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Many Australian exporters who source from China are "trying to make hay while the sun shines" by pushing as much product into the US as possible before an expected closure of the De Minimis Tax Exemption loophole on shipments worth less than US$800 on 2 May.
Sean Crook, co-founder and director of Sydney-headquartered logistics and freight forwarding group Neolink, says he is fielding phone calls "consistently across the board" from exporters trying to make sense of the USA's 145 per cent tariffs on Chinese goods .
This is particularly the case for online brands that buy from China and cross-trade directly into the US market, while the freight forwarder has observed that larger shipments of this nature have all but ceased as they are no longer commercially viable.
"I’ve got some customers where anywhere from 50 to 90 per cent of their volume is in the US, and profit, so that’s a little bit concerning," Crook tells Business News Australia.
"The De Minimis exemption is where anything under US$800 doesn't incur any duties or taxes, which was how Temu and all these e-commerce companies were pumping so much volume into the US."
He says sectors most likely to feel the effects from next month include fashion, online retail goods, and "probably a lot more".
"You’ve got this window right now. I think a lot of them are trying to make hay while the sun shines and really push as much product into the States as they can before 2 May, because once that comes into place all of a sudden the actual tax will come into play," he says.
"Once these lower-value shipments start incurring those taxes, that's when there's going to be some problems."
Adding an extra logistical step in the process by repackaging in Australia won't help either.
"I guarantee you there’ll be a lot of e-commerce providers that will be sending their goods to Australia where a lot of them will probably be getting misclassified," he says.
"You can’t essentially get it here, unpack it, put a label on it or something, and then just repack it into another set of cartons and call it Australian origin. There actually has to be some type of material change to the product in order for it to be classified as an Australian origin product."
Crook also clarifies that the De Minimis exemption on shipments worth less than US$800 per person, per day "just won't apply" to commercial-value goods that are exported on a wholesale basis.
He notes that Neolink arranges cross-trade shipments from Australian companies that supply products from China to their own warehousing and operations in the US, or third-party warehouses arranged by Neolink.
"If they’re holding goods in the States and they’re importing directly, they're already being impacted. For their Australian origin goods they’re incurring the 10 per cent tariff. For the ones where we’re doing the cross-trades into the US, they’ve basically been stopped," he says.
"I was having a conversation with more senior staff at a fairly large Australian brand that's one of our customers, and they are just about to pull the trigger on a major warehousing operation in the US. Our advice was just to hold off at this stage - 'continue to service the US from Australia like you are currently because you just don't know what's going to happen'.
"I’ve heard that there’s also been issues with them even implementing some of these duties and taxes within their customs system as well in the US."
He says challenges at the US end of the supply chain have related to tariff codes under the Harmonised Tariff Schedule of the United States (HTSUS), with partners likening the situation as similar to Brexit with "a lot of questions and not a lot of answers, especially in customs".
Crook says most of Neolink's Australian customers focused on the US market are increasingly looking at alternatives to China for their supplier bases, although for many this is nothing new.
"Everyone's been talking about it, to be honest, for the last two or three years. Even a lot of Chinese manufacturers themselves are actually investing in Southeast Asian markets and buying up manufacturing facilities," he says.
"That's why Trump's obviously hit a lot of these other markets quite hard like Vietnam and other countries.
"The US is obviously one of the biggest consumer markets in the world, and a lot of e-commerce brands have become very reliant on that market. I think that’s why it's important that they do have diversified customer channels across different geographical locations."
When it comes to the 10 per cent tariff on Australian goods that is currently in place, Crook describes the rate as "quite manageable" for passing on the cost.
"But when you’re talking about a 145 per cent tariff, it could easily be 500 per cent – it wouldn’t matter because it's just completely irrelevant at this point. It just doesn't make any sense," he says.
"I have no doubt that if you're a really big retailer your first instinct is going to be to message back your suppliers and say to them: 'we're not going to be accepting any increases in price due to these tariff increases'," he says.
Indeed, this has been the response from Albertsons, owner of Safeway, to its suppliers.
Prior to the announcement of universal tariffs that the US President dubbed "Liberation Day", Albertsons sent a letter to suppliers stating that, with few exceptions, it would not be accepting cost increases due to tariffs. However, suppliers can submit a formal request with 90 days' notice including an explanation of the tariff impact and supporting documentation.
In its letter, Albertsons (NYSE: ACI) advises applicant suppliers to allow a minimum of 30 days for the review and approval process.
During a recent quarterly earnings call, Costco (NASDAQ: COST) CEO Ron Vachris said it was difficult to predict the impact of tariffs, but the team would remain "agile" and try to minimise the impact of related cost increases to Costco members.
Sprout's Farmers Market (NASDAQ: SFM) said whether or not it passes the effects through to customers would largely depend upon competitive market conditions, and the USA's largest retailer Walmart (NYSE: WMT) said it had the "desire to maintain flexibility to invest in price as tariffs are implemented".
"For the suppliers that are very much reliant on a Walmart, for example, they might have some challenges passing those costs on. They might be expected to absorb the 10 per cent or whatever it might be," Crook speculates.
"I think if you're going direct to consumer or you have a wholesale business where you don't have somebody that has the buying power of a Walmart of Home Depot, I'm sure that they will find ways of having to pass that on across their customer base.
"There's just a lot of uncertainty around my customers of what to do, and when that happens there's just no investment. There's just a lot of uncertainty around my customers of what to do."
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