‘Although the situation remains fluid, we want to keep you informed of potential impacts on pricing and order management,’ wrote Ben Klay, president of North America for Arrow ECS, in a letter to solution providers. ‘If tariffs are added as a line item on a quote or if a supplier adjusts its pricing to account for increased costs due to a tariff, our quotes will be updated accordingly.’
Distributor Arrow Enterprise Computing Solutions (ECS) has begun price increases in the U.S. due to rising costs from the Trump administration’s tariffs, according to a letter sent to solution providers this week.
Arrow began passing along the 20 percent China tariff starting March 4 and will begin passing along the 25 percent Canada and Mexico tariffs starting March 16, said Arrow in a letter sent March 11 signed by Ben Klay, president of North America for Arrow ECS (pictured above).
“Although the situation remains fluid, we want to keep you informed of potential impacts on pricing and order management,” Klay said in the letter, a copy of which was viewed by CRN. “If tariffs are added as a line item on a quote or if a supplier adjusts its pricing to account for increased costs due to a tariff, our quotes will be updated accordingly. Additionally, orders that have not shipped may need to be canceled and reordered to reflect any necessary price adjustments.”
In the letter, Klay wrote that the U.S. as of March 4 confirmed a 25 percent tariff on all goods originating from Canada and Mexico, and that the U.S. confirmed that tariffs on goods originating from China entering the U.S. will double to 20 percent.
[Related: Top Distribution Execs Are Grappling With Financial Impact Of Tariffs]
President Trump granted temporary tariff exemptions for Canadian and Mexican goods covered by the North American trade agreement known as USMCA until April 2.
About 50 percent of Mexican imports and 38 percent Canadian imports are covered by the trade agreement.
“If there are additional delays in imposing the tariffs, we will adjust accordingly. We understand these changes can create challenges and are committed to keeping you informed about how our suppliers are responding to the enactment of these tariffs and what it will mean to both you and your end customers,” he wrote.
Arrow was not able to provide an executive to discuss the price increases in response to a CRN inquiry.
However, the company did email to CRN a second letter dated March 11 from the company’s global trade operations aimed at preparing solution providers for changes.
“With the fast-moving nature of the tariff-related developments, Arrow Electronics wants to assure you that we will continue monitoring the situation and will let you know when we become aware of significant impacts to our business relationship. As with the prior tariffs, as well as any other directives, Arrow will continue to engage with our customers and suppliers to implement changes while minimizing disruption within the supply chain,” the company wrote in the second letter.
Arrow also cited its experience from the 2018 tariffs to say that it will seek to provide services that do not incur tariffs.
“Where there is no alternative, Arrow will have to recover these tariffs by passing the costs through to the customer, but we will do this as transparently as possible. Our global team continues to demonstrate persistence and dedication to our customers and suppliers. We are here as their trusted guide. As we did in response to the 2018 tariffs, we are working to assist suppliers and customers who are moving manufacturing locations and rerouting supply chains,” the company wrote in the second letter.
Michael Goldstein, president of LAN Infotech, a Ft. Lauderdale, Fla.-based solution provider and partner to several distributors including Arrow, told CRN that the price increase notification from Arrow ECS is the first he has seen from distributors and that he expects others will follow suit.
“We have seen from [other distributors] that rebates for certain products have stopped, you know, things along that line,” he said. “I think everybody’s trying to find their footing with what will happen with this.”
Goldstein said his company has already been preparing customers for price increases.
“It has driven some people to place orders already,” he said. “And I tell them that normally, a quote is good for 7, 10, 30 days sometimes. On this, I am telling them that I have to validate pricing before shipping. We haven’t seen major upturns in some of the quoting that we do because we do check pricing first just to see, but we are seeing fluctuation in pricing.”
Price increases from the tariffs don’t necessarily mean customers will suddenly reduce their purchases, Goldstein said.
“Businesses have to move forward,” he said.
Customers do ask about tariffs, and that has caused some orders to be re-quoted, Goldstein said.
The tariffs insert uncertainty that could derail expected sales increases, Goldstein said.
“We were thinking that we are going to be seeing higher demand as we’re getting into this Windows 10 replacement [cycle],” he said. “We’ve already started campaigning on that. We might see a rush on certain models. We might see availability issues. We just don’t know what the next 60 days will bring us.”
Goldstein dismissed the idea of building inventory in advance of expected price increases from tariffs.
“We’ve never been an inventory-type company,” he said. “Things change. Outside of tariffs, our tech models change so often. I don’t want to get caught holding something that might not be sellable later.”
One executive at a U.S.-based channel partner told CRN on condition of anonymity that their company is worried about all the changes going on with tariffs.
“Anything that’s in procurement already, that’s an increased cost. As a small business, we’re going to have to eat that cost,” the executive said, noting that the solution provider would not pass costs along to customers for products already in procurement in order to maintain customer satisfaction.
The channel already lives on low margins when it comes to hardware, the solution provider said.
“Margins have decreased over time,” the executive said. “If we have 12 points of margin on an opportunity, and then we get hit with a tariff of 10 percent, I mean, that’s now two points, and that brings us to something none of us want to be, and that’s merely fulfillment.”
The solution provider said stocking up on products in advance of tariff increases is also not a real option.
“We don’t have space to do that,” the executive said. “And then there’s your finance charges. So then you’re maintaining inventory, and that’s a whole different ball game, especially for a reseller. That’s something we haven’t done historically.”
The solution provider said prices on new orders will have to be passed on to customers.
“We’ll pass it on to the customer, and I think it’ll be understood,” the executive said. “It’ll be part of the new dynamic.”
Customers are already asking about tariffs, the solution provider executive said.
“We received some communications regarding how we’re going to handle things, but I think everybody’s kind of in limbo. Nobody has real answers yet,” the executive said.
Centennial, Colo.-based Arrow, in its most recent 10-K filing from last month, warned that tariffs could have an impact.
“The company’s global business also could be negatively affected by trade barriers, such as tariffs, and other governmental protectionist measures, which may decrease demand for the company’s products,” the company wrote. “Such measures can be imposed suddenly and unpredictably and may increase the prices of many of the products that the company purchases from its suppliers. Tariffs and other protectionist measures, and the additional operational costs incurred in minimizing the number of products subject to them, could adversely affect the operating profits for certain of the company’s businesses and customer demand for certain products, which could have an adverse effect on its business and results of operations.”
Sean Kerins, president and CEO of Arrow Electronics, told CRN in February that the $27.9 billion distributor has experience dealing with tariffs imposed during the first Trump administration.
“We know what this looks like,” Kerins said. “Muscle memories are in place, and our posture will be to pass those [increased costs] on to customers as transparently as possible. Not to make money, but just to recover the uplift.”
Kerins acknowledged at the time that it is hard for anyone to really prepare for abrupt changes like tariffs.
“Nobody’s ever perfectly ready for something like this when it gets thrown at you,” he said. “But some of the vendors in our component space have already been dealing with it anyway. Not to over-emphasize this, but I do think it’s really important that as these tariffs play out and people fully understand what it means to their business model, they need to look to reconfigure their supply chains to best navigate that.”
Wade Tyler Millward and David Harris contributed to this article.
