The Impact of Tariff Volatility on Holiday Supply Chains

Retailers and manufacturers are facing one of the most uncertain holiday shopping periods in recent memory. Tariff uncertainty, shifting global trade dynamics, rising logistics costs, stock keeping unit (SKU) rationalization, and soft consumer sentiment have combined to put intense pressure on supply chain, inventory and pricing strategies.

Even though inventory levels have stabilized over the last several years and are now consistent with pre-COVID benchmarks, the 2025 holiday experience is likely to feel different, characterized by reduced selection, fewer offers of deep discounts, and early stockouts of popular items.

Anticipating new rounds of tariffs, many retailers have front-loaded inventory in the first half of the year, placing orders months in advance to avoid duty hikes. But this speculative strategy, which relies on forward-looking assumptions about consumer demand and tariff enforcement, has increased the risk of supply-demand mismatches, leading to excess inventory in some categories and shortages in others.

To manage risk and simplify operations, many manufacturers and retailers are now reacting by trimming their assortment of SKUs. While this should improve efficiency and help with margins, it also has the potential to limit consumer choice and self-diversity, which could negatively impact sales figures.

Among some prominent examples:

• Sportsman’s Warehouse pulled forward ~$20 million in holiday inventory while cutting SKUs by ~20 percent year-over-year.
• Levi's reduced lower-performing SKUs, lifting margins from 1.5 percent to 7.5 percent.
• Hasbro has said it will prioritize legacy, tariff-exempt products over new SKUs.

Changes in Shipping Strategies and Freight Routes

Shipping and logistics have also seen global upheaval. Early import rushes, particularly from China, have resulted in surging freight rates and port congestion. Ocean bookings spiked 275 percent in a single week this spring. Combined with global chokepoints which have made headlines (especially the Red Sea attacks and the Panama Canal drought), these events have increased logistics costs and led to greater use of alternate ports and inland transport to get products to market.

Coupled with geopolitical uncertainty, these rising logistics costs are prompting organizations to reconfigure their networks with an eye to greater resiliency and more flexibility. Among the key shifts we've seen:

• Ocean Route Changes: Volume has shifted from Pacific routes to East Coast ports via Suez or Cape of Good Hope, bypassing conflict zones and low Panama Canal water levels.
• Mode Diversification: Rail and intermodal solutions are being increasingly used for domestic freight to avoid long-haul trucking constraints.
• Nearshoring in Practice: Many companies are piloting or have implemented Mexico-based assembly and fulfillment, reduced their trans-Pacific exposure while benefiting from trade incentives.
• Network Shifts: Companies are modifying continental receiving and distribution hubs to redirect shipments to tariff-efficient local locations and avoid cross-border tariffs.

These actions are all part of a longer-term and broader restructuring of sourcing strategies that prioritize resilience over efficiency. As this shift continues and tariff uncertainty persists, we should expect to see:

• An acceleration of "friendshoring" in countries such as Vietnam, India, and Mexico.
• Additional use of dual-sourcing models, even at higher cost, to build in redundancy.
• Continued front-loading of inventory into domestic distribution centers to stay ahead of volatility.
• The establishment of pop-up fulfillment centers near major demand zones to reduce last-mile risk.
• Deploying artificial intelligence-powered demand sensing and real-time shipping visibility to adapt quickly.

Organizations are also investing more resources in technologies that provide better supply chain visibility, including digital twins and scenario planning, to model potential tariff and disruption outcomes. Many are also looking to rewire their global networks around resilience-first principles, including multi-region sourcing and maintaining higher safety stock for critical SKUs. There's also an increasing acceptance across the industry that some cost inflation may be a welcome trade-off for greater agility, better continuity, and more reliable customer service.

Though consumers may see fewer deals, less product variety and tighter availability this holiday season, it's to be expected in an environment where tariff and trade uncertainty is the “new normal.” Businesses that can build resilience into their practices can safeguard margins, maintain brand loyalty, and navigate this holiday season effectively. That will require anticipating further disruptions, using real-time data to drive decision-making, embracing more flexible strategies, and diversifying their distribution plans.

Matt Lekstutis is director at Efficio Consulting, global procurement and supply chain consultants.