Supply chain expert explains how Trump's proposed tariffs could affect horticulture industry

With increased tariffs looming — at press time, the proposed 25% tariff on Canadian and Mexican goods was paused, but not taken off the table — and shake-ups around trade agreements with the United States’ closest trading allies, the logistics industry is entering an era of uncertainty when it comes to moving goods around the globe. And it’s clear that CEA growers are not immune to the effects of logistical upheavals. While most CEA produce, herbs and berries are sold and shipped domestically, inputs are often sourced beyond the borders of North America. So, how does the industry manage increased input costs while making sure they have what they need to grow when they need it?

To answer these questions, we reached out to Council of Supply Chain Management Professionals President and CEO Mark Baxa. The following conversation, which took place prior to the most recent tariff action, digs deep into his global view and historical knowledge, providing tips and advice for how the green industry can stay nimble and contain costs in a new era of global trade.

Patrick Coleman: At the time of this conversation, there is concern about the impacts of widespread tariffs on imported goods. Do you think these could impact the greenhouse growing industry?

Mark Baxa: If I had a crystal ball, if that’s what you were asking me to do, I would predict that ... you’re not immune to tariffs. From a matter of supplies, everything from small petri dishes all the way up to large containers, to things like imported burlap, fertilizer and other inputs — some of that does come from places outside of the United States. You can expect you’re going to be hit with minimally a 10% to 20% tariff increase.

PC: What’s your view on what those tariff impacts will be?

MB: The impacts are going to be your ability to actually plan and move timely around the world at a cost basis that you’re accustomed to. So, there’s going to be a margin of protection the industry is going to need to be ready for in terms of cost. It’s going to erode your margins, and you’re going to have to strongly consider price increases or absorbing those costs in some way or taking some form of optimization in your supply network based on timing, co-mingling larger volumes at one time if you will or mode-switching if possible to take costs out because tariffs are going to become a major impact to supply chain cost, not just in the U.S., but around the world.

PC: What will growers need to do to overcome the impact?

MB: Think about the extended supply chain that you need for your ... business to succeed, like the volume of containers that are needed to hold plants or bulbs or anything that you move to that end customer. You can expect that sourcing is going to become difficult, so now is a good time to strongly consider genuine Mexican-owned industries that are not impacted by Chinese influence in Mexico as alternative source points for goods ordinarily imported from China. No real commodities in large groups are going to be forgiven initially. It’s likely to hit everything, with a few exceptions.

PC: Are there blind spots the industry might not be thinking about when it comes to increased costs due to tariffs?

MB: I would say keep an eye on your Tier 1 and Tier 2 suppliers that supply what you need to package up your (goods). What’s important is they might be considering manufacturing shifts that could actually end up being disruptive. They’re not telling you they’re going to be switching their sources because they can’t afford to buy components from China or other places that are higher risk. They might have to resource from other places. So, guess what? They can’t fulfill their contract and are going to be three months late.

PC: Is there a way to manage those possible delays?

MB: Take a very assertive approach with your supplier community because they may be making shifts that are totally benign to you that could actually impact themselves supplying you with what they have contracted. Everything that you need from an input perspective could be at risk at this point until finally defined, because you may or may not know where all their products come from. They too are making the same considerations. Everything is in a state of flux right now, everything.

PC: Are there concerns outside of tariffs the industry should be thinking about?

MB: Let’s talk about the transportation industry. As the economy slowed down around the world, warehousing and transportation had to be evaluated because underutilized capacity is not a good thing, just like it is in manufacturing. So now, what are we going to do as the economy rebounds? And we’re all counting on that happening. We know that puts pressure as we rebound on a smaller base of transportation capacity. Now, on the ocean level, we can park ships and keep them idle, and we can respond within 30 to 60 days. As business comes back, we can reposition ships, and if that runs out, we can add them back in. It’s harder on domestic transportation. Now we have to find drivers; we have to qualify them; they have to be able to pass the appropriate licensure. The vehicles must be inspected. All the trucks that are parked have to be restarted, so on and so forth. Your industry may have dedicated fleets that use their own capacity. But at times, depending on demand, they’re going to need surge capacity and must go to the open market. That becomes difficult, especially when the overall economy is responding.

PC: Is there a strategy to get ahead of that surge capacity?

MB: What you do about it is forward contracting. Conversations should be going on now with your third-party logistics and/or contracted transportation providers to ensure they have access to assets. And should the economy rebound, take a measured approach in terms of your overall 12-month demand, your own peaks and valleys and your distribution cycle. It’s key that you look at that, because right now, we’re anticipating 2025 to be a better year than 2024, and that puts more pressure on the logistics sector, warehousing, storage, but namely transportation.

PC: For growers who maintain their own fleet of trucks, are there any considerations around fuel or labor they should be thinking about throughout the year?

MB: So many parts on these trucks that keep them running come out of China. That is going to shift as well. Producers with their own fleets are going to have to understand that depending on the age of the fleet and the amount of repairs needed, access to those parts are going to be very important. So, critical parts — things that break often that are low cost that are needed to keep those vehicles running — you might want to stock up just a little bit and get ahead of it. Things that don’t break as often are just going to be a little more expensive in the short term. But look, we’re not going to run out of supply. The question is, are you going to have it when you want it?

PC: And what about the labor to drive those vehicles?

MB: As long as businesses continue to pay their people and train them and support them, they’re going to stay on the job. Now, one thing to watch out for is if you’ve got a tandem axle driver that’s a CDL-licensed driver, they are very valuable as the economy rebounds. So, $20,000 can pull them right out of your business in a heartbeat as the economy rebounds. Be mindful that taking care of your people and staying attuned to current rates in the marketplace and creating a great place to work is very important to keep your own core drivers. You don’t want to lose those people.

PC: What’s the bottom line as we look at logistics in the coming years?

MB: The most important thing you can do is take top-to-top meetings as frequently as possible with your supply base you are most dependent on to keep your business moving and make sure that what they commit to on your behalf is genuine. Those relationships will matter.

Patrick Coleman is editor of Produce Grower magazine. Contact him at pcoleman@gie.net.