaluate the optimal port of entry. Based on final-mile transportation costs in an increasingly volatile over-the-road market, changing port of entry could be a way of lowering cost. This analysis should be conducted by your 3PL partners in a cadence defined by transportation leadership. Their analysis should include whether it's possible to change the port of origin to reduce fees. In addition, it may be necessary to send fast-moving SKUs straight to the store in a DC bypass operation to eliminate extra legs of transportation and handling in the DC.
The turbulence of a trade war is a major disruptor to those engaging in the global retail economy. However, it also represents an opportunity to invest in global trade management tools to improve freight forwarding visibility. Furthermore, 3PLs should be providing solutions that minimize the loss in profits due to tariff expense. Finally, the most effective supply chain strategists will couple a SKU-level landed-cost analysis, transportation metrics, and network modeling to reduce costs.
Daniel Sears is Senior Consultant with Tompkins International.
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