Tariff confusion raises supply chain, business interruption fears

Tariff uncertainty is fueling growing concern among businesses ahead of hurricane season as shifting U.S. trade policy threatens to disrupt supply chains, drive up claims costs, and lengthen rebuilding and recovery efforts when a storm hits.

Businesses should pinpoint supply chain risks and review their business continuity plans to manage the effects of tariffs, experts say.

Most organizations are waiting to see “where the dust settles on tariffs,” said Pat Van Bakel, Toronto-based president, North America Loss Adjusting at Crawford & Co.

“We need to know where the tariffs are going to apply in terms of the material inputs and component parts,” such as lumber, steel, energy and automotive parts, he said.

Added uncertainties include whether tariffs will be absorbed or passed along by suppliers, foreign exchange rate volatility and potential reciprocal actions, Mr. Van Bakel said.

President Trump announced April 9 a pause on certain tariffs on international trading partners, excluding China, until July 14. A baseline 10% tariff and 25% tariffs on cars and auto parts that took effect April 2 are still in effect.

James Crask, London-based global head of multinational clients at Marsh Advisory, part of Marsh LLC, said understanding upstream supply chain dependencies is critical to manage tariff risks effectively.

“Most organizations will know their immediate suppliers, but it’s the next layer down where it gets a bit harder – those indirect tariff risks,” Mr. Crask said.

By mapping further down the supply chain, organizations can identify hidden tariff risks and quantify how different scenarios would affect them. “Knowing that early is really important,” Mr. Crask said.

Business continuity arrangements also need to be up to date.

“Even if you think you’re relatively well protected, the size of the change we are about to see is so big that there will be some disruption, such as port delays and cost increases on certain items. Even if you don’t think you are personally impacted that much, you are going to have to deal with some disruption,” Mr. Crask said.

Single-digit tariffs are likely to be absorbed within margins, leading to reduced profitability for importers and exporters, but double-digit tariffs could potentially lead to “economic inviability” for some industries, said Michel Léonard, chief economist and data scientist at the Insurance Information Institute.

Businesses can gain a clearer understanding of how tariffs might impact them by analyzing margins and the elasticity of demand for their products, he said.

Exploring ways to build resilience in supply chains through partnerships and reshoring is critical, Mr. Léonard said.

Businesses should also look into trade credit insurance, which covers losses due to a failure to deliver goods on original terms, to mitigate financial losses and penalties, he said.

Ahead of hurricane season, some businesses are pre-ordering materials, stockpiling and preparing for increased demand, Mr. Van Bakel said.

The potential for significant trade restrictions or (other) issues affecting access to the supply of inputs is a “significant concern,” he said.

“That’s going to show up in the claims world, in the time element aspects of claims. Conventional wisdom is the longer a claim is open, the more it’s going to cost, because of things like business interruption, additional living expenses or substitute vehicles,” Mr. Van Bakel said.

“We’re seeing some organizations try to capture market share by getting access to those less-exposed suppliers quickly and agreeing to contracts with them before anybody else, maybe even pre-purchasing supplies,” Mr. Crask said.

Although insurers primarily provide financial services, Morningstar DBRS said in a report issued last week that the U.S. imposition of tariffs on many imported goods will adversely affect global insurers’ business and operating environment.

“Insurers are expected to take mitigating actions in the form of premium increases, adjustments to supply chains, tighter control of expenses, and potential investment portfolio reallocations,” the report said.