Total new tariff rate

[Nick14]

I hope this thread does not drift into politics as another recent thread did. I’m posting this purely as a topic of financial interest.

I was told today by a boat builder that the new total net tariff rate on Chinese built boats is now a staggering 171.5% .

Putting aside foreign flagging (which has been extensively discussed and seems to be an option for some, but probably not most, U.S. based boaters), almost doubling the price of a new Chinese built boat seems to effectively kill the U.S. market for them. It would appear to ostensibly put the price of a new Helmsman 38 somewhere in the vicinity of around $1.2-$1.4 million .

 

[Comodave]

Yup.

 

[Andy G]

I will try to stay on the staight and narrow.

My thoughts run to those people who are in the middle of a Chinese boat build, with contract signed deposit paid & waiting on delivery.

The absolute last thing you would do at the moment is take delivery of the boat. Surley you would do a deal with the manufacturer to store your boat till sanity prevails.

Selene, and Nordhavn amongst others must be very worried, Fleming on the other hand may be thinking they dodged a bullet, well at least till the Chinese navy sails over the horizon.

 

[Ric]

We'll be putting our brand new H38S on the market this summer due to unexpected medical problems. It'll be interesting (to put it mildly) to see if anyone is inclined to make big-ticket purchases during this period of economic chaos. Fingers crossed.....

 

[READY]

Wow. That is staggering. I would imagine that most contracts for a boat build would not provide any simple out for something like a tariff? Perhaps the builder might shift the delivery to a buyer from another country but that would presume the optuons were similar. Otherwise the builder would probably force the buyer to complete the delivery or they would see their cash flow dry up.

If anyone on the forum is in this predicament or if a builder can weigh in that would be interesting to know. I did hear second hand about a large customs bill for Tariff that was issued today. Was not a boat but another type of equipment. Buyer was in quite a pickle.
Even a modest 10% tariff would be painful.

 

[mvweebles]

There are some important nuances - global logistics is a surprisingly complex industry.

A lot would depend on when during shipping the yacht ownership is conveyed from seller to buyer - origin or destination. If the buyer accepts responsibility at origin (when it's loaded into a ship), the buyer would be responsible for any tariff on the entire boat. However, if the buyer accept delivery at destination, seller pays freight and would only pay tariff on wholesale cost of the components subject to tariffs. For example, if the engine was US built, shipped to China for installation, then returned to US as a completed boat, the engine would be excluded from tariff.

I'd guess that every new boat build contract has language that shifts risk of tariff, tax, and ForEx to the buyer. Frankly there is no way a builder could accept this risk so negotiation wiggle room is probably limited, but you may be able to cap the risk. Regardless, for anyone contemplating having a boat built offshore, hiring an attorney skilled in international logistics would be money well spent.

Peter

 

[Jklotz]

My fear is some of these builders won't be able to survive this mess. Hopefully some resolution will be had soon.

 

[mvweebles]

My fear is some of these builders won't be able to survive this mess. Hopefully some resolution will be had soon.

While there may be less choice for American buyers (at least within certain financial parameters), I'm optimistic the boat builders will do fine.

Not to say some marginal builders won't exit - it's a business with relatively high fatality rate. I've mentioned Willard Marine a couple times, and there was a steel builder in NC that has been mentioned too - both of these companies exited boat building but re-tooled into different businesses that were more viable. Willard didn't lay off anyone and while I don't know for sure, I wouldn't be surprised if the NC builder just shifted without any loss of manpower (unless that was their plan - unwinding a family business or sonething).

Another mitigating force is the diversification of supply chain. In 2017, tariffs were announced against China so they shifted assembly to Vietnam which has had a renaissance. Apple has been working to diversify their supply chain since 2017 too.

A final survival strategy I can think of is to diversify your customer base. The middle class is expanding rapidly throughout the world and while no on rivals Americans for consumerism, we are but 400m on a planet with something like 8b inhabitants. My guess is Seahorse Marine, the Chinese builder of Steel Diesel Ducks, may not sell as many DDs but will pickup work on other models for Asia customers.

So I think many builders will survive. Whether they will be financially viable for US purchase is less secure, certainly in the short / medium term.
Peter

 

[Nick14]

While there may be less choice for American buyers (at least within certain financial parameters), I'm optimistic the boat builders will do fine.

Not to say some marginal builders won't exit - it's a business with relatively high fatality rate. I've mentioned Willard Marine a couple times, and there was a steel builder in NC that has been mentioned too - both of these companies exited boat building but re-tooled into different businesses that were more viable. Willard didn't lay off anyone and while I don't know for sure, I wouldn't be surprised if the NC builder just shifted without any loss of manpower (unless that was their plan - unwinding a family business or sonething).

Another mitigating force is the diversification of supply chain. In 2017, tariffs were announced against China so they shifted assembly to Vietnam which has had a renaissance. Apple has been working to diversify their supply chain since 2017 too.

A final survival strategy I can think of is to diversify your customer base. The middle class is expanding rapidly throughout the world and while no on rivals Americans for consumerism, we are but 400m on a planet with something like 8b inhabitants. My guess is Seahorse Marine, the Chinese builder of Steel Diesel Ducks, may not sell as many DDs but will pickup work on other models for Asia customers.

So I think many builders will survive. Whether they will be financially viable for US purchase is less secure, certainly in the short / medium term.
Peter

Those are all possibilities, but all take time, money, and have great uncertainties. Moving production to another country isn't fast, cheap, or easy. How many builders will be willing to do that given the tremendous uncertainties and risk that similarly high tariffs could be applied to any country at any time (gets back to business 101: businesses need stability and hate uncertainty).

Think back to what happened to the boating industry when the 10% luxury tax was implemented, or during the financial crisis of 2008-2009. Many U.S. based boat builders went out of business during those times, and didn't return.

Boat building seems like fun, but from my conversations with several builders over the years, it's low profit. The margins are surprisingly small. Most builders don't have the capacity to absorb significant increases in costs or reductions in sales. One well-known, highly regarded builder I once spoke with told me how they usually have less than $100,000 in their bank accounts and are highly sensitive to any disruptions in cash flow.

I suspect Chinese builders with a majority of their sales outside of the U.S. will survive. The loss of U.S. sales may sting but probably won't be fatal. However, for any companies whose primary sales were in the U.S. and manufacturing was in China, I foresee heavy seas ahead. New Chinese built boats are now effectively unsellable in the U.S. Hopefully those companies can grow sales outside of the U.S., as well as focus on those areas (Washington? Florida?) where people may be willing to foreign flag.

But for most boaters in most of the country, the inevitable result will be fewer choices and higher prices.

 

[FWT]

I would bet heavily the tariff levels seen today will not be the levels seen a few weeks or months from now.

Buyers and builders need to work together through this.

At a minimum I'd have the yard in China wrap and store a finished boat until the storm subsides.

Pause and reflect.

You can't know what the landscape will look like in a few weeks or months so don't even make plans for then.

Exemptions and exceptions abound, and one might develop that the tariff levels that apply are based on the levels existing at the time of a contract for long lead time goods like boats. Who knows. Just a maybe.

There may develop the opportunity to do what's been done for years. Ship into east coast or west coast of Mexico or Canada, or even Panama and then ship from there into the US. This is the kind of tactic the US is trying to shut down so I would not bet big that this loophole will survive long.

To be clear the point is you can't know now, so just buy time until you do.

Builders will be conserving cash to ride this out. Ads in magazines just ended so they too will feel this. Helmsman has a sizeable brokerage business sister company that was active before they picked up the building business from Mariner many years ago. So, they are not without means to just hunker down.

This is not a time to hyperventilate and panic. Calm. Watch and wait.

(Note: a detail readers may not know. Tariffs are due and paid when the boat is loaded aboard the ship for shipment to the US or elsewhere. At that point it also ceases to be the property of the Chinese yard, and becomes the property of the US builder.)

 

[heysteve]

I placed a big order at Fisheries yesterday as I'm pretty sure what's going to happen with supply and pricing.

Also, Will Prowse has a new video talking about the impact on solar and LFP batteries. Non political and well done.

 

[mvweebles]

(Note: a detail readers may not know. Tariffs are due and paid when the boat is loaded aboard the ship for shipment to the US or elsewhere. At that point it also ceases to be the property of the Chinese yard, and becomes the property of the US builder.)

The important part is when does the buyer accept ownership and responsibility for the boat? While the buyer may play a role in the broker/builder contract ("Acceptance" for example), the buyer is not a party to that contract. In the case of Nordhavn, Helmsman, and dozens of other boats where the buyer is purchasing through an intermediary, the key phrase will be "FOB Origin" or "FOB Destination." It makes a huge difference in how a tariff is calculated, not just who pays it. If the Buyer assumes ownership in China, they owe tariff on the entire purchase ($750K). If the Broker assumes ownership in China, they may only owe tariff on the wholesale cost of the Chinese-sourced materials and labor (maybe half the sale price). The Buyer pays the tariff regardless, but in one instance the tariff is 2x.

If it were me who was looking at buying a China-built boat, I'd tell my broker to call when/if the dust settles and I'd work on a Plan B that can provide "Price Certainty." BTW - even for boats built outside of China (Turkey for example), there may be price adjustments based on China tariffs for the myriad of Chinese parts that go into a boat. Price Certainty could be a problem even outside of China and will definitely have a chilling effect on sales of all types.

Given the value of a new boat contract (>$500k, likely approaching $1m for many of the boats on this forum), you really need to engage an attorney skilled in international trade - "Deemed Acceptance" is a land mine for a buyer and even a lousy attorney will defuse much of the bomb.

Peter

 

[lwarden]

If I were under contract for a new Helmsman now I would simply have it delivered to Vancouver and keep it there, pay the Canadian customs and enjoy the boat. There are years of great cruising up there and likely in four years some sanity will return to the US foreign trade policy and then you can bring it into the US if desired.

 

[FWT]

"If the Buyer assumes ownership in China, they owe tariff on the entire purchase ($750K)."

In the case of Helmsman they don't.

Buyers accept the boat and make final payment upon delivery and inspection.

 

[lwarden]

"If the Buyer assumes ownership in China, they owe tariff on the entire purchase ($750K)."

In the case of Helmsman they don't.

Buyers accept the boat and make final payment upon delivery and inspection.

I think either way the $ incurred for the tariff would be a non-starter and there would be better ways to get around the problem. Think of how many plane tickets you could buy to Vancouver with all that money.

 

[SteveK]

Another thought. The cost to buy a new boat without tariffs goes up by an amount on and identical new build, does it not?
I can see a current buyers reselling their contract to a buyer expecting to pay more who will then absord the tariff as a normal cost increase. The original buyer of course is not getting a new boat, but also did not pay the tariff.

 

[KMAL]

I will try to stay on the staight and narrow.

My thoughts run to those people who are in the middle of a Chinese boat build, with contract signed deposit paid & waiting on delivery.

The absolute last thing you would do at the moment is take delivery of the boat. Surley you would do a deal with the manufacturer to store your boat till sanity prevails.

Selene, and Nordhavn amongst others must be very worried, Fleming on the other hand may be thinking they dodged a bullet, well at least till the Chinese navy sails over the horizon.

Many brands popular in the NW and built in China are in the cross hairs - Selene, Endurance, North Pacific, Northwest, Helmsman, some Nordhaven, Hampton and others. I expect this could result in 100+ boats under construction/contract and due for delivery say over the next 12 months. Foreign flagging an option for some as a solution - but not for many. The boating industry is very fractured and does not appear to have meaningful representation in DC - so I would expect "solutions" will be slow in coming.

 

[KMAL]

Another thought. The cost to buy a new boat without tariffs goes up by an amount on and identical new build, does it not?
I can see a current buyers reselling their contract to a buyer expecting to pay more who will then absord the tariff as a normal cost increase. The original buyer of course is not getting a new boat, but also did not pay the tariff.

Yes - will be interesting to see what happens here. The price difference in my view on comparably equipped boats in the 45ft range was circa $300K more for a US built production boat. Tariffs on a China boat will be circa $650K leading the China boat to be more expensive by say $350K - but then the US built boat will be subject to price increases as well on all of its imported components - and then the China built boat will be paying import tariffs on propulsion and the genset etc. And the world goes round and round with the consumer paying more and more.

 

[PhilPB]

Just changing an assembly line operation can take much time and money. Moving an entire build/assembly line(s) to another country takes a lot more time, money, and expertise in the new location. Sometimes tooling that you already have may not be qualified to be used in the new country/location. You will also need to mitigate issues with using new supply lines, vendors, employees, etc.
Moving operations elsewhere, in my experience is daunting.

 

[tiltrider1]

Nordhavn is built in a special economic tariff free zone. They track every component that comes into the zone. This allows them to distinguish between China built versus US built. Then the boats are shipped to the US where the commissioning is finished. Due to all this tracking only the actual construction costs in China would receive the tariffs. Still, Nordhavn estimates 1/2 the cost of the boat would see the tariff applied.

 

[Mac2]

Back in the day, Diesel Ducks advertised taking ownership of the boat in China and cruise the pacific (since you’re already there) and then return to the US. The implication was that you would be saving money. I don’t know if this was import tax or something else. Anyone know if this is relative to Tariffs? This might be something to consider for the ocean crossers built in China.

 

[Patemey]

"If the Buyer assumes ownership in China, they owe tariff on the entire purchase ($750K)."

In the case of Helmsman they don't.

Buyers accept the boat and make final payment upon delivery and inspection.

"...and inspection."

If you looked hard enough, you could find plenty wrong with a newly built boat to delay or reject delivery (while keeping a side-eye on tariff rates).

 

[slowgoesit]

Folks, Several posts of a political nature have been removed. Please play nice, and follow the rules, or this thread will be closed as well. Trawler Forum Site Team

 

[FWT]

Close it.

 

[READY]

"...and inspection."

If you looked hard enough, you could find plenty wrong with a newly built boat to delay or reject delivery (while keeping a side-eye on tariff rates).

I suppose this may be true but wouldn't you only be delaying the final payment and any deposits already made might be difficult to recover? I assume they collect both an initial deposit and progress payments due to both the customization as well as locking in the buyer and a delivery schedule. I would also suspect the contract has some protection for the builder so a buyer cannot unreasonably reject the boat based upon minor items?

I would love the opportunity to review the terms in the standard builder contract. I suspect many are modified before a final contract is signed.

Whatever the case I am happy to already have my boat so as to avoid what likely is a chaotic situation!

 

[KMAL]

"...and inspection."

If you looked hard enough, you could find plenty wrong with a newly built boat to delay or reject delivery (while keeping a side-eye on tariff rates).

Yes- but to look at the boat it would presumably need to be at its final destination - if the US - then tariffs would have been paid on entry.

 

[KMAL]

Nordhavn is built in a special economic tariff free zone. They track every component that comes into the zone. This allows them to distinguish between China built versus US built. Then the boats are shipped to the US where the commissioning is finished. Due to all this tracking only the actual construction costs in China would receive the tariffs. Still, Nordhavn estimates 1/2 the cost of the boat would see the tariff applied.

This is the case with almost all China made boats (for export). Tariff's in effect impact between 40% to 50% of the boats "purchase" price. Back in the old days when tariffs were a mere 25% - the impact of same to the total purchase costs was circa 10% to 12%. With tariff's currently above 170% - oooff - that would imply tariffs to import into the US approaching 75% of the purchase price. So a boat under contract for $800,000 might incur another $600,000 in tariffs bring the initial cost to the purchaser to say $1.4million - this before commissioning costs of say another $200,000 to $250,000. This obviously has a material impact on many boat importers - Nordhaven, Helmsman, Selene, North Pacific, Northwestern, Hampton, Endurance, and others. Also impacted with a bit of reprieve are the Taiwan built brands - not to mention Viet Nam which is big in sail boat manufacturing. US buyers and sellers under contract are scrambling for real solutions as importing into the US is simply not feasible regardless of who holds the risk. The boat industry in the US - at least that big chunk that manufactures or imports from outside the US needs some good representation in DC.

 

[KMAL]

Back in the day, Diesel Ducks advertised taking ownership of the boat in China and cruise the pacific (since you’re already there) and then return to the US. The implication was that you would be saving money. I don’t know if this was import tax or something else. Anyone know if this is relative to Tariffs? This might be something to consider for the ocean crossers built in China.

If you import the boat into the US - you will pay applicable tariffs at the time of import. For a purchaser of a China boat (intended for US import by the prospective owner) you would likely want the builder to import - they can evidence China costs vs costs outside of China (say propulsion and other major components). They can also declare value at their cost. Alternatively, a boat could be flagged offshore and not be subject to tariffs upon entry into the US (under a USCG cruising permit or under Maritime treaty provisions for foreign vessels). If you import after purchase - the tariffs will be calculated off of the market value of the boat - this may result in tariffs well in excess of those that would have been incurred if the boat had been imported by the builder.

 

[Mac2]

KMAL: I was thinking more in the lines of flagging the boat in a favorite home port (like thePhilippines) and cruising for a couple years before bringing it to the states. Would that still be considered an import from China?

 

[KMAL]

KMAL: I was thinking more in the lines of flagging the boat in a favorite home port (like thePhilippines) and cruising for a couple years before bringing it to the states. Would that still be considered an import from China?

You would have a choice. If you wanted the boat flagged US - you would need to import it. You would pay the current tariffs in place at the time of import (which may be higher or lower). These would be calculated based on the current market value of the boat. In theory - you could offset the value with non China equip etc. I have yet to find someone (customs broker) who has actually been able to effect an offset and further understand that the offsets expire relatively quickly (I believe three years). I do not know about the Philippine flag specifically - but under any of the recognized "white flag" flags, you could bring your boat into the US. Without a USGS cruising permit - you would be required to check into a customs office every time you go into a new US customs zone. If you have a cruising permit - you can cruise freely for up to a year and then renew your cursing permit for another year (you may need to leave the country for seven consecutive days in order to renew). I hope this helps - but a good maritime attorney expert in foreign flagging for boats owned by US citizens can really help in this area.