December 19, 2024
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Should Inventories Be Pulled Ahead Over Tariff Threats?
Costco is among retailers and vendors already accelerating inventory arrivals as a short-term solution to minimize exposure to President-elect Donald Trump’s promised tariffs.
“We have a plan over time where we have done this in the past and typically, we’ll look where we can to pull forward inventory buying, which actually we’ve done already because of some of the less predictability around shipping and how much time product spends on the water,” said Gary Millerchip, Costco’s EVP and CFO, on the retailer’s first-quarter 2025 analyst call on Dec. 12.
The pull-forward orders were also in part due to the risk of port strikes in India, Canada, and the U.S. East Coast.
The National Retail Federation (NRF) recently predicted that the U.S.’s major container ports should see a “continued surge in imports through next spring” due to the prospects of tariffs combined with another possible strike in January at East Coast ports.
“Retailers are doing what they can to avoid the impact of either for as long as they can,” Jonathan Gold, NRF’s VP for supply chain and customs policy, said. “We hope that both can be avoided, but bringing in cargo early is a prudent step to mitigate the impact on our industry, consumers and the nation’s economy.”
Many see a replay of 2018, when moves to impose tariffs on China during Trump’s first administration caused the frontloading of freight that drove a short-lived rise in ocean container shipping freight rates by more than 70%, according to ocean and air freight intelligence platform Xeneta. Trucking and warehouse rates also spiked.
However, Peter Sand, chief shipping analyst at Xeneta, told CNBC that the incentive to frontload should be “even greater” with Trump on the campaign trail pledging a tariff of 60% to 100% on goods imported from China, up from the 25% rate China initially faced in 2018.
Trump has also threatened across-the-board tariffs of 10% to 20% on all imports arriving in the U.S. to support U.S. business interests, 25% tariffs on imports from Canada and Mexico to reduce the flow of illegal migrants and fentanyl coming into the U.S., and tariffs on the BRICS group — comprising nine emerging market countries including Brazil, Russia, India, and China — to protect the U.S. dollar.
“It is an open question what level of tariffs will be imposed,” Lars Jensen, CEO of Vespucci Maritime and a freight consultant, told CNBC. “Trump has mentioned anything between 100-500% and it is therefore completely unknown what will actually transpire. But, again, that means significant uncertainty for U.S. importers, and the only way to reduce the uncertainty will be to import goods earlier.”
Shipper C.H. Robinson predicted the new tariffs could be in effect by late February or early March.
A Wall Street Journal article noted that many U.S. firms are aggressively stockpiling auto parts, electrical components, and fabricated metal products as China remains a key exporter of parts and raw materials for certain industries. In November, buying activity among North American manufacturers, measured in a survey of 27,000 businesses worldwide by GEP and S&P Market Intelligence, hit its highest level in more than a year, according to the report.
Sebastien Breteau, founder and CEO of consumer product quality control company QIMA, is less convinced that tariffs will hit other nations, believing they’re more likely to be used as a negotiating tool. He told Supply Chain Brain, “Trump has been known to change his mind.”
BrainTrust
Shannon Flanagan
VP|GM Retail & Consumer Goods at Talkdesk
Gail Rodwell-Simon
Strategic Retail Advisor, SPARX Advisory Group
Scott Benedict
Founder & CEO, Benedict Enterprises LLC
Recent Discussions
Discussion Questions
Should retailers absorb the likely higher freight, trucking, and storage costs to bring in inventory, particularly from China, early ahead of potential tariffs?
What lessons should have been learned on such a move from past trade wars?
Poll
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Trump has an upward battle to fulfill this campaign promise. The impact to our economy is too significant. Retailers should be surgical about what and when they choose to move forward and not have a knee jerk reaction.
I believe there will be some disruption in the supplier model. He will definitely try because not trying is a bigger detriment to his administration and it was a mandate from the public. As a merchant, owner, category manager, etc, I would have been proactive and forward bought what I needed as he has been talking about this during this election cycle. I also would have begun to think of how I am going to replace /augment the rest of my supply chain pipeline. Buy U.S can be a great thing for the U.S – Sam Walton and other retailers have made it a success over the decades. I see companies coming to the table and talking strategies and ideas with the administration. To completely disregard the level of possible ramifications is shortsighted and possibly affect the consumers.
Like any quick-fix strategy this may make a certain amount of sense, in a pure numbers driven analysis (or not: a business’ individual circumstances will vary); but obviously it’s no kind of long-term solution to a substantial disruption…a disruption which can come, regardless of how much hedging one attempts.
Which lesson should have been learned: the one about fooling some of the people (turns out it doesn’t have to be all of them)
I think that the strategy makes sense if the retailer has the flexibility to manage their cashflow in the short term. This would also make the most sense on evergreen, non-perishable (or non-trendy), replenishment type items.
What is missing from this discussion is the actual demand gen that is required to accelerate turnover. How do retailers driver consumers to the same position – act quickly otherwise your order cost will increase? How do retailers drive behavioral changes by which customers also accelerate their purchases? Those are the actions I’ll be watching.
If tariffs are implemented, pulling forward inventory will provide only temporary relief. Maybe it buys retailers some time to explore changes to their supply chain. Maybe it helps them avoid any short-term distribution disruption. But it does not and will not solve the issue. All that said, it remains to be seen what shape tariffs will take. The threat of tariffs are being used as a negotiating tool. Canada has already announced additional border funding in response to that threat – which is what Trump intended for them to do.
I do not recommend that retailers make any changes to their inventory systems or overreact in response to tariffs that have not yet been implemented. If and when these tariffs do come into play, they are likely to be much less severe than what those who don’t understand Trump are anticipating.
If you’ve read “The Art of the Deal”—and I believe every journalist should—it’s clear that the current discussions surrounding tariffs are primarily a foundation for negotiation. Several countries have already reached out to Trump to request face-to-face meetings to explore alternative solutions rather than resorting to tariffs. Even China, or perhaps especially China, is quite concerned and eager to meet with Trump.
Trump will avoid any actions that could lead to increased in-store prices, as that is the last outcome he desires. Even if tariffs are eventually enacted, he will allow the business community to make necessary adjustments to ensure a smooth and profitable transition. His goal is not to harm American businesses; on the contrary, he aims to support them.
Loading up on inventory is a short term solution that is only delaying what’s coming. It may allow for a slower ramp up in price increases due to the tariffs. And, as the article points out, increasing inventory comes at a cost, which will also be passed on to consumers.
This decision is one that needs to be arrived at thoughtfully by retailers broadly and on a product line case-by-case basis. Taking your Finance team as a partner in this evaluation is critical, as all the “puts and takes” of cost levers need to be weighed. Forecasting cost benefits with the carrying costs of additional inventory and increased container and transportation costs need to be evaluated in detail…a process that should have been underway prior to the election as a “contingency plan” in the event that such an eventuality would come to pass.
An additional data point has to be the impact of carrying additional inventory on merchandising strategy if, in fact, the decision to do so is carried out. Emphasis should be placed on more basic inventory with predictable sell-through patterns that will not impede the ability to buy domestic items or items imported for non-impacted markets. Having excess inventory in one area of the business could impact your ability to buy other products on a daily/weekly/monthly basis, thus leaving you with no room to maneuver through unexpected impacts in your sales or inventory flow.
By the way, if you voted for this policy, please don’t complain about it now. You knew this would happen…
I’m a bit of a contrarian on this topic simply because President-elect Trump is using tariffs as a means to an end. He’s negotiating and already we’re seeing signs that his strategies are working. Politically, it took less than 24 hours for the President of Mexico and Prime Minister of Canada to respond on a variety of topics. Others will fall in line. With respect to inventories, I’d be cautious about stockpiling. The buy-ahead strategy may hurt the business more than maintaining current inventory schedules. Instead, I’d advise retailers to double down on efforts to understand their true net landed profitability for every product, category and sku they have in inventory and then cross tab this with every channel, customer and vendor. Leveraging sophisticated AI-based solutions to understand this picture will reveal some very interesting trends within their product portfolio and vendor eco-system.
My own approach would be to let this play out until there are more Knowns on the table. I would not want to dive into my supply chain and wreak any more havoc than is already in motion. I think there’s a much bigger issue looming and that is forecasting demand IF some level of new tariffs are put into place. The numbers that have put put out there are crazy…ludicrous. How do we take them seriously? So what will the real numbers be? When? And what will those new numbers do to demand? This is not some negotiating ploy on a new hotel. It’s the global economy. The level of irresponsibility that this is being handled with is staggering.
Based on the supply chain shocks of recent COVID memory, it would seem wise to pull forward inventories of merchandise that is most likely to be impacted by the tariffs being threatened and most sensitive to consumer demand-based shortages. Toilet paper and cleaning wipes come to mind.
Warehouse-loading is a short-term tactical bet, and one available only to retailers who have the financial wherewithal. I see it as a kind of arbitrage.
It could help delay or moderate some shelf-price increases after tariffs are imposed. But It think it’s more likely that stockpiled goods will reach the shelves at full markup. Importers and retailers would benefit greatly from buying low now and selling high later.
If no tariffs are imposed, those retailers would incur some costs of capital, but they would still sell the goods at a profit, and their supplies would be more consistent than their competitors – for a few months at least.
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Trump has an upward battle to fulfill this campaign promise. The impact to our economy is too significant. Retailers should be surgical about what and when they choose to move forward and not have a knee jerk reaction.
I believe there will be some disruption in the supplier model. He will definitely try because not trying is a bigger detriment to his administration and it was a mandate from the public. As a merchant, owner, category manager, etc, I would have been proactive and forward bought what I needed as he has been talking about this during this election cycle. I also would have begun to think of how I am going to replace /augment the rest of my supply chain pipeline. Buy U.S can be a great thing for the U.S – Sam Walton and other retailers have made it a success over the decades. I see companies coming to the table and talking strategies and ideas with the administration. To completely disregard the level of possible ramifications is shortsighted and possibly affect the consumers.
Like any quick-fix strategy this may make a certain amount of sense, in a pure numbers driven analysis (or not: a business’ individual circumstances will vary); but obviously it’s no kind of long-term solution to a substantial disruption…a disruption which can come, regardless of how much hedging one attempts.
Which lesson should have been learned: the one about fooling some of the people (turns out it doesn’t have to be all of them)
I think that the strategy makes sense if the retailer has the flexibility to manage their cashflow in the short term. This would also make the most sense on evergreen, non-perishable (or non-trendy), replenishment type items.
What is missing from this discussion is the actual demand gen that is required to accelerate turnover. How do retailers driver consumers to the same position – act quickly otherwise your order cost will increase? How do retailers drive behavioral changes by which customers also accelerate their purchases? Those are the actions I’ll be watching.
If tariffs are implemented, pulling forward inventory will provide only temporary relief. Maybe it buys retailers some time to explore changes to their supply chain. Maybe it helps them avoid any short-term distribution disruption. But it does not and will not solve the issue. All that said, it remains to be seen what shape tariffs will take. The threat of tariffs are being used as a negotiating tool. Canada has already announced additional border funding in response to that threat – which is what Trump intended for them to do.
I do not recommend that retailers make any changes to their inventory systems or overreact in response to tariffs that have not yet been implemented. If and when these tariffs do come into play, they are likely to be much less severe than what those who don’t understand Trump are anticipating.
If you’ve read “The Art of the Deal”—and I believe every journalist should—it’s clear that the current discussions surrounding tariffs are primarily a foundation for negotiation. Several countries have already reached out to Trump to request face-to-face meetings to explore alternative solutions rather than resorting to tariffs. Even China, or perhaps especially China, is quite concerned and eager to meet with Trump.
Trump will avoid any actions that could lead to increased in-store prices, as that is the last outcome he desires. Even if tariffs are eventually enacted, he will allow the business community to make necessary adjustments to ensure a smooth and profitable transition. His goal is not to harm American businesses; on the contrary, he aims to support them.
Loading up on inventory is a short term solution that is only delaying what’s coming. It may allow for a slower ramp up in price increases due to the tariffs. And, as the article points out, increasing inventory comes at a cost, which will also be passed on to consumers.
This decision is one that needs to be arrived at thoughtfully by retailers broadly and on a product line case-by-case basis. Taking your Finance team as a partner in this evaluation is critical, as all the “puts and takes” of cost levers need to be weighed. Forecasting cost benefits with the carrying costs of additional inventory and increased container and transportation costs need to be evaluated in detail…a process that should have been underway prior to the election as a “contingency plan” in the event that such an eventuality would come to pass.
An additional data point has to be the impact of carrying additional inventory on merchandising strategy if, in fact, the decision to do so is carried out. Emphasis should be placed on more basic inventory with predictable sell-through patterns that will not impede the ability to buy domestic items or items imported for non-impacted markets. Having excess inventory in one area of the business could impact your ability to buy other products on a daily/weekly/monthly basis, thus leaving you with no room to maneuver through unexpected impacts in your sales or inventory flow.
By the way, if you voted for this policy, please don’t complain about it now. You knew this would happen…
I’m a bit of a contrarian on this topic simply because President-elect Trump is using tariffs as a means to an end. He’s negotiating and already we’re seeing signs that his strategies are working. Politically, it took less than 24 hours for the President of Mexico and Prime Minister of Canada to respond on a variety of topics. Others will fall in line. With respect to inventories, I’d be cautious about stockpiling. The buy-ahead strategy may hurt the business more than maintaining current inventory schedules. Instead, I’d advise retailers to double down on efforts to understand their true net landed profitability for every product, category and sku they have in inventory and then cross tab this with every channel, customer and vendor. Leveraging sophisticated AI-based solutions to understand this picture will reveal some very interesting trends within their product portfolio and vendor eco-system.
My own approach would be to let this play out until there are more Knowns on the table. I would not want to dive into my supply chain and wreak any more havoc than is already in motion. I think there’s a much bigger issue looming and that is forecasting demand IF some level of new tariffs are put into place. The numbers that have put put out there are crazy…ludicrous. How do we take them seriously? So what will the real numbers be? When? And what will those new numbers do to demand? This is not some negotiating ploy on a new hotel. It’s the global economy. The level of irresponsibility that this is being handled with is staggering.
Based on the supply chain shocks of recent COVID memory, it would seem wise to pull forward inventories of merchandise that is most likely to be impacted by the tariffs being threatened and most sensitive to consumer demand-based shortages. Toilet paper and cleaning wipes come to mind.
Warehouse-loading is a short-term tactical bet, and one available only to retailers who have the financial wherewithal. I see it as a kind of arbitrage.
It could help delay or moderate some shelf-price increases after tariffs are imposed. But It think it’s more likely that stockpiled goods will reach the shelves at full markup. Importers and retailers would benefit greatly from buying low now and selling high later.
If no tariffs are imposed, those retailers would incur some costs of capital, but they would still sell the goods at a profit, and their supplies would be more consistent than their competitors – for a few months at least.