In middle of Trump's trade war, importers hold more cash and move inventory off the books

CNBC

a day ago

President Trump's trade war is leading importers to hold more cash and less inventory on their books as they seek to manage a series of tariff increases, additional threats from Trump, and temporary pauses.
Among both U.S. and global firms, use of supply chain financing programs that allow importers to stretch out payment terms is up, according to Wells Fargo data, anywhere from 5%-10%.
"Cash is good to have," said Jeremey Jansen, managing director, head of global supply chain and trade sales at Wells Fargo. "There is a lot of uncertainty, and if you are a distributor or manufacturer, there is a ton of pressure to push out payment terms," he said.
Delays in the implementation of tariffs, set to expire by August if trade deals are not reached, have played a significant role in the management of inventory and cash in recent months.
From large retailers to auto parts stores and manufacturers, buyers of both finished goods and raw materials, tariff pauses allowed importers to bring in more inventory. But once the inventory arrives, it may be bound for financing rather than straight to market.
After an order has been shipped, an invoice is generated. Once that invoice is generated, an importer sends it to the bank where they maintain a supply chain financing program, and the bank pays the supplier. The importer than repays the bank under a timeline negotiated with the bank.
"We are putting money right in the middle of that supply chain," Jansen said.
While the retail sector has traditionally been a client for this type of financing, Jansen said health care firms are a new source of interest as President Trump threatens targeted tariffs on the sector's overseas supply chains.
"We are seeing a significant level of interest in supply chain finance from the health care space," Jansen said. "It can be drug companies, distributors, and pharmacy benefit managers. This industry does a lot of overseas manufacturing, and there is a significant amount of uncertainty regarding tariffs," he added.
Supply chain financing for Chinese-made goods was steady rather than rising in June, according to Jansen, due to the fact that companies had front-loaded significant inventory in the first quarter of the year.
With the latest round of tariffs on Asian nations announced last week and the recent deal with Vietnam that sent tariffs higher on its goods, Jansen said the bank is monitoring supply chain financing for orders out of countries including Vietnam, South Korea, Malaysia, Thailand, and Indonesia.
Companies that are bringing in goods under a higher tariff can move that inventory off their books by having a third party, such as a bank, pay for the inventory, making the third party the beneficial cargo owner, storing the goods on the importer's behalf. The importer then pays the third party for the product and storage on an agreed timeline.
"There's an increase in importer interest in financing the inventory on their books," said Jonathan Heuser, head of trade & supply chain finance for Citizens Bank. "With large multinationals potentially holding more inventory, they are interested in ways to unlock working capital associated with that inventory," he added.
Josh Allen, COO of ITS Logistics, says the process of pushing inventory off the balance sheet — often referred to as "vendor management inventory" — is also a common practice in the automotive industry and construction industries.
"It frees up the importer's cash flow, and the third-party owner makes money through the storage and sale back to the importer. It's a win-win for strategic partners," Allen said.
After what had been a dramatic decline in business with Asian countries earlier in the year amid Trump's tariff threats, there has been some recovery in recent months during tariff pauses, according to Heuser. "For China, this recovery has been muted, and volumes are still quite depressed. With India and Vietnam, the recovery has been stronger, and continues to build back," he said.
The trade activity has been uneven across sectors, Heuser said, with agricultural product shipments as one example that has performed better than manufactured products or chemicals. That has become an opportunity for companies that have the ability to source outside of the U.S., for example, supplying Chinese buyers with the same commodity but sourcing it from a non-U.S. jurisdiction.
But those shifts within the supply chain come with an overall environment which remains cautious, according to Heuser. "Clients are remaining cautious and waiting for some measure of stabilization before taking significant actions or making meaningful changes to supply chains," he said.
Lending activity, for example, which can often be an indicator of investment and growth plans, remains muted, he added.