LOWER MACUNGIE TWP, Pa. — A panel of local business leaders came together Monday to help to share advice about the impact of tariffs and how a company can prepare for the future in precarious times.
The event aimed to provide local businesses dependent upon imports help to navigate the supply chain amid turbulent times.
About a dozen people sat in to hear the panel, which included attorneys Timothy Charlesworth and Elyse C. Pillitteri of Fitzpatrick, Lentz, & Bubba; Senior Counsel of Victaulic Company Jennifer Goodwin; and Corporate Counsel at Olympus Corporation of the Americas Kendra Eden.
The event was hosted by YMI Insurance President Jim Honochick and organized by Coyne Communications President Andrea Coyne at Notch Modern Kitchen and Bar.
Prepare for an uncertain future
From the start, Honochick picked panel members’ brains on what practical advice they were giving to their clients.
Charlesworth said that based on the day-to-day changes in tariffs, including countries and rates, many businesses are waiting to see what happens.
But that strategy may not work well with the small-to-medium sized business with which he normally works.
While numerous government officials and proponents for tariffs have said the move could increase manufacturing in the United States, that may not be the real case, some said.
“We're actually doing that now, examining whether they can stop manufacturing in the U.S., maybe move it to Europe, so they can actually import their finished goods to China, which is where a big part of their market is. And other companies are doing similar things. They're shopping around for that low tariff location where there's manufacturing abilities."Attorney Timothy Charlesworth of Fitzpatrick, Lentz, & Bubba
“We're actually doing that now, examining whether they can stop manufacturing in the U.S., maybe move it to Europe, so they can actually import their finished goods to China, which is where a big part of their market is,” Charlesworth said.
“And other companies are doing similar things. They're shopping around for that low tariff location where there's manufacturing abilities.
"And you're going to get into a joint venture there, maybe already having some manufacturing relationship there makes it easier.”
Charlesworth said he advises clients to look at their contracts to use certain language to their advantage.
An example is force majeure, a clause that relieves parties from liability when the terms of the contract are impossible or impractical, usually due to circumstances such as natural disasters, war or a pandemic.
Pillitteri agreed, saying owners should work with their general counsel and possibly outside counsel to draft provisions that could protect the business via price adjustments and other strategies.
Goodwin recommended using outside counsel that could focus on tariff issues alone, in addition to diversifying supply chains to offer options to import from various suppliers depending upon tariff rates.
Those looking to renegotiate contracts for supplies at the moment also should look into clauses that would permit order changes and an ability to close out the contract if costs go too high.
On the flip side
Charlesworth said that in the past, the main themes of international business included free trade, local sourcing, lower trade barriers and lower tariffs.
Previously, tariffs were used on occasion to promote domestic industry.
“Now, everybody's talking about tariffs, and what I’ll say is that relying on the boiler-plate contract provisions like force majeure, common law principles, they aren't going to cut it when you're dealing with somebody that's sophisticated."Elyse C. Pillitteri of Fitzpatrick, Lentz, & Bubba
“Now, flip side, we’re trying to protect American business by preventing foreign companies from delivering their stuff to the U.S.,” Charlesworth said.
“But these were the exception, not the rule. Now, it has become, at least for the moment, the rule. It’s not business as usual at all.”
According to Pillitteri, “pretty much any business risk can be mitigated by a contract,” though it is imperative to know the ins and outs of those risks.
“Now, everybody's talking about tariffs, and what I’ll say is that relying on the boiler-plate contract provisions like force majeure, common law principles, they aren't going to cut it when you're dealing with somebody that's sophisticated,” Pillitteri said.
All agreed that one of the most fundamental parts of securing a business’ future is to have a contract with suppliers in the first place, and not relying on personal relationships with the supplier.
That includes understanding the classification of a product being imported, and ensuring the country of origin, to have a better understanding of exact costs.
It's all in the details
Pillitteri said she has seen several of her clients opt for shorter-term agreements, some with contract provisions that directly address actions related to tariffs.
Those locked in longer-term agreements always can explore that language to negotiate, or potentially terminate, the contract.
“And what happens when this lovely relationship that you're so excited to enter into or has been working well so far, what happens when you're trying to renew that contract? And we're looking at those terms."Corporate Counsel at Olympus Corporation of the Americas Kendra Eden
Eden advised that businesses should refine and improve contract language to address issues such as penalties incurred by the supplier if they do not meet demands, issues related to price changes and other matters.
“And what happens when this lovely relationship that you're so excited to enter into or has been working well so far, what happens when you're trying to renew that contract?" Eden said.
"And we're looking at those terms."
Goodwin added that building a buffer into a contract to cover cost fluctuations, if possible, is a great way to keep work flowing, as “you’re going to have to eat some costs somewhere in some projects.”
Looking into the near future, Pillitteri said it's best to establish a formula for price increases based on tariff percentages, and to include clauses pertaining to supply chain disruptions — which could happen if a business has to change suppliers.
Businesses also could manage tariffs via Foreign Trade Zones, where no duty is paid until the product is sold to a buyer.
Managing the timing for tariff payments via the use of an FTZ can work, though it can also be pricy, Charlesworth said.
'Mechanism to make that happen'
Following the panel, guests were permitted to ask questions.
Scott McDade of HoverTech International in Allentown said he was pleased with the event, especially with the rapid change in tariff rates, which “we still navigate.”
“They provided some great information this evening, it’s great that I showed up,” McDade said. He said his company currently is paying more for supplies, but he picked up some helpful tips.
Dalton Keba of Universal Compressed Air, based in Center Valley, said he was particularly interested in how to handle contracts with suppliers in the midst of frequent tariff changes.
“Typically, we enter into contracts and then something might not be imported for 18 to 40 weeks," Keba said.
"We want to operate fairly with our customers, fairly with our vendors, and trying to figure out a mechanism to make that happen is important,” Keba said.
