MHI Solutions Improving Supply Chain Performance
Material handling businesses entered 2025 with strong tailwinds. However, risks have risen significantly in recent months, and the entire industry is being swept into an economic storm driven by escalating tariff risks. While tariffs are usually inflationary, tariff risks are recessionary and deflationary, because they can weigh on growth and consumption, reducing growth and adding downward price pressures.
The evolving geopolitical landscape of Cold War Two has made tariffs a primary tool for U.S. economic security and leverage, resulting in growing uncertainty across global supply chains. This volatility is amplifying procurement challenges, pricing instability and operational inefficiencies. Adding to these concerns, slowing economic growth and rising downside risks to the broader economic outlook make future planning increasingly difficult. Meanwhile, uncertainty surrounding Federal Reserve policy decisions further complicates the business environment, as fluctuating interest rates influence borrowing costs, capital investment and overall economic momentum. This is true for businesses across the economy, including for material handling industries.
Key Risks and Challenges
One of the most pressing threats to businesses stems from disruptions to supply chains from U.S. trade and tariff policies. As tariffs increase on essential materials such as steel, aluminum, semiconductors and lithium‑ion batteries, manufacturers are facing rising production costs. This unnerving dilemma is forcing businesses to either absorb the additional expenses or pass them on to customers, which is why business and consumer confidence have come under significant pressure. At the same time that uncertainty presents material risks to the economic and business outlooks, retaliatory tariffs from key trading partners risk restricting access to crucial components, forcing companies to seek alternative suppliers. These adjustments often come with higher costs and longer lead times, intensifying the strain on operational efficiency.
Cost volatility presents another major hurdle, as unpredictable tariff policies make it difficult to establish stable, long‑term pricing strategies. Importers and manufacturers may see their profit margins eroded if they cannot pass rising costs onto customers, particularly in an economic climate where growth is already slowing. Additionally, rising costs for automation and robotics components—many sourced from China—may decelerate the industry’s transition toward more efficient, automated material handling solutions. With tariff‑driven inflation exerting upward pressure on input costs and economic uncertainty dampening demand, businesses must prepare for a turbulent period ahead, during which dual‑use and high‑tech goods from China may become unavailable with little notice.
In response to these challenges, many businesses need to reevaluate their supply chain strategies and consider reshoring, friendshoring, or regionalization as a means to mitigate geopolitical risks that could disrupt operations. Some firms are looking to shift production to the United States, North America or India to stabilize supply chains. However, this transition requires significant capital investment and workforce realignment. Moreover, Federal Reserve policy uncertainty, particularly regarding interest rate movements, could make financing these moves prohibitively expensive, limiting businesses’ ability to invest in domestic production.
The unpredictability of trade policy adds another layer of complexity to business planning. With shifting tariff regulations, material handling companies may struggle to commit to long‑term capital expenditures and strategic investments. For these reasons, material handling industry leaders must remain highly engaged with trade policy developments, as potential exemptions or strategic partnerships could significantly alter the tariff landscape. Additionally, uncertainty around Federal Reserve decisions—especially the timing of future interest rate cuts—creates further financial market volatility, which could curb investment and expansion as companies and investors take more defensive positions facing rising tides of uncertainty.
Strategies to Manage and Mitigate Risks
To navigate this challenging landscape, businesses must take proactive steps to mitigate risk and reduce costs in their supply chains wherever possible. Diversifying supply chains by developing multiple sourcing options across different regions can help reduce reliance on a single country and minimize exposure to tariff fluctuations. In short, sole sourcing strategies are teetering on the edge of oblivion.
As an additional risk mitigation strategy, companies may seek to maintain larger inventory reserves for critical components to mitigate some of the corporate pain exacted during the COVID‑19 pandemic. Having superfluous inventories can act as a buffer against unexpected shortages or the catastrophic risk of a rapid supply chain break between the United States and China—or any other country from which goods are imported.
Finally, investing in domestic production and sourcing presents another viable option, allowing companies to lessen their dependence on imported goods and mitigate tariff‑related cost pressures. Government incentives for reshoring manufacturing operations may provide some relief, but funding options, along with the long‑term impacts and efficacy of such strategies, remain uncertain.