How Brands Can Weather the Heat of the Latest Trade War Developments
The government may be back in session, but the trade war with China is continuing to disrupt the economy in 2019.
Businesses that seek growth in times of turmoil will face steep challenges this year and beyond. Increased customs fees and longer processing times have thrust most companies into unfamiliar territory. Without experience in international trade, business owners across the country should look to brands with experience to determine the best course of action.
Ever since President Trump pointed a financial cannon at China, U.S. markets have experienced uneasy upheaval. Importing products is now both more expensive and more time consuming, and prices of goods and services reflect those struggles.
For consumers, items ranging from washing machines to beer to cell phones have all increased in price because of pressures on the Pacific border. Businesses, meanwhile, faced more than a 100 percent increase in freight prices for containers at the end of 2018.
Price isn't the only factor affected, however. Bottlenecks at customs inspection points have slowed down package clearance, meaning many businesses must explain to their customers why items arrive later than expected. Shipping rates (both domestic and international) continue to spike. Customers are understandably upset when they’re paying more for inferior shipping methods. The merchant they’re buying from usually takes the brunt of the blame, but once the package is in the courier's hands, the merchant has no control over what happens with it. Brands are just as furious with couriers as their customers, and are actively looking for a solution to make the experience better for everyone.
Another fear for companies is losing business by only offering premium shipping options. However, by offering lower-tier shipping, companies risk even greater problems. Cheap shipping typically doesn't include “Duties Paid” options. Without that protection, businesses (and consumers) face unexpected fees. Our company has seen some costs of duties rise as much as 300 percent, creating substantial differences in expected vs. realized prices.
The effects of the trade war are more serious today because businesses have spent years taking advantage of inexpensive production in China. Now that costs associated with that production have gone up, brands unfamiliar with the territory don’t know where to turn.
Navigating the Battlefield
Chinese production isn't the problem. While some companies work with Chinese manufacturers to keep costs low, China offers high-quality options at reasonable prices for businesses that put quality over quantity. Companies can still do business in China to source quality products and maintain healthy operating costs, but to do so in a trade war, the following tactics are essential:
1. Invest in international distribution.
International distribution centers eliminate many of the biggest trade war woes. By sending products to nations or economic unions, such as the European Union (EU), businesses can deliver products to their customers without worrying about customs fees for individual products. This strategy also reduces delays in shipping by generating accurate tracking and arrival windows.
Couriers do offer cheaper shipping options, but that means the courier leaves final delivery to the local post office of the destination country. This means infrequent tracking updates at best, often offering no updates on delivery status. Now that customers demand 24/7 access to the progress of their orders, companies cannot afford to lose sight of products during transit.
Not all companies can afford foreign facilities. However, the immediate cost savings and service improvements are worth the investment.
2. Pay extra for better shipping.
For companies unable to establish foreign distribution facilities, couriers like FedEx and UPS offer higher-tier international delivery services that take packages from origin to destination with no handoffs. This means that FedEx, for example, won’t hand a package over to Royal Mail when it arrives in the U.K. These services usually include duties, which means customers don’t suffer from sticker shock when their packages arrive. An added bonus, but expected, is up-to-date tracking information from point A to delivery.
Investing in these options may cause prices to rise, but customers today are willing to pay a premium for better service. Modern buyers don’t want to wonder where their packages are or how much their final bill will be. They expect to track their packages at a whim and pay only the total they saw at checkout. Businesses can offer that peace of mind, but to do so they can’t skimp on shipping options.
3. Constantly communicate about price.
Customers love free shipping. Unfortunately, Amazon Prime has created an environment in which companies are afraid to charge shipping fees out of fear those charges will harm conversions.
Lower conversion rates are bad, but they're not the end of the world. When customers take to public review sites to express their displeasure over unexpected charges, however, companies suffer even more.
Avoid the backlash by communicating openly and honestly about shipping costs on your company website, at the time of checkout, and in follow-up emails. Customers understand that environmental pressures can change the prices they pay. If the business must charge more in shipping because of trade war pressure, customers would rather find out directly from the retailer.
The trade war will rage on, but brands don’t have to be casualties. Understand the stakes, prioritize customer experience, and invest in worthwhile improvements to stand out while others struggle.
Tim Nybo is co-founder of Vincero Watches, a rapidly growing direct-to-consumer brand of luxury watches based in downtown San Diego.