New York-based Keychain, which has an online platform enabling CPG companies and retailers to find manufacturing partners, says it has seen an uptick in activity on its site as firms explore how to de-risk their supply chains in the event tariffs come in.
There is significant uncertainty about the level and geographical focus of potential tariffs, with President Elect Donald Trump initially positing 10-20% tariffs on all goods coming into the US and 60% tariffs on goods from China, but currently focusing his attention on Canada and Mexico, using the threat of 25% tariffs to extract concessions over border policy.
Regardless of where his administration ultimately lands, firms using Keychain are aggressively exploring domestic manufacturing options for raw materials and packaging as well as finished products so that they have contingency plans in place should Trump pull the trigger, cofounder and CEO Oisin Hanrahan told AgFunderNews.
“Take a popcorn company that sources corn kernels from the US but brings seasoning from overseas. They blend it here and then send it up to Canada to be popped, seasoned and packed and then sent back to the US for sale here. In a world with tariffs, will that remain viable?”
Tariff-inspired food & beverage reformulation?
In another scenario, he said, firms making non-dairy ice cream featuring key ingredients from overseas might be considering whether they can reformulate with domestically sourced materials.
“I think people are doing the math right now on what is the cost to manufacture each part of their supply chain in the US. What does it cost for each incremental step, and if tariffs go up by x percent, what is the tipping point where it makes sense for me to move?
“And then, they’re saying, why don’t we do some trial runs? If I’m the company that’s importing, and I currently have a 5% cost advantage over my competitor, but 25% tariffs come in and my competitor has a US facility, my cost advantage may be obliterated.”
Dual sourcing: ‘We’re not going to have single source vendors anymore’
To add to the uncertainty, there’s also the possibility that tariffs are implemented and then later withdrawn after negotiations and concessions, he noted.
“From talking to US brands and retailers, folks have said, we are going to want to keep a percentage of our international supply chain open in the event that the tariffs are reversed.”
He added: “Manufacturers and brands and retailers just expect volatility now. If you survived covid, you’ve probably got to the point where you just know that something [disruptive] is always happening. The better companies said look, we’re not going to have single source vendors anymore so I’d say the shift toward dual sourcing is more common than ever and it’s certainly generated a lot of activity on Keychain.
“Supply chains don’t move overnight, and above all, people don’t want to be caught flat-footed.”
Stockpiling: ‘Shippers are moving up as much cargo as they can’
Some firms are also beginning to stockpile certain ingredients they source from overseas in anticipation of tariffs if they can afford to carry some extra inventory, he added. “We’ve certainly spoken to some brands and retailers who are pre-ordering to give them an advantage although I haven’t dug into the figures yet to see whether it’s truly happening at scale.”
His comments came as a new report from the National Retail Federation (NRF) and Hackett Associates showed a recent surge in traffic at US sea ports, although some of this can be attributed to firms stocking up in anticipation of a strike by dockworkers, said NRF VP for supply chain and customs policy Jonathan Gold.
“Either a strike or new tariffs would be a blow to the economy and retailers are doing what they can to avoid the impact of either for as long as they can. We call on the incoming administration to use tariffs in a strategic manner rather than a broad-based approach impacting everyday consumer goods.”
Hackett Associates Founder Ben Hackett added: “It is not clear whether [tariffs] will take effect immediately or whether it will take time to implement the tariffs, but shippers are moving up as much cargo as they can before then.”
Uncertainty is the new norm
In many ways, companies are already well-positioned for the potential disruptions that could be triggered by tariffs, having adapted their supply chain and procurement strategies to cope with recent disruptions from a pandemic to increasingly volatile weather, Matt Lekstutis at supply chain consultancy Efficio told AgFunderNews last month.
This might be through diversifying their supply base and their customer base, trying to build more domestic supply chains in the wake of more protectionist policies enacted by governments across the world, or investing in software or financial tools to help them manage uncertainty, he added.
“So back in 2017 there was heavy exposure to China from an export perspective, and since then, a fair amount has been done to diversify customer markets. On incoming sources we’ve also seen companies diversify their supply base after what happened in Ukraine, covid, drought, disruption to shipping lanes and so on.”
In general, said Lekstutis, “Companies are paying very close attention to what others are doing as they don’t want to be caught short or to be out over their skis on these topics.”
Further reading:
Navigating tariffs and trade in 2025: ‘There will be carnage’
‘There’s anxiety, but not panic…’ How supply chain and procurement teams are preparing for tariffs
How would Trump’s tariffs impact large food & beverage firms? And what about USCMA?