Customer Update & FAQ on Avnet’s response to China Tariffs

As part of Avnet’s ‘Reach Further’ promise to our customers, we are working diligently on mitigation solutions to the tariffs enacted by the U.S. government for specific goods imported into the U.S. with the country of origin (COO) China. Our Section 301 mitigation plan addresses this complex and fluid situation in a manner that ensures supply chain security and risk mitigation with as minimal business impact as possible for our customers. This document addresses the following products:

  • List 1 products (USTR-2018-0005) with 25% tariffs, effective July 6, 2018
  • List 2 products (USTR-2018-018) with 25% tariffs, effective August 23, 2018
  • List 3 products (USTR-2018-0026) with 10% tariff, effective September 24, 2018 and plans to increase to 25% tariff on January 1, 2019.

Information Sections:

We are pleased to announce a change in how Avnet manages Section 301 tariffs (“tariffs”):

Effective immediately, Avnet is suspending tariff-related charges on products1 Avnet exports to customers outside of the United States and its territories (“export customers”)

Avnet’s tariff recovery suspension applies to export customers where Avnet:

  • is not required to pay the tariffs, or
  • can obtain a refund of any tariff paid on products under the duty drawback program

Avnet will take the necessary steps to recover the tariffs paid to US Customs for shipments we imported into the US and subsequently exported out of the US. Any prior invoiced tariff-related charges qualified under this program will be reversed and/or refunded, as applicable.

Avnet’s customer-focused stance on suspending tariff recovery to export customers requires partnership across our entire value chain, including our customers, suppliers, freight forwarders and other logistics partners. We will use a blend of mitigation strategies for our export customers, including drawback, Foreign Trade Zones, distribution centers outside of the U.S., and In-bond warehouse transfers to serve export customers.

1Avnet Integrated customers located in the Americas should contact their sales representative for exceptions to products integrated in the U.S.

 

Minimize customer impact and business disruption while driving supply chain security

As Avnet launches short- and long-term solutions, we ask our customers to remain flexible and work collaboratively with your Avnet team on the optimal China Tariff mitigation solution for your business. Our solutions include:

  • Collaborate with suppliers to mitigate tariff recovery charges so we can minimize impact to your business. Our team is working closely with our suppliers to understand impacted product identification, alternative COO product potentials and the necessary information systems to provide COO information as early in the quoting process as possible.
  • Offer our customers product/solution alternatives, with products that do not originate from China. With one of the industry’s' most comprehensive electronics manufacturer portfolios, Avnet ships more than 30,000 line items per day and 117 billion units every year. Let’s collaborate so our experts can help you avoid Section 301 tariffs altogether by:
    • Review your Bill of Materials (BOM) and provide you with alternative non-COO China products from Avnet’s diverse line card. We can redirect your company to another Approved Vendor List (AVL)) product and utilize our vast inventory in different global regions to fulfill your needs.
    • With 2500+ engineers globally, we can provide your company with full and turnkey design capabilities to identify alternatives with the least impact to your end product(s).
  • Leverage Avnet’s extensive global reach, scale and scope to support your company if you plan to adjust your manufacturing footprint in response to Section 301 tariffs. Avnet operates multiple value-add and distribution centers in each global region to provide the expertise, relationships, and coverage you need around the world. We can also customize a distribution flow specific to your needs and craft a post-sales solution directly for your end users or to complement your channel. Your solutions may include:
    • Utilize Avnet’s new warehouse in Guadalajara, Mexico along with the recent expansion of our value-add services and distribution capabilities in Hong Kong. These investments enable us to receive COO China products and directly service our non-US-based customers, enabling the avoidance of tariff charges.
    • Direct/drop ship so COO China products immediately transfer from the supplier to you at your site
    • Take advantage of Avnet’s inventory sharing practices across the Avnet ecosystem to re-route and ship COO China products to alternative sites.
  • Attain Foreign-Trade Zone (FTZ) Certification, supervised by U.S. Customs, to eliminate the import tariff on items that Avnet exports. We are aggressively pursuing FTZ certification of our Chandler, Arizona warehouse with an expected approval by January 2019.
  • Apply for U.S. Customs’ Duty Drawback program to recover tariffs paid for shipments we imported for customers into the US and subsequently exported out of the U.S. We have invested in resources to handle the time-consuming tasks associated with filing drawback requests, mitigating our customers’ Section 301 exposure while ensuring shipments comply with regulations.

The U.S. government’s enactment of China Tariffs has required an elevated level of partnership and trust across our entire value chain. After months of communication and collaboration with our customers and supplier partners, we are updating Avnet’s approach to our tariff recovery methodology.

On July 6, when tariff charges for country of origin China parts were first imposed, our respective supplier partners were in the process of determining how to apply fair and consistent tariff charges. To address this complexity, Avnet decided to absorb tariff charges for all domestic customers until August 1. After August 1, Avnet applied a fixed recovery charge for product receipts impacted by a tariff charge. This methodology enabled us to provide our customers with a predictable rate and reduced accounting complexity.

Avnet transitions to itemized tariff recovery rate

Through close partnership with our suppliers, Avnet has optimized how we receive and apply tariff charges. We are now positioned to adjust our tariff recovery methodology. Beginning with shipments on October 1, Avnet will suspend our 23% across the board fixed rate tariff recovery process and transition to an itemized rate process.

While there is no change to Avnet’s invoicing or tariff recovery fee for shipments prior to October 1, invoices for shipments after October 1 will include an itemized rate, based on a percent of resale at the supplier part number level. Details are as follows:

  • Avnet will continue to separate products on List 1, List 2 and List 3.
  • When the supplier is importer of record (IOR), our tariff recovery fee will be an itemized approximation of supplier’s tariff charges.
  • When Avnet is the IOR, our tariff recovery fee will remain at 23% (Lists 1 and 2) and 9.2% (List 3), until further notice.

We expect that our new tariff recovery methodology will provide your company with greater transparency to pass along tariff recovery charges to your respective customers, as applicable. It will also enable you to better respond to your company’s finance and accounting requirements with itemized information.

Avnet will continue to monitor the USTR’s implementation of the Section 301 tariff lists, along with its impact on our supply chain, and adjust our recovery charge, if and when appropriate. If you have any questions on our invoicing process, please contact your Avnet representative to discuss.

 

1. How will Avnet administer Section 301 tariff recovery during ordering and invoicing?

As a customer, your company can expect the follow processes:

  • Existing backlog (orders and forecast): Avnet can provide you with past transactions, backlog and awards on impacted or potentially impacted products based on Harmonized Tariff Schedule (HTS) codes and COO. In mid-August, Avnet provided US customers with a report of past deliveries and backlog based on the “sold to” customer of products impacted by List 1, List 2 and List 3. Your account manager reached out to you to confirm your receipt of the list and your company’s understanding of the potential impact to your business. Please remember that HTS codes and COO for a given product have not been designated by suppliers on an industry standard basis. As a result, there may still be unidentified impacted products due to inaccurate or missing information. We’re working with our suppliers to improve information on COO China products.
  • Export customers: Avnet has suspended tariff-related recovery charges to our export customers. If an export customer has received an invoice with China Tariff costs, our Finance team will work with your organization to reverse the charge on your account. For more information, please review Avnet’s official statement for export customers.
  • New orders: While we cannot accept orders specifying COO, we will provide COO at the time of order confirmation, when available.
  • Fees: Avnet created a separate weekly invoice reflecting tariff recovery fees itemized by shipment. Going forward, we are in the final stages of capturing Section 301 tariff charges in real-time on the original invoice thereby simplifying for your accounting and buying teams. We plan to include a designator at the part number level, signifying where tariff recovery fees were applied. In parallel, we are working diligently to apply this designator via EDI (810) for customers with these capabilities in the coming months.
  • Terms: Your terms are net 30 days specific to the recovery tariff invoice. By establishing a 30-day payment term for China tariffs, we balanced the need to provide our customers with a reasonable amount of time for prompt payment, while limiting how long Avnet had to carry the cost burden.

 

2. How will Avnet’s quoting process address China Tariffs?

Avnet is aligned and working with our supplier partners on impacted product identification, alternative COO product potentials and the necessary information systems to provide COO information as early in the quoting process as possible so you can make the best decisions for your business. Our quoting tool enables our team to identify products that exclusively or potentially originate from China. Your company will receive a legend on your quote, at the part number level, that outlines impacted or potentially impacted by COO and HTS codes. For example, we are able to share the following:

  • Section 301 tariff List # (i.e. List 1, List 2 or List 3)
  • Whether or not COO or HTS is known, unknown, or a mix
  • Whether the Section 301 tariff will be applied, potentially applied, or not applied at all
  • How the Section 301 tariff recovery fee will be applied when known

As our suppliers refine their proactive reporting to our team, we will incorporate new information and continuously improve the data that we report to you.

 

3. Can you provide my company with alternate devices not affected by Section 301 tariffs?

Yes, with our diverse line card and support teams, we can provide your company with alternative solutions. We can redirect you to another approved vendor list (AVL) part and leverage our inventory in different global regions to fulfill your needs. For your future designs, Avnet provides full and turnkey design capabilities that can take your idea from specification to production, using non-COO China products.

4. Will Avnet increase credit limits to customers to accommodate for tariff charges?

Based on the impact that the Section 301 tariff will have on your company’s overall business, our Credit department will take tariff recovery fees into consideration and adjust customer credit limits, where and when we determine necessary.

 


Additional Information

If you have any additional questions, please contact your Avnet representative to discuss. Thank you for your continued trust in Avnet!