The Tariff Grinch That Stole Christmas

A Retailer’s Nightmare

There have been many questions, statements, and assumptions made about manufacturing, shipping, and other challenges about the ongoing trade war. For producing and shipping products, there are processes, developed over decades, of reliable ordering and manufacturing for retailers, particularly in the West. Outside of the pandemic and the Financial Crisis, this process has largely been stable with retailers and consumers around the world benefiting.

Order Timeline for products

An approximate product order to delivery time-frame in normal circumstances (no tariffs, trade war, etc.) is on average 70-90 days.

1: Order is placed, taking several days to confirm

2: Production: 3-6 weeks, depending on stock of raw materials, products, quality control, packaging, etc.

3: Shipping to port, customs, etc.: 5-7 days

4: Shipping time to final destination: 3-6 weeks

Current situation with the tariffs and retailers in the US

These timelines have been thrown into chaos and will greatly affect US retailers for the rest of the year. There are five retailing seasons left in 2025:

• Father’s Day

• Back to School

• Halloween

• Black Friday

• Christmas

Father’s Day will be the first to get hit, many of those orders were shipped in March and early April (although April is low vs. the historical average). Father’s Day is also the start of the summer building and renovation season for houses, etc. So expect some products to not be available, or stay on “back order.”

Back-to-school goods should be shipped in April and May, and outside of some current shipments to large retailers, these are largely on-hold, affecting the August sales season. If there is a “deal” soon, it might be possible to get the back half of the season, but if the current situation goes until the end of May, it will likely be missed.

For the remaining retail seasons (Halloween, Black Friday, and Christmas), there is still time to mostly salvage them if a deal gets done. Christmas orders are usually placed in April and May, with shipping in the summer and latest September to hit store shelves in late November/early December. At the moment, large scale orders are not being placed, so the season will be effected.

Liberation Day and its after-effects

When “Liberation Day” hit, and the extent of tariffs was known, buyers scrambled to assess the situation. By April 5th, orders were being canceled en masse, shipments delayed, and factories started slowing production. By late April some factories stopped production. Here is a breakdown of what has happened to date:

1: Purchase Orders (POs)

• Across the board cancellations since early April

• POs past the second quarter (April-June) are delayed or pending confirmation

• Specialty products such as Christmas cups, or R&D products are canceled

2: Raw Material Producers:

• Slow down of production

• Some are making only what is needed to keep machines running

• Stockpiling

• Furloughing workers

3: Factories

• Slowing or idling production and staff furloughs

• High inventory due to cancellations without a clear pathway for offloading

• Cash Flow issues due to a lack of cash coming in & goods not being paid for

• Flying workers to sister factories in South East Asia to ramp up local production

• Extreme uncertainty what will happen next, what steps to take, and what to do

4: Shippers

• Shrinking the number of ships that will sail to the US

• Shrinking the number of port visits (no more Seattle or Charleston), only going to large ports such as Los Angeles

• Cost per container and overall costs going up

• Moving capacity to South East Asia in preparation for shipments in lieu of China, especially before the July 9th (90 day tariff pause) deadline

5: Buyers

• Large scale cancellations, even with penalties such as losing deposits

• Uncertainty leading to business slowdown and potential layoffs

• Inability to get goods produced in other locations due to high demand in other locations, and lack of raw materials

• No timeline for when things could change

• Giving up orders, some at port, due to an inability to pay for tariffs

6: Upstream supply chains

Upstream suppliers from factories are having difficulty maintaining current output, as well as keeping workers and machines running due to a lack of demand. If the trade war gets resolved somehow, it will take a minimum of 2 months, if not longer (depending on the supply chain), to ramp up production to meet demand. It would be similar to Covid but worse, as uncertainty will drive an overall lack of full production, regardless of any deal. It is assumed that the US will change its mind at some point in the future, so it will be important not to produce too much in case that happens.

How to ensure the remaining sales seasons are successful in 2025

At 125/145/245% tariffs, or even if it drops to 60%, retailers will largely be dead in the water. No amount of offshoring out of China will be able to replace what it produces, or help balance sheets over the next several years. How do we get out of this for 2025?

1: Both the US and China need to not only de-escalate, but remove any substantial tariffs. Without that, expect a lot of pain including layoffs, price increases, and less products available.

2: Retailers need to fully explain to shareholders, policy makers, the White House, and others how supply chains actually work and the consequences of the tariffs for consumers and the country. There is a lack of awareness of how they actually affect business, sales, and people’s lives.

3: When Amazon stated they would put the tariff cost on receipts, and then backed down due to White House pressure, this sent a terrible message. Retailers and companies need to have the courage to hit home the effect tariff have, especially on Small and Medium Enterprises (SMEs). These are largely the backbone of the US economy and if they start to tumble, most everyone else will as well.

4: Where possible, company’s should apply for tariff exemptions. While this is terrible for the US system as the large MNCs get preference (such as Tim Cook calling the White House for tariff exemptions), at the moment companies should do whatever they have to do to stay in business.

5: Moving forward, retailers should plan out tariff and non-tariff scenarios for all countries where products are produced, regardless of how safe it seems or any negotiated deals. The reality is the US will likely impose and take tariffs off as a tool moving forward to get what it wants or punish countries it views as taking advantage of the US.

What happens if there is no “deal”? That is for a post in the near future so stay tuned…

News

Here is a recent story from CNBC on how tariffs can affect the Christmas Season.