“The world is in the fog of tariffs, which is difficult to see the future because there are so many variables that it's difficult to see the path ahead,” said Nicholas Pinchuk, CEO of Snap-on on April 17, a hand tool maker. At the same time, he was not defending the standing putt. “This is an environment that requires urgent action to coordinate for optimization and utilization,” he added (according to the S&P Capital IQ call transcript).
Joseph Estevez, CEO of Main Point, supply chain and operations consulting firm, agrees. Despite a 90-day suspension of “mutual” US tariffs, he is urging businesses to take control of the situation.
“I think there are some bold and bold moves,” Estebus told CFO leadership on April 9th.
We sought some practical advice from Estevez, both operationally and financially, for businesses dealing with the effects of the US trade war. He provided them in an interview on April 9th.
In the first quarter revenue call, CEOs and CFOs are confident they can raise prices to blunt the impact of higher costs, as they did during the first Trump tariffs. Will that be feasible this time?
There was an insatiable demand during Covid. You don't have it today. Consumers are broken. People are looking at 401(k). Look at the feelings of consumers. I think it's a stupid mistake to take over price increases. The environment has changed. The company does not have the leverage it had during Covid.
Some companies don't have options [record] It's a loss, so they have to push up the price. But there is a company [already] Reducing tariff costs. If businesses are not taking control by viciously attacking costs, they will lose market share. What can we do to quickly reduce the impact of tariffs and other business costs to maintain profitability? Companies that do so will gain market share.
What actions can you take if you import products from other countries, especially China?
Control the supply chain. I've seen the company [relinquish] Supply chain control. They have importers. Importers use customs brokers and products magically appear on the shelf. The broker has a lot of clients. That broker doesn't understand your business.
For example, companies bring nuts and bolts. Please remember that harmonious customs codes (HTS) and duties apply only to basic products, not cardboard, not loading labor. [packaging]. Not all other subsidy costs that can range from 60% to 70% of the total cost of a product. Your customs broker says the bolt is $1.40. However, the $1.20 for that bolt is in the blister package. Maybe 30 cents are the actual bolts that should be subject to customs duties.
That requires a basic understanding of your material invoice. What is your true exposure? We asked the company, “What is your exposure?” They say, “30% of our products come from China.” But how many of its basic products come from China? What is added value? I call it the profitability of an “engineer” because this is where you have to. You need to dig deeper. And you need to quickly drill down into these 10-20 products that move the needle for your business.
What else can we do to limit the economic impact?
See and follow the customs reclassification ruling. [There have been some] A great example of many years. Remember the old Snuggie from 20 years ago? I think they first called it a sweater or pajama. Once they reclassify the products into blankets, [the company received] Cost reduction obligation is 70%. Simply reclassify the product.
HTS and customs judgments are like our judicial system. Once a ruling is made, he becomes his grandfather. Therefore, companies can refer to the HTS ruling 20 years ago and point it out as part of the justification [a product’s classification].
I watch the customs database to track what the US reclassifies. If you're either Nike or any of these other big companies with more resources, you're doing this. If you're a middle market company, you may not be in the market first, but you can capture the waves.
What can companies do now for their suppliers?
Revisit their international commercial terms. FCA Incoterm is a great option. The producer (seller) must deliver the product to the transportation facility. The FCA requires the shipper to submit customs documents. It also gives you flexibility if you're saving cash. Want to own a product?
Because when you own the product, you have committed cash. You have a hard purchase order. In this environment, you should create as much flexibility as possible. I don't know where demand is heading. Do you need this stock?
What aspects of working capital should the CFO and finance team closely track?
Finance needs to understand the impact. Monitors cash cycle times and DSO. Because I think you'll see late payments. Stock speeds are the biggest and I don't think people appreciate it. Is my current inventory split in my future sales forecast? This assumes there are good sales forecasts in this environment. That speed is important as it indicates whether inventory will move tomorrow or next month. [at all]. And, as you can see, the customer cancels the purchase order. You don't want to get caught up in an ineffective inventory.
For now, the big response is, “Get all the stock of the positions that exist because tariffs are coming. Buy all of this stock.” But it assumes a stable sales forecast that sales and finance probably developed in October, when everyone was supporting the management, deregulation and market.
At the same time, you don't want to cut off your muscles, right?
A while ago we talked about AI and how to invest. You still need to invest. We are at such an inflection point, geographically, economically and technically. Yes, tariffs are today's heading. I'm worried that companies will pull out old Draconian playbooks. But it's like surfing: don't take you to the waves. You need to paddle it.
