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And the tariffs keep on coming…

Earlier in 2018 the US Government announced several new tariffs on goods imported from China.  It was not a “one shot deal” but rather several implementations over the course of 2018 and into 2019.  The initial tariff was a 30% tariff on solar panels that went into effect January 22, 2018 (this is due to be reduced to 15% after 4 years).  They also imposed a tariff of 20% of washing machines.  Since then there has been a constant tit-for-tat between the USA and China on tariffs on products imported from each other.

What affects our industries the most is of course consumer products, many of which received a 10% tariff beginning September 24th, 2018.  These tariffs are increasing to 25% beginning 2019.  The full list of products affected can be viewed at the website of the Office of the United States Trade Representative (USTR) here.  This is a $200 billion tariff, but unfortunately more and greater tariffs are looming on the horizon.

There are many places to discuss the politics of these tariffs, but will avoid doing so here.  But it does seem a bit short sighted at times as the tariffs are protecting products and manufacturing industries that are not particularly active or even existing in the USA today.  So, in the end it will only drive up the costs for the consumer while the government is pocketing the additional monies from these tariffs.

That said, as importers and distributors we are especially vulnerable to these tariffs on many products we offer today, and will be importing more of in the coming year.  It was very difficult, but it was possible to absorb the initial round of the 10% tariffs.  With the impending increase we will not be able to do so.  We also recognize that our customers may not be able to absorb these cost increases either and this leads to higher consumer costs.

As always, the consumer outrage and understanding will probably not be evident until a bit further down the road.  But it seems that the collective consumer voice tends to be heard more than that of our industries, as seen by the arbitrary port fees, trucking fees, government regulations to release proprietary information about suppliers, etc.

We all hope that this will be a temporary disruption that is worked out in the coming year so we can continue to service our customers, and ultimately the end consumer.  But it is important that all of us are vigilant, making sure we are aware of changing regulations and politics between USA and China.  We will continue to update this blog to announce new developments.

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Bi-Annual China Tradeshow Trip

It is that time of year again, tradeshow season in China.  We are preparing for our trip(s) now and getting the meetings, booth information, products to source and other various information and materials put together.  We wanted to take this opportunity to offer our sourcing services and attempt to offer products that you may be looking for.

We can offer products from our stock, as well as provide specific items on a direct import basis.  Additionally, we can also offer OEM and ODM products based on your specific needs.  As importers, we can also offer products directly to your location.

Please contact us to discuss specific products and preferred service.  Feel free to email us or call to discuss the project in detail.

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Truck Driver Shortage & Increased Costs

According to the ATA (American Trucking Association) the trucking industry was short more than 36,000 drivers as of 2016.  This number is expected to rise even more, possibly surpassing 63,000 drivers this in 2018.  Further, the shortage is expected to top 105,000 by 2022.

There is a lot of finger pointing in the industry, with no clear single cause to the shortage.  Even though transportation costs have been on a steady incline for the last several years, the drivers are not seeing any of these increases in revenue reflected in their paychecks.  While driver compensation has been increased in recent months, they claim it is barely keeping up with inflation.  The trucking companies are being put under further pressure to try to recruit or retain drivers in a market where there is a shortage, but apparently little bargaining power on behalf of the drivers.  This is also during a time where US import volume has been steadily increasing.

We have also seen a steady increase in fuel costs over the last few years.  The EIA (US Energy Information Administration) shows that diesel costs are up across the board from a year ago, some areas by over $1.00.

Yet another newly implemented roadblock is causing a lot of complaint; it is the implementation of ELDs (Electronic Logging Devices).  A survey by DAT Solutions found 67.3% of truckers are reporting driving fewer miles and 71% reporting earning less money.  The ELD ensures that drivers stay within allowed driving limits, usually 11 hours per day.  The problem that drivers encounter is that they often get stuck at a port waiting for several hours.  Larger trucking companies can sometimes offset this by sending out new drivers to take over, but independent drivers do not have that luxury and wind up wasting precious hours from their 11-hour day just waiting around.

Unfortunately, what we can expect in the near future are delays, rate increases (including spot rates) and additional fees.  We hope to monitor the situation closely in order to try to get ahead of the curve as best we can.  There will be many things out of the control of shippers, but hopefully the industry will also step up their efforts such as wait time reductions, offer expedited or less congested routing, etc.

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American Taxpayers Subsidizing Chinese Imports Via USPS

Maybe you have ordered something on Amazon directly from a seller in China, only to see they offer free shipping or maybe shipping for only $1.99.  It makes you wonder how in the world they can do this, especially for some items that cost less than $10.  Well, unfortunately there is a very clear explanation: USPS (and we the taxpayers) are subsidizing this.

Below are links to articles that describe this and go more in-depth than I, but I wanted to just share the basics of what is happening.  The root cause to all of this is the Universal Postal Union (UPU) which was created by the United Nations.  The basic premise (according to Wikipedia) was that:

  1. There should be a uniform flat rate to mail a letter anywhere in the world
  2. Postal authorities should give equal treatment to foreign and domestic mail
  3. Each country should retain all money it has collected for international postage.

While this was a nice idea when established pre-1900, it has morphed into something completely different in today’s world.  Since the United States is a member to this, we have also agreed to many of the new tenets and regulations.  So, when comparing rates to China, it is much more expensive than in the USA.  This is because of a number of factors, including economy and government subsidization.  Based on this the United States ‘has to’ provide reduced rates to people sending letters or packages from China; even though it causes great monetary loss and the United States has to further subsidize the costs.

I am not sure if withdrawing from the UPU is a viable option, but certainly reeks of the UN’s strong efforts to push towards ‘economic equality.’  The United States is a part of the congress held every 4 years to review and decide on current regulations and standard.  But, we are, ultimately, allowing other countries and organizations to dictate what rates we can collect; even as a deficit.  This is hurting domestic businesses that have to not only spend more money, but also compete with foreign entities with unfair advantages.

Wall Street Journal article (behind paywall)

Housewares Association abbreviated article (free)

Wikipedia info on UPU:

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New Regulations Prop 65

As California goes, so goes the Nation?

New regulations are coming into effect in California September 2018. By way of background, Prop 65, officially known as the Safe Drinking Water and Toxic Enforcement Act of 1986, was enacted as a ballot initiative in November 1986, and is administered by The Office of Environmental Health and Hazard Assessment (OEHHA). The heart of Prop 65 states: “No person in the course of doing business shall knowingly or intentionally expose an individual to a chemical known to the state to cause cancer or reproductive toxicity without first giving a clear and reasonable warning to such individual” The list of has grown this year to almost 900 chemicals. For our Mail Order Industry just some of the high risk items are going to include:

  • PU
  • PVC
  • Vinyl
  • Snaps
  • Rivets
  • Clasps
  • Chains
  • Zippers
  • Buttons
  • Plastic Polymers
  • Metallic Coatings
  • Screen Prints
  • Leather
  • Apparel
  • Novelty Items & Jewelry

Very importantly, the Prop 65 New Regulations for 2018 state that a new warning label is required which must include:

  • -the name of at least one chemical in the product or by product.
  • -Warning symbol in Yellow
  • -The word “WARNING” in all capital letters and bold print.

If you want to sell any product in the State of California you must be aware of and comply with these regulations. This covers sales in Stores, Catalogues and Online. Violators can face fines up to $2,500 per violation, per day. Each piece sold in California is considered a separate violation!

Actions for violating Prop 65 may be brought by the Attorney General, by certain other municipal officials, or by individuals — so called citizen enforcers — acting in the public interest. This has led to the growth of a cottage industry consisting of a small group of organizations and lawyers who, working with scientists, labs and other investigators to substantiate their claims.

So, while no one knows the full effect this is going to have on our Industry. Here at US Nordic, we will be complying with the new regulations on all our products manufactured after August 30th 2018. This will include testing for “no significant risk level” and “maximum acceptable dose levels” then proper labeling on those products which require it. These will be added costs, but what is less tangible is how the rest of the country will react to seeing large color warnings on products and how this might impact Sales and Brand image.

 

List of Chemicals

Prop 65 Home Page

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Shipping via UPS and using their Ground Freight Pricing (GFP) service. How it could potentially save your company cost and your shipping department time.

We all are familiar with UPS and its common services such as ground and Next Day delivery but little is known about their Ground Freight Pricing (GFP) service. I was told about it about a year ago and I have found that is does save on time and ultimately cost.

UPS Ground with freight pricing fact sheet here.

It is a simple service what can be accessed through UPS’s Worldship program as well as their website.
https://www.ups.com/us/en/shipping/services/domestic/ground-with-freight-pricing.page
Just follow each step and enter the required information. Get and compare your rates. For those of you that have UPS accounts you will need to contact your representative to have this added to your negotiated rates and agreement with UPS. 3PL warehouses can also be set up to use this server and you can have it billed directly to your account. If they are not already using this method they too will need to contact their UPS representative to add this service.
It took me some going back and forth and negotiating to get the service customized to fit my needs. Once we had it all in place with was easy to use the service.

I have found that the savings overall when taking into consideration of my time as well as cost is considerable.
Typically for me to process a standard LTL shipment it would take a considerable time during my day. Starting with the morning calculations of total weight, pallet size, number of pallets etc. Then the act of booking the actual carrier. Making sure to have everything arrange to meet my shipping window. Once that is already then comes the act of assembling the pallets, labeling them, wrapping them, not to mention filling out the BOL.
In order to do all the items listed above I need to leave my office and be at the warehouse. Now this is not common for most companies but time used for a shipment is always something to be considered. Most carriers require a window of time for the pick- up, that is usually 2 hours add on an additional hour of actual work to ready the pallet. That’s 3 hours that I am not in the office able to provide other services to my customers and support to my shipping team.

For me all that is a waist of time and money. With the Ground Freight Service, I simply log on to the Worldship Program enter the information for shipment processing, print the labels, apply them and let UPS Ground Service do the rest of the work. No need to make calls, leave the pick-up location or break a sweat.

I do find that I pay slightly more to use this service vs the standard LTL carrier but when factoring in the time used to process the standard LTL carrier shipment I actually end up saving money in the end.

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Recent Tariffs and The Trade Deficit

There has been a great deal of talk lately about President Trump’s tariffs, both enacted and proposed at this date.  But I think the discussion also needs to be framed by considering the current trade deficit between the USA and China.  The enacted tariffs amounted to approximately tariffs on $34 billion on Chinese goods.  The categories were generally steel, aluminum, motor vehicles and other goods and materials used in the auto, space and air industries.  The idea of course is to impose extra costs on these goods in order to help the American manufacturers become more competitive on price.

The newly proposed tariffs will add another $200 billions worth of Chinese imports.  But now we are looking to tax a vast array of raw foods, fish, building materials, consumers goods, consumer electronics and more.  In fact, the actual list with HTS codes is over 200 pages long!

We can see why it is important to try to bring manufacturing back to the USA with a trade deficit of about $340 billion annually with China.  American manufacturers simply are not competitive against China on their own.  It is ironic that we are using more regulations to make USA more competitive, when many of the reasons why we are not competitive are regulations.

The problem is unintended consequences.  For example, people may be happy to purchase a certain product at $10 but will not buy the same product at $20 (even if it has better quality and made in the USA).  In these cases, the trade deficit does not get reduced since no goods are sold or produced to offset the reduction in purchases from China.

There is no doubt that we will see an increase in costs of goods from China.  We will be keeping appraised of the current situations and do what we can to avoid passing on these costs to our customers.  But if the tariffs go into effect and are long lasting, there is no doubt we will have to raise the costs of some of these goods in order to ‘pay the government.’

A second consequence is of course the general cost of goods increasing for the average consumer.  They may have a concern for the national well-being, but more primarily concerned with their own and their family’s well-being.  So, they will choose the cheapest alternative, which may very well involve buying online directly from China via Amazon, Ebay, etc.  These goods will not be affected by the tariffs, since they are sent directly to the consumer and usually do not pay any duty or fees anyways.  In this case, we are actually promoting purchasing more from China because of the tariffs.

It is a complicated issue, with far reaching repercussions.  Maybe the Chinese have something when they instead subsidize the costs of manufacturing in China to increase their exports, rather than trying raise costs to reduce imports.  Maybe part of the reason why manufacturing in the USA is so expensive is that there are so many rules and regulations on the part of the manufacturer.  While protecting the environment is important, there is certainly overreach on the part of the EPA and other government agencies and contribute to higher costs.

In conclusion I think it is very important to get more manufacturing back to the USA, especially with emerging technologies and new products.  But maybe we should look at what we can do as a nation to make America more competitive rather than force other markets to create artificially higher costs to reduce the disparity.  As I always learned as a child, “always look at yourself first, before accusing others.”

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