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By Counterman
This article, contributed by Tom Cook, is courtesy of link hidden, please login to view
All companies engaged in the global supply chain seek to lower the “landed costs” on their goods in imports and exports sales, purchasing and operations.
While there are numerous components that make up “landed costs,” duties, taxes and tariffs are a huge factor and can often be a detriment to global trade.
Duties, taxes and tariffs are costs borne by the importer as the goods enter a country. These fees are assessed by the country’s local customs authority. In the USA, this is the U.S. Bureau of Customs Border and Protection (CBP).
These fees are determined by what the product is and where it is from. The “what” is known as the HTS (Harmonized Tariff Schedule) and the “where” is the actual origin country of the product.
While some of the guidelines are standardized from one country to another, we must understand that the customs rules and their interoperation often vary differently from one country to another. Sometimes the differences are slight and in other countries the differences are huge.
The importer of record (IOR) has the primary responsibility to determine the correct HTS and origin upon entry of the goods for customs clearance in the country of import.
Most importers utilize the services of freight forwarders, customhouse brokers and/or 3PL’s to provide these clearance services, as well as rely on their expertise to accomplish the clearance process in a successful and compliant manner.
Importers may also obtain the assistance of these service providers in determining the correct HTS classification and
the origin.
Importers are legally responsible to exercise:
• Due Diligence
• Reasonable Care
• Supervision & Control
These standards are the responsibility of the importer of record (IOR). If the IOR outsources the responsibility to a customs broker, under the “supervision & control” standard, the IOR is still responsible for supervising and controlling for the statements and information provided by this third-party on their behalf.
This standard requires the importer to have a working knowledge of the import regulations and be able to properly supervise their outsourced provider.
Customs recognizes that an importer may need guidance in the clearance process. This may be received from CBP, a qualified consultant, a customs attorney or a practitioner that has expertise in customs regulations.
It is critical to understand the steps in managing duties, taxes and tariffs. The first is to understand how the import regulations apply, followed by learning what measures can be taken to mitigate the risk and cost associated with duties, taxes and tariffs. If the origin and the classification are the controlling factors, it is important to understand that this is where the answers lie to mitigation.
For example, Section 301 tariffs on certain goods exported from China into the U.S. may add as much as a 25% surcharge to the import landed cost. This resulted in many companies seeking out alternative sourcing options to avoid this surcharge.
In addressing alternative sourcing options, nearshoring, reshoring and friend shoring – countries such as but not limited to Vietnam, S. Korea, Taiwan, Malaysia – all presented viable options.
In some situations, the acquisition cost may have been higher, but when calculating the landed cost, with the 25% duty eliminated, the comparison demonstrated a viable alternative to the importer.
Companies involved in aftermarket sales, where margins are tight, can benefit from this type of analysis and mitigation strategy.
Another strategy involves the Harmonized Tariff Schedule, or what the product is, from CBP’s perspective.
First, we want to make sure we are utilizing the proper HTS number. It can be possible that the correct HTS number, when changed, will offer a lower duty rate.
Secondly, what we refer to as “Tariff Engineering” is a legitimate manipulation of a product’s design or materials that impacts its classification and potentially lowers the duty rate.
The choice of materials, the functionality of the product, product specifications or qualities all impact how a product is classified.
For example, changing the make-up of the materials utilized in fabrics, such as the mix of cotton, rayon, nylon, etc. will change the classification of a product. Features such as changing the product to be waterproof and adding other qualities may also change the tariff classification and impact the duty rate.
Another example may be how the product is designed; for example, for personal utilization or for commercial application, may have an impact.
How parts and equipment are assembled and utilized can also have an impact on the classification as well as the origin.
The amount of “value-add” in the manufacturing or assembly process can also impact how CBP will view the origin and/or the HTS, therefore directly impacting the duty rates.
Tariff Engineering requires R&D, engineering, and technical support, as well as guidance from trade professionals that can assist in interpreting the import regulations and research prior CBP rulings.
CBP has a great resource called CROSS which is a searchable database of CBP rulings that can be retrieved based on simple or complex search characteristics using keywords and Boolean operators. CROSS has the added functionality of cross-referencing rulings from the initial search result set with their modified, revoked or referenced counterparts.
Rulings collections are separated into Headquarters and New York and span the years 1989 to present. Collections can be searched individually or collectively.
CROSS can be an excellent resource in managing the impact of duties and tariffs on
landed costs.
Duties, taxes and tariffs often emanate from political and economic positions from government offices and agencies. We witnessed this when President Trump put forward the 232 and 301 Tariffs in his first year in office.
China then secured retaliatory duties. We have seen these similar actions in the EU, Australia, Mexico and Canada.
Personnel in the aftermarket engaged in global supply chain purchasing, sales and operations need to pay attention to the political and economic situations in the countries they do business in, as regulations impacting duties and tariffs change frequently with both positive and negative consequences.
Additionally, trade organizations’ lobbying efforts should be followed with the Executive Branch and Congress. These efforts seek to keep open free trade concepts and minimize the utilization of duties and tariffs as political and economic weapons in global affairs.
Studies have been accomplished that clearly demonstrate the negative impact of tariffs on manufacturing, distribution, and trade costs in the global supply chain.
While many tariffs are designed to protect industries or certain markets, they generally wreak havoc in global trade and have negative impacts.
The automobile industry, its suppliers and ancillary industries such as the aftermarket are significantly impacted by duties, taxes and tariffs.
In controlling “landed costs,” duty and tariff mitigation as outlined above are all good strategies, but there are other options that also should be considered:
• Utilization of Foreign Trade Zones
• Consolidating Transportation Providers and Carriers
• Running annual Freight RFP’s
• Choice of INCO Terms
• Alternative Sourcing
• Free Trade Agreements
• Location and methodology in warehousing, fulfillment, and distribution
• Utilization of Technology
• Demand Planning Systems
In summary, developing strategies in tariff mitigation is a viable solution to duty and tariff management and ultimately lowering landed costs and enhancing your company’s competitiveness in both import and export purchasing
and sales.
Thomas Cook is Managing Director of Blue Tiger International, a global consultancy advising on supply chain management, trade compliance, purchasing, trade and disruption management, global business and logistics. For more information, go to www.bluetigerintl.com. Tom can be reached directly at [email protected].
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By Counterman
Trade associations for the major automakers and parts manufacturers recently
link hidden, please login to view urging lawmakers to pass legislation including the restoration of full first-year deductibility for research-and-development (R&D) expenses. Co-signing the letter were the Alliance for Automotive Innovation; American Automotive Policy Council; Autos Drive America; MEMA, The Vehicle Suppliers Association; and the Truck and Engine Manufacturers Association, which collectively represent millions of workers in the auto industry.
“Congress must restore this tax provision to enhance U.S. competitiveness, job creation and innovation as soon as possible,” said Ann Wilson, MEMA’s executive vice president of government affairs. “As this industry is facing massive transformation, R&D is crucial. Many of our members are smaller, innovation-driven vehicle suppliers and are struggling with the financial burden to remain competitive in the global marketplace. Restoration of yearly deductibility goes a long way in addressing these fundamental challenges.”
For almost 80 years, motor vehicle and component manufacturers relied on the availability of full first-year deductibility of R&D expenses. A new law implemented in 2022 now forces businesses to spread that deduction over five years, making R&D exponentially more expensive, the associations assert.
The trade associations lament that the change has been “particularly burdensome for the auto industry, threatening thousands of jobs.” Of the $538 billion spent on R&D activities in the U.S. in 2020, more than $23 billion (4.3%) was invested by the motor vehicle industry, according to the associations.
“More than 10% of U.S. auto jobs are in the R&D space,” said John Bozzella, president and CEO of the Alliance for Automotive Innovation. “The auto industry invested $23 billion in R&D activities in recent years – the third highest of any manufacturing sector. By restoring the full deductibility of R&D expenses, Congress can ensure that investment keeps moving in the right direction – supporting U.S. jobs, expanding American innovation and boosting global competitiveness.”
As the letter is distributed, the trade associations are mobilizing members and employees to urge members of Congress to immediately pass legislation restoring full first-year tax deductibility for R&D expenses to protect jobs and preserve the motor vehicle industry’s financial health and competitiveness.
“American Automakers Ford Motor Company, General Motors Company and Stellantis invest heavily in R&D,” said Gov. Matt Blunt, president of American Automakers Policy Council. “These critical investments are vital if American automakers are going to lead the transportation revolution and offer customers the most innovative products in the world. The ability to deduct R&D expenses is needed to ensure our domestic auto production continues to be competitive in the global market.”
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By Counterman
Executives on AutoZone’s most recent earnings call were upbeat about the growth prospects for the company’s international stores.
AutoZone began publishing its international same-store sales numbers in September, along with its overall FY-2022 fourth-quarter results.
In the fourth quarter, AutoZone’s stores in Mexico and Brazil posted year-over-year same-store sales growth of nearly 15% on a constant-currency basis – compared to 1.7% for the company’s domestic stores.
In the first quarter of AutoZone’s fiscal-year 2023, which ended Nov. 18, same-store sales growth in Mexico and Brazil outpaced U.S. stores again. On a constant-currency basis, AutoZone’s international stores posted year-over-year same-store sales growth of nearly 11%, compared to 1.2% for its U.S. stores.
On AutoZone’s Dec. 5 conference call, CEO Bill Rhodes noted that “international has become a more important part of our growth story and an area where we are increasingly deploying capital.”
“We are very excited about the short- and long-term growth prospects of international,” Rhodes added. “Our expectations are we will continue to grow mature-store volumes both in DIY and DIFM and we plan to accelerate new-store openings over the next several years, ultimately getting to a minimum of 200 international new stores by 2028.”
During the first quarter, AutoZone said it opened five new stores in Mexico and four in Brazil. As of Nov. 18, the company had 6,316 stores in the United States, 745 in Mexico and 104 in Brazil, for a total store count of 7,165.
“These [international] businesses had impressive performance last quarter and should continue to grow at a robust pace for the remainder of fiscal 2024,” said Phil Daniele, who will succeed Rhodes as CEO in January. “We are leveraging many of the learnings we have in the U.S. to refine our offerings in Mexico and Brazil.”
Although AutoZone isn’t breaking out bottom-line data for its international stores, CFO Jamere Jackson provided some insight on profit margins during the question-and-answer session with analysts.
“From a margin standpoint, we’re very pleased with the progress that we’re making on margins – both gross margins and total operating margins,” Jackson said. “In our business in Mexico, which is much more mature than what we have in Brazil, we’ve been very pleased with the actions we’ve been able to take on the merchandising side of the business, and that’s given us a very healthy gross margin in that business.”
Considering “the inherent advantages” of low-cost labor, Jackson added, “it’s a very attractive operating-margin structure in Mexico, and we believe as our business in Brazil matures and scales over time that we’ll see similar advantages in Brazil.”
However, as AutoZone aggressively invests to open new stores in Brazil, Rhodes cautioned that “we’re still losing money there.” Those new stores “are causing a pretty good headwind,” Rhodes added, but such challenges are “not unanticipated.”
While Rhodes and Daniele made a point to highlight the same-store sales growth in Mexico and Brazil during the call, Daniele emphasized that “the No. 1 focus for the remainder of the year will be on growing [market] share in our domestic commercial business.”
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By Counterman
Earlier this week, the Automotive Service Association, the Society of Collision Repair Specialists and the Alliance for Automotive Innovation sent a letter to Congress reaffirming their commitment to a 2014 national agreement on automotive Right to Repair.
In the letter, the organizations “commit that independent repair facilities shall have access to the same diagnostic and repair information that auto manufacturers make available to authorized dealer networks.”
While the organizations hailed the letter as a show of unity between independent repairers and OEMs on the principle of consumer choice, the Auto Care Association and MEMA Aftermarket Suppliers swiftly dismissed the letter as an act of subterfuge on the part of automakers.
“Auto Care Association objects to the so-called right-to-repair pact between ASA, SCRS and the Alliance for Automotive Innovation,” Auto Care President and CEO Bill Hanvey said in an email blast. “Auto Care Association, an original signatory to the 2014 memorandum of understanding, was not consulted about, was not a party to and does not support the agreement.”
Hanvey noted that neither ASA nor SCRS signed or supported the 2014 memorandum of understanding, and asserted that the associations “represent a small fraction of the independent repair market and do not speak for the automotive aftermarket.”
“Auto Care Association, on the other hand, is a national trade association representing over 536,000 companies and affiliates that manufacture, distribute and sell motor vehicle parts, accessories, services, tools, equipment, materials and supplies,” Hanvey said. “Auto Care Association serves the entire supply chain of the automotive aftermarket for the nation’s 292 million registered motor vehicles. Those businesses include over 280,000 repair facilities and 915,000 technicians nationwide.”
Ultimately, Hanvey called the agreement “a thinly veiled response by the automotive OEMs to HR 906: The REPAIR Act.”
“While the agreement purports to be relevant, all it does is affirm the 2014 memorandum of understanding rather than implement a meaningful solution to preserve the entire automotive aftermarket and the competition and consumer choice that it creates,” Hanvey said. “The agreement between the Alliance, ASA and SCRS is not only designed to create confusion, but also has numerous flaws.”
Among those flaws:
The agreement is non-binding. There is no way to force OEM participation or to enforce OEM compliance. The agreement does not cover all automakers and there is no requirement for new OEMs to join. The agreement does not obligate OEMs to provide vehicle owners or aftermarket direct access to telematically generated repair and maintenance data. Instead, the OEMs have agreed to make repair and maintenance data available through OEM-controlled systems and tools. Regarding telematics and the wireless transmission of vehicle repair and maintenance data, the OEMs only agree to give access if the data “is not otherwise available” through the OBD II port. This means an independent shop could be forced to subscribe to multiple third-party tools to get access to telematics data, rather than through a single direct source. The agreement fails to address the safety and security of the wirelessly transmitted vehicle data. “The efforts we’re seeing this summer to stop our industry’s momentum of securing our right to repair are only ramping up,” Hanvey concluded. “From the recent NHTSA letter to this new right to repair ‘pact’ from the automakers, there has never been more of a critical time to speak up and make our voices heard in Washington. I hope to see you all in D.C. with us this fall during our Legislative Summit on Capitol Hill, where we will speak in one unified voice with members of Congress on the importance of supporting our industry by passing the REPAIR Act.”
‘Agreement Falls Short’
In a statement, MEMA Aftermarket Suppliers called the agreement “a step in the right direction to ensure that consumers are protected.” However, the pact “falls short of all the protections necessary to ensure consumer choice now and into the future for all parties, not only signatories of the pact.”
“As a transportation industry, we believe that we have one opportunity to pass federal legislation and that legislation must include the ability to prioritize and protect consumers’ access to both light-duty and heavy-duty vehicle repair and maintenance through all iterations of vehicle technology on the road today and to come,” MEMA Aftermarket Suppliers added.
The association asserted that Right to Repair legislation must include:
All vehicles in operation – light-duty, medium-duty and heavy-duty Access to telematics and diagnostics data beyond that available just through the OBD II port An enforcement mechanism The ability for independent repair shops, using bi-directional communication, to update vehicles and parts to the latest software Addressing the risk of repair monopolies Language to protect consumers’ access to both light-duty and heavy-duty vehicle repair, maintenance and parts of their choosing through all iterations of vehicle technology on the road today and to come “The agreement does advance the conversation around right to repair and consumer choice, but if automakers and repair shops are prioritized over consumers, fair competition and a free market would not be realized,” the association said. “As a key stakeholder in protecting consumers’ rights and an essential part of the value chain, MEMA Aftermarket Suppliers must be a part of the conversation.
“MEMA Aftermarket Suppliers welcomes the opportunity to work with all parties to align on a federal solution that reflects the principles of consumer choice and a free market, includes the expertise of the supplier community, has a mechanism for real enforcement and prioritizes consumers, their safety and their economy – and the innovative industry we serve. The Right to Equitable and Professional Auto Industry Repair (REPAIR) Act (H.R. 906) addresses these needs, and MEMA Aftermarket Suppliers continues to support this bill that addresses the above concerns and creates a repair ecosystem that puts consumers at the center.”
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By Counterman
The Automotive Service Association, the Society of Collision Repair Specialists and the Alliance for Automotive Innovation have sent a letter to Congress reaffirming their commitment to a 2014 national agreement on automotive Right to Repair.
The organizations represent the nation’s independent repair facilities, auto body shops and leading automakers, respectively.
In the letter, the organizations reaffirm their agreement on the 2014 memorandum of understanding, “and commit that independent repair facilities shall have access to the same diagnostic and repair information that auto manufacturers make available to authorized dealer networks.”
In an attachment to the letter, the organizations reiterate: “There shall be available for purchase by owners of motor vehicles and by independent repair facilities on fair and reasonable terms the same diagnostic and repair information, including service manuals and technical repair updates, that a manufacturer makes available to its authorized dealers through the manufacturer’s internet-based diagnostic and repair information system or other electronically accessible repair information system.”
In
link hidden, please login to view, the repairers and automakers also wrote: “This commitment was created with our mutual and valued customers in mind: vehicle owners. It affirms that consumers deserve access to safe and proper repairs throughout a vehicle’s lifecycle [and] it is built to last because it anticipates changes in automotive technologies and market evolutions.” Highlights of the agreement include:
Access to diagnostic and repair information – Independent repair facilities shall continue to have access to the same diagnostic and repair information that auto manufacturers make available to authorized dealer networks. This applies to:
Telematics data needed to diagnose and repair a vehicle if not otherwise available; All vehicle technologies and powertrains, including gasoline, diesel, fuel-cell, electric battery, hybrid and plug-in hybrid electric powertrains. Education and training – A pledge to work together on education and training programs so mechanical and collision repair facilities are fully aware of exactly where and how to obtain repair information,including:
Directly through an automaker’s repair website; Shared access points like www.OEM1Stop.com; Via third-party information providers, software and tools. Future advancements – As vehicle technologies and the corresponding demands on repairers evolve, the commitment ensures a level playing field and a forum to discuss future repairer needs as they develop.
Repairers and Automakers ‘In Lockstep’
As state legislatures and Congress consider automotive Right to Repair laws, including the REPAIR Act, the parties noted: “…independent repairers and automakers are not at odds on automotive data access, but rather in lockstep on this fundamental principle: Consumers should have choice when it comes to repair options and the ability to have their vehicle serviced in well-equipped shops by well-trained technicians anytime, anywhere, anyplace.”
The organizations note that independent repair facilities perform 70% of post-warranty vehicle repairs today, while automakers’ own certified collision networks are comprised of shops that are more than 70% non-dealer owned.
“Automakers support Right to Repair, and today’s independent auto repair market is working well with lots of competition,” said John Bozzella, president and CEO of the Alliance for Automotive Innovation. “Auto repairers across the U.S. have access to the same repair and diagnostic information provided to auto dealers. It’s not just automakers who say this. It’s the Federal Trade Commission. And with today’s agreement; it’s also the thousands of independent auto repairers and small businesses in all 50 states who together with automakers have once again made this fundamental commitment to customers.”
In the letter, the organizations note that the Federal Trade Commission “has rightfully placed a focus on the repair options available to consumers for all the products they purchase – far beyond just automobiles.” The agency has highlighted automotive repair “as a model for other industries to follow.”
“Consumers should absolutely be able to choose quality repairs, performed in accordance with the specific procedures detailed by the vehicle engineers,” said Amber Alley, chairman of the Society of Collision Repair Specialists, and manager of Barsotti’s Body and Fender in San Rafael, California. “They should have the right to be able to do so in an independent repair facility that has invested in the training, equipment and skillset development to meet the rigorous demands of sophisticated, modern vehicles. This expectation is achievable, and consumer options for repairs are not limited by automakers; quite the contrary. Consumers should have the right to a proper and safe repair, and this agreement reinforces the commitment that the entire industry will have the ability to train, equip their facilities, and perform repairs as intended by the vehicle engineers.”
‘Agreement Falls Short’
In a statement, MEMA Aftermarket Suppliers called the agreement “a step in the right direction to ensure that consumers are protected.” However, the pact “falls short of all the protections necessary to ensure consumer choice now and into the future for all parties, not only signatories of the pact.”
“As a transportation industry, we believe that we have one opportunity to pass federal legislation and that legislation must include the ability to prioritize and protect consumers’ access to both light-duty and heavy-duty vehicle repair and maintenance through all iterations of vehicle technology on the road today and to come,” MEMA Aftermarket Suppliers added.
The association asserted that Right to Repair legislation must include:
All vehicles in operation – light-duty, medium-duty and heavy-duty Access to telematics and diagnostics data beyond that available just through the OBD II port An enforcement mechanism The ability for independent repair shops, using bi-directional communication, to update vehicles and parts to the latest software Addressing the risk of repair monopolies Language to protect consumers’ access to both light-duty and heavy-duty vehicle repair, maintenance and parts of their choosing through all iterations of vehicle technology on the road today and to come “The agreement does advance the conversation around right to repair and consumer choice, but if automakers and repair shops are prioritized over consumers, fair competition and a free market would not be realized,” the association said. “As a key stakeholder in protecting consumers’ rights and an essential part of the value chain, MEMA Aftermarket Suppliers must be a part of the conversation.
MEMA Aftermarket Suppliers welcomes the opportunity to work with all parties to align on a federal solution that reflects the principles of consumer choice and a free market, includes the expertise of the supplier community, has a mechanism for real enforcement and prioritizes consumers, their safety and their economy – and the innovative industry we serve. The Right to Equitable and Professional Auto Industry Repair (REPAIR) Act (H.R. 906) addresses these needs, and MEMA Aftermarket Suppliers continues to support this bill that addresses the above concerns and creates a repair ecosystem that puts consumers at the center.”
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