Import tariffs force companies to automate trade processes

Global trade has been prominent on the agenda of companies since Donald Trump started imposing import tariffs. Without a good data platform and smart technology, it is impractical to keep up with all the changes. During Webinar Wednesday, E2open’s Andy Simmons and David Strauss explain how companies can keep a grip on their international supply chains. ‘Ultimately, companies have no choice and will have to pay the imposed tariffs.’

By Marcel te Lindert

Andy Simmons and David Strauss are experiencing exciting times. ‘I love my work in the world of global trade because there is always something new. I have always said that no day is the same, but now I can say that no hour is the same. Never thought that changes in our world can happen so quickly,’ says Simmons, senior director of solutions consulting at E2open. ‘I love complex issues. At the intersection of supply chain and software, I have always found them in sufficient quantity. But now the complexity is increasing exponentially,’ explains Strauss, vice president, strategic partner & enterprise solutions at E2open.

Simmons and Strauss are obviously referring to the trade tariffs imposed back and forth since Trump took office. Recent Gartner research shows that 59 per cent of CFOs want to pass on rising trade tariffs to customers. They argue that their organisation can absorb at most 10 per cent of trade tariffs. ‘That’s what they like. CFOs would rather not have trade tariffs come at the expense of profit margin and want to pass them on,’ Strauss argues. ‘But if customers start protesting, the question is whether they will succeed. If they don’t, they will bounce the ball towards suppliers, resulting in them being squeezed even more.’

Free trade agreements and trade quotas

Besides trade tariffs, free trade agreements also play an important role. Simmons points to developments in Asia, where countries are signing free trade agreements among themselves to form a block against China’s dumping practices. ‘Or look at Europe. Besides the 80 active free trade agreements, there are 30 more waiting to be implemented and another 70 being negotiated,’ Simmons says. ‘Consider also the 5,000 government agencies that issue licences, carry out inspections or otherwise play a role in the supply chain. I suspect we will also have to deal with trade quotas again.’

All those tariffs, treaties, agencies and quotas have an increasing impact on both procurement and sales strategies. ‘Get good at that,’ advises Strauss. ‘Selecting a new supplier is no longer something you do once every five years. Today, as a company, you need to be able to complete such a process within weeks or even days. To do that, you need the right data and tools, creating an industrialised process.’

Stay tuned

Simmons stresses that procurement is no longer just about price or quality of the product to be purchased, but also what it takes to export and import that product. What permits and documents are needed for that? ‘Sourcing and selling has become a lot more complicated. You need to know what is going on at any time. Therefore, make sure you are informed. People involved in this have to invest 25 per cent of their time to keep up.’

As an example, he cites a country that imposes a 25 per cent import tariff on parts from country A. ‘Then it is tempting to choose a supplier from country B, which is only subject to a 10 per cent import tariff. But if country B asks for an export licence, that can lead to extra work and extra costs. An option that initially seemed cheaper may therefore still turn out to be more expensive,’ Simmons explains. ‘Moreover, disruption caused by trade tariffs takes place throughout the supply chain. You might be paying for trade tariffs between China and Vietnam that apply to your tier 3 or tier 4 supplier. So you have to look at the bigger picture.’

Automate as much as possible

What can companies do to reduce their trade costs? ‘First, of course, they can buy from countries with lower tariffs. The procurement process will involve more negotiations. Companies will ask suppliers if they want to contribute to higher trade tariffs,’ Strauss reports. Simmons: ‘Ultimately, companies have no choice but to comply with imposed tariffs and regulations. Then it is important to do so as efficiently as possible by automating as many processes as possible with the help of technology. It has never been easier to justify investment in such technology.’

Both men point to existing free trade agreements. ‘Those can be interesting, but the question is what impact such a treaty will have on your organisation. It can be a big challenge to qualify for the free trade treaty. Technology can help with that,’ Strauss explains. Simmons: ‘Many companies don’t think free trade treaties are worthwhile because the costs don’t outweigh the benefits. But that changes if they have to pay not 5 but 20 or 50 per cent to import the products in question.’

At the expense of margin

What do companies need to build an industrialised process for global trade? ‘First of all, data,’ Simmons stresses. ‘We can talk about software and artificial intelligence, but you can only deploy these successfully if you have access to the data needed to do so. That concerns your own data, but also data from partners and external data. You also need technology like the one we provide with E2open. The last thing you should do is keep doing this process purely manually. Or outsource it to consultants, because that comes at the expense of your margin.’

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