Written by: Hannah Edens

With the incoming administration planning to ramp up tariffs on imports from China, CPG brands are bracing for a significant ripple effect across their supply chains. These changes will impact everything from raw materials to finished goods, ultimately leading to higher consumer prices. Navigating these shifts requires careful planning and strategic adjustments to ensure continuity, cost-efficiency, and customer loyalty. In this blog, we’re breaking down the challenges ahead, ways to navigate them, and how brands can come out stronger on the other side.

The Ripple Effect of Tariffs

When tariffs go up, costs across the board start climbing. It’s not just about the products themselves—everything from raw materials sourced in China to machinery used in packaging processes and product displays gets more expensive. Studies show those costs get passed down the line: manufacturers to distributors, distributors to retailers, and finally, retailers to consumers.

Here’s a fun (well, not-so-fun) example: if costs increase by just 10% at each stage of a three-step supply chain, the final price can jump by 33%. That’s a pretty steep climb, and past tariffs have shown the average U.S. household could end up paying hundreds more each year because of these kinds of changes.

Additionally, supply chain disruptions related to the new tariffs will most certainly occur as CPG companies bulk up on inventory prior to the inauguration in January 2025. Additionally, the rapid shift towards sourcing outside of China, and the general time it takes to implement new processes within the US Customs and Border Protection will cause additional complications.

So, What Can Brands Do?

A lot of CPG companies are eyeing alternative sourcing options, like moving supply chains to other countries in Asia (Vietnam, India, or Thailand) or closer to home (Mexico or South America). Sounds great, right? But I’m sure you know that it’s easier said than done. Moving supply chains can be risky, challenging, and stressful. Here’s why:

1. Quality concerns. 

   • Supplier Expertise: New suppliers in your supply chain may lack the specific technical know-how, experience, or certifications to meet existing product quality standards. 

   • Material Sourcing: Local availability of raw materials may differ in terms of grade or consistency. 

   
   

2. Cost surprises. 

   • Transition costs: The upfront costs of identifying, vetting, and onboarding new suppliers is significant. 

   • Variable costs: Labor costs may be higher or lower depending on the country. Tariffs, taxes, and local compliance costs may increase operational expenses as well. 

   • Hidden costs: Unanticipated expenses, like rework due to quality issues, need for additional inventory to hedge against delays, and disruptions during the transition phase, are things that are experienced in every supply chain, but inflated more so when a transition to another country is occurring. 

   • Exchange rates and inflation: Volatility in local inflation and currency exchange rates can make cost projections unreliable. 

   
   

3. Impact to timelines. 

   • Learning curve: There is a large learning curve associated with onboarding new suppliers that needs to be taken into account. Both your team and new suppliers need time to adapt to the new arrangement. Delays can happen due to process inefficiencies, communication gaps, or unforeseen obstacles.

   • Lead times: Differences in production capacity or logistical local infrastructure in the new country may increase lead times. 

   
   

4. Reliability considerations. 

   • Supplier dependability: The reliability of new suppliers is untested and a dependence on single-source suppliers or lack of redundancy increases risk exposure. 

   • Political and economic stability: Countries with volatile political climates, high inflation, or frequent changes in trade policy pose greater risks to continuity of your supply chain. 

   • Logistical networks: The strength and reliability of transportation and communication networks in the new country of production impact the overall consistency of supply chain operations. 

Many companies will also attempt a more strategic approach to the situation. There will be an increased focus on cost management through cost-reduction strategies, such as minimizing packaging materials, improving production efficiency, leveraging other substitute materials, and changing other key components of the process to be less expensive. Additionally, new forms of technology will become ever more important to increase automation, production processes, and lean manufacturing processes, hopefully leading to an offset in the additional tariff expenses a brand will take on. 

The longer-term implications of the tariffs shows the CPG industry navigating a rapidly evolving landscape shaped by changes in global trade relations and a shift towards building and operating sustainable and resilient supply chains. Companies in all industries, but especially the CPG industry, are being forced to reassess sourcing and production strategies, favoring diversification to mitigate risks associated with geopolitical instability and higher costs due to the tariffs. This evolution will also accelerate investments in sustainable and circular supply chains, as businesses recognize the dual benefits of reducing environmental impact and protecting their operations from future disruptions as much as possible. 

Shameless plug – BUT how are we, at sourceM, helping brands? 

We’ve been thinking about these challenges for a while-and we’re ready to help. We know how the tariffs work. We know what countries are the best for production. We have established manufacturing facilities outside of China. We also strive to be strategic partners for our customers. How does this translate into benefits for our customers?

1. Dual Supply Chains: We build dual supply chains both in and outside of China for our clients. Through our offices in Vietnam, India, and China, we build collaborative supply chains and factory networks in at least two countries when we can. 

2. Sharing the Burden: We absorb part of the cost of the increased tariff. We know the tariffs are a hardship on many businesses and, as a policy, we take on a part of the tariff ourselves in order to be the best partner we can be. 

As the landscape of global trade continues to evolve, CPG brands must rethink their supply chain strategies to remain competitive. From diversifying sourcing locations to implementing cost-saving technologies and fostering transparency with consumers, there are many avenues to mitigate the impact of the new tariffs. At sourceM, we’re committed to helping our partners navigate these complexities by building resilient, dual-country supply chains and sharing the burden of increased costs. Together, we can turn these challenges into opportunities for growth and innovation in the ever-changing CPG industry.

Get in touch to find out how we can help secure your packaging supply chain!