Tariffs: Beyond the Fear Factor

By Simon West

In a fast-paced main stage Q&A session at Breakbulk Americas, a panel of top trade and logistics experts tackled audience questions on the real-world impact of tariffs while also helping to ease concerns from attendees navigating these challenges. Here’s an edited version of the key questions and insights from the panel. Moderating the session and fielding questions from the floor was Diana Davila, senior vice president of U.S. operations, UTC Overseas.

(4-minute read)

Audience question: What are some of the ways that companies can mitigate risks when tariffs seem to change every day?

Jay Acayan, managing partner at legal services provider Roberts & Kehagiaras: Just to give you context, when I participate in these talks, I have to check the law before I get up here because it changes while I’m talking! But seriously, the easiest way to mitigate risk is to be flexible. Whereas previously you could run a risk analysis on a single country and determine tariff costs at that moment in time, now you have to account for multiple sourcing options. And that leads into the second idea, which is tariff engineering.

It’s no longer about saying, OK, this is a crane, and that’s how we’re going to classify it. Defining what constitutes a crane and its essential character is so important today because all these tariffs are classification centric. So if we’re able to say that it’s a crane, it’s one thing. If we say that it’s a module, it’s a completely different thing. And in those cases, there’s a difference in terms of whether 232 steel tariffs apply, or if you have reciprocal or IEEPA (International Emergency Economic Powers Act) tariffs.

You also have to consider contractual considerations. Mitigating risk through the idea of when title transfers is extremely important because if an importer decides at the port that they cannot or will not accept the goods, the key question becomes: on that last free day, who is responsible? What happens if the cargo sits there for another 30 days? Who covers storage and ancillary costs? And then consider if you’re going to need to hire an attorney to handle that.

Davila: We’ve had several customers and interested parties ask, “How can I hold off or wait?” So what guidance would you give our audience on choosing between different storage options once the cargo arrives?

Nick Baker, managing director of trade and customs at risk advisory firm Kroll: We’ve seen an explosive interest in both bonded warehouses and foreign trade zones. The tariff treatment on goods that are input into a bonded warehouse versus goods that are admitted into a foreign trade zone can be very different. For example, in a bonded warehouse, you pay the duty that’s applicable at the time of arrival. Whereas in a foreign trade zone, your tariff rate is locked at the time of admission. So think about where are you betting? Are you betting tariffs will go up, in which case a foreign trade zone may be more of an advantage. Are you betting tariffs might go away or go down, at which point a bonded warehouse may be better?

If you’re an operator looking to establish your own FTZ or bonded warehouse, there are generally similar security controls and physical security inventory, but the compliance requirements are often different. They may restrict where the content can be stored and what type of segregation you may have to have for other operations. So it’s not as easy as just flipping a switch and turning on this magic duty deferral mechanism. It really needs to be something that works seamlessly with your operations.

Audience question: Do U.S. tariffs on Chinese imports apply to shipper-owned containers when the container itself is sold as a commodity in the U.S. or only to the cargo inside?

Acayan: It depends whether or not you pay the duties. So if you’re bringing in an empty container, there are two ways that you can enter it. It’s either a “release off manifest”, or you make an entry under 9803, which has certain requirements, and if you meet those requirements, then you don’t have to pay duties on it. However, if you bring it in under 7326, which is an article of iron or steel, then you end up paying the 232 50% duties. Furthermore, if you bring the container in with stuff in it, then you don’t have to worry about paying duties on that container.

Davila: Is cargo preference still applicable if you move the cargo into a free trade zone?

Jim Mead, former trade specialist at MARAD, now director of Highgate Bay: If the cargo is moving under any of the programs that are required to do cargo preference – Act of '54 (Cargo Preference Act of 1954), the Ex-Im Bank, the various Department of Energy programs and the like – regardless of how you got it to the free trade zone, half of that project total had to go on board U.S. flagged vessels.

Audience question: When it comes to tariff codes, what guidance would you give companies that are considering using, for example, the USMCA (United States-Mexico-Canada Agreement)?

Baker: Under this new regime, there’s a huge benefit for qualifying originating merchandise under USMCA, but it’s not as easy as just saying, “we’re buying stuff from Mexico”. U.S. customs have been charged with enforcing these new tariffs to the maximum extent of the law. So a lot of the budget that used to support trade facilitation has now shifted to trade enforcement. So there really needs to be a focus on documentation, due diligence, supply chain tracing and transparency.

Your vendors and suppliers can be either your best friend or your biggest enemy in supporting that compliance journey, providing documentation and making sure you have a qualified claim. Because that’s exactly the type of misstep that customs will be looking for when they’re issuing additional tariffs, fines and penalties.

Audience question: How has the new tariff regime impacted your customers? Are companies moving manufacturing and sourcing to other countries?

Felix Holder, practice lead industrial projects at risk managament firm EIMC: Well, if the routes are changing, then the risk is changing. And the shipping industry has to be flexible. A good example is the project cargo that gets shipped via Houston. We know and they know what they are doing. The stevedores are good, everybody’s experienced. But now suddenly, due to the tariffs, the supply chain has to change, and the cargo or the ship has to redirect to a smaller port where they don’t necessarily know how to handle this cargo. And this is absolutely a new situation, and this has to be figured out.

Audience question: Looking down the line, what permanent shifts in project logistics strategy do you expect if tariffs remain a long-term fixture rather than a short-term trade war tool? 

Davila: I’d like to say a few words about this one! We don’t know if this is a long-term or short-term issue, but in the project and breakbulk industries, what we do every day is something that we’ve planned for years. All of us in the room, we’re in this because we address challenges, right? And those challenges come in different formats. It may be that you didn’t get the permit that you needed to move forward. It could be tariffs and increasing costs. But whether it’s permanent or fixed, we deal with it. Every day there’s a new challenge. It’s affects what we do, it’s just a question of how we approach it.

Acayan: I think the key is diversity and flexibility. It’s about identifying your pain points and trying to be as proactive as you can. My advice to clients is to map your supply chain, find what’s the critical failure point, and plan to alleviate that. Is it finding new sourcing? Is it finding new manufacturers? Is it shifting business partnerships? I think regardless of whether we’re seeing some stability or continued disruption, having flexibility, options and being able to game out those alternatives is going to pay dividends.

Audience question: Are large shippers and EPC contractors gaining more leverage in tariff disputes with governments compared to smaller operators?

Acayan: Whether you’re doing project cargo, or you’re just a small importer trying to bring in stuff for your small business, the idea of classification is very set in stone. Everybody is going by those same rules. And there are administrative processes for making a determination of what your classification is.

The easiest one is by getting a reasonable care memorandum that will protect you from a penalty if it turns out that the classification is incorrect. Another way is to ask customs in a ruling request or an internal advice request, what that classification is. You make the argument, and they’ll come back tell you what that classification should be.

And finally, there’s a way to correct things. If you determine, oh my goodness, I've been misclassifying something for years, you can go back and file what’s called a prior disclosure. And then you end up not having to pay those penalties, although you do have to go back and pay the duties that the government may have lost while you were misclassifying goods. So in the end, there are ways that you can make this determination correctly. You just have to know what those tools are.

Read more: The Dust Is Settling on Tariffs

Top photo: (L-R) Diana Davila, Jay Acayan, Felix Holder, Jim Mead, Nick Baker. Credit: Marco Wang Photography

Second: Diana Davila and Jay Acayan. Credit: Marco Wang Photography

Third: Audience members field their questions on tariffs. Credit: Marco Wang Photography