Tariff's and Shipping Notes from Spirit of 76


#1

Dear Customer:

With the whirlwind of information that seems to be floating around regarding the topics of
fireworks, tariffs, China production and shipping issues, we wanted to pass along what we
currently know on these topics. Upon your review, we encourage you to reach out to your
salesperson if you have any additional questions.

TARIFFS
In August, President Trump announced a new round of tariffs on products that are imported from
China, including fireworks and certain firework components/accessories. In summary the specific
tariffs affecting fireworks are broken into two categories (or lists): List 4A products, starting on
September 1, are subject to a new 15% tariff and List 4B products are scheduled to be subject to a
new 15% tariff beginning on December 15.
List 4A (tariff effective September 1, 2019, currently set at 15%) includes:
HTS Subheading Product Description
3603.00.90 Detonating caps, igniters or electronic detonators
3604.90.00 Signaling Flares, rain rockets, fog signals and other pyrotechnic articles,
excluding fireworks
List 4A includes fuse, ignitors, party poppers, sparklers, tubes and racks imported from China.
List 4B (tariff effective December 15, 2019, initially set at 15%) includes:
HTS Subheading Product Description
3604.10.10 Display or special fireworks (Class 1.3G)
3604.10.90 Fireworks, nesoi (including Class 1.4G Fireworks)
There are uncertainties with regard to what might happen to the tariffs as a result of the ongoing
negotiations between the US and China, but here is what we currently know:
• The List 4A tariff is currently in effect and any product on that list is already subject to the
15% tariff.
• The List 4B 15% tariff is set to go into effect on December 15, 2019.
We are concerned how the ongoing trade negotiations could impact the cost of fireworks. The
President can change the tariff rate without much oversight (and has already used this power on
other imported product). There is, of course, hope that perhaps either (a) a trade deal can be agreed
to prior to the List 4B tariff coming into effect, (b) the President finds it appropriate to exempt
fireworks from the December 15 tariff, or © the US/China negotiations proceed in such a manner
that the President delays implementation of the List 4B tariff to a later date. Whether any of these
may happen, however, is purely conjecture.
We are proceeding under the assumption that the List 4A tariff will remain in effect for the
foreseeable future and that a new tariff of 15% will be implemented on December 15, 2019 on the
List 4B items (i.e., 1.4g consumer fireworks and 1.4g articles pyrotechnic).

CHINA PRODUCTION AND SHIPPING ISSUES
We have been working diligently with our suppliers to try to get as many fireworks imported prior
to the December 15 tariff date as possible. Our hope has been that the more fireworks we could
import early, the more pricing options could be passed to our customers in their purchasing for the
upcoming New Years and the 2020 4th of July. A couple of things have occurred that have proved
to make it difficult to beat the December 15th deadline: China factory shutdowns and China
shipping issues.
Historically, the months of September and October have been big production months in China
(especially for pre-New Year’s delivery). This year the China factories were shut down from
August through approximately October 7th. The August shut down is normal due the heat ban
that happens every year. The September to October 7th factory shutdown, however, was something
unusual. The Chinese government ordered that the firework factories shutdown in observance of
China’s 70th year anniversary.
China is also experiencing some difficulties with getting fireworks shipped. The two points of
origination for fireworks are either Beihai (through Hong Kong) or Shanghai (via the Yueyang
Port). The information that we have received from our suppliers is that (a) the Chinese government
has suspended all hazardous material goods shipping from Beihai as a result of the ongoing Hong
Kong violence and protests, (b) all fireworks shipments through Shanghai were stopped from mid
to late October as the result of a shutdown of the Yueyang Port and © Shanghai will again
shutdown for outbound shipments from November 5th to the 10th. We are uncertain how long
Beihai will be shutdown, but we are fairly certain that containers shipping out of Shanghai have a
small window to arrive ahead of the tariff implementation date.
As a result of these production and shipping issues, unless the fireworks have already left China,
we are worried we will not receive many additional containers prior to December 15th.

FUSE PRODUCTION
The shutdown of Hong Kong has also impacted the production of fuse. Safety fuse is only shipped
from Beihai (as it currently cannot be shipped via Shanghai). As a result of the suspension of
shipping of hazardous materials through Hong Kong, the production of fuse has ceased. With no
end in sight to the Hong Kong unrest, it is unclear whether we will receive any additional shipments
of fuse in the foreseeable future. This makes fuse unique in that it is already subject to the List 4A
tariff and there is a real supply concern. We are searching for alternatives, but that is the current
status of fuse.

WHAT THIS MEANS TO YOU
We do not take any enjoyment in being the bearer of the not-so-great news affecting our industry,
but we also want our customers to be informed and not taken by surprise. Because tariffs will
impact our costs to import product from China, tariffs will have correlating impact on our pricing.
The supply related issues with fuse will also influence fuse pricing. We hope that by getting you
this information early enough, we can assist in offsetting those inevitable increases. In furtherance
of that, we are implementing two promotions that will allow you to take advantage of our current
pricing1.

  1. Pre-Tariff (Dec 15) Promotion. We will be implementing a price increase on January
    1, 2020 to correspond with the increased costs of importing fireworks as a result of the
    new tariff. We do have, however, inventory available at our warehouse now. For all
    inventory currently in our warehouse or that will be received prior to December 15,
    2019, our prices will remain consistent with our 2019 pricing through December 31,
  2. To preserve the 2019 prices (whether for immediate delivery or 2020 delivery),
    payment must be received by December 31st.
  3. Fuse Promotion. We have a limited supply of fuse available in our warehouse. Due to
    the tariff and the production issues, we will be increasing our fuse pricing on November
    16, 2019. Place your order now and you can lock in the current pricing for our existing
    inventory. All payments are due by November 15, 2019, but delivery can take place at
    a later date.

SUMMARY
We want to keep you up to date on what we know right now with regard to shipping, production
issues and tariffs, and how they may impact you. We don’t want you to be caught off-guard when
the price of fireworks ultimately increases because of the tariff or any unintended consequence of
the pending US-China trade negotiations. We invite you to reach out to your salesperson if you
have questions. To ensure your best pricing, please contact us now.

Sincerely,

John B. Bechtold
Owner and President
Spirit of 76 Fireworks