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Tariffs, Oceans, & Air, OH MY!

July, 2020

After 22 years in the EMS business we have come across quite a few scenarios where we are quoting against an offshore company. In many cases we receive the call that says, “we appreciate you guys quoting this for us, but the offshore quote was just too good to pass up”. Our follow up question is usually “does this include freight cost”? The answer is usually “no”. To compare apples to apples all costs should be factored in, which include both tariffs and freight charges.

Most of the components used in electronics manufacturing are sourced from China. The impact of tariffs on these items result in a 25% cost increase. Bare boards that are under four layers are not subject to that tariff. If you are having your products manufactured in China, all components (no matter their origin) and the labor cost to produce would all be impacted by the 25% tariff. In this case, the final assembly cost is assessed the applicable tariff.

The reason many U.S. companies began manufacturing offshore was due to the manual labor rates being a fraction of the cost. If your product is primarily a surface mount assembly, the labor cost is a non-issue. High-speed automation equipment operates the same in the U.S. as it does in China. This is causing many companies to re-think their strategy and rightfully so. Have you done the math to better understand your total landed costs with tariffs?

Below we have an example of estimated costs comparing the impact of tariffs and international freight on an SMT build. Notice the gap is now non-existent when tariffs on offshore labor, parts, and freight is included.

Tariff Example:
When an assembly is manufactured in China all of components, bare boards, and labor to produce becomes one master assembly. Tariffs will be assessed on the cost of the mater assembly. We are using the Harmony Code for populated boards. If you have a few days/weeks of time feel free to read all about tariffs on https://ustr.gov/

Freight Example:
For the air freight amount above we used UPS International Air discounted rates. This shipping method would get these assemblies to you in a few days. For the U.S. ground shipping we used UPS Ground Service discounted rates from Ohio to California. We quoted using the following info:
• 5 boxes were shipped with 600 PCBA’s in each box.
• Each box weighs 20 lbs. and the dimensions of each box is 21” x 18” x 12”

You do have the option of shipping ocean freight; however, the travel time is up to 40 days. That is of course in addition to the time it takes to manufacture.

To further complicate things COVID19 has interrupted Supply Chain like nothing else has. The ability to import/export has changed the game. There are still finished products that cannot get in or out of countries months later. Interantional Air Freight costs are high and availble space is low.

Spectra-Tech can customize our services to cater to your needs. We can forecast lead times to ensure your deadlines are met. We even have stocking programs that can account for spikes in your sales by having finished products in stock can be shipped to you immediately. Let us help you navigate through the process of manufacturing circuit boards, wires, harnesses, and even final assembly builds.