Companies are employing a variety of short-term tactics to navigate current economic disruptions, including shifting tariff policies, labor disputes and geopolitical tensions. Each of these strategies presents pros and cons that must be carefully weighed, according to a Savills research report.
For example, some companies have begun to stockpile goods, particularly containerized imports, to mitigate an expected future supply shock. Front-loading was employed last year when the dockworkers strike was imminent and is again gaining momentum in anticipation of higher prices due to tariffs. The upside to front-loading is it reduces the risk of inventory shortages and brings goods in before higher rates take effect. However the tactic only works if the company has adequate storage capacity to accommodate increased inventory, and they risk goods becoming obsolete if they store them too long. In addition, shipping rates tend to spike when companies begin front-loading at the same time.
Another tactic companies have been exploring is using bonded warehouses that allow companies to defer duties until goods leave the facility and Foreign-Trade Zones (FTZs) to avoid tariffs on raw materials and control when the tariff rate takes effect. Both options require time and effort to comply with government oversight.
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Some companies have opted to use third-party logistics (3PL) providers for warehousing, transportation and fulfillment services. These arrangements allow companies to avoid major capital commitments while meeting seasonal or unpredictable demand. However, that flexibility comes at a premium, with short-term 3PL arrangements typically costing more than traditional warehousing.
Major brands, including Apple, Samsung, Hasbro and Nike, have shifted sourcing and production out of China to contend with supply chain disruptions. India, Vietnam, Mexico and Malaysia are emerging as popular alternatives. This reduces dependency on Asia and can shorten lead times, lower inventory costs and in some cases qualify companies for government incentives. Decentralizing production, however, can erode economies of scale, raise costs and introduce quality control challenges, said Savills.
A tactic known as transshipment sees companies attempting to bypass U.S. tariffs by routing goods through a third country. This can be legal when substantial value is added in the third country but is illegal when done solely to avoid tariffs. While this approach can help control costs and preserve existing supply relationships, it is coming under increased scrutiny, and violations can trigger hefty penalties.
Tariff engineering, in which a product is modified just enough to move it into a lower-duty classification, is a long-standing tactic to avoid higher tariffs. This tactic may compromise product quality and performance and potentially damage brand reputation.
Finally, to hedge against ongoing supply chain risks and disruptions, many companies are increasing investments in automation and efficiency-enhancing technologies. This can ease pressure on space-constrained facilities, reduce reliance on labor, accelerate fulfillment and improve inventory management, security and flexibility. However, automation can require a significant upfront investment, and companies must carefully vet technologies to ensure they truly strengthen supply chain resillience, said Savills.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
