Ad-Valorem Ad Nauseam
Hundreds of people over the last week have asked me what the hell is going on with these tariffs? To be honest, we just don’t know. And that’s the real problem. Uncertainty is bad for business. Yes, it’s upsetting that we’re looking at increases in the cost of many of our products, but what’s even more complicated is lack of information. What is clear is that the biggest losers are lovers of Scottish & Irish Single Malt. We know that Scotch, despite a massive increase in interest in Single Malt and growth focused especially on the high-end side of the market, is still all about blending. Blends account for more than 75% of the Scotch sold in the US in 2018 and blended Scotch is conspicuously exempt from the new tariffs.
A 25% flat tax on all single malt imports will be imposed on all products landing after October 18th. The implementation of an “ad-valorem” tariff like this, will effectively increase our raw costs by exactly that percentage. This is not an augmentation of current excise rates. Previously the tariff on Single Malt was 0%. Importers do pay federal and state excise taxes which will remain unchanged. The result is that several of the products we sell look like they will become significantly more expensive for us to buy in the coming days. What makes it especially difficult is the lack of warning. If for instance, they planned to start collecting increased tariffs in 6 months, we’d be in a completely different situation. That would give all parties time to plan for the changes, adjust buying patterns and negotiate with their suppliers. Instead, we woke up October 2nd with 16 days to deal with the massive ramifications of this policy. Uncertainty discourages economic activity. That’s why the £ is so low. No one knows what’s going to happen with Brexit, hence no one wants to do business in £s (except us).
As of now, our best bet if these tariffs are not delayed or lifted, is to pray that the UK crashes out of the EU on the 31st of this month. The ramifications of that departure would be wide reaching, but selfishly the immediate result will be the removal of these tariffs. Scotland is the home of Scotch Whisky, but Scotch is profitable mostly for foreign non-Scottish owned companies. The two biggest Scottish owned producers, Edrington & William Grant, are both focused on single malt sales in the US. If I were them, I’d feel pretty burned right now. None of this will change how the big guys operate in a general sense, they have avenues to mitigate the losses and honestly some might welcome a reason to increase prices, knowing that one day these tariffs will be gone and the whole market will have adjusted up.
We’re just a little fish and it’s the little fish that feel the heat. Our partners, importers and distributors, independent distillers and bottlers, are the ones really at risk here. Their liability has increased significantly and suddenly on products that were purchased months ago. Boats are already on the water when the tariffs were announced, so at this point they have no recourse, no warning that completely different set of rules would be in place when they landed. Currently, we’re pushing and praying to find solution, but things are just opaque to know what’s happening. We are not sure how the tariffs will ultimately affected our shelf prices if at all, but rest assured we won’t be tacking on 25% surcharge to your orders. We’ll fight to keep all our costs down across the board. All your whisky will arrive safely and anything that you’ve already purchased, those wonderful pre-arrivals from Hunter Laing and Chieftain’s, won’t change in price even if we ultimately have to eat the additional cost of tariffs ourselves. You might, however, need to wait just a little bit longer for your Scotch pre-orders to be fulfilled until we figure out exactly what’s going on. In other words, it might be a bit of bourbon-y xmas this year, but there will always be plenty of delicious single malt on our shelves.