Seven Strategies Companies Are Using To Manage Tariff Risks

In response to economic uncertainty driven by evolving tariff policies, labor disputes, and geopolitical tensions, companies are adopting a range of short-term strategies to manage risk.

According to a report from Savills, each approach offers potential benefits but also involves trade-offs that businesses must carefully evaluate.

1. Stockpiling Goods

One widely used strategy is stockpiling goods—particularly containerized imports—to prepare for anticipated supply chain disruptions. This tactic, known as front-loading, gained traction last year amid fears of a dockworkers strike and is again being used to get ahead of potential tariff hikes. The advantage is clear: companies reduce the risk of inventory shortages and lock in pricing before increases take effect. However, this strategy depends heavily on available storage space, and excess inventory can become obsolete if held too long. Additionally, when many companies front-load simultaneously, shipping costs often spike.

2. Using Bonded Warehouses and Foreign-Trade Zones (FTZs)

Another option involves utilizing bonded warehouses and Foreign-Trade Zones (FTZs). Bonded warehouses allow companies to delay paying duties until goods leave the facility, while FTZs enable tariff deferral or reduction, especially for imported raw materials. Both solutions provide flexibility but require strict compliance with regulatory frameworks.

3. Partnering with Third-Party Logistics (3PL) Providers

Some firms are turning to third-party logistics (3PL) providers for warehousing, transportation, and fulfillment services. These partnerships help businesses stay nimble and avoid heavy capital investments, particularly when facing seasonal demand or market unpredictability. However, this flexibility often comes at a higher cost than traditional logistics operations.

4. Shifting Sourcing and Production Locations

To reduce reliance on China and mitigate supply chain risk, major brands like Apple, Samsung, Hasbro, and Nike are relocating production to countries such as India, Vietnam, Mexico, and Malaysia. These regions offer potential benefits like reduced lead times, lower inventory costs, and eligibility for government incentives. On the downside, decentralizing operations can raise production costs, dilute economies of scale, and introduce quality control challenges.

5. Transshipment Through Third Countries

Some companies are using transshipment—routing products through a third country—to legally avoid tariffs if substantial value is added in the intermediate country. However, if used solely to skirt tariffs, this practice is illegal. Although transshipment can help manage costs and maintain supplier relationships, it is facing heightened regulatory scrutiny, and violations carry significant penalties.

6. Tariff Engineering

Tariff engineering is another longstanding strategy. This involves making minor modifications to products so they fall into lower tariff categories. While potentially effective, this tactic may compromise product performance or quality, risking damage to brand reputation.

7. Investing in Automation and Supply Chain Technology

Lastly, businesses are investing in automation and other technologies to build more resilient supply chains. Automation can optimize storage space, reduce labor dependency, speed up fulfillment, and enhance inventory control and security. Yet, these benefits come with high upfront costs and require careful evaluation to ensure the technologies genuinely strengthen operational efficiency.

Source: GlobeSt.