The U.S. tariff increase on China will soon come into effect, what kind of impact will the vape logistics industry face?
The U.S. tariff increase policy on China will officially come into force on April 9, and e-cigarette cross-border logistics costs are facing a new round of adjustment. Two Supremes 2Firsts invited L (a pseudonym), a vape logistics company practitioner, to start an in-depth dialog on the impact of tariff adjustments on the industry, the trend of logistics price fluctuations, and business coping strategies.
Small increase in transportation price, stable market response
According to L, after the tariff adjustment, the logistics cost of vapes has been gradually transmitted through the increase in transportation price. Taking L’s company as an example, the unit price of sea transportation increased from RMB 19/kg to RMB 21/kg, and the unit price of air transportation increased from RMB 55/kg to RMB 57/kg, with the overall increase controlled within RMB 2/kg.
L further explains that the tariff policy has led to a direct increase in freight rates of RMB 8/kg. however, due to the current off-season in logistics, the headway cost has dropped, decreasing by RMB 6/kg. therefore, taken together, the overall cost fluctuation is only RMB 2/kg.
“Customers have been more receptive to the freight rate adjustment, and there has been no decline in order volumes.” L said that the sensitivity of the e-cigarette industry to shipping price fluctuations is significantly lower than that of traditional trade, and “for e-cigarette products with higher customer unit prices, the increase of 2 yuan/kg is still within the normal fluctuation range.”
Gray clearing mode suspended impact, positive clearing enterprise pressure is obvious
For the tariff transmission mechanism. L pointed out that the industry is significantly differentiated:
Gray clean channel: by declaring “atomizer accessories” and other marginal categories, the actual tariff rate, compared with the formal customs clearance of e-cigarettes (27.6% base rate + stacked rate) to save more than 10% of the cost of vapes, the majority of e-cigarettes enterprises preferred path.
Positive clearance channel: companies seeking compliance in the U.S. are required to pay the full amount of tariffs, logistics costs account for up to 80% of the value of goods, and market competitiveness suffers a direct impact.
“At this stage, the e-cigarette gray clearing market has not yet seen a large-scale case of tax reimbursement, but the future inspection rate will be inevitable,” L emphasized that if the U.S. Customs strengthens the gray customs inspection, logistics companies may face the risk of a huge amount of back taxes when the price system of the package tax model will face reconstruction.
Cost conduction has not yet peaked, the peak season, or again to meet the wave of price increases
Although the current rate of increase in freight rates is moderate, the industry generally expects the subsequent price adjustment space:
The second price adjustment after the policy wait-and-see period: April 10-14 or will be based on the actual tax bill for the second price calibration, part of the high-tax category increase or up to 5 /kg
Traditional peak season cost escalation: Amazon Prime Day (Amazon Prime Member Day) in May and September after the Christmas stocking season, the air freight price may exceed 70/ kg, compared with the current price of more than 20%.
Weakening of headway cost hedging effect: Currently, air freight headway prices have dropped about 30% from the high level during the epidemic, but with the tight capacity during the peak season, the cost cushion will be narrowed.
In response to this situation, the company in which L is based has issued a recommendation to its customers: “If the product is ready, it is recommended to complete the shipment as soon as possible before mid-April to avoid the subsequent policy overlay risk that may arise.”
Industry Risks and Long-Term Challenges
During the interview, L repeatedly mentioned two significant potential risks:
The sustainability of the gray customs model is in doubt: if the U.S. intensifies its crackdown on illegal imports or if Big Tobacco pressures the government to rectify the market, the existing gray clearance channel will face systemic risks.
The pressure capacity of logistics enterprises is tested: under the current tax-packing model, logistics providers need to bear the risk of back taxes. If the amount of tax reimbursement for a single shipment exceeds the freight revenue, there may be a risk of abandoning the shipment, which will bring operational pressure on the brand.
In this regard, L suggests that vape companies “need to establish a flexible supply chain system and balance the ratio of air and sea transportation. For hot-selling products, they should insist on air transportation to ensure the turnover rate, while slow-selling products can be shifted to sea transportation to reduce costs. At the same time, pay close attention to the U.S. Customs code adjustment trends, planning ahead of the declaration strategy.”
